0000811830sov:MiscellaneousIncomeMemberus-gaap:ForeignExchangeContractMember2021-01-012021-09-30
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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| ☑ | | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2021March 31, 2022
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| ☐ | | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File Number: 001-16581
SANTANDER HOLDINGS USA, INC.
(Exact name of registrant as specified in its charter)
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Virginia (State or other jurisdiction of incorporation or organization) | | 23-2453088 (I.R.S. Employer Identification No.) |
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75 State Street, Boston, Massachusetts (Address of principal executive offices) | | 02109 (Zip Code) |
Registrant’s telephone number including area code (617) 346-7200
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class | | Trading Symbols | | Name of each exchange on which registered |
| Not Applicable | | Not Applicable | | Not Applicable |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑. No ☐.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation ST (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑. No ☐.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” "smaller reporting company," and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☐ | | Accelerated filer ☐ | | Emerging growth company ☐ |
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Non-accelerated Filer ☑ | | Smaller reporting company ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐. No ☑.
Number of shares of common stock outstanding at October 31, 2021April 30, 2022: 530,391,043 shares
INDEX
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| 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 |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
SANTANDER HOLDINGS USA, INC., AND SUBSIDIARIES
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements about the Company’s expectations, beliefs, plans, predictions, forecasts, objectives, assumptions, or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words and phrases such as “may,” “could,” “should,” “looking forward,” “will,” “would,” “believes,” “expects,” “hope,” “anticipates,” “estimate,” “intends,” “plans,” “assume," "goal," "seek," "can", "predicts," "potential," "projects," "continuing," "ongoing," and similar expressions.
Although the Company believes that the expectations reflected in these forward-looking statements are reasonable as of the date on which the statements are made, these statements are not guarantees of future performance and involve risks and uncertainties which are subject to change based on various important factors and assumptions, some of which are beyond the Company's control. Among the factors that could cause the Company’s financial performance to differ materially from that suggested by forward-looking statements are:
•the effects of regulation, actions and/or policies of the Federal Reserve, the FDIC, the OCC and the CFPB, and other changes in monetary and fiscal policies and regulations, including policies that affect market interest rates and money supply, actions related to COVID-19, as well as the impact of changes in and interpretations of GAAP, including adoption of the FASB's CECL credit reserving framework, the failure to adhere to which could subject SHUSA and/or its subsidiaries to formal or informal regulatory compliance and enforcement actions and result in fines, penalties, restitution and other costs and expenses, changes in our business practice, and reputational harm;
•SHUSA’s ability to manage credit risk may increase to the extent our loans are concentrated by loan type, industry segment, borrower type or location of the borrower or collateral, and changes in the credit quality of SHUSA's customers and counterparties;
•adverse economic conditions in the United States and worldwide, including the extent of recessionary conditions in the U.S. related to COVID-19 and the strength of the U.S. economy in general and regional and local economies in which SHUSA conducts operations in particular, which may affect, among other things, the level of non-performing assets, charge-offs, and credit loss expense;
•inflation, interest rate, market and monetary fluctuations, including effects from the pending discontinuation of LIBOR as an interest rate benchmark, may, among other things, reduce net interest margins and impact funding sources, revenue and expenses, the value of assets and obligations, and the ability to originate and distribute financial products in the primary and secondary markets;
•the adverse impact of COVID-19 on our business, financial condition, liquidity, reputation and results of operations;
•natural or man-made disasters including pandemics and other significant public health emergencies, outbreaks of hostilities or effects of climate change, and SHUSA's ability to deal with disruptions caused by such disasters and emergencies;
•the pursuit of protectionist trade or other related policies, including tariffs and sanctions by the U.S., its global trading partners, and/or other countries, and/or trade disputes generally;
•adverse movements and volatility in debt and equity capital markets and adverse changes in the securities markets, including those related to the financial condition of significant issuers in SHUSA’s investment portfolio;
•risks SHUSA faces implementing its growth strategy, including SHUSA's ability to grow revenue, manage expenses, attract and retain highly-skilled people and raise capital necessary to achieve its business goals and comply with regulatory requirements;
•SHUSA’s ability to effectively manage its capital and liquidity, including approval of its capital plans by its regulators and its subsidiaries' ability to continue to pay dividends to it;
•Reduction in SHUSA's access to funding or increases in the cost of its funding, such as in connection with changes in credit ratings assigned to SHUSA or its subsidiaries, or a significant reduction in customer deposits;
•the ability to manage risks inherent in our businesses, including through effective use of systems and controls, insurance, derivatives and capital management;
•SHUSA’s ability to timely develop competitive new products and services in a changing environment that are responsive to the needs of SHUSA's customers and are profitable to SHUSA, the success of our marketing efforts to customers, and the potential for new products and services to impose additional unexpected costs, losses, or other liabilities not anticipated at their initiation, and expose SHUSA to increased operational risk;
•competitors of SHUSA may have greater financial resources or lower costs, or be subject to different regulatory requirements than SHUSA, may innovate more effectively, or may develop products and technology that enable those competitors to compete more successfully than SHUSA and cause SHUSA to lose business or market share and impact our net income adversely;
•There can be no assurance that the proposed acquisition of all of SC's outstanding common stock by SHUSA will be agreed upon, approved and ultimately consummated, and the terms of any such transaction may differ materially from those originally proposed by SHUSA;
•SC's agreement with Stellantis may not result in currently anticipated levels of growth;
•changes in customer spending, investment or savings behavior;
•the ability of SHUSA and its third-party vendors to convert, maintain and upgrade, as necessary, SHUSA’s data processing and other IT infrastructure on a timely and acceptable basis, within projected cost estimates and without significant disruption to our business;
•SHUSA's ability to control operational risks, data security breach risks and outsourcing risks, and the possibility of errors in quantitative models and software SHUSA uses in its business, including as a result of cyberattacks, technological failure, human error, fraud or malice by internal or external parties, and the possibility that SHUSA's controls will prove insufficient, fail or be circumvented;
•changing federal, state, and local tax laws and regulations, which may include tax rates changes, that could materially adversely affect our business, including changes to tax laws and regulations and the outcome of ongoing tax audits by federal, state and local income tax authorities that may require SHUSA to pay additional taxes or recover fewer overpayments compared to what has been accrued or paid as of period-end;
•the costs and effects of regulatory or judicial actions or proceedings, including possible business restrictions resulting from such actions or proceedings;
•adverse publicity, and negative public opinion, whether specific to SHUSA or regarding other industry participants or industry-wide factors, or other reputational harm;
•acts of terrorism or domestic or foreign military conflicts;conflicts. In this regard, during the first quarter SHUSA assessed its exposure to clients in Russia and Belarus and does not believe it has any significant risk with respect to these clients; and
•the other factors that are described in Part I, Item IA - Risk Factors of ourthis Annual ReportReport on Form 10-K.
If one or more of the factors affecting the Company’s forward-looking information and statements renders forward-looking information or statements incorrect, the Company’s actual results, performance or achievements could differ materially from those expressed in, or implied by, the forward-looking information and statements. Therefore, the Company cautions the reader not to place undue reliance on any forward-looking information or statements herein. The effect of these factors is difficult to predict. Factors other than these also could adversely affect the Company’s results, and the reader should not consider these factors to be a complete set of all potential risks or uncertainties as new factors emerge from time to time. Management cannot assess the impact of any such factor on the Company’s business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. Any forward-looking statements reflect the current beliefs and expectations of the Company's management and only speak as of the date of this document, and the Company undertakes no obligation to update any forward-looking information or statements, whether written or oral, to reflect any change, except as required by law. All forward-looking statements attributable to the Company are expressly qualified by these cautionary statements.
SHUSA provides the following list of abbreviations and acronyms as a tool for the readers that are used in Management’s Discussion and Analysis of Financial Condition and Results of Operations, the Condensed Consolidated Financial Statements and the Notes to Condensed Consolidated Financial Statements.
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| ABS: Asset-backed securities | | CRA NPR: The NPR related to the CRA issued by the OCC and FDIC on December 12, 2019DOJ: Department of Justice |
| ACL: Allowance for credit losses | | CRE: Commercial Real Estate |
AFS: Available-for-sale | | CRE & VF: Commercial Real Estate and Vehicle Finance |
ALLL: Allowance for loan and lease losses | | DCF: Discounted cash flow |
AOCI: Accumulated other comprehensive income | | DFA: Dodd-Frank Wall Street Reform and Consumer Protection Act |
ARRC: Alternative Reference Rate Committee | | DOJ: Department of Justice |
ASC: Accounting Standards Codification | | DPD: Days past due |
ASU: Accounting Standards UpdateAFS: Available-for-sale | | DRIVE: Drive Auto Receivables Trust, a securitization platform |
| ALLL: Allowance for loan and lease losses | | DTI: Debt-to-income |
| AOCI: Accumulated other comprehensive income | | EAD: Exposure at default |
| APS: Amherst Pierpont Securities LLC | | EIP: Economic impact payments |
| ASC: Accounting Standards Codification | | EIR: Effective interest rate |
| ASU: Accounting Standards Update | | ETR: Effective tax rate |
| ATM: Automated teller machine | | DTI: Debt-to-incomeEvaluation Date: March 31, 2022 |
| BHC: Bank holding company | | EAD: Exposure at defaultExchange Act: Securities Exchange Act of 1934, as amended |
| BHCA: Bank Holding Company Act of 1956, as amended | | Economic Growth Act: The Economic Growth, Regulatory Relief, and Consumer Protection ActFASB: Financial Accounting Standards Board |
| BOLI: Bank-owned life insurance | | EIP: Economic impact paymentsFBO: Foreign banking organization |
| BSI: Banco Santander International | | EIR: Effective interest rateFDIC: Federal Deposit Insurance Corporation |
| BSPR: Banco Santander Puerto Rico | | EPS: Enhanced Prudential StandardsFederal Reserve: Board of Governors of the Federal Reserve System |
| C&I: Commercial & industrial | | ETR: Effective tax rateFHLB: Federal Home Loan Bank |
| CARES Act: Coronavirus Aid, Relief, and Economic Security Act | | Evaluation Date: September 30, 2021FHLMC: Federal Home Loan Mortgage Corporation |
| CBB: Consumer and Business Banking | | Exchange Act: Securities Exchange Act of 1934, as amendedFICO®: Fair Isaac Corporation credit scoring model |
| CBP: Citizens Bank of Pennsylvania | | FASB:FINRA: Financial Accounting Standards BoardIndustrial Regulatory Authority |
| CCAP: Chrysler Capital; trade name used in providing services under the MPLFA | | FBO: Foreign banking organizationFNMA: Federal National Mortgage Association |
| CCAR: Comprehensive Capital Analysis and Review | | FDIC:FRB: Federal Deposit Insurance CorporationReserve Bank |
| CD: Certificate of deposit | | Federal Reserve: Board of Governors of the Federal Reserve SystemFVO: Fair value option |
| CECL: Current expected credit losses as defined by ASU 2016-13, ASU 2019-04, and ASU 2019-11, Financial Instruments - Credit Losses | | FHLB: Federal Home Loan Bank |
CEF: Closed-end fund | | FHLMC: Federal Home Loan Mortgage Corporation |
CEO: Chief Executive Officer | | FICO®: Fair Isaac Corporation credit scoring model |
CET1: Common Equity Tier 1 | | FINRA: Financial Industrial Regulatory Authority |
CEVF: Commercial equipment vehicle financing | | FNMA: Federal National Mortgage Association |
CFPB: Consumer Financial Protection Bureau | | FRB: Federal Reserve Bank |
CFO: Chief Financial Officer | | FVO: Fair value option |
CIB: Corporate and Investment Banking | | GAAP: Accounting principles generally accepted in the United States of America |
CID: Civil investigative demand | | GBP: British pound sterling |
CLTV: Combined loan-to-valueCEF: Closed-end fund | | GDP: Gross domestic product |
CMO: Collateralized mortgage obligationCEO: Chief Executive Officer | | GNMA: Government National Mortgage Association |
CODM: Chief Operating Decision MakerCET1: Common equity Tier 1 | | GSIB: Global systemically important bank |
| CEVF: Commercial equipment vehicle financing | | HFI: Held for investment |
| CFPB: Consumer Financial Protection Bureau | | HFS: Held for sale |
| CFO: Chief Financial Officer | | HPI: Housing Price Index |
| CIB: Corporate and Investment Banking | | HTM: Held to maturity |
| CID: Civil investigative demand | | IBOR: Inter-bank offered rate |
| CLTV: Combined loan-to-value | | IDI: Insured depository institution |
| Company: Santander Holdings USA, Inc. | | HFI: Held for investmentIHC: U.S. intermediate holding company |
| Covered Fund: a hedge fund or private equity fund | | HFS: Held for saleIRS: Internal Revenue Service |
| COVID-19: a novel strain of coronavirus, declared a pandemic by the World Health Organization in March 2020 | | HPI: Housing Price IndexISDA: International Swaps and Derivatives Association, Inc. |
| CPR: Constant prepayment rate | | HTM: Held to maturityIT: Information technology |
| CRA: Community Reinvestment Act | | IBOR: Inter-bank offered rateLCR: Liquidity coverage ratio |
CRA Final Rule: the final rule relating to the CRA issued by the OCC on July 20, 2020CRE: Commercial Real Estate | | IDI: Insured depository institutionLGD: Loss given default |
| DCF: Discounted cash flow | | LHFI: Loans held for investment |
| DFA: Dodd-Frank Wall Street Reform and Consumer Protection Act | | |
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IHC: U.S. intermediate holding company | | RWA: Risk-weighted asset |
Interim Policy: Policy issued by the Federal ReserveLHFS: Loans held for the third quarter of 2020 and extended through the first quarter of 2021 prohibiting share repurchases and limiting dividends by CCAR institutions | | S&P: Standard & Poor's |
IPO: Initial public offering | | SAF: Santander Auto Finance |
IRS: Internal Revenue Service | | SAM: Santander Asset Management, LLC |
ISDA: International Swaps and Derivatives Association, Inc. | | Santander: Banco Santander, S.A. |
IT: Information technology | | Santander UK: Santander UK plc |
LCR: Liquidity coverage ratio | | SBNA: Santander Bank, National Association |
LGD: Loss given defaultsale | | SBC: Santander BanCorp and its subsidiaries |
LHFI: Loans held for investmentLIBOR: London Interbank Offered Rate | | SC: Santander Consumer USA Holdings Inc. and its subsidiaries |
LHFS: Loans held for saleLIHTC: Low income housing tax credit | | SCB: Stress capital buffer |
LIBOR: London Interbank Offered RateLTD: Long-term debt | | SC Common Stock: Common shares of SC |
LIHTC: Low income housing tax creditLTV: Loan-to-value | | SCART: Santander Consumer Auto Receivables Trust |
LTD: Long-term debtMBS: Mortgage-backed securities | | SCF: Statement of cash flows |
LTV: Loan-to-value | | SCRA: Servicemembers' Civil Relief Act |
MBS: Mortgage-backed securities | | SDART: Santander Drive Auto Receivables Trust |
| MD&A: Management's Discussion and Analysis of Financial Condition and Results of Operations | | SDGT: Specially Designated Global TerroristSDART: Santander Drive Auto Receivables Trust |
| Moody's: Moody's Investor Service, Inc. | | SEC: Securities and Exchange CommissionSDGT: Specially Designated Global Terrorist |
| MPLFA: Ten-year master private-label financing agreement with Stellantis signed in May 2013 | | SEC: Securities Act: Securities Act of 1933, as amendedand Exchange Commission |
| MSPA: Master Securities Purchase Agreement | | Securities Act: Securities Act of 1933, as amended |
| MSR: Mortgage servicing right | | Securities Financing Agreements:Activities: Resale, repurchase securities borrowed and securities lending agreements |
MSR: Mortgage servicing rightMVE: Market value of equity | | SFS: Santander Financial Services, Inc. |
MVE: Market value of equityNCI: Non-controlling interest | | SHUSA: Santander Holdings USA, Inc. |
NCI: Non-controlling interestNMDs: Non-maturity deposits | | SIS: Santander Investment Securities Inc. |
NMDs: Non-maturity depositsNMTC: New market tax credits | | SOFR: Secured overnight financing rate |
NMTC: New market tax creditsNPL: Non-performing loan | | SPAIN: Santander Private Auto Issuing Note |
NPL: Non-performing loanNPR: Notice of proposed rule-making | | SPE: Special purpose entity |
NPR: NoticeOCC: Office of proposed rule-makingthe Comptroller of the Currency | | SRT: Santander Retail Auto Lease Trust |
NSFR: Net stable funding ratioOCI: Other comprehensive income | | SSLLC: Santander Securities LLC |
NYSE: New York Stock ExchangeOIS: Overnight indexed swap | | Stellantis: Fiat Chrysler Automobiles US LLC parent Stellantis N.V. and/or any affiliates |
OCC: Office of the Comptroller of the CurrencyOREO: Other real estate owned | | Subvention: Reimbursement of the finance provider by a manufacturer for the difference between a market loan or lease rate and the below-market rate given to a customer. |
OCI: Other comprehensive income | | TALF: Term asset-backed securities loan facility |
OIS: Overnight indexed swapParent Company: The parent holding company of SBNA and other consolidated subsidiaries | | TDR: Troubled debt restructuring |
OREO: Other real estate ownedPCH: Pierpont Capital Holdings LLC | | TLAC Rule: The Federal Reserve's total loss-absorbing capacity rule |
Offer Price: offerPD: Probability of $41.50 per share at which SHUSA has offered to purchase all outstanding shares of common stock of SC not already owned by SHUSAdefault | | TLAC: Total loss-absorbing capacity |
Parent Company: The parent holding company of SBNA and other consolidated subsidiariesRIC: Retail installment contract | | Transaction: definitive agreement whereby SHUSA will acquire SC's shares for $41.50 per share in cash |
PCH: Pierpont Capital Holdings LLC | | Trusts: Securitization trusts |
PCI: purchased credit-impairedROU: Right-of-use | | UPB: Unpaid principal balance |
PD: Probability of defaultRV: Recreational vehicle | | USD: United States dollar |
REIT: Real estate investment trustRWA: Risk-weighted asset | | VIE: Variable interest entity |
RIC: Retail installment contractS&P: Standard & Poor's | | VOE: Voting rights entity |
ROU: Right-of-useSAF: Santander Auto Finance | | YTD: Year-to-date |
RV: Recreational vehicleSAM: Santander Asset Management, LLC | | |
| Santander: Banco Santander, S.A. | | |
| Santander UK: Santander UK plc | | |
| SBNA: Santander Bank, National Association | | |
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PART I. FINANCIAL INFORMATION
ITEM 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
unaudited (In thousands)
| | | September 30, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
| | ASSETS | ASSETS | | | | ASSETS | | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 18,605,798 | | | $ | 12,621,281 | | Cash and cash equivalents | $ | 13,519,278 | | | $ | 19,305,530 | |
| Federal funds sold and securities purchased under resale agreements or similar arrangements | Federal funds sold and securities purchased under resale agreements or similar arrangements | 1,589,324 | | | — | | Federal funds sold and securities purchased under resale agreements or similar arrangements | 4,904,070 | | | 5,346,468 | |
| Investment securities: | Investment securities: | | | | Investment securities: | | | |
| AFS at fair value | 11,376,852 | | | 11,313,489 | | |
| AFS at fair value (amortized cost of $8,794,749 and $11,409,953 as of March 31, 2022 and December 31, 2021, respectively) | | AFS at fair value (amortized cost of $8,794,749 and $11,409,953 as of March 31, 2022 and December 31, 2021, respectively) | 8,443,756 | | | 11,313,937 | |
| | HTM (fair value of $6,609,487 and $5,677,929 as of September 30, 2021 and December 31, 2020, respectively) | 6,594,046 | | | 5,504,685 | | |
| Other investments (includes trading securities of $38,748 and $40,435 as of September 30, 2021 and December 31, 2020, respectively) | 1,307,319 | | | 1,553,862 | | |
| HTM (fair value of $8,968,074 and $6,629,206 as of March 31, 2022 and December 31, 2021, respectively) | | HTM (fair value of $8,968,074 and $6,629,206 as of March 31, 2022 and December 31, 2021, respectively) | 9,388,092 | | | 6,702,471 | |
| Other investments (includes trading securities of $33,319 and $35,791 as of March 31, 2022 and December 31, 2021, respectively) | | Other investments (includes trading securities of $33,319 and $35,791 as of March 31, 2022 and December 31, 2021, respectively) | 1,311,863 | | | 1,096,138 | |
LHFI(1) (5) | LHFI(1) (5) | 91,821,705 | | | 92,133,182 | | LHFI(1) (5) | 91,775,567 | | | 92,075,812 | |
ALLL (5) | ALLL (5) | (6,715,088) | | | (7,338,493) | | ALLL (5) | (6,405,231) | | | (6,461,410) | |
| Net LHFI | Net LHFI | 85,106,617 | | | 84,794,689 | | Net LHFI | 85,370,336 | | | 85,614,402 | |
LHFS (2)(5) | LHFS (2)(5) | 690,567 | | | 2,226,196 | | LHFS (2)(5) | 328,164 | | | 255,023 | |
Premises and equipment, net (3) | Premises and equipment, net (3) | 802,316 | | | 787,341 | | Premises and equipment, net (3) | 834,587 | | | 856,393 | |
Operating lease assets, net (5)(6) | Operating lease assets, net (5)(6) | 15,772,188 | | | 16,412,929 | | Operating lease assets, net (5)(6) | 15,205,615 | | | 15,406,402 | |
| | Goodwill | Goodwill | 2,596,161 | | | 2,596,161 | | Goodwill | 2,596,161 | | | 2,596,161 | |
| Intangible assets, net | Intangible assets, net | 349,564 | | | 357,547 | | Intangible assets, net | 327,859 | | | 339,079 | |
| BOLI | BOLI | 1,931,865 | | | 1,908,806 | | BOLI | 1,948,755 | | | 1,942,099 | |
Restricted cash (5) | Restricted cash (5) | 5,612,743 | | | 5,303,460 | | Restricted cash (5) | 5,944,767 | | | 5,711,705 | |
| Other assets (4) (5) | Other assets (4) (5) | 3,525,147 | | | 4,052,230 | | Other assets (4) (5) | 3,662,875 | | | 3,335,423 | |
| TOTAL ASSETS | TOTAL ASSETS | $ | 155,860,507 | | | $ | 149,432,676 | | TOTAL ASSETS | $ | 153,786,178 | | | $ | 159,821,231 | |
| LIABILITIES | LIABILITIES | | | | LIABILITIES | | | |
| Accounts payables and accrued expenses | Accounts payables and accrued expenses | $ | 5,274,593 | | | $ | 4,700,349 | | Accounts payables and accrued expenses | $ | 5,697,065 | | | $ | 5,329,755 | |
| Deposits and other customer accounts | Deposits and other customer accounts | 79,460,190 | | | 75,303,707 | | Deposits and other customer accounts | 78,589,116 | | | 81,598,172 | |
| Federal funds purchased and securities loaned or sold under repurchase agreements | Federal funds purchased and securities loaned or sold under repurchase agreements | 1,586,537 | | | — | | Federal funds purchased and securities loaned or sold under repurchase agreements | 4,820,950 | | | 5,258,875 | |
Borrowings and other debt obligations (5) | Borrowings and other debt obligations (5) | 43,726,930 | | | 46,359,467 | | Borrowings and other debt obligations (5) | 40,239,594 | | | 41,133,187 | |
| Advance payments by borrowers for taxes and insurance | Advance payments by borrowers for taxes and insurance | 160,754 | | | 144,214 | | Advance payments by borrowers for taxes and insurance | 179,442 | | | 142,592 | |
| Deferred tax liabilities, net | Deferred tax liabilities, net | 648,438 | | | 182,353 | | Deferred tax liabilities, net | 714,561 | | | 771,341 | |
Other liabilities (5) | Other liabilities (5) | 1,098,502 | | | 1,479,874 | | Other liabilities (5) | 1,600,744 | | | 1,119,959 | |
| TOTAL LIABILITIES | TOTAL LIABILITIES | 131,955,944 | | | 128,169,964 | | TOTAL LIABILITIES | 131,841,472 | | | 135,353,881 | |
| Commitments and contingencies (Note 16) | Commitments and contingencies (Note 16) | 0 | | 0 | Commitments and contingencies (Note 16) | 0 | | 0 |
| STOCKHOLDER'S EQUITY | STOCKHOLDER'S EQUITY | | | | STOCKHOLDER'S EQUITY | | | |
| | Common stock and paid-in capital (no par value; 800,000,000 shares authorized; 530,391,043 shares outstanding at both September 30, 2021 and December 31, 2020) | 17,875,938 | | | 17,876,818 | | |
| Common stock and paid-in capital (no par value; 800,000,000 shares authorized; 530,391,043 shares outstanding at both March 31, 2022 and December 31, 2021) | | Common stock and paid-in capital (no par value; 800,000,000 shares authorized; 530,391,043 shares outstanding at both March 31, 2022 and December 31, 2021) | 17,291,775 | | | 17,875,938 | |
| AOCI/(loss), net of taxes | AOCI/(loss), net of taxes | (56,286) | | | 166,295 | | AOCI/(loss), net of taxes | (789,291) | | | (188,110) | |
| Retained earnings | Retained earnings | 4,256,133 | | | 1,843,765 | | Retained earnings | 5,442,222 | | | 4,826,127 | |
| TOTAL SHUSA STOCKHOLDER'S EQUITY | TOTAL SHUSA STOCKHOLDER'S EQUITY | 22,075,785 | | | 19,886,878 | | TOTAL SHUSA STOCKHOLDER'S EQUITY | 21,944,706 | | | 22,513,955 | |
| NCI | NCI | 1,828,778 | | | 1,375,834 | | NCI | — | | | 1,953,395 | |
| TOTAL STOCKHOLDER'S EQUITY | TOTAL STOCKHOLDER'S EQUITY | 23,904,563 | | | 21,262,712 | | TOTAL STOCKHOLDER'S EQUITY | 21,944,706 | | | 24,467,350 | |
| TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY | TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY | $ | 155,860,507 | | | $ | 149,432,676 | | TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY | $ | 153,786,178 | | | $ | 159,821,231 | |
(1) LHFILHFI includes $39.4$29.5 million and $50.4$33.5 million of loans recorded at fair value at September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively.
(2) Includes $194.1$81.1 million and $265.4$166.8 million of loans recorded at the FVO at September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively.
(3) Net of accumulated depreciation of $1.9 billion and $1.8 billion and $1.6 billion at September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively.
(4) Includes MSRs of $79.6$99.5 million and $77.5$79.1 million at September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively, for which the Company has elected the FVO. See Note 13 to these Condensed Consolidated Financial Statements for additional information.
(5) TheThe Company has interests in certain Trusts that are considered VIEs for accounting purposes. At September 30, 2021March 31, 2022 and December 31, 2020,2021, LHFI included $21.8$21.5 billion and $22.6$20.6 billion, LHFS included $0.1 billionzero and $0.6 billionzero , Operating leases assets, net included $15.5$13.6 billion and $16.4$14.7 billion, restricted cash included $1.7$1.6 billion and $1.7$1.6 billion, Other assets included $706.1$638.9 million and $791.3$629.4 million, Borrowings and other debt obligations included $30.6$28.9 billion and $31.7$29.2 billion, and Other liabilities included $107.7$101.5 million and $84.9$81.1 million of assets or liabilities that were included within VIEs, respectively. See Note 7 to these Condensed Consolidated Financial Statements for additional information.information.
(6) Net of accumulated depreciation of $3.9$3.7 billion and $4.8$3.8 billion at September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively.
See accompanying unaudited notes tounaudited Condensed Consolidated Financial Statements.Statements
SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
unaudited (In thousands)
| | | Three-Month Period Ended September 30, | | Nine-Month Period Ended September 30, | | | Year-to-Date Ended March 31 |
| | | 2021 | | 2020 | | 2021 | | 2020 | | | | 2022 | | 2021 | |
| | INTEREST INCOME: | INTEREST INCOME: | | | | | | | | | INTEREST INCOME: | | | | | |
| Loans | Loans | $ | 1,733,092 | | | $ | 1,916,091 | | | $ | 5,355,656 | | | $ | 5,773,102 | | | Loans | | $ | 1,645,084 | | | $ | 1,865,711 | | |
| Interest-earning deposits | Interest-earning deposits | 7,125 | | | 7,049 | | | 18,786 | | | 47,471 | | | Interest-earning deposits | | 10,026 | | | 5,183 | | |
| | Investment securities: | Investment securities: | | | | | | | Investment securities: | | | | |
| AFS | AFS | 28,383 | | | 38,084 | | | 79,005 | | | 159,738 | | | AFS | | 33,684 | | | 26,054 | | |
| HTM | HTM | 25,950 | | | 24,530 | | | 76,214 | | | 71,305 | | | HTM | | 31,157 | | | 25,435 | | |
| Other investments | Other investments | 1,788 | | | 5,578 | | | 6,512 | | | 17,482 | | | Other investments | | 2,238 | | | 2,524 | | |
| TOTAL INTEREST INCOME | TOTAL INTEREST INCOME | 1,796,338 | | | 1,991,332 | | | 5,536,173 | | | 6,069,098 | | | TOTAL INTEREST INCOME | | 1,722,189 | | | 1,924,907 | | |
| INTEREST EXPENSE: | INTEREST EXPENSE: | | | | | | | | | INTEREST EXPENSE: | | | | | |
| Deposits and other customer accounts | Deposits and other customer accounts | 18,175 | | | 52,325 | | | 69,946 | | | 250,060 | | | Deposits and other customer accounts | | 16,945 | | | 29,786 | | |
| | Borrowings and other debt obligations | Borrowings and other debt obligations | 244,012 | | | 317,615 | | | 780,909 | | | 1,072,878 | | | Borrowings and other debt obligations | | 225,238 | | | 275,789 | | |
| TOTAL INTEREST EXPENSE | TOTAL INTEREST EXPENSE | 262,187 | | | 369,940 | | | 850,855 | | | 1,322,938 | | | TOTAL INTEREST EXPENSE | | 242,183 | | | 305,575 | | |
| NET INTEREST INCOME | NET INTEREST INCOME | 1,534,151 | | | 1,621,392 | | | 4,685,318 | | | 4,746,160 | | | NET INTEREST INCOME | | 1,480,006 | | | 1,619,332 | | |
| Credit loss expense / (benefit) | 19,493 | | | 405,825 | | | (221,724) | | | 2,568,808 | | | |
| Credit loss expense | | Credit loss expense | | 216,809 | | | 76,067 | | |
| NET INTEREST INCOME AFTER CREDIT LOSS EXPENSE | NET INTEREST INCOME AFTER CREDIT LOSS EXPENSE | 1,514,658 | | | 1,215,567 | | | 4,907,042 | | | 2,177,352 | | | NET INTEREST INCOME AFTER CREDIT LOSS EXPENSE | | 1,263,197 | | | 1,543,265 | | |
| | NON-INTEREST INCOME: | NON-INTEREST INCOME: | | | | | | NON-INTEREST INCOME: | | | | | |
| Consumer and commercial fees | Consumer and commercial fees | 109,475 | | | 123,834 | | | 335,620 | | | 356,907 | | | Consumer and commercial fees | | 97,490 | | | 119,220 | | |
| | Capital market revenue | | Capital market revenue | | 64,759 | | | 81,788 | | |
| Lease income | Lease income | 708,814 | | | 742,946 | | | 2,214,598 | | | 2,269,613 | | | Lease income | | 671,204 | | | 772,892 | | |
Miscellaneous income, net(1) (2) | 249,381 | | | 308,222 | | | 868,991 | | | 330,165 | | | |
Miscellaneous income, net(1) | | Miscellaneous income, net(1) | | 133,848 | | | 200,722 | | |
| TOTAL FEES AND OTHER INCOME | TOTAL FEES AND OTHER INCOME | 1,067,670 | | | 1,175,002 | | | 3,419,209 | | | 2,956,685 | | | TOTAL FEES AND OTHER INCOME | | 967,301 | | | 1,174,622 | | |
| | Net gain / (loss) on sale of investment securities | (106) | | | (148) | | | 15,138 | | | 31,646 | | | |
| Net gain on sale of investment securities | | Net gain on sale of investment securities | | 13,955 | | | 9,874 | | |
| | TOTAL NON-INTEREST INCOME | TOTAL NON-INTEREST INCOME | 1,067,564 | | | 1,174,854 | | | 3,434,347 | | | 2,988,331 | | | TOTAL NON-INTEREST INCOME | | 981,256 | | | 1,184,496 | | |
| GENERAL, ADMINISTRATIVE AND OTHER EXPENSES: | GENERAL, ADMINISTRATIVE AND OTHER EXPENSES: | | | | | | | | | GENERAL, ADMINISTRATIVE AND OTHER EXPENSES: | | | | | |
| Compensation and benefits | Compensation and benefits | 478,577 | | | 461,992 | | | 1,432,036 | | | 1,391,786 | | | Compensation and benefits | | 495,325 | | | 465,258 | | |
| Occupancy and equipment expenses | Occupancy and equipment expenses | 164,119 | | | 152,998 | | | 504,609 | | | 464,784 | | | Occupancy and equipment expenses | | 151,550 | | | 172,076 | | |
| Technology, outside service, and marketing expense | Technology, outside service, and marketing expense | 149,610 | | | 124,211 | | | 423,980 | | | 386,192 | | | Technology, outside service, and marketing expense | | 137,684 | | | 134,752 | | |
| | Loan expense | Loan expense | 66,356 | | | 67,139 | | | 248,441 | | | 219,483 | | | Loan expense | | 65,592 | | | 111,580 | | |
| Lease expense | Lease expense | 468,340 | | | 612,639 | | | 1,546,325 | | | 1,844,270 | | | Lease expense | | 481,302 | | | 560,340 | | |
| Impairment of goodwill | — | | | — | | | — | | | 1,848,228 | | | |
| | Other expenses | Other expenses | 171,201 | | | 150,249 | | | 384,123 | | | 427,978 | | | Other expenses | | 135,237 | | | 104,423 | | |
| TOTAL GENERAL, ADMINISTRATIVE AND OTHER EXPENSES | TOTAL GENERAL, ADMINISTRATIVE AND OTHER EXPENSES | 1,498,203 | | | 1,569,228 | | | 4,539,514 | | | 6,582,721 | | | TOTAL GENERAL, ADMINISTRATIVE AND OTHER EXPENSES | | 1,466,690 | | | 1,548,429 | | |
| | INCOME / (LOSS) BEFORE INCOME TAX (BENEFIT)/PROVISION | 1,084,019 | | | 821,193 | | | 3,801,875 | | | (1,417,038) | | | |
| Income tax (benefit)/provision | 227,335 | | | (53,343) | | | 885,809 | | | (272,856) | | | |
| NET INCOME / (LOSS) INCLUDING NCI | 856,684 | | | 874,536 | | | 2,916,066 | | | (1,144,182) | | | |
| LESS: NET INCOME / (LOSS) ATTRIBUTABLE TO NCI | 149,985 | | | 101,701 | | | 503,698 | | | 82,087 | | | |
| NET INCOME / (LOSS) ATTRIBUTABLE TO SHUSA | $ | 706,699 | | | $ | 772,835 | | | $ | 2,412,368 | | | $ | (1,226,269) | | | |
| INCOME BEFORE INCOME TAX PROVISION | | INCOME BEFORE INCOME TAX PROVISION | | 777,763 | | | 1,179,332 | | |
| Income tax provision | | Income tax provision | | 161,668 | | | 286,829 | | |
| NET INCOME INCLUDING NCI | | NET INCOME INCLUDING NCI | | 616,095 | | | 892,503 | | |
| LESS: NET INCOME ATTRIBUTABLE TO NCI | | LESS: NET INCOME ATTRIBUTABLE TO NCI | | — | | | 145,456 | | |
| NET INCOME ATTRIBUTABLE TO SHUSA | | NET INCOME ATTRIBUTABLE TO SHUSA | | $ | 616,095 | | | $ | 747,047 | | |
|
(1) Netted down by impact of lower of cost or market adjustments on a portion of the Company's LHFS portfolio $56.6 million and $387.9 million for the three-month and nine-month periods ended September 30, 2020, respectively. This portion of the portfolio was sold in the first quarter of 2021.
(2) Includes equity investment income/(expense), net.
See accompanying notes to unauditednotes to Condensed Consolidated Financial Statements.Statements
SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/INCOME / (LOSS)
unaudited (In thousands)
| | | Three-Month Period Ended September 30, | | Nine-Month Period Ended September 30, | | | Year-to-Date Ended March 31 |
| | 2021 | | 2020 | | 2021 | | 2020 | | | | 2022 | | 2021 | |
| | NET INCOME / (LOSS) INCLUDING NCI | $ | 856,684 | | | $ | 874,536 | | | $ | 2,916,066 | | | $ | (1,144,182) | | | |
| NET INCOME INCLUDING NCI | | NET INCOME INCLUDING NCI | | $ | 616,095 | | | $ | 892,503 | | |
| OCI, NET OF TAX | OCI, NET OF TAX | | | OCI, NET OF TAX | | | |
Net unrealized changes in cash flow hedge derivative financial instruments, net of tax (1) | Net unrealized changes in cash flow hedge derivative financial instruments, net of tax (1) | (19,361) | | | (38,702) | | | (85,519) | | | 116,951 | | | Net unrealized changes in cash flow hedge derivative financial instruments, net of tax (1) | | (246,416) | | | (62,676) | | |
Net unrealized (losses) / gains on AFS investment securities, net of tax(1) | Net unrealized (losses) / gains on AFS investment securities, net of tax(1) | (26,031) | | | (41,551) | | | (139,187) | | | 149,569 | | | Net unrealized (losses) / gains on AFS investment securities, net of tax(1) | | (355,325) | | | (122,156) | | |
| Pension and post-retirement actuarial gains, net of tax | Pension and post-retirement actuarial gains, net of tax | 626 | | | 18,240 | | | 2,125 | | | 19,360 | | | Pension and post-retirement actuarial gains, net of tax | | 560 | | | 938 | | |
| TOTAL OCI / (LOSS), NET OF TAX | (44,766) | | | (62,013) | | | (222,581) | | | 285,880 | | | |
| TOTAL OCI, NET OF TAX | | TOTAL OCI, NET OF TAX | | (601,181) | | | (183,894) | | |
| COMPREHENSIVE INCOME | COMPREHENSIVE INCOME | 811,918 | | | 812,523 | | | 2,693,485 | | | (858,302) | | | COMPREHENSIVE INCOME | | 14,914 | | | 708,609 | | |
| NET INCOME ATTRIBUTABLE TO NCI | 149,985 | | | 101,701 | | | 503,698 | | | 82,087 | | | |
| NET INCOME INCLUDING NCI | | NET INCOME INCLUDING NCI | | — | | | 145,456 | | |
| COMPREHENSIVE INCOME ATTRIBUTABLE TO SHUSA | COMPREHENSIVE INCOME ATTRIBUTABLE TO SHUSA | $ | 661,933 | | | $ | 710,822 | | | $ | 2,189,787 | | | $ | (940,389) | | | COMPREHENSIVE INCOME ATTRIBUTABLE TO SHUSA | | $ | 14,914 | | | $ | 563,153 | | |
(1) Excludes $1.2 millionzero, and $4.0$1.8 million, of OCI/(loss) attributable to NCI for the three-monthquarters ended March 31, 2022, and nine-month periods ended September 30, 2021 respectively, compared to $1.4 million and $(8.7) million for the corresponding periods in 2020,, respectively.
See accompanying notes to unauditednotes to Condensed Consolidated Financial Statements.Statements
SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTSSTATMENTS OF STOCKHOLDER’SSTOCKHOLDER'S EQUITY
unaudited (In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Common Shares Outstanding | | | | Common Stock and Paid-in Capital | | Accumulated Other Comprehensive Income / (Loss) | | Retained Earnings | | Noncontrolling Interest | | Total Stockholder's Equity |
| Balance, July 1, 2021 | 530,391 | | | | | 17,875,938 | | | (11,520) | | | 3,549,434 | | | 1,689,469 | | | 23,103,321 | |
| | | | | | | | | | | | | |
| Comprehensive income attributable to SHUSA | — | | | | | — | | | (44,766) | | | 706,699 | | | — | | | 661,933 | |
| Other comprehensive (OCI) income attributable to NCI | — | | | | | — | | | — | | | — | | | 1,179 | | | 1,179 | |
| Net income attributable to NCI | — | | | | | — | | | — | | | — | | | 149,985 | | | 149,985 | |
| Impact of SC stock option activity | — | | | | | — | | | — | | | — | | | 1,453 | | | 1,453 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Dividends paid to NCI | — | | | | | — | | | — | | | — | | | (13,308) | | | (13,308) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Balance, September 30, 2021 | 530,391 | | | | | $ | 17,875,938 | | | $ | (56,286) | | | $ | 4,256,133 | | | $ | 1,828,778 | | | $ | 23,904,563 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Balance, July 1, 2020 | 530,391 | | | | | 17,890,181 | | | 259,686 | | | 685,025 | | | 1,391,885 | | | 20,226,777 | |
| Cumulative-effect adjustment upon adoption of new accounting standards (Note 1) | — | | | | | — | | | (62,013) | | | 772,835 | | | — | | | 710,822 | |
| | | | | | | | | | | | | |
| OCI/(loss) attributable to NCI | — | | | | | — | | | — | | | — | | | 1,416 | | | 1,416 | |
| Net income attributable to NCI | — | | | | | — | | | — | | | — | | | 101,701 | | | 101,701 | |
| Impact of SC stock option activity | — | | | | | — | | | — | | | — | | | 1,247 | | | 1,247 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Dividends paid to NCI | — | | | | | — | | | — | | | — | | | (13,333) | | | (13,333) | |
| Stock repurchase attributable to NCI | — | | | | | (13,363) | | | — | | | — | | | (210,296) | | | (223,659) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Balance, September 30, 2020 | 530,391 | | | | | $ | 17,876,818 | | | $ | 197,673 | | | $ | 1,457,860 | | | $ | 1,272,620 | | | $ | 20,804,971 | |
| | | | | | | | | | | | | |
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| | | | | | | | | | | | | |
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| | | | | | | | | | | | | |
| | | Common Shares Outstanding | | | Common Stock and Paid-in Capital | | Accumulated Other Comprehensive (Loss)/Income | | Retained Earnings | | Noncontrolling Interest | | Total Stockholder's Equity | |
| | | | Common Shares Outstanding | | | Common Stock and Paid-in Capital | | Accumulated Other Comprehensive (Loss)/Income | | Retained Earnings | | Noncontrolling Interest | | Total Stockholder's Equity |
| | Balance, January 1, 2021 | Balance, January 1, 2021 | 530,391 | | | | 17,876,818 | | | 166,295 | | | 1,843,765 | | | 1,375,834 | | | 21,262,712 | | Balance, January 1, 2021 | 530,391 | | | | 17,876,818 | | | 166,295 | | | 1,843,765 | | | 1,375,834 | | | 21,262,712 | |
| | Comprehensive income/(loss) attributable to SHUSA | Comprehensive income/(loss) attributable to SHUSA | — | | | | — | | | (222,581) | | | 2,412,368 | | | — | | | 2,189,787 | | Comprehensive income/(loss) attributable to SHUSA | — | | | | — | | | (183,894) | | | 747,047 | | | — | | | 563,153 | |
| Other comprehensive income/(loss) attributable to NCI | Other comprehensive income/(loss) attributable to NCI | — | | | | — | | | — | | | — | | | 4,027 | | | 4,027 | | Other comprehensive income/(loss) attributable to NCI | — | | | | — | | | — | | | — | | | 1,792 | | | 1,792 | |
| Net income attributable to NCI | Net income attributable to NCI | — | | | | — | | | — | | | — | | | 503,698 | | | 503,698 | | Net income attributable to NCI | — | | | | — | | | — | | | — | | | 145,456 | | | 145,456 | |
| Impact of SC stock option activity | Impact of SC stock option activity | — | | | | — | | | — | | | — | | | 7,017 | | | 7,017 | | Impact of SC stock option activity | — | | | | — | | | — | | | — | | | 3,621 | | | 3,621 | |
| | Dividends paid to NCI | | Dividends paid to NCI | — | | | | — | | | — | | | — | | | (26,594) | | | (26,594) | |
| Stock repurchase | | Stock repurchase | — | | | | (880) | | | — | | | — | | | (8,594) | | | (9,474) | |
| | Balance, March 31, 2021 | | Balance, March 31, 2021 | 530,391 | | | | $ | 17,875,938 | | | $ | (17,599) | | | $ | 2,590,812 | | | $ | 1,491,515 | | | $ | 21,940,666 | |
| | Balance, January 1, 2022 | | Balance, January 1, 2022 | 530,391 | | | | 17,875,938 | | | (188,110) | | | 4,826,127 | | | 1,953,395 | | | 24,467,350 | |
| | Comprehensive income/(loss) attributable to SHUSA | | Comprehensive income/(loss) attributable to SHUSA | — | | | | — | | | (601,181) | | | 616,095 | | | — | | | 14,914 | |
| | Dividends paid to NCI | — | | | | — | | | — | | | — | | | (53,204) | | | (53,204) | | |
| Stock repurchase attributable to NCI | — | | | | (880) | | | — | | | — | | | (8,594) | | | (9,474) | | |
| | Balance, September 30, 2021 | 530,391 | | | | $ | 17,875,938 | | | $ | (56,286) | | | $ | 4,256,133 | | | $ | 1,828,778 | | | $ | 23,904,563 | | |
| | | Balance, January 1, 2020 | 530,391 | | | | 17,954,441 | | | (88,207) | | | 4,155,226 | | | 2,377,370 | | | 24,398,830 | | |
Cumulative-effect adjustment upon adoption of ASU 2016-02 | — | | | | — | | | — | | | (1,346,097) | | | (439,367) | | | (1,785,464) | | |
| Comprehensive income/(loss) attributable to SHUSA | — | | | | — | | | 285,880 | | | (1,226,269) | | | — | | | (940,389) | | |
| OCI/(loss) attributable to NCI | — | | | | — | | | — | | | — | | | (8,690) | | | (8,690) | | |
| Net income attributable to NCI | — | | | | — | | | — | | | — | | | 82,087 | | | 82,087 | | |
| Impact of SC stock option activity | — | | | | — | | | — | | | — | | | 4,642 | | | 4,642 | | |
| | Dividends declared and paid on common stock | — | | | | — | | | — | | | (125,000) | | | — | | | (125,000) | | |
| Dividends paid to NCI | — | | | | — | | | — | | | — | | | (50,546) | | | (50,546) | | |
| Stock repurchase attributable to NCI | — | | | | (77,623) | | | — | | | — | | | (692,876) | | | (770,499) | | |
| | Balance, September 30, 2020 | 530,391 | | | | $ | 17,876,818 | | | $ | 197,673 | | | $ | 1,457,860 | | | $ | 1,272,620 | | | $ | 20,804,971 | | |
| | Stock repurchase | | Stock repurchase | — | | | | (584,163) | | | — | | | — | | | (1,953,395) | | | (2,537,558) | |
| | Balance, March 31, 2022 | | Balance, March 31, 2022 | 530,391 | | | | $ | 17,291,775 | | | $ | (789,291) | | | $ | 5,442,222 | | | $ | — | | | $ | 21,944,706 | |
|
See accompanying notes to unauditednotes to Condensed Consolidated Financial Statements.Statements
SANTANDER HOLDINGS USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)unaudited (in thousands)
| | | | | | | | | | | | | |
| Nine-Month Period Ended September 30, |
| | 2021 | | 2020 | | |
| | | | | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | |
| Net income/(loss) including NCI | $ | 2,916,066 | | | $ | (1,144,182) | | | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Impairment of goodwill | — | | | 1,848,228 | | | |
| | | | | |
| Credit loss (benefit)/expense | (221,724) | | | 2,568,808 | | | |
| Deferred tax expense/(benefit) | 509,727 | | | (396,533) | | | |
| Depreciation, amortization and accretion | 1,665,858 | | | 2,120,365 | | | |
| Net (gain)/loss on sale of loans | (31,872) | | | 269,411 | | | |
| Net gain on sale of investment securities | (15,138) | | | (31,646) | | | |
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| | | | | |
| | | | | |
| Loss on debt extinguishment | — | | | 1,026 | | | |
| Net loss/(gain) on real estate owned, premises and equipment, and other | 8,133 | | | (60,626) | | | |
| Stock-based compensation | — | | | 33 | | | |
| Equity loss on equity method investments | 16,599 | | | 11,352 | | | |
| Originations of LHFS | (2,283,675) | | | (2,675,625) | | | |
| | | | | |
Proceeds from sales of and collections on LHFS (1) | 2,935,656 | | | 1,622,585 | | | |
| | | | | |
| | | | | |
| Net change in: | | | | | |
| Revolving personal loans | 34,247 | | | (59,096) | | | |
| Other assets, BOLI and trading securities | 473,719 | | | 350,696 | | | |
| Other liabilities | (46,016) | | | 469,276 | | | |
| | | | | |
| NET CASH PROVIDED BY OPERATING ACTIVITIES | 5,961,580 | | | 4,894,072 | | | |
| | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | |
| Proceeds from sales of AFS investment securities | 1,326,299 | | | 2,665,593 | | | |
| Proceeds from prepayments and maturities of AFS investment securities | 3,527,712 | | | 6,703,624 | | | |
| Purchases of AFS investment securities | (5,107,524) | | | (5,587,453) | | | |
| Proceeds from prepayments and maturities of HTM investment securities | 1,412,227 | | | 743,380 | | | |
| Purchases of HTM investment securities | (2,532,889) | | | (2,187,454) | | | |
| Proceeds from sales of other investments | 43,291 | | | 315,091 | | | |
| Proceeds from maturities of other investments | 500,000 | | | 85 | | | |
| Purchases of other investments | (293,994) | | | (900,193) | | | |
| Net change in federal funds sold and securities purchased under resale agreements | (1,589,324) | | | — | | | |
| | | | | |
Proceeds from sales of LHFI (2) | 2,709,436 | | | 3,540,036 | | | |
| Proceeds from the sales of equity method investments | 8,100 | | | — | | | |
| Distributions from equity method investments | 5,912 | | | 5,132 | | | |
| Contributions to equity method and other investments | (118,025) | | | (102,762) | | | |
| Proceeds from settlements of BOLI policies | 22,925 | | | 5,542 | | | |
| Purchases of LHFI | (1,266,638) | | | (77,136) | | | |
| Net change in loans other than purchases and sales | (578,897) | | | (3,762,585) | | | |
| Purchases and originations of operating leases | (6,148,651) | | | (4,891,504) | | | |
| Proceeds from the sale and termination of operating leases | 5,462,681 | | | 3,103,187 | | | |
| Manufacturer incentives | 52,054 | | | 358,197 | | | |
| Proceeds from sales of real estate owned and premises and equipment | 31,382 | | | 44,476 | | | |
| Purchases of premises and equipment | (158,603) | | | (137,059) | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| NET CASH USED IN INVESTING ACTIVITIES | (2,692,526) | | | (161,803) | | | |
| | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | |
| Net change in deposits and other customer accounts | 4,156,483 | | | 1,919,274 | | | |
| Net change in short-term borrowings | (182,385) | | | 455,578 | | | |
| Net proceeds from long-term borrowings | 24,037,961 | | | 34,327,398 | | | |
| Repayments of long-term borrowings | (26,128,510) | | | (32,891,548) | | | |
| Proceeds from FHLB advances (with terms greater than 3 months) | — | | | 2,500,000 | | | |
| Repayments of FHLB advances (with terms greater than 3 months) | (400,000) | | | (6,935,882) | | | |
| Net change in federal funds purchased and securities loaned or sold under repurchase agreements | 1,586,537 | | | — | | | |
| Net change in advance payments by borrowers for taxes and insurance | 16,540 | | | 10,971 | | | |
| | | | | |
| Dividends paid on common stock | — | | | (125,000) | | | |
| Dividends paid to NCI | (53,204) | | | (50,546) | | | |
| Stock repurchase attributable to NCI | (9,474) | | | (770,499) | | | |
| Proceeds from the issuance of common stock | 798 | | | 660 | | | |
| | | | | |
| | | | | |
| NET CASH PROVIDED BY/(USED IN) FINANCING ACTIVITIES | 3,024,746 | | | (1,559,594) | | | |
| | | | | |
| NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | 6,293,800 | | | 3,172,675 | | | |
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD | 17,924,741 | | | 11,526,252 | | | |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD (3) | $ | 24,218,541 | | | $ | 14,698,927 | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| NON-CASH TRANSACTIONS | | | | | |
| Loans transferred to/(from) OREO | (18,556) | | | (47,033) | | | |
| Loans transferred from/(to) LHFI (from)/to LHFS, net | 156,195 | | | 2,770,335 | | | |
| Unsettled purchases of investment securities | 111,506 | | | 508,635 | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | | | | | | | | | |
| Year-to-Date Ended March 31 |
| | 2022 | | 2021 | | |
| | | | | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | |
| Net income including NCI | $ | 616,095 | | | $ | 892,503 | | | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| | | | | |
| | | | | |
| Credit loss expense | 216,809 | | | 76,067 | | | |
| Deferred tax expense | 96,896 | | | 253,814 | | | |
| Depreciation, amortization and accretion | 985,526 | | | 643,477 | | | |
| Net gain on sale of loans | (6,196) | | | (4,626) | | | |
| Net gain on sale of investment securities | (13,955) | | | (9,874) | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Net gain on real estate owned, premises and equipment, and other | (1,739) | | | (470) | | | |
| | | | | |
| Equity loss on equity method investments | 2,359 | | | 15,419 | | | |
| Originations of LHFS | (180,910) | | | (411,185) | | | |
| | | | | |
Proceeds from sales of and collections on LHFS (1) | 269,312 | | | 1,753,942 | | | |
| | | | | |
| | | | | |
| Net change in: | | | | | |
| Revolving personal loans | — | | | 34,246 | | | |
| Other assets, BOLI and trading securities | (180,901) | | | 478,807 | | | |
| Other liabilities | 346,350 | | | (218,207) | | | |
| | | | | |
| NET CASH PROVIDED BY OPERATING ACTIVITIES | 2,149,646 | | | 3,503,913 | | | |
| | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | |
| Proceeds from sales of AFS investment securities | — | | | 507,090 | | | |
| Proceeds from prepayments and maturities of AFS investment securities | 776,554 | | | 1,408,899 | | | |
| Purchases of AFS investment securities | (1,158,020) | | | (2,216,074) | | | |
| Proceeds from prepayments and maturities of HTM investment securities | 412,652 | | | 553,091 | | | |
| Purchases of HTM investment securities | (354,522) | | | (677,416) | | | |
| Proceeds from sales of other investments | 2,959 | | | 32,360 | | | |
| Proceeds from maturities of other investments | 250,000 | | | — | | | |
| Purchases of other investments | (470,548) | | | (254,697) | | | |
| Net change in federal funds sold and securities purchased under resale agreements | 442,398 | | | — | | | |
| | | | | |
Proceeds from sales of LHFI (2) | 78,886 | | | 1,886,907 | | | |
| Proceeds from the sales of equity method investments | 43,465 | | | — | | | |
| Distributions from equity method investments | 3,278 | | | 1,058 | | | |
| Contributions to equity method and other investments | (64,023) | | | (29,976) | | | |
| Proceeds from settlements of BOLI policies | 8,961 | | | 7,390 | | | |
| Purchases of LHFI | (302,094) | | | (254,722) | | | |
| Net change in loans other than purchases and sales | 99,477 | | | (560,505) | | | |
| Purchases and originations of operating leases | (1,748,303) | | | (2,172,167) | | | |
| Proceeds from the sale and termination of operating leases | 1,473,063 | | | 1,498,000 | | | |
| Manufacturer and dealer incentives received/(paid) | (302,464) | | | (2,542) | | | |
| Proceeds from sales of real estate owned and premises and equipment | 1,676 | | | 6,828 | | | |
| Purchases of premises and equipment | (37,830) | | | (76,240) | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| NET CASH USED IN INVESTING ACTIVITIES | (844,435) | | | (342,716) | | | |
| | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | |
| Net change in deposits and other customer accounts | (3,009,056) | | | (855,008) | | | |
| Net change in short-term borrowings | (55,000) | | | (195,593) | | | |
| Net proceeds from long-term borrowings | 5,430,186 | | | 6,881,403 | | | |
| Repayments of long-term borrowings | (6,285,898) | | | (9,311,341) | | | |
| | | | | |
| Repayments of FHLB advances (with terms greater than 3 months) | — | | | (300,000) | | | |
| Net change in federal funds purchased and securities loaned or sold under repurchase agreements | (437,925) | | | — | | | |
| Net change in advance payments by borrowers for taxes and insurance | 36,850 | | | 30,847 | | | |
| | | | | |
| | | | | |
| Dividends paid to NCI | — | | | (26,594) | | | |
| Stock repurchase | (2,537,558) | | | (9,474) | | | |
| Proceeds from the issuance of common stock | — | | | 450 | | | |
| | | | | |
| | | | | |
| NET CASH USED IN FINANCING ACTIVITIES | (6,858,401) | | | (3,785,310) | | | |
| | | | | |
| NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | (5,553,190) | | | (624,113) | | | |
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD | 25,017,235 | | | 17,924,741 | | | |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD (3) | $ | 19,464,045 | | | $ | 17,300,628 | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| NON-CASH TRANSACTIONS | | | | | |
| | | | | |
| Loans transferred from/(to) LHFI (from)/to LHFS, net | 227,903 | | | 27,184 | | | |
| Unsettled purchases of investment securities | 35,068 | | | 239,531 | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| AFS investment securities transferred to HTM investment securities | 2,982,205 | | | — | | | |
| | | | | |
| | | | | |
| | | | | |
(1) Included in this balance is sales proceeds from Bluestem portfolio sale of $608 million for loans originated as HFS for the nine-month periodquarter ended September 30,March 31, 2021.
(2) Included in this balance is sales proceeds from Bluestem portfolio sale of $188 million for loans originated as HFI for the nine-month periodquarter ended September 30,March 31, 2021.
(3) The nine-month periodsquarters ended September 30,March 31, 2022 and 2021 and 2020 include cash and cash equivalents balances of $18.6$13.5 billion and $8.9$11.5 billion, respectively, and restricted cash balances of $5.6$5.9 billion and $5.8 billion, respectively.
See accompanying notes to unauditednotes to Condensed Consolidated Financial Statements.Statements
NOTE 1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND ACCOUNTING POLICIES
SHUSA is the parent holding company of SBNA, a national banking association; SC, a consumer finance company headquartered in Dallas, Texas; SSLLC, a broker-dealer headquartered in Boston, Massachusetts; BSI, a financial services company headquartered in Miami, Florida that offers a full range of banking services to foreign individuals and corporations based primarily in Latin America; SIS, a registered broker-dealer headquartered in New York providing services in investment banking, institutional sales, and trading and offering research reports of Latin American and European equity and fixed income securities; SFS, a consumer credit institution headquartered in Puerto Rico; and several other subsidiaries. SHUSA is headquartered in Boston and SBNA's home office is in Wilmington, Delaware. SSLLC and SIS areis a registered investment advisersadviser with the SEC. SHUSA's two largest subsidiaries by asset size and revenue are SBNA and SC. SHUSA is a wholly-owned subsidiary of Santander.
As of September 30, 2021, SC was owned approximately 80.2% by SHUSA and 19.8% by other shareholders. SC Common Stock is listed on the NYSE under the trading symbol "SC."Acquisitions
Acquisitions and Divestitures
On September 1, 2020 the Company sold its investment in SBC, a financial holding company headquartered in Puerto Rico that offered a full rangeAcquisition of financial services through its wholly-owned banking subsidiary, BSPR.SC Shares
AcquisitionIn August 2021, SHUSA entered into a definitive agreement whereby SHUSA agreed to acquire all of the outstanding shares of SC Common Stock not already owned by SHUSA via an all-cash tender offer and subsequent merger. Under the terms of the definitive agreement, a wholly-owned subsidiary of SHUSA commenced a tender offer to acquire all outstanding shares of SC Common Stock that SHUSA did not already own at a price of $41.50 per share in cash. SHUSA agreed to acquire all remaining shares not tendered in the tender offer through a second-step merger at the same price as in the tender offer. Consummation of the tender offer was subject to various conditions, including regulatory approval by the Federal Reserve and other customary closing conditions. The transaction was completed on January 31, 2022, at which time SHUSA acquired the remaining 19.8% noncontrolling interest in SC for approximately $2.5 billion and SC became a wholly-owned subsidiary of SHUSA. As a result of the acquisition, APIC was decreased by $584.2 million for the difference between the carrying value of the noncontrolling interest and the amount paid to acquire it.
Acquisition of Credit Agricole Miami Wealth Management Business
In May 2021, BSI closed an agreement with Crédit Agricole Corporate and Investment Bank, S.A. to take over management of $3.1 billion in global wealth management client assets and liabilities for consideration of $188$189 million. The Company has recorded assets acquired of $565$566 million (including loans of $528 million and definite-lived intangible assets of approximately $37$38 million) and liabilities assumed, comprised of deposits of $377 million, at fair value. Intangible assets will be amortized over the estimated useful life of six years.
Agreement to AcquireAcquisition of Pierpont Capital Holdings LLC
In July 2021,On April 11, 2022 SHUSA announced that it has reached an agreement to acquireacquired PCH, parent company of Amherst Pierpont Securities, a market-leadingAPS, an independent institutional fixed-income broker dealer, for a total consideration of approximately $450 million. With the addition of PCH, hasthe Company will significantly enhance its infrastructure and capabilities in market making of US fixed income capital markets and will provide a net book valueplatform for self-clearing of approximately $300 million. Amherst Pierpont Securitiesfixed income securities, growing its institutional client footprint, and expanding its structuring and advisory capabilities for asset originators. PCH has approximately 230 employees serving more than 1,300 active institutional clients from its headquarters in New York and offices in Chicago, San Francisco, Austin, other U.S. locations and Hong Kong. The transaction is expected to close subject to regulatory approvals and customary closing conditions.
ProposalThe acquisition will be accounted for as a business combination, and the assets and liabilities of PCH will be recorded at fair value. Fair value measurements are subject to Acquire SC Sharesrefinement for up to one year after the closing date of the acquisition as additional information regarding closing date fair value becomes available. Due to the timing of the acquisition, the fair value estimates of PCH's assets and liabilities were not available to be disclosed in these Consolidated Financial Statements as of and for the quarter ended March 31, 2022. On the acquisition date of April 11, 2022 PCH had a net book value of approximately $310 million. Immediately after the acquisition, SHUSA issued PCH an unsecured intercompany loan of $163 million; the proceeds were used by PCH to pay off its third-party debt.
In August 2021, SHUSA entered into a definitive agreement whereby SHUSA agreed to acquire all of the outstanding shares of SC Common Stock not already owned by SHUSA via an all-cash tender offer. Under the terms of the definitive agreement, a wholly-owned subsidiary of SHUSA commenced a tender offer to acquire all outstanding shares of SC Common Stock that SHUSA does not already own at a price of $41.50 per share in cash. SHUSA agreed to acquire all remaining shares not tendered in the tender offer through a second-step merger at the same price as in the tender offer. Consummation of the tender offer is subject to various conditions, including regulatory approval by the Federal Reserve and other customary closing conditions. Upon completion of the transaction, SC will become a wholly-owned subsidiary of SHUSA.
Coree Business
SBNA’s primary business consists of attracting deposits and providing other retail banking services through its network of retail branches, and originating small business loans, middle market, large and global commercial loans, multifamily loans, residential mortgage loans, home equity lines of credit, and auto and other consumer loans and leases throughout the Mid-Atlantic and Northeastern areas of the United States, principally located in Massachusetts, New Hampshire, Connecticut, Rhode Island, New York, New Jersey, Pennsylvania, and Delaware. SBNA uses its deposits, as well as other financing sources, to fund its loan and investment portfolios.
NOTE 1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND ACCOUNTING POLICIES (continued)
SC is a specialized consumer finance company focused on vehicle finance and third-party servicing and delivering service to dealers and customers across the full credit spectrum. SC's primary business is the indirect origination and servicing of RICs and auto leases, principally through manufacturer-franchised dealers in connection with their sale of new and used vehicles to retail consumers. Additionally, SC sells consumer RICs through flow agreements and, when market conditions are favorable, it accesses the ABS market through securitizations of consumer RICs. SAF is SC’s primary vehicle financing brand, and is available as a finance option for automotive dealers across the United States.
Since May 2013, under the MPLFA with Stellantis, SC has operated as Stellantis's preferred provider for consumer loans, leases, and dealer loans and provides services to Stellantis customers and dealers under the CCAP brand. These products and services include consumer RICs and leases, as well as dealer loans for inventory, construction, real estate, working capital and revolving lines of credit. In 2019, SC entered into an amendment to the MPLFA which modified that agreement to, among other things, adjust certain performance metrics, exclusivity commitments and payment provisions.
SC also originates vehicle loans through a web-based direct lending program, purchases vehicle RICs from other lenders, and services automobile and recreational and marine vehicle portfolios for other lenders. Additionally, SC has other relationships through which it provides other consumer finance products.
Basis of Presentation
These Condensed Consolidated Financial Statements include the accounts of the Company and its consolidated subsidiaries, including certain Trusts that are considered VIEs. The Company generally consolidates VIEs for which it is deemed to be the primary beneficiary and VOEs in which the Company has a controlling financial interest. All significant intercompany balances and transactions have been eliminated in consolidation.
These Condensed Consolidated Financial Statements have been prepared in accordance with GAAP and pursuant to SEC regulations. In the opinion of management, the accompanying Condensed Consolidated Financial Statements reflect all adjustments of a normal and recurring nature necessary for a fair statement of the Consolidated Balance Sheets, Statements of Operations, Statements of Comprehensive Income, Statements of Stockholder's Equity and StatementStatements of Cash Flow for the periods indicated, and contain adequate disclosure to make the information presented not misleading. Results of operations for the periods presented herein are not necessarily indicative of results of operations for the entire year. These financial statements should be read in conjunction with the Annual Report on Form 10-K for the year ended December 31, 2020.
Certain prior-year amounts have been reclassified to conform to the current year presentation. These reclassifications did not have a material impact on the Company's consolidated financial condition or results of operations.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates, and those differences may be material. The most significant estimates include the ACL, fair value measurements, expected end-of-term lease residual values, goodwill, and income taxes.goodwill. These estimates, although based on actual historical trends and modeling, may potentially show significant variances over time.
Recently Adopted Accounting PoliciesStandards
There have been noSince January 1, 2022, the Company has not adopted any new accounting standards that had a material impact on the Company’s financial position or results of operations.
Recently Issued Accounting Standards Not Yet Adopted
In March 2022, the FASB issued ASU 2022-01 Derivatives and Hedging (Topic 815) Fair Value hedging – Portfolio Layer Method.This ASU expands the current last-of-layer method for fair value hedges of interest rate risk to allow multiple hedged layers of a closed portfolio. Under this updated guidance, entities can now hedge all financial assets under the portfolio layer method and designate multiple hedged layers within a single closed portfolio. The new standard is effective January 1, 2023, and early adoption is permitted. The Company is evaluating the potential impact on its hedge accounting program.
NOTE 1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND ACCOUNTING POLICIES (continued)
In March 2022, the FASB issued ASU 2022-02Financial Instruments – Credit Losses (Topic 326) Troubled Debt Restructuring and Vintage Disclosures.This guidance removes the specific guidance for TDR designations and enhances disclosure requirements related to modifications of receivables made to borrowers experiencing financial difficulty. In addition, the standard requires disclosure of current-period gross write-offs by year of origination for financing receivables and net investment in leases. The new standard is effective January 1, 2023, and early adoption is permitted. The Company is evaluating the changes in the Company's accounting policiesthat will result from those disclosed in the 2020 Annual Report on Form 10-K.this standard.
Subsequent Events
The Company evaluated events from the date of these Condensed Consolidated Financial Statements on September 30, 2021March 31, 2022 through the issuance of these Condensed Consolidated Financial Statements,Statements. Refer to disclosure of these transactions above and has determined that there have been no material events that would require recognition in its Condensed Consolidated Financial Statements or disclosure in the NotesNote 9 to thethese Condensed Consolidated Financial Statements as of September 30, 2021.March 31, 2022.
NOTE 2. INVESTMENT SECURITIES
Summary of Investments in Debt Securities - AFS and HTM
The following table presents the amortized cost, gross unrealized gains and losses and approximate fair values of investments in debt securities AFS at the dates indicated:
| | | | | September 30, 2021 | | December 31, 2020 | | | March 31, 2022 | | December 31, 2021 |
| (in thousands) | (in thousands) | | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Loss | | Fair
Value | | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Loss | | Fair
Value | (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 | U.S. Treasury securities | | $ | 89,437 | | | $ | 1,251 | | | $ | — | | | $ | 90,688 | | | $ | 168,075 | | | $ | 2,578 | | | $ | — | | | $ | 170,653 | | U.S. Treasury securities | | $ | 254,251 | | | $ | 175 | | | $ | (1,276) | | | $ | 253,150 | | | $ | 72,860 | | | $ | 758 | | | $ | — | | | $ | 73,618 | |
| Corporate debt securities | Corporate debt securities | | 239,614 | | | 208 | | | (17) | | | 239,805 | | | 155,610 | | | 114 | | | (9) | | | 155,715 | | Corporate debt securities | | 291,902 | | | 8 | | | (161) | | | 291,749 | | | 275,963 | | | 140 | | | (96) | | | 276,007 | |
| ABS | ABS | | 544,463 | | | 472 | | | (410) | | | 544,525 | | | 109,888 | | | 686 | | | (1,236) | | | 109,338 | | ABS | | 529,517 | | | 200 | | | (3,780) | | | 525,937 | | | 537,835 | | | 353 | | | (466) | | | 537,722 | |
| | MBS: | MBS: | | | | | | | | | | | | | | | | | MBS: | | | | | | | | | | | | | | | | |
| GNMA - Residential | GNMA - Residential | | 4,226,980 | | | 36,398 | | | (11,248) | | | 4,252,130 | | | 3,467,611 | | | 69,864 | | | (1,350) | | | 3,536,125 | | GNMA - Residential | | 4,054,723 | | | 108 | | | (130,069) | | | 3,924,762 | | | 4,064,718 | | | 21,169 | | | (19,692) | | | 4,066,195 | |
| GNMA - Commercial | GNMA - Commercial | | 2,017,435 | | | 3,295 | | | (33,476) | | | 1,987,254 | | | 1,706,648 | | | 26,949 | | | (235) | | | 1,733,362 | | GNMA - Commercial | | 701,575 | | | 377 | | | (48,640) | | | 653,312 | | | 2,086,437 | | | 2,060 | | | (55,658) | | | 2,032,839 | |
| FHLMC and FNMA - Residential | FHLMC and FNMA - Residential | | 4,213,992 | | | 26,002 | | | (42,952) | | | 4,197,042 | | | 5,464,821 | | | 77,813 | | | (4,351) | | | 5,538,283 | | FHLMC and FNMA - Residential | | 2,859,249 | | | 4,255 | | | (172,318) | | | 2,691,186 | | | 4,267,757 | | | 14,616 | | | (62,732) | | | 4,219,641 | |
| FHLMC and FNMA - Commercial | FHLMC and FNMA - Commercial | | 60,870 | | | 4,538 | | | — | | | 65,408 | | | 63,732 | | | 6,283 | | | (2) | | | 70,013 | | FHLMC and FNMA - Commercial | | 103,532 | | | 545 | | | (417) | | | 103,660 | | | 104,383 | | | 3,591 | | | (59) | | | 107,915 | |
| Total investments in debt securities AFS | Total investments in debt securities AFS | | $ | 11,392,791 | | | $ | 72,164 | | | $ | (88,103) | | | $ | 11,376,852 | | | $ | 11,136,385 | | | $ | 184,287 | | | $ | (7,183) | | | $ | 11,313,489 | | Total investments in debt securities AFS | | $ | 8,794,749 | | | $ | 5,668 | | | $ | (356,661) | | | $ | 8,443,756 | | | $ | 11,409,953 | | | $ | 42,687 | | | $ | (138,703) | | | $ | 11,313,937 | |
The following table presents the amortized cost, gross unrealized gains and losses and approximate fair values of investments in debt securities HTM at the dates indicated:
| | | | | September 30, 2021 | | December 31, 2020 | | | March 31, 2022 | | December 31, 2021 |
| (in thousands) | (in thousands) | | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Loss | | Fair
Value | | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Loss | | Fair
Value | (in thousands) | | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Loss | | Fair
Value | | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Loss | | Fair
Value |
| | ABS | ABS | | $ | 101,815 | | | $ | 634 | | | $ | — | | | $ | 102,449 | | | $ | 44,841 | | | $ | 765 | | | $ | — | | | $ | 45,606 | | ABS | | $ | 78,680 | | | $ | — | | | $ | (569) | | | $ | 78,111 | | | $ | 89,722 | | | $ | 319 | | | $ | — | | | $ | 90,041 | |
| | MBS: | MBS: | | | | | | | | MBS: | | | | | | | |
| GNMA - Residential | GNMA - Residential | | 2,660,934 | | | 24,048 | | | (20,090) | | | 2,664,892 | | | 1,966,247 | | | 51,417 | | | (1,819) | | | 2,015,845 | | GNMA - Residential | | 2,950,920 | | | 1,957 | | | (188,372) | | | 2,764,505 | | | 2,862,595 | | | 13,412 | | | (45,102) | | | 2,830,905 | |
| GNMA - Commercial | GNMA - Commercial | | 3,831,297 | | | 47,934 | | | (37,085) | | | 3,842,146 | | | 3,493,597 | | | 124,429 | | | (1,548) | | | 3,616,478 | | GNMA - Commercial | | 4,969,849 | | | 955 | | | (233,989) | | | 4,736,815 | | | 3,750,154 | | | 25,524 | | | (67,418) | | | 3,708,260 | |
| | FHLMC and FNMA - Residential | | FHLMC and FNMA - Residential | | 1,388,643 | | | — | | | — | | | 1,388,643 | | | — | | | — | | | — | | | — | |
| | Total investments in debt securities HTM | Total investments in debt securities HTM | | $ | 6,594,046 | | | $ | 72,616 | | | $ | (57,175) | | | $ | 6,609,487 | | | $ | 5,504,685 | | | $ | 176,611 | | | $ | (3,367) | | | $ | 5,677,929 | | Total investments in debt securities HTM | | $ | 9,388,092 | | | $ | 2,912 | | | $ | (422,930) | | | $ | 8,968,074 | | | $ | 6,702,471 | | | $ | 39,255 | | | $ | (112,520) | | | $ | 6,629,206 | |
As of September 30, 2021March 31, 2022 and December 31, 2020,2021, the Company had investment securities with an estimated carrying value of $5.1$4.7 billion and $3.5$5.3 billion, respectively, pledged as collateral, which were comprised of the following: $1.7$1.8 billion and $754.1 million,$1.6 billion, respectively, were pledged as collateral for the Company's borrowing capacity with the FRB; $3.0$2.5 billion and $2.2$3.2 billion, respectively, were pledged to secure public fund deposits; $54.9$82.5 million and $103.4$72.6 million, respectively, were pledged to various independent parties to secure repurchase agreements, support hedging relationships, and for recourse on loan sales; and $372.5$355.8 million and $388.0$403.8 million, respectively, were pledged to secure the Company's customer overnight sweep product. The Company also participates in Securities Financing ArrangementsActivities discussed further in Note 11 to these Condensed Consolidated Financial Statements.
At September 30, 2021March 31, 2022 and December 31, 2020,2021, the Company had $28.9$29.2 million and $34.6$26.9 million, respectively, of accrued interest related to investment securities which is included in the Other assets line of the Company's Condensed Consolidated Balance Sheets. No accrued interest related to investment securities was written off during the periods ended September 30, 2021March 31, 2022 or December 31, 2020.2021.
ThereDuring 2022, there were noapproximately $3.0 billion of transfers of debt securities betweenfrom AFS and HTM during the periods ended September 30, 2021 or December 31, 2020.to HTM.
NOTE 2. INVESTMENT SECURITIES (continued)
Contractual Maturity of Investments in Debt Securities
Contractual maturities of the Company’s investments in debt securities AFS at September 30, 2021March 31, 2022 were as follows:
| | | (in thousands) | (in thousands) | | Amortized Cost | | Fair Value | (in thousands) | | Amortized Cost | | Fair Value |
| Due within one year | Due within one year | | $ | 206,717 | | | $ | 207,443 | | Due within one year | | $ | 439,686 | | | $ | 438,463 | |
| Due after 1 year but within 5 years | Due after 1 year but within 5 years | | 174,702 | | | 177,935 | | Due after 1 year but within 5 years | | 168,223 | | | 168,218 | |
| Due after 5 years but within 10 years | Due after 5 years but within 10 years | | 287,378 | | | 296,585 | | Due after 5 years but within 10 years | | 315,201 | | | 312,067 | |
| Due after 10 years | Due after 10 years | | 10,723,994 | | | 10,694,889 | | Due after 10 years | | 7,871,639 | | | 7,525,008 | |
| Total | Total | | $ | 11,392,791 | | | $ | 11,376,852 | | Total | | $ | 8,794,749 | | | $ | 8,443,756 | |
Contractual maturities of the Company’s investments in debt securities HTM at September 30, 2021March 31, 2022 were as follows:
| | | (in thousands) | (in thousands) | | Amortized Cost | | Fair Value | (in thousands) | | Amortized Cost | | Fair Value |
| Due within one year | Due within one year | | $ | — | | | $ | — | | Due within one year | | $ | �� | | | $ | — | |
| Due after 1 year but within 5 years | Due after 1 year but within 5 years | | 48,200 | | | 48,491 | | Due after 1 year but within 5 years | | 39,438 | | | 38,781 | |
| Due after 5 years but within 10 years | Due after 5 years but within 10 years | | 53,615 | | | 53,958 | | Due after 5 years but within 10 years | | 46,365 | | | 46,460 | |
| Due after 10 years | Due after 10 years | | 6,492,231 | | | 6,507,038 | | Due after 10 years | | 9,302,289 | | | 8,882,833 | |
| Total | Total | | $ | 6,594,046 | | | $ | 6,609,487 | | Total | | $ | 9,388,092 | | | $ | 8,968,074 | |
Actual maturities may differ from contractual maturities when there is a right to call or prepay obligations with or without call or prepayment penalties.
Gross Unrealized Loss and Fair Value of Investments in Debt Securities AFS and HTM
The following table presents the aggregate amount of unrealized losses as of September 30, 2021March 31, 2022 and December 31, 20202021 on debt securities in the Company’s AFS investment portfolios classified according to the amount of time those securities have been in a continuous loss position:
| | | | | September 30, 2021 | | December 31, 2020 | | | March 31, 2022 | | December 31, 2021 |
| | | | Less than 12 months | | 12 months or longer | | Less than 12 months | | 12 months or longer | | | Less than 12 months | | 12 months or longer | | Less than 12 months | | 12 months or longer |
| (in thousands) | (in thousands) | | Fair Value | | Unrealized
Losses | | Fair Value | | Unrealized
Losses | | Fair Value | | Unrealized
Losses | | Fair Value | | Unrealized
Losses | (in thousands) | | Fair Value | | Unrealized
Losses | | Fair Value | | Unrealized
Losses | | Fair Value | | Unrealized
Losses | | Fair Value | | Unrealized
Losses |
| | U.S. Treasury securities | | U.S. Treasury securities | | $ | 197,589 | | | $ | (1,276) | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Corporate debt securities | Corporate debt securities | | $ | 122,897 | | | $ | (17) | | | $ | — | | | $ | — | | | $ | 98,800 | | | $ | (9) | | | $ | — | | | $ | — | | Corporate debt securities | | 279,766 | | | (161) | | | — | | | — | | | 173,255 | | | (96) | | | — | | | — | |
| ABS | ABS | | 387,006 | | | (119) | | | 18,072 | | | (291) | | | — | | | — | | | 49,033 | | | (1,236) | | ABS | | 492,493 | | | (3,573) | | | 15,346 | | | (207) | | | 389,743 | | | (205) | | | 16,265 | | | (261) | |
| | MBS: | MBS: | | | | | | | | | | | | | | | | | MBS: | | | | | | | | | | | | | | | | |
| GNMA - Residential | GNMA - Residential | | 2,147,459 | | | (11,248) | | | — | | | — | | | 347,821 | | | (1,334) | | | 8,875 | | | (16) | | GNMA - Residential | | 3,325,910 | | | (109,867) | | | 445,481 | | | (20,202) | | | 2,283,469 | | | (19,068) | | | 96,339 | | | (624) | |
| GNMA - Commercial | GNMA - Commercial | | 1,824,347 | | | (32,021) | | | 48,992 | | | (1,455) | | | 103,891 | | | (235) | | | — | | | — | | GNMA - Commercial | | 424,423 | | | (29,331) | | | 208,186 | | | (19,309) | | | 1,795,619 | | | (51,908) | | | 89,640 | | | (3,750) | |
| FHLMC and FNMA - Residential | FHLMC and FNMA - Residential | | 2,623,491 | | | (42,397) | | | 98,797 | | | (555) | | | 1,040,474 | | | (4,165) | | | 22,749 | | | (186) | | FHLMC and FNMA - Residential | | 1,981,806 | | | (121,255) | | | 406,758 | | | (51,063) | | | 3,315,452 | | | (61,103) | | | 109,769 | | | (1,629) | |
| FHLMC and FNMA - Commercial | FHLMC and FNMA - Commercial | | — | | | — | | | — | | | — | | | — | | | — | | | 420 | | | (2) | | FHLMC and FNMA - Commercial | | 64,389 | | | (417) | | | — | | | — | | | 45,641 | | | (59) | | | — | | | — | |
| Total investments in debt securities AFS | Total investments in debt securities AFS | | $ | 7,105,200 | | | $ | (85,802) | | | $ | 165,861 | | | $ | (2,301) | | | $ | 1,590,986 | | | $ | (5,743) | | | $ | 81,077 | | | $ | (1,440) | | Total investments in debt securities AFS | | $ | 6,766,376 | | | $ | (265,880) | | | $ | 1,075,771 | | | $ | (90,781) | | | $ | 8,003,179 | | | $ | (132,439) | | | $ | 312,013 | | | $ | (6,264) | |
NOTE 2. INVESTMENT SECURITIES (continued)
The following table presents the aggregate amount of unrealized losses as of September 30, 2021March 31, 2022 and December 31, 20202021 on debt securities in the Company’s HTM investment portfolios classified according to the amount of time those securities have been in a continuous loss position:
| | | September 30, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
| | Less than 12 months | | 12 months or longer | | Less than 12 months | | 12 months or longer | | Less than 12 months | | 12 months or longer | | Less than 12 months | | 12 months or longer |
| (in thousands) | (in thousands) | | Fair Value | | Unrealized
Losses | | Fair Value | | Unrealized
Losses | | Fair Value | | Unrealized
Losses | | Fair Value | | Unrealized
Losses | (in thousands) | | Fair Value | | Unrealized
Losses | | Fair Value | | Unrealized
Losses | | Fair Value | | Unrealized
Losses | | Fair Value | | Unrealized
Losses |
| | ABS | | ABS | | $ | 78,111 | | | $ | (569) | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | MBS: | MBS: | | | | | | | | | | | | | | | | | MBS: | |
| GNMA - Residential | GNMA - Residential | | $ | 1,468,773 | | | $ | (19,916) | | | $ | 31,233 | | | $ | (174) | | | $ | 212,471 | | | $ | (1,819) | | | $ | — | | | $ | — | | GNMA - Residential | | $ | 1,854,447 | | | $ | (126,703) | | | $ | 674,604 | | | $ | (61,669) | | | $ | 2,051,851 | | | $ | (42,284) | | | $ | 81,034 | | | $ | (2,818) | |
| GNMA - Commercial | GNMA - Commercial | | 2,096,426 | | | (35,707) | | | 45,135 | | | (1,378) | | | 155,263 | | | (1,548) | | | — | | | — | | GNMA - Commercial | | 2,574,474 | | | (150,023) | | | 911,969 | | | (83,966) | | | 2,515,603 | | | (61,377) | | | 124,655 | | | (6,041) | |
| | Total investments in debt securities HTM | Total investments in debt securities HTM | | $ | 3,565,199 | | | $ | (55,623) | | | $ | 76,368 | | | $ | (1,552) | | | $ | 367,734 | | | $ | (3,367) | | | $ | — | | | $ | — | | Total investments in debt securities HTM | | $ | 4,507,032 | | | $ | (277,295) | | | $ | 1,586,573 | | | $ | (145,635) | | | $ | 4,567,454 | | | $ | (103,661) | | | $ | 205,689 | | | $ | (8,859) | |
Allowance for credit-related losses on AFS securities
The Company did not record an allowance for credit-related losses on AFS or HTM securities at September 30, 2021March 31, 2022 or December 31, 2020.2021. As discussed in Note 1, of the Company's 2020 Annual Report on Form 10-K, securities for which management has an expectation that nonpayment of the amortized cost basis is zero do not have a reserve.
For securities that do not qualify for the zero credit loss expectation exception, management has concluded that the unrealized losses are not credit-related since (1) they are not related to the underlying credit quality of the issuers, (2) the entire contractual principal and interest due on these securities is currently expected to be recoverable, (3) the Company does not intend to sell these investments at a loss and (4) it is more likely than not that the Company will not be required to sell the investments before recovery of the amortized cost basis, which for the Company's debt securities may be at maturity.
Gains (Losses) and Proceeds on Sales of Investments in Debt Securities
Proceeds from sales of investments in debt securities and the realized gross gains and losses from those sales were as follows:
| | | Three-Month Period Ended September 30, | | Nine-Month Period Ended September 30, | | | | Year-to-Date Ended March 31 |
| (in thousands) | (in thousands) | | 2021 | | 2020 | | 2021 | | 2020 | | (in thousands) | | | 2022 | | 2021 | |
| Proceeds from the sales of AFS securities | Proceeds from the sales of AFS securities | | $ | — | | | $ | 1,112,033 | | | $ | 1,326,299 | | | $ | 2,665,593 | | | Proceeds from the sales of AFS securities | | | $ | — | | | $ | 507,090 | | |
| | AFS debt and other securities: | | AFS debt and other securities: | | | |
| Gross realized gains | Gross realized gains | | $ | — | | | $ | 573 | | | $ | 18,267 | | | $ | 33,400 | | | Gross realized gains | | | $ | — | | | $ | 10,072 | | |
| Gross realized losses | Gross realized losses | | (106) | | | (721) | | | (3,129) | | | (1,754) | | | Gross realized losses | | | — | | | — | | |
Net realized gains/(losses) (1) | | $ | (106) | | | $ | (148) | | | $ | 15,138 | | | $ | 31,646 | | | |
| | Net realized gains/(losses) on AFS and other securities | | Net realized gains/(losses) on AFS and other securities | | | $ | — | | | $ | 10,072 | | |
| Total trading securities gains/(losses) | | Total trading securities gains/(losses) | | | 1,475 | | | (198) | | |
| Total equity securities gains/(losses) | | Total equity securities gains/(losses) | | | 12,480 | | | — | | |
| Total realized gains/(losses) in income from investments | | Total realized gains/(losses) in income from investments | | | $ | 13,955 | | | $ | 9,874 | | |
|
(1) Includes net realized gain/(losses) on trading securities of $(0.1) million, and $(0.8) million for the three-month and nine-month periods ended September 30, 2021,respectively, and $(0.1) million and $(1.0) million for the three-month and nine-month periods ended September 30, 2020, respectively.
The Company uses the specific identification method to determine the cost of the securities sold and the gain or loss recognized.
Other Investments
Other investments consisted of the following as of:
| | (in thousands) | (in thousands) | September 30, 2021 | | December 31, 2020 | (in thousands) | March 31, 2022 | | December 31, 2021 |
| FHLB of Pittsburgh and FRB stock | FHLB of Pittsburgh and FRB stock | | $ | 415,418 | | | $ | 435,330 | | FHLB of Pittsburgh and FRB stock | | $ | 398,406 | | | $ | 394,668 | |
| LIHTC investments | LIHTC investments | | 338,292 | | | 313,603 | | LIHTC investments | | 373,054 | | | 370,493 | |
Equity securities not held for trading (1) | Equity securities not held for trading (1) | | 14,861 | | | 14,494 | | Equity securities not held for trading (1) | | 107,084 | | | 45,186 | |
| Interest-bearing deposits with an affiliate bank | Interest-bearing deposits with an affiliate bank | | 500,000 | | | 750,000 | | Interest-bearing deposits with an affiliate bank | | 400,000 | | | 250,000 | |
| Trading securities | Trading securities | | 38,748 | | | 40,435 | | Trading securities | | 33,319 | | | 35,791 | |
| Total | Total | | $ | 1,307,319 | | | $ | 1,553,862 | | Total | | $ | 1,311,863 | | | $ | 1,096,138 | |
(1) Includes $2.7$2.8 million and $1.4$3.0 million of equity certificates related to an off-balance sheet securitization as of September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively.
NOTE 2. INVESTMENT SECURITIES (continued)
Other investments primarily include the Company's investment in the stock of the FHLB of Pittsburgh and the FRB. These stocks do not have readily determinable fair values because their ownership is restricted and there is no market for their sale. The stocks can be sold back only at their par value of $100 per share, and FHLB stock can be sold back only to the FHLB or to another member institution. Accordingly, these stocks are carried at cost. During the three-month and nine-month periodsquarter ended September 30, 2021,March 31, 2022, the Company purchased $1.1 million and $4.5$0.1 million of FHLB stock at par, respectively, and redeemed $4.9 million and $23.8$0.2 million of FHLB stock at par. The Company purchased $6.3 million of FRB stock at par, and redeemed zero and $0.7$2.5 million of FRB stock at par during the three-month and nine-month periodsquarter ended September 30, 2021, respectively. The Company did not purchase any FRB stock during the nine-month period ended September 30, 2021.March 31, 2022. There was no gain or loss associated with these redemptions.
The Company's LIHTC investments are accounted for using the proportional amortization method. Equity securities are measured at fair value as of September 30, 2021,March 31, 2022, with changes in fair value recognized in net income, and consist primarily of CRA mutual fund investments.
Interest-bearing deposits include deposits maturing in more than 90 days with Santander.Santander affiliates that are not consolidated.
With the exception of equity and trading securities, which are measured at fair value, the Company evaluates these other investments for impairment based on the ultimate recoverability of the carrying value, rather than by recognizing temporary declines in value. The Company held an immaterial amount of equity securities without readily determinable fair values at the reporting date.
NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES
Overall
The Company's LHFI are generally reported at their outstanding principal balances net of any cumulative charge-offs, unamortized deferred fees and costs and unamortized premiums or discounts. Certain LHFI are accounted for at fair value under the FVO. Certain loans are pledged as collateral for borrowings, securitizations, or SPEs. These loans totaled $46.4$42.5 billion at September 30, 2021March 31, 2022 and $52.0$43.2 billion at December 31, 2020.2021.
Loans that the Company intends to sell are classified as LHFS. The LHFS portfolio balance at September 30, 2021March 31, 2022 was $690.6$328.2 million, compared to $2.2 billion$255.0 million at December 31, 2020.2021. For a discussiondiscussion on the valuation of LHFS at fair value, see Note 13 to these Condensed Consolidated Financial Statements. LHFS in the residential mortgage portfolio that were originated with the intent to sell were $194.1$81.1 million as of September 30, 2021March 31, 2022 and are reported at either estimated fair value (if the FVO is elected) or the lower of cost or fair value.
Interest on loans is credited to income as it is earned. Loan origination fees and certain direct loan origination costs are deferred and recognized as adjustments to interest income in the Condensed Consolidated Statements of Operations over the contractual life of the loan utilizing the interest method. Loan origination costs and fees and premiums and discounts on RICs are deferred and recognized in interest income over their estimated lives using estimated prepayment speeds, which are updated on a monthly basis. At September 30, 2021March 31, 2022 and December 31, 2020,2021, accrued interest receivable on the Company's loans was $478.9$438.4 million and $589.2$453.0 million, respectively.
During the nine-month periods ended September 30, 2021 and 2020, SC originated $11.1 billion and $11.1 billion, respectively, in CCAP loans (including through the SBNA originations program), which represented 53% and 61%, respectively, of the UPB of SC's total RIC originations (including the SBNA originations program).
Purchased receivables
During the nine monthsquarter ended September 30, 2021,March 31, 2022, SBNA approved and completed purchases of performing personal unsecured loans with a UPB of approximately $641.0 million.
During the three and nine months ended September 30, 2021, SC purchased financial receivables from third party lenders for $67.0 million. The UPB of these loans as of the acquisition date was $112.1$268.2 million.
NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)
Sales of receivables
During the first quarter of 2021, SC completed the sale of $1.3 billion in UPB of its Bluestem personal lending portfolio to a third party. In addition, SC executed a forward flow sale agreement with a third party to purchase all personal lending receivables that SC purchases from Bluestem through the term of the agreement with Bluestem. Prior to the sale, these loans were classified as LHFS.
During the second quarter of 2021, SFS sold the majority of its commercial and consumer loan and REO HFS portfolios to third parties at their approximate fair values with no material gain or loss. In addition, during the second quarter of 2021, SC sold RICs with a UPB of approximately $310 million to a third party.
During the nine months ended September 30, 2021, SC sold RICs with a UPB of approximately $3.0 billion to third-parties in three separate transactions. Two of these transactions were accounted for as off-balance sheet securitizations.
Loan and Lease Portfolio Composition
The following presents the composition of gross loans and leases HFI by portfolio and by rate type:
| | | | | September 30, 2021 | | December 31, 2020 | | | March 31, 2022 | | December 31, 2021 |
| | (dollars in thousands) | (dollars in thousands) | | Amount | | Percent | | Amount | | Percent | (dollars in thousands) | | Amount | | Percent | | Amount | | Percent |
| Commercial LHFI: | Commercial LHFI: | | | | | | | | | Commercial LHFI: | | | | | | | | |
| CRE loans | CRE loans | | $ | 7,453,398 | | | 8.1 | % | | $ | 7,327,853 | | | 8.0 | % | CRE loans | | $ | 7,350,812 | | | 8.0 | % | | $ | 7,227,003 | | | 7.8 | % |
| C&I loans | C&I loans | | 14,950,498 | | | 16.3 | % | | 16,537,899 | | | 17.9 | % | C&I loans | | 13,868,625 | | | 15.1 | % | | 14,710,864 | | | 16.0 | % |
| Multifamily loans | Multifamily loans | | 7,325,464 | | | 8.0 | % | | 8,367,147 | | | 9.1 | % | Multifamily loans | | 7,709,447 | | | 8.4 | % | | 7,547,382 | | | 8.2 | % |
Other commercial(2)(4) | Other commercial(2)(4) | | 8,082,374 | | | 8.8 | % | | 7,455,504 | | | 8.1 | % | Other commercial(2)(4) | | 8,239,438 | | | 9.0 | % | | 8,170,031 | | | 8.9 | % |
| Total commercial LHFI | Total commercial LHFI | | 37,811,734 | | | 41.2 | % | | 39,688,403 | | | 43.1 | % | Total commercial LHFI | | 37,168,322 | | | 40.5 | % | | 37,655,280 | | | 40.9 | % |
| Consumer loans secured by real estate: | Consumer loans secured by real estate: | | | | | | | | | Consumer loans secured by real estate: | | | | | | | | |
| Residential mortgages | Residential mortgages | | 5,741,848 | | | 6.3 | % | | 6,590,168 | | | 7.2 | % | Residential mortgages | | 5,472,175 | | | 6.0 | % | | 5,598,560 | | | 6.1 | % |
| Home equity loans and lines of credit | Home equity loans and lines of credit | | 3,614,472 | | | 3.9 | % | | 4,108,505 | | | 4.5 | % | Home equity loans and lines of credit | | 3,359,342 | | | 3.7 | % | | 3,487,234 | | | 3.8 | % |
| Total consumer loans secured by real estate | Total consumer loans secured by real estate | | 9,356,320 | | | 10.2 | % | | 10,698,673 | | | 11.7 | % | Total consumer loans secured by real estate | | 8,831,517 | | | 9.7 | % | | 9,085,794 | | | 9.9 | % |
| Consumer loans not secured by real estate: | Consumer loans not secured by real estate: | | | | | | | | | Consumer loans not secured by real estate: | | | | | | | | |
| RICs and auto loans | RICs and auto loans | | 42,952,453 | | | 46.8 | % | | 40,698,642 | | | 44.1 | % | RICs and auto loans | | 43,086,645 | | | 46.9 | % | | 43,183,098 | | | 46.9 | % |
| Personal unsecured loans | Personal unsecured loans | | 1,542,315 | | | 1.7 | % | | 824,430 | | | 0.9 | % | Personal unsecured loans | | 2,562,022 | | | 2.8 | % | | 2,009,654 | | | 2.2 | % |
Other consumer(3) | Other consumer(3) | | 158,883 | | | 0.1 | % | | 223,034 | | | 0.2 | % | Other consumer(3) | | 127,061 | | | 0.1 | % | | 141,986 | | | 0.1 | % |
| Total consumer loans | Total consumer loans | | 54,009,971 | | | 58.8 | % | | 52,444,779 | | | 56.9 | % | Total consumer loans | | 54,607,245 | | | 59.5 | % | | 54,420,532 | | | 59.1 | % |
Total LHFI(1) | Total LHFI(1) | | $ | 91,821,705 | | | 100.0 | % | | $ | 92,133,182 | | | 100.0 | % | Total LHFI(1) | | $ | 91,775,567 | | | 100.0 | % | | $ | 92,075,812 | | | 100.0 | % |
| Total LHFI: | Total LHFI: | | | | | | | | | Total LHFI: | | | | | | | | |
| Fixed rate | Fixed rate | | $ | 64,095,444 | | | 69.8 | % | | $ | 64,036,154 | | | 69.5 | % | Fixed rate | | $ | 64,993,477 | | | 70.8 | % | | $ | 64,774,941 | | | 70.3 | % |
| Variable rate | Variable rate | | 27,726,261 | | | 30.2 | % | | 28,097,028 | | | 30.5 | % | Variable rate | | 26,782,090 | | | 29.2 | % | | 27,300,871 | | | 29.7 | % |
Total LHFI(1) | Total LHFI(1) | | $ | 91,821,705 | | | 100.0 | % | | $ | 92,133,182 | | | 100.0 | % | Total LHFI(1) | | $ | 91,775,567 | | | 100.0 | % | | $ | 92,075,812 | | | 100.0 | % |
(1)Total LHFI includes deferred loan fees, net of deferred origination costs and unamortized purchase premiums, net of discounts as well as purchase accounting adjustments. These items resulted in a net increase in the loan balances of $3.0of $2.9 billion and $3.1and $2.9 billion as of September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively.
(2)Other commercial includes CEVF leveraged leases and loans.
(3)Other consumer primarily includes RV and marine loans.
(4)Includes loans with a carrying value of $39.3$204.8 million for which a fair value hedge is recorded resulting in a fair value adjustment of $0.2$26.3 million.
NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)
Portfolio segments and classes
The Company discloses information about the credit quality of its financing receivables at disaggregated levels, specifically defined as “portfolio segments” and “classes,” based on management’s systematic methodology for determining the ACL. The Company utilizes similar categorization compared to the financial statement categorization of loans to model and calculate the ACL and track the credit quality, delinquency and impairment status of the underlying loan populations. In disaggregating its financing receivables portfolio, the Company’s methodology begins with the commercial and consumer segments.
The commercial segmentation reflects line of business distinctions. The CRE line of business includes C&I owner-occupied real estate and specialized lending for investment real estate. C&I includes non-real estate-related commercial loans. "Multifamily" represents loans for multifamily residential housing units. “Other commercial” includes loans to global customer relationships in Latin America which are not defined as commercial or consumer for regulatory purposes. The remainder of the portfolio primarily represents the CEVF portfolio.
The Company's portfolio classes are substantially the same as its financial statement categorization of loans for consumer loan populations. “Residential mortgages” includes mortgages on residential property, including single family and 1-4 family units. "Home equity loans and lines of credit" include all organic home equity contracts and purchased home equity portfolios. "RICs and auto loans" includes the Company's direct automobile loan portfolios, but excludes RV and marine RICs. "Personal unsecured loans" includes personal revolving loans and credit cards. “Other consumer” includes an acquired portfolio of marine RICs and RV contracts as well as indirect auto loans.contracts.
ACL Rollforward by Portfolio Segment
The ACL is comprised of the ALLL and the reserve for unfunded lending commitments. The activity in the ACL by portfolio segment for the three-monthquarters ended March 31, 2022 and nine-month periods ended September 30, 2021 and 2020 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three-Month Period Ended September 30, 2021 |
| (in thousands) | | Commercial | | Consumer | | | | Total |
ALLL, beginning of period (1) | | $ | 641,515 | | | $ | 6,247,801 | | | | | $ | 6,889,316 | |
| Credit loss expense / (benefit) | | (37,806) | | | 46,120 | | | | | 8,314 | |
| | | | | | | | |
| | | | | | | | |
| Charge-offs | | (28,835) | | | (660,488) | | | | | (689,323) | |
| Recoveries | | 15,636 | | | 491,145 | | | | | 506,781 | |
| Charge-offs, net of recoveries | | (13,199) | | | (169,343) | | | | | (182,542) | |
| ALLL, end of period | | $ | 590,510 | | | $ | 6,124,578 | | | | | $ | 6,715,088 | |
| | | | | | | | |
Reserve for unfunded lending commitments, beginning of period (1) | | $ | 101,477 | | | $ | 22,807 | | | | | $ | 124,284 | |
| Credit loss expense / (benefit) on unfunded lending commitments | | 12,953 | | | (1,774) | | | | | 11,179 | |
| | | | | | | | |
| Reserve for unfunded lending commitments, end of period | | 114,430 | | | 21,033 | | | | | 135,463 | |
| Total ACL, end of period | | $ | 704,940 | | | $ | 6,145,611 | | | | | $ | 6,850,551 | |
| | | | | | | | |
| | Nine-Month Period Ended September 30, 2021 |
| (in thousands) | | Commercial | | Consumer | | | | Total |
| ALLL, beginning of period | | $ | 752,196 | | | $ | 6,586,297 | | | | | $ | 7,338,493 | |
| Credit loss expense / (benefit) | | (107,265) | | | (103,466) | | | | | (210,731) | |
| | | | | | | | |
| | | | | | | | |
| Charge-offs | | (108,523) | | | (2,049,202) | | | | | (2,157,725) | |
| Recoveries | | 54,102 | | | 1,690,949 | | | | | 1,745,051 | |
| Charge-offs, net of recoveries | | (54,421) | | | (358,253) | | | | | (412,674) | |
| ALLL, end of period | | $ | 590,510 | | | $ | 6,124,578 | | | | | $ | 6,715,088 | |
| | | | | | | | |
| Reserve for unfunded lending commitments, beginning of period | | $ | 119,129 | | | $ | 27,326 | | | | | $ | 146,455 | |
| Credit loss expense / (benefit) on unfunded lending commitments | | (4,699) | | | (6,293) | | | | | (10,992) | |
| | | | | | | | |
| Reserve for unfunded lending commitments, end of period | | 114,430 | | | 21,033 | | | | | 135,463 | |
| Total ACL, end of period | | $ | 704,940 | | | $ | 6,145,611 | | | | | $ | 6,850,551 | |
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| | Year-To-Date Ended March 31, 2022 |
| (in thousands) | | Commercial | | Consumer | | | | Total |
| ALLL, beginning of period | | $ | 567,309 | | | $ | 5,894,101 | | | | | $ | 6,461,410 | |
| Credit loss expense / (benefit) | | (11,397) | | | 240,871�� | | | | | 229,474 | |
| | | | | | | | |
| | | | | | | | |
| Charge-offs | | (16,169) | | | (881,036) | | | | | (897,205) | |
| Recoveries | | 17,588 | | | 593,964 | | | | | 611,552 | |
| Charge-offs, net of recoveries | | 1,419 | | | (287,072) | | | | | (285,653) | |
| ALLL, end of period | | $ | 557,331 | | | $ | 5,847,900 | | | | | $ | 6,405,231 | |
| | | | | | | | |
| Reserve for unfunded lending commitments, beginning of period | | $ | 91,191 | | | $ | 12,903 | | | | | $ | 104,094 | |
| Credit loss expense / (benefit) on unfunded lending commitments | | (10,882) | | | (1,783) | | | | | (12,665) | |
| Loss on unfunded lending commitments | | — | | | — | | | | | — | |
| Reserve for unfunded lending commitments, end of period | | 80,309 | | | 11,120 | | | | | 91,429 | |
| Total ACL, end of period | | $ | 637,640 | | | $ | 5,859,020 | | | | | $ | 6,496,660 | |
NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)
| | | | | | Three-Month Period Ended September 30, 2020 | | Year-To-Date Ended March 31, 2021 |
| (in thousands) | (in thousands) | | Commercial | | Consumer | | Unallocated | | Total | (in thousands) | | Commercial | | Consumer | | | | Total |
| ALLL, beginning of period | ALLL, beginning of period | | $ | 759,599 | | | $ | 6,353,139 | | | $ | — | | | $ | 7,112,738 | | ALLL, beginning of period | | $ | 752,196 | | | $ | 6,586,297 | | | | | $ | 7,338,493 | |
| Credit loss expense / (benefit) | Credit loss expense / (benefit) | | 14,797 | | | 365,799 | | | — | | | 380,596 | | Credit loss expense / (benefit) | | (21,846) | | | 119,979 | | | | | 98,133 | |
| Charge-offs | Charge-offs | | (28,962) | | | (577,179) | | | — | | | (606,141) | | Charge-offs | | (39,632) | | | (827,386) | | | | | (867,018) | |
| Recoveries | Recoveries | | 7,843 | | | 504,562 | | | — | | | 512,405 | | Recoveries | | 25,629 | | | 564,918 | | | | | 590,547 | |
| Charge-offs, net of recoveries | Charge-offs, net of recoveries | | (21,119) | | | (72,617) | | | — | | | (93,736) | | Charge-offs, net of recoveries | | (14,003) | | | (262,468) | | | | | (276,471) | |
| ALLL, end of period | ALLL, end of period | | $ | 753,277 | | | $ | 6,646,321 | | | $ | — | | | $ | 7,399,598 | | ALLL, end of period | | $ | 716,347 | | | $ | 6,443,808 | | | | | $ | 7,160,155 | |
| | Reserve for unfunded lending commitments, beginning of period | Reserve for unfunded lending commitments, beginning of period | | $ | 95,022 | | | $ | 27,721 | | | $ | — | | | $ | 122,743 | | Reserve for unfunded lending commitments, beginning of period | | $ | 119,129 | | | $ | 27,326 | | | | | $ | 146,455 | |
| Credit loss expense / (benefit) on unfunded lending commitments | | 24,752 | | | 477 | | | — | | | 25,229 | | |
| | Reserve for unfunded lending commitments, end of period | | 119,774 | | | 28,198 | | | — | | | 147,972 | | |
| Total ACL, end of period | | $ | 873,051 | | | $ | 6,674,519 | | | $ | — | | | $ | 7,547,570 | | |
| | Nine-Month Period Ended September 30, 2020 | |
| (in thousands) | | Commercial | | Consumer | | Unallocated | | Total | |
| ALLL, beginning of period | | $ | 399,829 | | | $ | 3,199,612 | | | $ | 46,748 | | | $ | 3,646,189 | | |
| Day 1: Adjustment to allowance for adoption of ASU 2016-13 | | 198,919 | | | 2,383,711 | | | (46,748) | | | 2,535,882 | | |
| Credit loss expense / (benefit) | | 254,262 | | | 2,268,811 | | | — | | | 2,523,073 | | |
| Charge-offs | | (125,871) | | | (2,721,664) | | | — | | | (2,847,535) | | |
| Recoveries | | 26,138 | | | 1,515,851 | | | — | | | 1,541,989 | | |
| Charge-offs, net of recoveries | | (99,733) | | | (1,205,813) | | | — | | | (1,305,546) | | |
| ALLL, end of period | | $ | 753,277 | | | $ | 6,646,321 | | | $ | — | | | $ | 7,399,598 | | |
| | Reserve for unfunded lending commitments, beginning of period | | $ | 85,934 | | | $ | 5,892 | | | $ | — | | | $ | 91,826 | | |
| Day 1: Adjustment to allowance for adoption of ASU 2016-13 | | 10,081 | | | 330 | | | — | | | 10,411 | | |
| | Credit loss expense / (benefit) on unfunded lending commitments | Credit loss expense / (benefit) on unfunded lending commitments | | 23,759 | | | 21,976 | | | — | | | 45,735 | | Credit loss expense / (benefit) on unfunded lending commitments | | (18,812) | | | (3,254) | | | | | (22,066) | |
| Reserve for unfunded lending commitments, end of period | Reserve for unfunded lending commitments, end of period | | 119,774 | | | 28,198 | | | — | | | 147,972 | | Reserve for unfunded lending commitments, end of period | | 100,317 | | | 24,072 | | | | | 124,389 | |
| Total ACL, end of period | Total ACL, end of period | | $ | 873,051 | | | $ | 6,674,519 | | | $ | — | | | $ | 7,547,570 | | Total ACL, end of period | | $ | 816,664 | | | $ | 6,467,880 | | | | | $ | 7,284,544 | |
The credit risk in the Company’s loan portfolios is driven by credit and collateral quality, and is affected by borrower-specific and economy-wide factors. In general, there is an inverse relationship between the credit quality of loans and projections of impairment losses so that loans with better credit quality require a lower expected loss reserve. The Company manages this risk through its underwriting, pricing strategies, credit policy standards, and servicing guidelines and practices, as well as the application of geographic and other concentration limits.
NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)
The Company estimates CECL based on prospective information as well as account-level models based on historical data. Unemployment, HPI, GDP, CRE price index and used vehicle index growth rates, along with loan level characteristics, are the key inputs used in the models for prediction of the likelihood that the borrower will default in the forecasted period (the PD) and the loss in the event of default (the LGD). To estimate the LGD,GDP is also a key input used in the models use unemployment, HPI, CRE and used vehicle indices, along with loan level characteristics as key inputs.for the prediction of the likelihood that a borrower will default.
The Company has determined the reasonable and supportable period to be three years, at which time the economic forecasts generally tend to revert to historical averages. The Company also utilizes qualitative factorsadjustments to capture any additional risks that may not be captured in either the economic forecasts or in the historical data, including consideration of several factors such as the portfolio metricsinterpretation of economic trends and uncertainties, changes in the nature and volume of loan portfolios, trends in delinquency and collateral value.values, and concentration risk.
The Company generally uses a third-party vendor's consensus baseline macroeconomic scenario for the quantitative estimate and additional positive and negative macroeconomic scenarios to make qualitative adjustments for macroeconomic uncertainty and considers adjustments to macroeconomic inputs and outputs based on market volatility.
The Company's allowance for loan losses decreased by $623.4$56.2 million from December 31, 2020,2021 to March 31, 2022, primarily due to an improved macroeconomic outlook as well as improved credit quality and performance.
NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)
Non-accrual loans by Class of Financing Receivable
The amortized cost basis of financial instrumentsfinancing receivables that are either non-accrual with related expected credit loss or nonaccrualnon-accrual without related expected credit loss disaggregated by class of financing receivables and other non-performing assets is as follows:
| | | Non-accrual loans as of:(1) | | Non-accrual loans with no allowance | | Non-accrual loans as of:(1) | | Non-accrual loans with no allowance |
| (in thousands) | (in thousands) | | September 30, 2021 | | December 31, 2020 | | September 30, 2021 | | December 31, 2020 | (in thousands) | | March 31, 2022 | | December 31, 2021 | | March 31, 2022 | | December 31, 2021 |
| | Non-accrual loans: | Non-accrual loans: | | | | | | Non-accrual loans: | | | | | |
| Commercial: | Commercial: | | | | | | Commercial: | | | | | |
| CRE | CRE | | $ | 110,376 | | | $ | 106,751 | | | $ | 89,547 | | | $ | 84,816 | | CRE | | $ | 29,891 | | | $ | 31,752 | | | $ | 24,327 | | | $ | 24,112 | |
| C&I | C&I | | 85,597 | | | 107,053 | | | 47,027 | | | 60,029 | | C&I | | 86,326 | | | 69,754 | | | 24,947 | | | 35,965 | |
| Multifamily | Multifamily | | 116,605 | | | 72,392 | | | 116,441 | | | 65,936 | | Multifamily | | 100,022 | | | 103,299 | | | 99,748 | | | 103,138 | |
| Other commercial | Other commercial | | 10,598 | | | 20,019 | | | 6,443 | | | 3,778 | | Other commercial | | 7,654 | | | 9,036 | | | 3,984 | | | 5,472 | |
| Total commercial loans | Total commercial loans | | 323,176 | | | 306,215 | | | 259,458 | | | 214,559 | | Total commercial loans | | 223,893 | | | 213,841 | | | 153,006 | | | 168,687 | |
| Consumer: | Consumer: | | | | | | | | | Consumer: | | | | | | | | |
| Residential mortgages | Residential mortgages | | 98,952 | | | 160,172 | | | 39,094 | | | 98,308 | | Residential mortgages | | 112,990 | | | 123,548 | | | 60,979 | | | 71,463 | |
| Home equity loans and lines of credit | Home equity loans and lines of credit | | 92,998 | | | 91,606 | | | 41,921 | | | 32,130 | | Home equity loans and lines of credit | | 84,339 | | | 88,310 | | | 37,933 | | | 39,693 | |
| RICs and auto loans | RICs and auto loans | | 1,242,960 | | | 1,174,317 | | | 204,193 | | | 191,370 | | RICs and auto loans | | 1,196,948 | | | 1,467,928 | | | 196,776 | | | 202,193 | |
| Personal unsecured loans | Personal unsecured loans | | — | | | — | | | — | | | — | | Personal unsecured loans | | 3,740 | | | 2,892 | | | — | | | — | |
| Other consumer | Other consumer | | 4,848 | | | 6,325 | | | 63 | | | 34 | | Other consumer | | 408 | | | 1,047 | | | 37 | | | 16 | |
| Total consumer loans | Total consumer loans | | 1,439,758 | | | 1,432,420 | | | 285,271 | | | 321,842 | | Total consumer loans | | 1,398,425 | | | 1,683,725 | | | 295,725 | | | 313,365 | |
| Total non-accrual loans | Total non-accrual loans | | 1,762,934 | | | 1,738,635 | | | 544,729 | | | 536,401 | | Total non-accrual loans | | 1,622,318 | | | 1,897,566 | | | 448,731 | | | 482,052 | |
| | OREO | OREO | | 3,960 | | | 29,799 | | | — | | | — | | OREO | | 4,322 | | | 3,724 | | | — | | | — | |
| Repossessed vehicles | Repossessed vehicles | | 232,614 | | | 204,653 | | | — | | | — | | Repossessed vehicles | | 249,656 | | | 247,757 | | | — | | | — | |
| Foreclosed and other repossessed assets | Foreclosed and other repossessed assets | | 944 | | | 3,247 | | | — | | | — | | Foreclosed and other repossessed assets | | 538 | | | 294 | | | — | | | — | |
| Total OREO and other repossessed assets | Total OREO and other repossessed assets | | 237,518 | | | 237,699 | | | — | | | — | | Total OREO and other repossessed assets | | 254,516 | | | 251,775 | | | — | | | — | |
| Total non-performing assets | Total non-performing assets | | $ | 2,000,452 | | | $ | 1,976,334 | | | $ | 544,729 | | | $ | 536,401 | | Total non-performing assets | | $ | 1,876,834 | | | $ | 2,149,341 | | | $ | 448,731 | | | $ | 482,052 | |
(1) Interest income recognized on nonaccrual loans was $26.3$37.7 million and $73.0$26.2 million for the three-monthquarters ended March 31, 2022, and nine-month periods ended September 30,March 31, 2021 respectively, compared to $21.8 million and $84.4 million for the three-month and nine-month periods ended September 30, 2020, respectively.
NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)
Age Analysis of Past Due Loans
The Company generally considers an account delinquent when an obligor fails to pay substantially all (defined as 90%) of the scheduled payment by the due date. When an account is deferred, the loan is returned to accrual status during the deferral period and accrued interest related to the loan is evaluated for collectability.
The age of amortized cost inof past due loans and accruing loans 90 days or greater past due disaggregated by class of financing receivables is summarized as follows:
| | | As of: | | As of: |
| | September 30, 2021 | | March 31, 2022 |
| (in thousands) | (in thousands) | | 30-89
Days Past
Due | | 90
Days or Greater | | Total
Past Due | | Current | | Total
Financing
Receivables | | Amortized Cost
> 90 Days and
Accruing | (in thousands) | | 30-89
Days Past
Due | | 90
Days or Greater | | Total
Past Due | | Current | | Total
Financing
Receivables | | Amortized Cost
> 90 Days and
Accruing |
| Commercial: | Commercial: | | | | | | | | | | | | | Commercial: | | | | | | | | | | | | |
CRE(3) | CRE(3) | | $ | 24,743 | | | $ | 49,067 | | | $ | 73,810 | | | $ | 7,393,232 | | | $ | 7,467,042 | | | $ | — | | CRE(3) | | $ | 7,646 | | | $ | 6,777 | | | $ | 14,423 | | | $ | 7,336,389 | | | $ | 7,350,812 | | | $ | — | |
C&I(1) | C&I(1) | | 27,356 | | | 22,439 | | | 49,795 | | | 15,000,779 | | | 15,050,574 | | | — | | C&I(1) | | 33,255 | | | 10,674 | | | 43,929 | | | 14,071,740 | | | 14,115,669 | | | — | |
| Multifamily | Multifamily | | 36,505 | | | 25,840 | | | 62,345 | | | 7,286,327 | | | 7,348,672 | | | — | | Multifamily | | — | | | — | | | — | | | 7,709,447 | | | 7,709,447 | | | — | |
| Other commercial | Other commercial | | 179,750 | | | 2,884 | | | 182,634 | | | 7,899,740 | | | 8,082,374 | | | — | | Other commercial | | 83,039 | | | 2,098 | | | 85,137 | | | 8,154,301 | | | 8,239,438 | | | — | |
| Consumer: | Consumer: | | | | | | | | | | | | | Consumer: | | | | | | | | | | | | |
Residential mortgages(2) | Residential mortgages(2) | | 75,958 | | | 72,590 | | | 148,548 | | | 5,787,378 | | | 5,935,926 | | | — | | Residential mortgages(2) | | 62,590 | | | 95,792 | | | 158,382 | | | 5,394,913 | | | 5,553,295 | | | — | |
| Home equity loans and lines of credit | Home equity loans and lines of credit | | 19,914 | | | 60,829 | | | 80,743 | | | 3,533,729 | | | 3,614,472 | | | — | | Home equity loans and lines of credit | | 22,836 | | | 62,917 | | | 85,753 | | | 3,273,589 | | | 3,359,342 | | | — | |
RICs and auto loans(4) | RICs and auto loans(4) | | 3,153,639 | | | 229,792 | | | 3,383,431 | | | 39,928,583 | | | 43,312,014 | | | — | | RICs and auto loans(4) | | 3,237,357 | | | 186,551 | | | 3,423,908 | | | 39,662,737 | | | 43,086,645 | | | — | |
| Personal unsecured loans | Personal unsecured loans | | 7,977 | | | 5,554 | | | 13,531 | | | 1,528,784 | | | 1,542,315 | | | 2,214 | | Personal unsecured loans | | 13,498 | | | 6,773 | | | 20,271 | | | 2,541,751 | | | 2,562,022 | | | 2,605 | |
| Other consumer | Other consumer | | 3,007 | | | 306 | | | 3,313 | | | 155,570 | | | 158,883 | | | — | | Other consumer | | 3,742 | | | 321 | | | 4,063 | | | 122,998 | | | 127,061 | | | — | |
| Total | Total | | $ | 3,528,849 | | | $ | 469,301 | | | $ | 3,998,150 | | | $ | 88,514,122 | | | $ | 92,512,272 | | | $ | 2,214 | | Total | | $ | 3,463,963 | | | $ | 371,903 | | | $ | 3,835,866 | | | $ | 88,267,865 | | | $ | 92,103,731 | | | $ | 2,605 | |
(1) C&I&I loans includes $100.1$247.0 million of LHFS at September 30, 2021.March 31, 2022.
(2) Residential mortgages includes $194.1$81.1 million of LHFS at September 30, 2021.
(3) CRE loans include $13.6 million of LHFS at September 30, 2021.
(4) RICs and auto loans includes $359.6 million of LHFS at September 30, 2021.March 31, 2022.
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| As of |
| | December 31, 2020 |
| (in thousands) | | 30-89
Days Past
Due | | 90
Days or Greater | | Total
Past Due | | Current | | Total
Financing
Receivables | | Recorded
Investment
> 90 Days and Accruing |
| Commercial: | | | | | | | | | | | | |
| CRE | | $ | 41,320 | | | $ | 70,304 | | | $ | 111,624 | | | $ | 7,244,247 | | | $ | 7,355,871 | | | $ | — | |
C&I (1) | | 59,759 | | | 45,883 | | | 105,642 | | | 16,654,606 | | | 16,760,248 | | | — | |
| Multifamily | | 47,116 | | | 66,664 | | | 113,780 | | | 8,257,122 | | | 8,370,902 | | | — | |
| Other commercial | | 80,993 | | | 9,214 | | | 90,207 | | | 7,365,629 | | | 7,455,836 | | | 56 | |
| Consumer: | | | | | | | | | | | | |
Residential mortgages(2) | | 209,274 | | | 111,698 | | | 320,972 | | | 6,673,411 | | | 6,994,383 | | | — | |
| Home equity loans and lines of credit | | 31,488 | | | 72,197 | | | 103,685 | | | 4,004,820 | | | 4,108,505 | | | — | |
| RICs and auto loans | | 2,944,376 | | | 284,985 | | | 3,229,361 | | | 38,143,329 | | | 41,372,690 | | | — | |
Personal unsecured loans(3) | | 56,041 | | | 56,582 | | | 112,623 | | | 1,605,286 | | | 1,717,909 | | | 52,807 | |
| Other consumer | | 5,358 | | | 1,688 | | | 7,046 | | | 215,988 | | | 223,034 | | | — | |
| Total | | $ | 3,475,725 | | | $ | 719,215 | | | $ | 4,194,940 | | | $ | 90,164,438 | | | $ | 94,359,378 | | | $ | 52,863 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of |
| | December 31, 2021 |
| (in thousands) | | 30-89
Days Past
Due | | 90
Days or Greater | | Total
Past Due | | Current | | Total
Financing
Receivables | | Recorded
Investment
> 90 Days and Accruing |
| Commercial: | | | | | | | | | | | | |
| CRE | | $ | 4,287 | | | $ | 8,775 | | | $ | 13,062 | | | $ | 7,213,941 | | | $ | 7,227,003 | | | $ | — | |
C&I (1) | | 31,475 | | | 19,862 | | | 51,337 | | | 14,747,739 | | | 14,799,076 | | | — | |
| Multifamily | | 336 | | | 2,574 | | | 2,910 | | | 7,544,472 | | | 7,547,382 | | | — | |
| Other commercial | | 77,842 | | | 2,674 | | | 80,516 | | | 8,089,515 | | | 8,170,031 | | | — | |
| Consumer: | | | | | | | | | | | | |
Residential mortgages(2) | | 83,626 | | | 89,403 | | | 173,029 | | | 5,592,342 | | | 5,765,371 | | | — | |
| Home equity loans and lines of credit | | 22,871 | | | 63,306 | | | 86,177 | | | 3,401,057 | | | 3,487,234 | | | — | |
| RICs and auto loans | | 3,535,402 | | | 324,150 | | | 3,859,552 | | | 39,323,546 | | | 43,183,098 | | | — | |
| Personal unsecured loans | | 10,361 | | | 5,206 | | | 15,567 | | | 1,994,087 | | | 2,009,654 | | | 2,314 | |
| Other consumer | | 3,493 | | | 564 | | | 4,057 | | | 137,929 | | | 141,986 | | | — | |
| Total | | $ | 3,769,693 | | | $ | 516,514 | | | $ | 4,286,207 | | | $ | 88,044,628 | | | $ | 92,330,835 | | | $ | 2,314 | |
(1)C&I loans included $222.3$88.2 million of LHFS at December 31, 2020.2021.
(2) Residential mortgages included $404.2$166.8 million of LHFS at December 31, 2020.
(3) Personal unsecured loans included $893.5 million of LHFS at December 31, 2020.
(4) RICs and auto loans includes $674.0 million of LHFS at December 31, 2020.
(5) Multifamily loans includes $3.8 million of LHFS at December 31, 2020.
(6) Other Commercial loans includes $0.3 million of LHFS at December 31, 2020.
(7) CRE loans include $28.0 million of LHFS at December 31, 2020.
NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)
Commercial Lending Asset Quality Indicators
The Company's Risk Department performs a credit analysis and classifies certain loans over an internal threshold based on the commercial lending classifications described below:
PASS. Asset is well-protected by the current net worth and paying capacity of the obligor or guarantors, if any, or by the fair value less costs to acquire and sell any underlying collateral in a timely manner.
SPECIAL MENTION. Asset has potential weaknesses that deserve management’s close attention, which, if left uncorrected, may result in deterioration of the repayment prospects for an asset at some future date. Special mention assets are not adversely classified.
SUBSTANDARD. Asset is inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged, if any. A well-defined weakness or weaknesses exist that jeopardize the liquidation of the debt. The loans are characterized by the distinct possibility that the Company will sustain some loss if deficiencies are not corrected.
DOUBTFUL. Exhibits the inherent weaknesses of a substandard credit. Additional characteristics exist that make collection or liquidation in full highly questionable and improbable, on the basis of currently known facts, conditions and values. Possibility of loss is extremely high, but because of certain important and reasonable specific pending factors which may work to the advantage and strengthening of the credit, an estimated loss cannot yet be determined.
LOSS. Credit is considered uncollectible and of such little value that it does not warrant consideration as an active asset. There may be some recovery or salvage value, but there is doubt as to whether, how much or when the recovery would occur.
NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)
Each commercial loan is evaluated to determine its risk rating at least annually. The indicators represent the rating for loans as of the date presented based on the most recent assessment performed. Amortized cost basis of loans in the commercial portfolio segment by credit quality indicator, class of financing receivable, and year of origination are summarized as follows:
| | September 30, 2021 | | Commercial Loan Portfolio (1) | |
| March 31, 2022 | | March 31, 2022 | | Commercial Loan Portfolio (2) |
| (dollars in thousands) | (dollars in thousands) | | Amortized Cost by Origination Year | (dollars in thousands) | | Amortized Cost by Origination Year |
| Regulatory Rating: | Regulatory Rating: | | 2021(3) | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Total | Regulatory Rating: | | 2022(1) | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Total (3) | |
| CRE | CRE | | | | | | | | | | | | | | | CRE | | | | | | | | | | | | | | | |
| Pass | Pass | | $ | 532,153 | | | $ | 1,162,932 | | | $ | 1,649,972 | | | $ | 1,081,959 | | | $ | 508,030 | | | $ | 1,662,006 | | | $ | 6,597,052 | | Pass | | $ | 334,119 | | | $ | 1,124,835 | | | $ | 1,446,329 | | | $ | 1,304,042 | | | $ | 837,269 | | | $ | 1,590,331 | | | $ | 6,636,925 | | |
| Special mention | Special mention | | — | | | 11,066 | | | 2,374 | | | 94,256 | | | 113,481 | | | 49,668 | | | 270,845 | | Special mention | | — | | | — | | | 14,914 | | | 32,955 | | | 116,606 | | | 128,380 | | | 292,855 | | |
| Substandard | Substandard | | — | | | 5,285 | | | 123,962 | | | 180,459 | | | 47,017 | | | 242,422 | | | 599,145 | | Substandard | | — | | | 26,902 | | | 17,917 | | | 135,283 | | | 102,352 | | | 138,578 | | | 421,032 | | |
| Doubtful | Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | |
| N/A | N/A | | — | | | — | | | — | | | — | | | — | | | — | | | — | | N/A | | — | | | — | | | — | | | — | | | — | | | — | | | — | | |
| Total CRE | Total CRE | | $ | 532,153 | | | $ | 1,179,283 | | | $ | 1,776,308 | | | $ | 1,356,674 | | | $ | 668,528 | | | $ | 1,954,096 | | | $ | 7,467,042 | | Total CRE | | $ | 334,119 | | | $ | 1,151,737 | | | $ | 1,479,160 | | | $ | 1,472,280 | | | $ | 1,056,227 | | | $ | 1,857,289 | | | $ | 7,350,812 | | |
| C&I | C&I | | | | | | | | | | | | | | | C&I | | | | | | | | | | | | | | | |
| Pass | Pass | | $ | 2,804,360 | | | $ | 3,543,973 | | | $ | 2,250,445 | | | $ | 1,557,532 | | | $ | 663,272 | | | $ | 2,269,634 | | | $ | 13,089,216 | | Pass | | $ | 486,319 | | | $ | 3,277,037 | | | $ | 3,011,041 | | | $ | 1,966,504 | | | $ | 986,036 | | | $ | 2,544,382 | | | $ | 12,271,319 | | |
| Special mention | Special mention | | 38,417 | | | 22,186 | | | 176,902 | | | 97,231 | | | 54,970 | | | 103,840 | | | 493,546 | | Special mention | | — | | | 2,000 | | | 25,884 | | | 155,936 | | | 15,673 | | | 62,324 | | | 261,817 | | |
| Substandard | Substandard | | 20,631 | | | 73,811 | | | 15,206 | | | 110,128 | | | 28,208 | | | 249,871 | | | 497,855 | | Substandard | | 10,320 | | | 133,507 | | | 27,446 | | | 29,799 | | | 73,359 | | | 249,468 | | | 523,899 | | |
| Doubtful | Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | Doubtful | | — | | | — | | | 26,229 | | | — | | | — | | | — | | | 26,229 | | |
N/A(2) | | 399,089 | | | 299,470 | | | 206,636 | | | 47,936 | | | 7,860 | | | 8,966 | | | 969,957 | | |
| N/A | | N/A | | 156,795 | | | 459,300 | | | 224,689 | | | 151,017 | | | 33,455 | | | 7,149 | | | 1,032,405 | | |
| Total C&I | Total C&I | | $ | 3,262,497 | | | $ | 3,939,440 | | | $ | 2,649,189 | | | $ | 1,812,827 | | | $ | 754,310 | | | $ | 2,632,311 | | | $ | 15,050,574 | | Total C&I | | $ | 653,434 | | | $ | 3,871,844 | | | $ | 3,315,289 | | | $ | 2,303,256 | | | $ | 1,108,523 | | | $ | 2,863,323 | | | $ | 14,115,669 | | |
| Multifamily | Multifamily | | | | | | | | | | | | | | | Multifamily | | | | | | | | | | | | | | | |
| Pass | Pass | | $ | 790,294 | | | $ | 785,282 | | | $ | 1,459,687 | | | $ | 929,974 | | | $ | 839,620 | | | $ | 1,119,423 | | | $ | 5,924,280 | | Pass | | $ | 543,310 | | | $ | 1,556,328 | | | $ | 729,397 | | | $ | 1,456,419 | | | $ | 819,771 | | | $ | 1,443,589 | | | $ | 6,548,814 | | |
| Special mention | Special mention | | — | | | 10,128 | | | 86,128 | | | 101,569 | | | 15,931 | | | 75,389 | | | 289,145 | | Special mention | | — | | | 21,954 | | | 5,045 | | | 33,819 | | | 65,004 | | | 50,056 | | | 175,878 | | |
| Substandard | Substandard | | 4,075 | | | 79,534 | | | 245,272 | | | 389,024 | | | 185,282 | | | 232,060 | | | 1,135,247 | | Substandard | | — | | | 3,887 | | | 83,537 | | | 231,042 | | | 300,044 | | | 366,245 | | | 984,755 | | |
| Doubtful | Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | |
| N/A | N/A | | — | | | — | | | — | | | — | | | — | | | — | | | — | | N/A | | — | | | — | | | — | | | — | | | — | | | — | | | — | | |
| Total Multifamily | Total Multifamily | | $ | 794,369 | | | $ | 874,944 | | | $ | 1,791,087 | | | $ | 1,420,567 | | | $ | 1,040,833 | | | $ | 1,426,872 | | | $ | 7,348,672 | | Total Multifamily | | $ | 543,310 | | | $ | 1,582,169 | | | $ | 817,979 | | | $ | 1,721,280 | | | $ | 1,184,819 | | | $ | 1,859,890 | | | $ | 7,709,447 | | |
| Remaining commercial | Remaining commercial | | | | | | | | | | | | | | | Remaining commercial | | | | | | | | | | | | | | | |
| Pass | Pass | | $ | 3,001,967 | | | $ | 2,252,908 | | | $ | 1,039,187 | | | $ | 510,508 | | | $ | 288,220 | | | $ | 949,740 | | | $ | 8,042,530 | | Pass | | $ | 1,310,663 | | | $ | 2,820,756 | | | $ | 1,685,435 | | | $ | 854,615 | | | $ | 392,585 | | | $ | 1,151,128 | | | $ | 8,215,182 | | |
| Special mention | Special mention | | 37 | | | — | | | 3,157 | | | 5,509 | | | 657 | | | 4,150 | | | 13,510 | | Special mention | | — | | | — | | | — | | | — | | | 4,314 | | | 352 | | | 4,666 | | |
| Substandard | Substandard | | 475 | | | 654 | | | 7,757 | | | 2,647 | | | 2,162 | | | 12,483 | | | 26,178 | | Substandard | | — | | | 3,302 | | | 689 | | | 6,485 | | | 2,026 | | | 7,088 | | | 19,590 | | |
| Doubtful | Doubtful | | 81 | | | — | | | — | | | 75 | | | — | | | — | | | 156 | | Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | |
| N/A | N/A | | — | | | — | | | — | | | — | | | — | | | — | | | — | | N/A | | — | | | — | | | — | | | — | | | — | | | — | | | — | | |
| Total Remaining commercial | Total Remaining commercial | | $ | 3,002,560 | | | $ | 2,253,562 | | | $ | 1,050,101 | | | $ | 518,739 | | | $ | 291,039 | | | $ | 966,373 | | | $ | 8,082,374 | | Total Remaining commercial | | $ | 1,310,663 | | | $ | 2,824,058 | | | $ | 1,686,124 | | | $ | 861,100 | | | $ | 398,925 | | | $ | 1,158,568 | | | $ | 8,239,438 | | |
| Total Commercial loans | | | | | | | | | | | | | | | |
| Total commercial loans | | Total commercial loans | | | | | | | | | | | | | | | |
| Pass | Pass | | $ | 7,128,774 | | | $ | 7,745,095 | | | $ | 6,399,291 | | | $ | 4,079,973 | | | $ | 2,299,142 | | | $ | 6,000,803 | | | $ | 33,653,078 | | Pass | | $ | 2,674,411 | | | $ | 8,778,956 | | | $ | 6,872,202 | | | $ | 5,581,580 | | | $ | 3,035,661 | | | $ | 6,729,430 | | | $ | 33,672,240 | | |
| Special mention | Special mention | | 38,454 | | | 43,380 | | | 268,561 | | | 298,565 | | | 185,039 | | | 233,047 | | | 1,067,046 | | Special mention | | — | | | 23,954 | | | 45,843 | | | 222,710 | | | 201,597 | | | 241,112 | | | 735,216 | | |
| Substandard | Substandard | | 25,181 | | | 159,284 | | | 392,197 | | | 682,258 | | | 262,669 | | | 736,836 | | | 2,258,425 | | Substandard | | 10,320 | | | 167,598 | | | 129,589 | | | 402,609 | | | 477,781 | | | 761,379 | | | 1,949,276 | | |
| Doubtful | Doubtful | | 81 | | | — | | | — | | | 75 | | | — | | | — | | | 156 | | Doubtful | | — | | | — | | | 26,229 | | | — | | | — | | | — | | | 26,229 | | |
N/A(2) | | 399,089 | | | 299,470 | | | 206,636 | | | 47,936 | | | 7,860 | | | 8,966 | | | 969,957 | | |
| N/A | | N/A | | 156,795 | | | 459,300 | | | 224,689 | | | 151,017 | | | 33,455 | | | 7,149 | | | 1,032,405 | | |
| Total commercial loans | Total commercial loans | | $ | 7,591,579 | | | $ | 8,247,229 | | | $ | 7,266,685 | | | $ | 5,108,807 | | | $ | 2,754,710 | | | $ | 6,979,652 | | | $ | 37,948,662 | | Total commercial loans | | $ | 2,841,526 | | | $ | 9,429,808 | | | $ | 7,298,552 | | | $ | 6,357,916 | | | $ | 3,748,494 | | | $ | 7,739,070 | | | $ | 37,415,366 | | |
(1)Includes $136.9 million of LHFS at September 30, 2021.
(2)Consists of loans that have not been assigned a regulatory rating.
(3)Loans originated during the year-to-date ended September 30, 2021.March 31, 2022.
(2)Includes $247.0 million of LHFS at March 31, 2022.
(3)Includes $343.2 million revolving loans converted to term loans.
NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)
| | December 31, 2020 | | Commercial Loan Portfolio (1) | |
| December 31, 2021 | | December 31, 2021 | | Commercial Loan Portfolio (2) |
| (dollars in thousands) | (dollars in thousands) | | Amortized Cost by Origination Year | (dollars in thousands) | | Amortized Cost by Origination Year |
| Regulatory Rating: | Regulatory Rating: | | 2020(3) | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | Total | Regulatory Rating: | | 2021(1) | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Total (3) | |
| CRE | CRE | | | | | | | | | | | | | | | CRE | | | | | | | | | | | | | | | |
| Pass | Pass | | $ | 722,210 | | | $ | 1,424,392 | | | $ | 1,656,560 | | | $ | 816,607 | | | $ | 542,979 | | | $ | 1,536,812 | | | $ | 6,699,560 | | Pass | | $ | 986,225 | | | $ | 1,283,784 | | | $ | 1,308,729 | | | $ | 918,097 | | | $ | 446,715 | | | $ | 1,512,165 | | | $ | 6,455,715 | | |
| Special mention | Special mention | | 28,876 | | | 15,480 | | | 81,167 | | | 43,368 | | | 79,555 | | | 83,751 | | | 332,197 | | Special mention | | — | | | 9,490 | | | 26,892 | | | 118,103 | | | 117,703 | | | 35,135 | | | 307,323 | | |
| Substandard | Substandard | | 8,259 | | | 16,609 | | | 29,761 | | | 33,833 | | | 45,936 | | | 189,716 | | | 324,114 | | Substandard | | 20,291 | | | 11,896 | | | 131,169 | | | 138,652 | | | 42,965 | | | 118,992 | | | 463,965 | | |
| Doubtful | Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | |
| N/A | N/A | | — | | | — | | | — | | | — | | | — | | | — | | | — | | N/A | | — | | | — | | | — | | | — | | | — | | | — | | | — | | |
| Total CRE | Total CRE | | $ | 759,345 | | | $ | 1,456,481 | | | $ | 1,767,488 | | | $ | 893,808 | | | $ | 668,470 | | | $ | 1,810,279 | | | $ | 7,355,871 | | Total CRE | | $ | 1,006,516 | | | $ | 1,305,170 | | | $ | 1,466,790 | | | $ | 1,174,852 | | | $ | 607,383 | | | $ | 1,666,292 | | | $ | 7,227,003 | | |
| C&I | C&I | | | | | | | | | | | | | | | C&I | | | | | | | | | | | | | | | |
| Pass | Pass | | $ | 4,661,409 | | | $ | 3,365,828 | | | $ | 2,798,209 | | | $ | 868,373 | | | $ | 585,083 | | | $ | 2,305,305 | | | $ | 14,584,207 | | Pass | | $ | 3,828,736 | | | $ | 3,213,214 | | | $ | 2,179,598 | | | $ | 1,179,065 | | | $ | 574,141 | | | $ | 2,042,111 | | | $ | 13,016,865 | | |
| Special mention | Special mention | | 11,000 | | | 136,413 | | | 134,388 | | | 49,601 | | | 99,042 | | | 254,102 | | | 684,546 | | Special mention | | 11,003 | | | 32,268 | | | 154,820 | | | 31,026 | | | 25,176 | | | 98,964 | | | 353,257 | | |
| Substandard | Substandard | | 60,034 | | | 15,309 | | | 173,900 | | | 59,814 | | | 84,642 | | | 213,908 | | | 607,607 | | Substandard | | 62,742 | | | 62,305 | | | 11,859 | | | 50,384 | | | 47,020 | | | 197,121 | | | 431,431 | | |
| Doubtful | Doubtful | | 3,153 | | | 145 | | | 80 | | | 1,616 | | | 1,282 | | | 11,226 | | | 17,502 | | Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | |
| N/A(2) | | 411,319 | | | 294,652 | | | 75,091 | | | 15,101 | | | 15,388 | | | 54,835 | | | 866,386 | | |
| N/A | | N/A | | 511,609 | | | 258,315 | | | 176,542 | | | 39,942 | | | 5,959 | | | 5,156 | | | 997,523 | | |
| Total C&I | Total C&I | | $ | 5,146,915 | | | $ | 3,812,347 | | | $ | 3,181,668 | | | $ | 994,505 | | | $ | 785,437 | | | $ | 2,839,376 | | | $ | 16,760,248 | | Total C&I | | $ | 4,414,090 | | | $ | 3,566,102 | | | $ | 2,522,819 | | | $ | 1,300,417 | | | $ | 652,296 | | | $ | 2,343,352 | | | $ | 14,799,076 | | |
| Multifamily | Multifamily | | | | | | | | | | | | | | | Multifamily | | | | | | | | | | | | | | | |
| Pass | Pass | | $ | 880,199 | | | $ | 1,938,271 | | | $ | 1,361,178 | | | $ | 1,198,819 | | | $ | 503,267 | | | $ | 1,365,066 | | | $ | 7,246,800 | | Pass | | $ | 1,575,287 | | | $ | 740,684 | | | $ | 1,522,367 | | | $ | 820,900 | | | $ | 729,510 | | | $ | 905,967 | | | $ | 6,294,715 | | |
| Special mention | Special mention | | — | | | 39,433 | | | 147,872 | | | 110,906 | | | 31,348 | | | 59,072 | | | 388,631 | | Special mention | | 4,850 | | | — | | | 101,375 | | | 71,031 | | | 15,125 | | | 35,449 | | | 227,830 | | |
| Substandard | Substandard | | 5,355 | | | 104,945 | | | 203,437 | | | 148,251 | | | 49,445 | | | 224,038 | | | 735,471 | | Substandard | | 3,981 | | | 83,994 | | | 233,045 | | | 345,510 | | | 135,289 | | | 223,018 | | | 1,024,837 | | |
| Doubtful | Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | |
| N/A | N/A | | — | | | — | | | — | | | — | | | — | | | — | | | — | | N/A | | — | | | — | | | — | | | — | | | — | | | — | | | — | | |
| Total Multifamily | Total Multifamily | | $ | 885,554 | | | $ | 2,082,649 | | | $ | 1,712,487 | | | $ | 1,457,976 | | | $ | 584,060 | | | $ | 1,648,176 | | | $ | 8,370,902 | | Total Multifamily | | $ | 1,584,118 | | | $ | 824,678 | | | $ | 1,856,787 | | | $ | 1,237,441 | | | $ | 879,924 | | | $ | 1,164,434 | | | $ | 7,547,382 | | |
| Remaining commercial | Remaining commercial | | | | | | | | | | | | | | | Remaining commercial | | | | | | | | | | | | | | | |
| Pass | Pass | | $ | 3,530,625 | | | $ | 1,416,704 | | | $ | 766,454 | | | $ | 443,244 | | | $ | 199,297 | | | $ | 1,038,584 | | | $ | 7,394,908 | | Pass | | $ | 3,753,502 | | | $ | 1,864,509 | | | $ | 952,428 | | | $ | 446,979 | | | $ | 260,112 | | | $ | 858,640 | | | $ | 8,136,170 | | |
| Special mention | Special mention | | 53 | | | 11,096 | | | 11,271 | | | 105 | | | 83 | | | 8,102 | | | 30,710 | | Special mention | | 2,959 | | | — | | | 3,007 | | | 5,169 | | | 625 | | | 1,741 | | | 13,501 | | |
| Substandard | Substandard | | 2,115 | | | 3,974 | | | 4,181 | | | 4,246 | | | 5,983 | | | 9,160 | | | 29,659 | | Substandard | | 287 | | | 569 | | | 7,196 | | | 2,214 | | | 1,786 | | | 8,308 | | | 20,360 | | |
| Doubtful | Doubtful | | 351 | | | — | | | 99 | | | — | | | 101 | | | 8 | | | 559 | | Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | |
| N/A | N/A | | — | | | — | | | — | | | — | | | — | | | — | | | — | | N/A | | — | | | — | | | — | | | — | | | — | | | — | | | — | | |
| Total Remaining commercial | Total Remaining commercial | | $ | 3,533,144 | | | $ | 1,431,774 | | | $ | 782,005 | | | $ | 447,595 | | | $ | 205,464 | | | $ | 1,055,854 | | | $ | 7,455,836 | | Total Remaining commercial | | $ | 3,756,748 | | | $ | 1,865,078 | | | $ | 962,631 | | | $ | 454,362 | | | $ | 262,523 | | | $ | 868,689 | | | $ | 8,170,031 | | |
| Total Commercial loans | | | | | | | | | | | | | | | |
| Total commercial loans | | Total commercial loans | | | | | | | | | | | | | | | |
| Pass | Pass | | $ | 9,794,443 | | | $ | 8,145,195 | | | $ | 6,582,401 | | | $ | 3,327,043 | | | $ | 1,830,626 | | | $ | 6,245,767 | | | $ | 35,925,475 | | Pass | | $ | 10,143,750 | | | $ | 7,102,191 | | | $ | 5,963,122 | | | $ | 3,365,041 | | | $ | 2,010,478 | | | $ | 5,318,883 | | | $ | 33,903,465 | | |
| Special mention | Special mention | | 39,929 | | | 202,422 | | | 374,698 | | | 203,980 | | | 210,028 | | | 405,027 | | | 1,436,084 | | Special mention | | 18,812 | | | 41,758 | | | 286,094 | | | 225,329 | | | 158,629 | | | 171,289 | | | 901,911 | | |
| Substandard | Substandard | | 75,763 | | | 140,837 | | | 411,279 | | | 246,144 | | | 186,006 | | | 636,822 | | | 1,696,851 | | Substandard | | 87,301 | | | 158,764 | | | 383,269 | | | 536,760 | | | 227,060 | | | 547,439 | | | 1,940,593 | | |
| Doubtful | Doubtful | | 3,504 | | | 145 | | | 179 | | | 1,616 | | | 1,383 | | | 11,234 | | | 18,061 | | Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | |
| N/A(2) | | 411,319 | | | 294,652 | | | 75,091 | | | 15,101 | | | 15,388 | | | 54,835 | | | 866,386 | | |
| N/A | | N/A | | 511,609 | | | 258,315 | | | 176,542 | | | 39,942 | | | 5,959 | | | 5,156 | | | 997,523 | | |
| Total commercial loans | Total commercial loans | | $ | 10,324,958 | | | $ | 8,783,251 | | | $ | 7,443,648 | | | $ | 3,793,884 | | | $ | 2,243,431 | | | $ | 7,353,685 | | | $ | 39,942,857 | | Total commercial loans | | $ | 10,761,472 | | | $ | 7,561,028 | | | $ | 6,809,027 | | | $ | 4,167,072 | | | $ | 2,402,126 | | | $ | 6,042,767 | | | $ | 37,743,492 | | |
(1)Includes $254.5 million of LHFS at December 31, 2020.
(2)Consists of loans that have not been assigned a regulatory rating.
(3)Loans originated during the year ended December 31, 2020.2021.
(2)Includes $88.2 million of LHFS at December 31, 2021.
(3)Includes $362.7 million revolving loans converted to term loans.
NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)
Consumer Lending Asset Quality Indicators-Credit Score
Consumer financing receivables for which either an internal or external credit score is a core component of the allowance model are summarized by credit score determined at origination as follows:
| | As of September 30, 2021 | | RICs and auto loans | |
| As of March 31, 2022 | | As of March 31, 2022 | | RICs and auto loans |
| (dollars in thousands) | (dollars in thousands) | | Amortized Cost by Origination Year(3) | (dollars in thousands) | | Amortized Cost by Origination Year(3) |
| Credit Score Range | Credit Score Range | | 2021(2) | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Total | Percent | Credit Score Range | | 2022(1) | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Total | Percent |
No FICO(1)(2) | No FICO(1)(2) | | $ | 1,180,058 | | | $ | 855,656 | | | $ | 520,721 | | | $ | 284,251 | | | $ | 254,373 | | | $ | 149,940 | | | $ | 3,244,999 | | 7.6 | % | No FICO(1)(2) | | $ | 399,461 | | | $ | 1,248,679 | | | $ | 621,683 | | | $ | 382,162 | | | $ | 206,419 | | | $ | 228,914 | | | $ | 3,087,318 | | 7.2 | % |
| <600 | <600 | | 5,850,839 | | | 4,280,234 | | | 2,935,090 | | | 1,716,119 | | | 685,895 | | | 655,324 | | | 16,123,501 | | 37.5 | % | <600 | | 1,953,403 | | | 6,623,338 | | | 3,257,170 | | | 2,218,774 | | | 1,266,879 | | | 865,358 | | | 16,184,922 | | 37.6 | % |
| 600-639 | 600-639 | | 2,810,074 | | | 1,819,849 | | | 1,213,116 | | | 624,180 | | | 197,671 | | | 655,329 | | | 7,320,219 | | 17.0 | % | 600-639 | | 1,035,366 | | | 3,172,534 | | | 1,360,273 | | | 904,380 | | | 452,618 | | | 237,626 | | | 7,162,797 | | 16.6 | % |
| >=640 | >=640 | | 7,287,090 | | | 4,720,566 | | | 3,111,366 | | | 847,553 | | | 149,072 | | | 148,087 | | | 16,263,734 | | 37.9 | % | >=640 | | 2,043,890 | | | 7,861,634 | | | 3,659,865 | | | 2,301,120 | | | 602,051 | | | 183,048 | | | 16,651,608 | | 38.6 | % |
| Total | Total | | $ | 17,128,061 | | | $ | 11,676,305 | | | $ | 7,780,293 | | | $ | 3,472,103 | | | $ | 1,287,011 | | | $ | 1,608,680 | | | $ | 42,952,453 | | 100.0�� | % | Total | | $ | 5,432,120 | | | $ | 18,906,185 | | | $ | 8,898,991 | | | $ | 5,806,436 | | | $ | 2,527,967 | | | $ | 1,514,946 | | | $ | 43,086,645 | | 100.0 | % |
(1) Loans originated during the year-to-date ended March 31, 2022.
(2) Consists primarily of loans for which credit scores are not available or are not considered in the ALLL model.
(2) Loans originated during the year-to-date ended September 30, 2021.
(3) Excludes LHFS.
| | As of December 31, 2020 | | RICs and auto loans | |
| As of December 31, 2021 | | As of December 31, 2021 | | RICs and auto loans |
| (dollars in thousands) | (dollars in thousands) | | Amortized Cost by Origination Year(3) | (dollars in thousands) | | Amortized Cost by Origination Year(3) |
| Credit Score Range | Credit Score Range | | 2020(2) | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | Total | Percent | Credit Score Range | | 2021(1) | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Total | Percent |
No FICO(1)(2) | No FICO(1)(2) | | $ | 1,326,026 | | | $ | 839,412 | | | $ | 450,539 | | | $ | 484,975 | | | $ | 230,382 | | | $ | 142,746 | | | $ | 3,474,080 | | 8.5 | % | No FICO(1)(2) | | $ | 1,427,962 | | | $ | 733,752 | | | $ | 449,965 | | | $ | 244,829 | | | $ | 201,129 | | | $ | 108,766 | | | $ | 3,166,403 | | 7.4 | % |
| <600 | <600 | | 6,056,260 | | | 4,373,991 | | | 2,648,215 | | | 1,126,742 | | | 685,830 | | | 634,480 | | | 15,525,518 | | 38.2 | % | <600 | | 7,410,017 | | | 3,768,302 | | | 2,574,070 | | | 1,488,371 | | | 580,881 | | | 515,318 | | | 16,336,959 | | 37.8 | % |
| 600-639 | 600-639 | | 2,782,566 | | | 1,912,731 | | | 1,001,985 | | | 335,111 | | | 229,690 | | | 173,501 | | | 6,435,584 | | 15.8 | % | 600-639 | | 3,574,644 | | | 1,585,530 | | | 1,056,397 | | | 537,222 | | | 165,318 | | | 141,316 | | | 7,060,427 | | 16.3 | % |
| >=640 | >=640 | | 8,427,478 | | | 4,832,173 | | | 1,382,133 | | | 264,635 | | | 200,430 | | | 156,611 | | | 15,263,460 | | 37.5 | % | >=640 | | 8,793,804 | | | 4,169,473 | | | 2,681,160 | | | 718,312 | | | 122,569 | | | 133,991 | | | 16,619,309 | | 38.5 | % |
| Total | Total | | $ | 18,592,330 | | | $ | 11,958,307 | | | $ | 5,482,872 | | | $ | 2,211,463 | | | $ | 1,346,332 | | | $ | 1,107,338 | | | $ | 40,698,642 | | 100.0 | % | Total | | $ | 21,206,427 | | | $ | 10,257,057 | | | $ | 6,761,592 | | | $ | 2,988,734 | | | $ | 1,069,897 | | | $ | 899,391 | | | $ | 43,183,098 | | 100.0 | % |
(1) Loans originated during the year ended December 31, 2021.
(2) Consists primarily of loans for which credit scores are not available or are not considered in the ALLL model.
(2) Loans originated during the year ended December 31, 2020.
(3) Excludes LHFS.
Consumer Lending Asset Quality Indicators-FICO and LTV Ratio
For both residential and home equity loans, loss severity assumptions are incorporated in the loan and lease loss reserve models to estimate loan balances that will ultimately charge off. These assumptions are based on recent loss experience within various current LTV bands within these portfolios. LTVs are refreshed quarterly by applying Federal Housing Finance Agency Home price index changes at a state-by-state level to the last known appraised value of the property to estimate the current LTV. The Company's CECL loss calculation incorporates the refreshed LTV information to update the distribution of defaulted loans by LTV as well as the associated LGD for each LTV band. Reappraisals on a recurring basis at the individual property level are not considered cost-effective or necessary; however, reappraisals are performed on certain higher risk accounts to support line management activities, default servicing decisions, or when other situations arise for which the Company believes the additional expense is warranted.
FICO scores are refreshed quarterly, where possible. The indicators disclosed represent the credit scores for loans as of the date presented based on the most recent assessment performed.
NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)
Residential mortgage and home equity financing receivables by LTV and FICO range are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of September 30, 2021 | | Residential Mortgages(1)(3) |
| (dollars in thousands) | | Amortized Cost by Origination Year |
| FICO Score | | 2021(4) | 2020 | 2019 | 2018 | 2017 | Prior | | Grand Total |
N/A(2) | | | | | | | | | |
| LTV <= 70% | | $ | — | | $ | 724 | | $ | — | | $ | — | | $ | 489 | | $ | 2,599 | | | $ | 3,812 | |
| 70.01-80% | | — | | — | | — | | — | | — | | — | | | — | |
| 80.01-90% | | — | | — | | — | | — | | — | | — | | | — | |
| 90.01-100% | | — | | — | | — | | — | | — | | — | | | — | |
| 100.01-110% | | — | | — | | — | | — | | — | | — | | | — | |
| LTV>110% | | — | | — | | — | | — | | — | | — | | | — | |
LTV - N/A(2) | | 24,542 | | 3,211 | | 2,397 | | 1,194 | | 1,661 | | 6,827 | | | 39,832 | |
| | | | | | | | | |
| | | | | | | | | |
| <600 | | | | | | | | | |
| LTV <= 70% | | $ | 303 | | $ | 1,820 | | $ | 8,684 | | $ | 7,022 | | $ | 12,684 | | $ | 88,637 | | | $ | 119,150 | |
| 70.01-80% | | 443 | | 1,600 | | 6,042 | | 10,375 | | 5,587 | | 1,014 | | | 25,061 | |
| 80.01-90% | | 271 | | 2,250 | | 3,167 | | 607 | | — | | 406 | | | 6,701 | |
| 90.01-100% | | 391 | | — | | — | | — | | — | | 70 | | | 461 | |
| 100.01-110% | | — | | — | | — | | — | | — | | — | | | — | |
| LTV>110% | | — | | — | | — | | — | | — | | — | | | — | |
| LTV - N/A(2) | | — | | — | | — | | — | | — | | 69 | | | 69 | |
| | | | | | | | | |
| | | | | | | | | |
| 600-639 | | | | | | | | | |
| LTV <= 70% | | $ | 747 | | $ | 4,214 | | $ | 10,821 | | $ | 5,123 | | $ | 9,309 | | $ | 72,888 | | | $ | 103,102 | |
| 70.01-80% | | 1,235 | | 1,905 | | 5,924 | | 6,462 | | 1,160 | | 409 | | | 17,095 | |
| 80.01-90% | | 882 | | 2,820 | | 3,290 | | — | | — | | 624 | | | 7,616 | |
| 90.01-100% | | 1,548 | | — | | — | | — | | — | | 634 | | | 2,182 | |
| 100.01-110% | | — | | — | | — | | — | | — | | — | | | — | |
| LTV>110% | | — | | — | | — | | — | | — | | — | | | — | |
LTV - N/A(2) | | — | | — | | — | | — | | — | | — | | | — | |
| | | | | | | | | |
| | | | | | | | | |
| 640-679 | | | | | | | | | |
| LTV <= 70% | | $ | 5,134 | | $ | 19,573 | | $ | 22,500 | | $ | 16,731 | | $ | 26,099 | | $ | 129,752 | | | $ | 219,789 | |
| 70.01-80% | | 3,429 | | 7,325 | | 15,019 | | 11,572 | | 3,818 | | 1,097 | | | 42,260 | |
| 80.01-90% | | 3,401 | | 11,427 | | 7,939 | | — | | — | | 609 | | | 23,376 | |
| 90.01-100% | | 4,311 | | — | | — | | — | | — | | 395 | | | 4,706 | |
| 100.01-110% | | — | | — | | — | | — | | — | | 65 | | | 65 | |
| LTV>110% | | — | | — | | — | | — | | — | | 151 | | | 151 | |
LTV - N/A(2) | | — | | — | | — | | — | | — | | — | | | — | |
| | | | | | | | | |
| | | | | | | | | |
| 680-719 | | | | | | | | | |
| LTV <= 70% | | $ | 36,616 | | $ | 47,378 | | $ | 63,985 | | $ | 30,568 | | $ | 59,576 | | $ | 223,345 | | | $ | 461,468 | |
| 70.01-80% | | 18,685 | | 10,144 | | 21,765 | | 15,028 | | 5,495 | | 1,619 | | | 72,736 | |
| 80.01-90% | | 6,793 | | 20,699 | | 14,308 | | — | | — | | 1,428 | | | 43,228 | |
| 90.01-100% | | 15,600 | | — | | — | | — | | — | | 988 | | | 16,588 | |
| 100.01-110% | | — | | — | | — | | — | | — | | 124 | | | 124 | |
| LTV>110% | | — | | — | | — | | — | | — | | 1,496 | | | 1,496 | |
| LTV - N/A(2) | | — | | — | | — | | — | | — | | 73 | | | 73 | |
| | | | | | | | | |
| | | | | | | | | |
| 720-759 | | | | | | | | | |
| LTV <= 70% | | $ | 128,411 | | $ | 125,712 | | $ | 111,006 | | $ | 69,477 | | $ | 102,655 | | $ | 312,501 | | | $ | 849,762 | |
| 70.01-80% | | 77,977 | | 33,441 | | 42,009 | | 30,662 | | 6,214 | | 2,006 | | | 192,309 | |
| 80.01-90% | | 10,703 | | 40,860 | | 27,872 | | — | | — | | 841 | | | 80,276 | |
| 90.01-100% | | 19,676 | | 99 | | — | | — | | — | | 100 | | | 19,875 | |
| 100.01-110% | | — | | — | | — | | — | | — | | 450 | | | 450 | |
| LTV>110% | | — | | — | | — | | — | | — | | 94 | | | 94 | |
LTV - N/A(2) | | — | | — | | — | | — | | — | | 172 | | | 172 | |
| | | | | | | | | |
| | | | | | | | | |
| >=760 | | | | | | | | | |
| LTV <= 70% | | $ | 361,688 | | $ | 550,188 | | $ | 332,476 | | $ | 150,815 | | $ | 306,095 | | $ | 1,140,650 | | | $ | 2,841,912 | |
| 70.01-80% | | 143,389 | | 136,002 | | 75,253 | | 45,085 | | 15,981 | | 4,450 | | | 420,160 | |
| 80.01-90% | | 17,019 | | 56,004 | | 29,765 | | — | | — | | 1,204 | | | 103,992 | |
| 90.01-100% | | 18,804 | | — | | — | | — | | 561 | | 574 | | | 19,939 | |
| 100.01-110% | | — | | — | | — | | — | | — | | — | | | — | |
| LTV>110% | | — | | — | | — | | — | | — | | 1,517 | | | 1,517 | |
LTV - N/A(2) | | — | | — | | — | | — | | — | | 249 | | | 249 | |
| Total - All FICO Bands | | | | | | | | | |
| LTV <= 70% | | $ | 532,899 | | $ | 749,609 | | $ | 549,472 | | $ | 279,736 | | $ | 516,907 | | $ | 1,970,372 | | | $ | 4,598,995 | |
| 70.01-80% | | 245,158 | | 190,417 | | 166,012 | | 119,184 | | 38,255 | | 10,595 | | | 769,621 | |
| 80.01-90% | | 39,069 | | 134,060 | | 86,341 | | 607 | | — | | 5,112 | | | 265,189 | |
| 90.01-100% | | 60,330 | | 99 | | — | | — | | 561 | | 2,761 | | | 63,751 | |
| 100.01-110% | | — | | — | | — | | — | | — | | 639 | | | 639 | |
| LTV>110% | | — | | — | | — | | — | | — | | 3,258 | | | 3,258 | |
LTV - N/A(2) | | 24,542 | | 3,211 | | 2,397 | | 1,194 | | 1,661 | | 7,390 | | | 40,395 | |
| Grand Total | | $ | 901,998 | | $ | 1,077,396 | | $ | 804,222 | | $ | 400,721 | | $ | 557,384 | | $ | 2,000,127 | | | $ | 5,741,848 | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of March 31, 2022 | | Amortized Cost by Origination Year (4) | | |
| (dollars in thousands) | | | | |
Residential mortgages(1) | | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | | Grand Total | | Revolving Loans |
LTV Ratios (3) | | | | | | | | | | | |
No LTV available (2) | | $ | 7,465 | | $ | 939 | | $ | 803 | | $ | 552 | | $ | 268 | | $ | 3,160 | | | $ | 13,187 | | | $ | — | |
| <= 70% | | 79,401 | | 816,999 | | 832,391 | | 519,194 | | 301,580 | | 2,140,446 | | | 4,690,011 | | | — | |
| 70.01% - 110% | | 64,201 | | 339,393 | | 157,504 | | 158,931 | | 28,462 | | 18,003 | | | 766,494 | | | — | |
| Greater than 110% | | — | | — | | — | | — | | — | | 2,483 | | | 2,483 | | | — | |
| Total Residential mortgages | | $ | 151,067 | | $ | 1,157,331 | | $ | 990,698 | | $ | 678,677 | | $ | 330,310 | | $ | 2,164,092 | | | $ | 5,472,175 | | | $ | — | |
| | | | | | | | | | | |
| FICO Scores | | | | | | | | | | | |
| No FICO score available | | $ | 7,466 | | $ | 939 | | $ | 804 | | $ | 551 | | $ | 268 | | $ | 5,613 | | | $ | 15,641 | | | $ | — | |
| <600 | | — | | 4,764 | | 6,881 | | 19,649 | | 16,602 | | 110,402 | | | 158,298 | | | — | |
| 600-679 | | 4,941 | | 41,367 | | 38,944 | | 58,516 | | 38,818 | | 218,454 | | | 401,040 | | | — | |
| 680-759 | | 53,075 | | 337,969 | | 244,489 | | 217,916 | | 111,116 | | 579,903 | | | 1,544,468 | | | — | |
| >=760 | | 85,585 | | 772,292 | | 699,580 | | 382,045 | | 163,506 | | 1,249,720 | | | 3,352,728 | | | — | |
| Total Residential mortgages | | $ | 151,067 | | $ | 1,157,331 | | $ | 990,698 | | $ | 678,677 | | $ | 330,310 | | $ | 2,164,092 | | | $ | 5,472,175 | | | $ | — | |
| | | | | | | | | | | |
Home equity(1) | | | | | | | | | | | |
| LTV Ratios | | | | | | | | | | | |
No LTV available (2) | | $ | 972 | | $ | 2,956 | | $ | 3,424 | | $ | 4,068 | | $ | 5,669 | | $ | 69,718 | | | $ | 86,807 | | | $ | 53,012 | |
| <= 70% | | 25,728 | | 137,968 | | 224,699 | | 283,788 | | 367,378 | | 2,082,456 | | | 3,122,017 | | | 3,033,412 | |
| 70.01% - 110% | | 13,845 | | 43,844 | | 6,452 | | 8,084 | | 1,043 | | 66,146 | | | 139,414 | | | 134,904 | |
| Greater than 110% | | 968 | | 2,860 | | 43 | | — | | — | | 7,233 | | | 11,104 | | | 11,030 | |
| Total Home equity | | $ | 41,513 | | $ | 187,628 | | $ | 234,618 | | $ | 295,940 | | $ | 374,090 | | $ | 2,225,553 | | | $ | 3,359,342 | | | $ | 3,232,358 | |
| | | | | | | | | | | |
| FICO Scores | | | | | | | | | | | |
| No FICO score available | | $ | 560 | | $ | 2,631 | | $ | 3,164 | | $ | 4,100 | | $ | 5,367 | | $ | 68,241 | | | $ | 84,063 | | | $ | 50,275 | |
| <600 | | — | | 649 | | 963 | | 4,843 | | 11,165 | | 130,132 | | | 147,752 | | | 129,458 | |
| 600-679 | | 1,005 | | 6,222 | | 11,817 | | 22,975 | | 36,109 | | 281,467 | | | 359,595 | | | 339,683 | |
| 680-759 | | 15,191 | | 66,168 | | 78,274 | | 95,554 | | 123,254 | | 699,683 | | | 1,078,124 | | | 1,055,692 | |
| >=760 | | 24,757 | | 111,958 | | 140,400 | | 168,468 | | 198,195 | | 1,046,030 | | | 1,689,808 | | | 1,657,250 | |
| Total Home equity | | $ | 41,513 | | $ | 187,628 | | $ | 234,618 | | $ | 295,940 | | $ | 374,090 | | $ | 2,225,553 | | | $ | 3,359,342 | | | $ | 3,232,358 | |
(1) Excludes LHFS.Loans originated during the year-to-date ended March 31, 2022.
(2) Balances in the "N/A" range for"No LTV available" or "No FICO scoreScore available" ranges primarily represent loans serviced by others, in run-off portfolios or for which a current LTV or FICO score is unavailable.
(3) The ALLL model considers LTV for financing receivables in first lien position and CLTV for financing receivables in second lien position for the Company.
(4) Loans originated during the year-to-date ended September 30, 2021.
NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of September 30, 2021 | | Home Equity Loans and Lines of Credit(2) |
| (in thousands) | | Amortized Cost by Origination Year |
| FICO Score | | 2021(4) | 2020 | 2019 | 2018 | 2017 | Prior | Total | Revolving |
N/A(2) | | | | | | | | | |
| LTV <= 70% | | $ | — | | $ | 562 | | $ | 116 | | $ | 299 | | $ | 421 | | $ | 996 | | $ | 2,394 | | $ | 2,394 | |
| 70.01-90% | | — | | — | | — | | — | | — | | 45 | | 45 | | 45 | |
| 90.01-110% | | — | | — | | — | | — | | — | | — | | — | | — | |
| LTV>110% | | — | | — | | — | | — | | — | | — | | — | | — | |
LTV - N/A(2) | | 1,542 | | 3,173 | | 4,148 | | 5,115 | | 4,865 | | 69,967 | | 88,810 | | 49,855 | |
| | | | | | | | | |
| <600 | | | | | | | | | |
| LTV <= 70% | | $ | 124 | | $ | 620 | | $ | 3,645 | | $ | 9,914 | | $ | 12,290 | | $ | 114,231 | | $ | 140,824 | | $ | 122,844 | |
| 70.01-90% | | 1 | | — | | 557 | | 558 | | 359 | | 3,726 | | 5,201 | | 4,727 | |
| 90.01-110% | | — | | — | | — | | — | | — | | 787 | | 787 | | 726 | |
| LTV>110% | | — | | — | | — | | — | | — | | 1,060 | | 1,060 | | 1,059 | |
LTV - N/A(2) | | — | | — | | — | | — | | 115 | | — | | 115 | | 115 | |
| | | | | | | | | |
| 600-639 | | | | | | | | | |
| LTV <= 70% | | $ | 289 | | $ | 1,903 | | $ | 4,973 | | $ | 10,285 | | $ | 11,263 | | $ | 94,386 | | $ | 123,099 | | $ | 112,785 | |
| 70.01-90% | | 13 | | 95 | | 798 | | 658 | | 392 | | 4,673 | | 6,629 | | 5,986 | |
| 90.01-110% | | — | | — | | — | | — | | — | | 1,936 | | 1,936 | | 1,770 | |
| LTV>110% | | — | | — | | — | | — | | — | | 807 | | 807 | | 770 | |
LTV - N/A(2) | | — | | — | | — | | — | | — | | 520 | | 520 | | 520 | |
| | | | | | | | | |
| 640-679 | | | | | | | | | |
| LTV <= 70% | | $ | 1,597 | | $ | 5,573 | | $ | 15,241 | | $ | 27,201 | | $ | 22,875 | | $ | 159,398 | | $ | 231,885 | | $ | 223,027 | |
| 70.01-90% | | 296 | | 713 | | 2,066 | | 1,660 | | 628 | | 9,564 | | 14,927 | | 14,171 | |
| 90.01-110% | | — | | — | | — | | — | | — | | 2,731 | | 2,731 | | 2,496 | |
| LTV>110% | | — | | — | | — | | — | | — | | 1,274 | | 1,274 | | 1,259 | |
LTV - N/A(2) | | — | | — | | 25 | | — | | — | | 177 | | 202 | | 183 | |
| | | | | | | | | |
| 680-719 | | | | | | | | | |
| LTV <= 70% | | $ | 11,184 | | $ | 28,844 | | $ | 37,291 | | $ | 51,241 | | $ | 53,239 | | $ | 265,031 | | $ | 446,830 | | $ | 433,930 | |
| 70.01-90% | | 3,853 | | 3,962 | | 5,308 | | 2,630 | | 1,305 | | 13,274 | | 30,332 | | 29,438 | |
| 90.01-110% | | — | | — | | — | | — | | — | | 4,072 | | 4,072 | | 3,884 | |
| LTV>110% | | 219 | | 36 | | — | | — | | — | | 4,729 | | 4,984 | | 4,820 | |
LTV - N/A(2) | | — | | — | | 51 | | — | | — | | 61 | | 112 | | 112 | |
| | | | | | | | | |
| 720-759 | | | | | | | | | |
| LTV <= 70% | | $ | 20,770 | | $ | 42,665 | | $ | 60,782 | | $ | 74,017 | | $ | 83,775 | | $ | 361,248 | | $ | 643,257 | | $ | 631,838 | |
| 70.01-90% | | 7,016 | | 5,546 | | 6,098 | | 3,480 | | 1,439 | | 15,545 | | 39,124 | | 38,020 | |
| 90.01-110% | | 394 | | — | | — | | — | | — | | 4,511 | | 4,905 | | 4,546 | |
| LTV>110% | | 163 | | — | | — | | — | | — | | 2,968 | | 3,131 | | 3,065 | |
LTV - N/A(2) | | — | | 24 | | — | | — | | 5 | | 147 | | 176 | | 167 | |
| | | | | | | | | |
| >=760 | | | | | | | | | |
| LTV <= 70% | | $ | 58,845 | | $ | 135,150 | | $ | 169,879 | | $ | 213,693 | | $ | 187,656 | | $ | 934,891 | | $ | 1,700,114 | | $ | 1,669,288 | |
| 70.01-90% | | 13,044 | | 16,395 | | 13,194 | | 4,666 | | 1,906 | | 47,204 | | 96,409 | | 94,126 | |
| 90.01-110% | | 1,149 | | 266 | | 116 | | — | | — | | 8,451 | | 9,982 | | 9,206 | |
| LTV>110% | | 1,524 | | 973 | | — | | — | | — | | 4,306 | | 6,803 | | 6,764 | |
LTV - N/A(2) | | 218 | | — | | 8 | | 111 | | 65 | | 593 | | 995 | | 995 | |
| | | | | | | | | |
| Total - All FICO Bands | | | | | | | | | |
| LTV <= 70% | | $ | 92,809 | | $ | 215,317 | | $ | 291,927 | | $ | 386,650 | | $ | 371,519 | | $ | 1,930,181 | | $ | 3,288,403 | | $ | 3,196,106 | |
| LTV 70.01 - 90% | | 24,223 | | 26,711 | | 28,021 | | 13,652 | | 6,029 | | 94,031 | | 192,667 | | 186,513 | |
| LTV 90.01 - 110% | | 1,543 | | 266 | | 116 | | — | | — | | 22,488 | | 24,413 | | 22,628 | |
| LTV>110% | | 1,906 | | 1,009 | | — | | — | | — | | 15,144 | | 18,059 | | 17,737 | |
LTV - N/A(2) | | 1,760 | | 3,197 | | 4,232 | | 5,226 | | 5,050 | | 71,465 | | 90,930 | | 51,947 | |
| Grand Total | | $ | 122,241 | | $ | 246,500 | | $ | 324,296 | | $ | 405,528 | | $ | 382,598 | | $ | 2,133,309 | | $ | 3,614,472 | | $ | 3,474,931 | |
(1) - (4) Refer to corresponding notes above.Excludes LHFS.
NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2020 | | Residential Mortgages(1)(3) |
| (dollars in thousands) | | Amortized Cost by Origination Year |
| FICO Score | | 2020(4) | 2019 | 2018 | 2017 | 2016 | Prior | | Grand Total |
| N/A(2) | | | | | | | | | |
| LTV <= 70% | | $ | 750 | | $ | — | | $ | 521 | | $ | 500 | | $ | — | | $ | 3,148 | | | $ | 4,919 | |
| 70.01-80% | | — | | — | | — | | — | | — | | — | | | — | |
| 80.01-90% | | — | | — | | — | | — | | — | | — | | | — | |
| 90.01-100% | | — | | — | | — | | — | | — | | — | | | — | |
| 100.01-110% | | — | | — | | — | | — | | — | | — | | | — | |
| LTV>110% | | — | | — | | — | | — | | — | | — | | | — | |
| LTV - N/A(2) | | 109,388 | | 2,170 | | 1,200 | | 1,547 | | 1,485 | | 4,410 | | | 120,200 | |
| | | | | | | | | |
| | | | | | | | | |
| <600 | | | | | | | | | |
| LTV <= 70% | | $ | 876 | | $ | 3,988 | | $ | 6,255 | | $ | 13,646 | | $ | 13,775 | | $ | 109,076 | | | $ | 147,616 | |
| 70.01-80% | | 1,053 | | 5,235 | | 4,603 | | 7,707 | | 3,406 | | 2,832 | | | 24,836 | |
| 80.01-90% | | 221 | | 8,801 | | 8,442 | | 1,577 | | — | | 1,102 | | | 20,143 | |
| 90.01-100% | | 292 | | 2,792 | | — | | — | | 219 | | 690 | | | 3,993 | |
| 100.01-110% | | — | | — | | — | | — | | — | | 353 | | | 353 | |
| LTV>110% | | — | | — | | — | | — | | — | | 1,445 | | | 1,445 | |
| LTV - N/A(2) | | — | | — | | — | | — | | — | | 92 | | | 92 | |
| | | | | | | | | |
| | | | | | | | | |
| 600-639 | | | | | | | | | |
| LTV <= 70% | | $ | 3,058 | | $ | 3,923 | | $ | 4,275 | | $ | 11,593 | | $ | 10,710 | | $ | 81,496 | | | $ | 115,055 | |
| 70.01-80% | | 1,585 | | 4,839 | | 3,901 | | 5,300 | | 2,040 | | 2,935 | | | 20,600 | |
| 80.01-90% | | 1,233 | | 6,910 | | 5,693 | | 1,870 | | 249 | | 581 | | | 16,536 | |
| 90.01-100% | | 2,321 | | 2,364 | | — | | — | | — | | 193 | | | 4,878 | |
| 100.01-110% | | — | | — | | — | | — | | — | | 707 | | | 707 | |
| LTV>110% | | — | | — | | — | | — | | — | | 333 | | | 333 | |
| LTV - N/A(2) | | — | | — | | — | | — | | — | | — | | | — | |
| | | | | | | | | |
| | | | | | | | | |
| 640-679 | | | | | | | | | |
| LTV <= 70% | | $ | 11,264 | | $ | 21,946 | | $ | 17,039 | | $ | 24,447 | | $ | 26,992 | | $ | 124,559 | | | $ | 226,247 | |
| 70.01-80% | | 12,585 | | 18,756 | | 8,079 | | 7,117 | | 1,377 | | 2,426 | | | 50,340 | |
| 80.01-90% | | 2,385 | | 18,975 | | 12,715 | | 1,265 | | — | | 1,108 | | | 36,448 | |
| 90.01-100% | | 7,256 | | 4,501 | | — | | — | | — | | 573 | | | 12,330 | |
| 100.01-110% | | — | | — | | — | | — | | — | | 240 | | | 240 | |
| LTV>110% | | — | | — | | — | | — | | — | | 432 | | | 432 | |
| LTV - N/A(2) | | — | | — | | — | | — | | — | | — | | | — | |
| | | | | | | | | |
| | | | | | | | | |
| 680-719 | | | | | | | | | |
| LTV <= 70% | | $ | 34,802 | | $ | 49,625 | | $ | 41,447 | | $ | 56,362 | | $ | 54,836 | | $ | 196,173 | | | $ | 433,245 | |
| 70.01-80% | | 38,582 | | 37,546 | | 20,202 | | 18,615 | | 5,047 | | 4,556 | | | 124,548 | |
| 80.01-90% | | 7,616 | | 39,239 | | 22,510 | | 2,195 | | — | | 3,025 | | | 74,585 | |
| 90.01-100% | | 29,050 | | 8,147 | | — | | — | | — | | 526 | | | 37,723 | |
| 100.01-110% | | 101 | | — | | — | | — | | — | | 475 | | | 576 | |
| LTV>110% | | — | | — | | — | | — | | — | | 802 | | | 802 | |
| LTV - N/A(2) | | — | | — | | — | | — | | — | | 73 | | | 73 | |
| | | | | | | | | |
| | | | | | | | | |
| 720-759 | | | | | | | | | |
| LTV <= 70% | | $ | 105,769 | | $ | 89,140 | | $ | 88,485 | | $ | 145,301 | | $ | 132,720 | | $ | 285,308 | | | $ | 846,723 | |
| 70.01-80% | | 81,595 | | 62,488 | | 29,767 | | 25,421 | | 8,163 | | 5,334 | | | 212,768 | |
| 80.01-90% | | 16,714 | | 57,807 | | 30,850 | | 2,754 | | 355 | | 1,566 | | | 110,046 | |
| 90.01-100% | | 37,846 | | 12,066 | | — | | — | | — | | 563 | | | 50,475 | |
| 100.01-110% | | — | | — | | — | | — | | — | | 68 | | | 68 | |
| LTV>110% | | — | | — | | — | | — | | — | | 206 | | | 206 | |
| LTV - N/A(2) | | — | | — | | — | | — | | — | | 227 | | | 227 | |
| | | | | | | | | |
| | | | | | | | | |
| >=760 | | | | | | | | | |
| LTV <= 70% | | $ | 381,713 | | $ | 335,559 | | $ | 224,505 | | $ | 456,792 | | $ | 527,624 | | $ | 1,066,295 | | | $ | 2,992,488 | |
| 70.01-80% | | 221,896 | | 227,139 | | 71,681 | | 48,411 | | 17,893 | | 8,473 | | | 595,493 | |
| 80.01-90% | | 42,464 | | 134,309 | | 50,128 | | 7,977 | | — | | 3,886 | | | 238,764 | |
| 90.01-100% | | 37,279 | | 21,057 | | — | | — | | 74 | | 1,419 | | | 59,829 | |
| 100.01-110% | | — | | — | | — | | 571 | | — | | 1,008 | | | 1,579 | |
| LTV>110% | | — | | — | | — | | — | | 92 | | 1,734 | | | 1,826 | |
| LTV - N/A(2) | | — | | — | | — | | — | | — | | 381 | | | 381 | |
| Total - All FICO Bands | | | | | | | | | |
| LTV <= 70% | | $ | 538,232 | | $ | 504,181 | | $ | 382,527 | | $ | 708,641 | | $ | 766,657 | | $ | 1,866,055 | | | $ | 4,766,293 | |
| 70.01-80% | | 357,296 | | 356,003 | | 138,233 | | 112,571 | | 37,926 | | 26,556 | | | 1,028,585 | |
| 80.01-90% | | 70,633 | | 266,041 | | 130,338 | | 17,638 | | 604 | | 11,268 | | | 496,522 | |
| 90.01-100% | | 114,044 | | 50,927 | | — | | — | | 293 | | 3,964 | | | 169,228 | |
| 100.01-110% | | 101 | | — | | — | | 571 | | — | | 2,851 | | | 3,523 | |
| LTV>110% | | — | | — | | — | | — | | 92 | | 4,952 | | | 5,044 | |
LTV - N/A(2) | | 109,388 | | 2,170 | | 1,200 | | 1,547 | | 1,485 | | 5,183 | | | 120,973 | |
| Grand Total | | $ | 1,189,694 | | $ | 1,179,322 | | $ | 652,298 | | $ | 840,968 | | $ | 807,057 | | $ | 1,920,829 | | | $ | 6,590,168 | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | Amortized Cost by Origination Year (4) | | |
| (dollars in thousands) | | | | |
Residential mortgages(1) | | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | | Grand Total | | Revolving Loans |
LTV Ratios (3) | | | | | | | | | | | |
No LTV available (2) | | $ | 11,605 | | $ | 907 | | $ | 676 | | $ | 338 | | $ | 469 | | $ | 3,076 | | | $ | 17,071 | | | $ | — | |
| <= 70% | | $ | 747,090 | | $ | 831,112 | | $ | 517,103 | | $ | 293,784 | | $ | 497,556 | | $ | 1,812,989 | | | $ | 4,699,634 | | | $ | — | |
| 70.01% - 110% | | $ | 393,105 | | $ | 189,115 | | $ | 204,931 | | $ | 68,892 | | $ | 7,450 | | $ | 15,705 | | | $ | 879,198 | | | $ | — | |
| Greater than 110% | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 2,657 | | | $ | 2,657 | | | $ | — | |
| Total Residential mortgages | | $ | 1,151,800 | | $ | 1,021,134 | | $ | 722,710 | | $ | 363,014 | | $ | 505,475 | | $ | 1,834,427 | | | $ | 5,598,560 | | | $ | — | |
| | | | | | | | | | | |
| FICO Scores | | | | | | | | | | | |
| No FICO score available | | $ | 11,604 | | $ | 1,621 | | $ | 677 | | $ | 337 | | $ | 954 | | $ | 5,103 | | | $ | 20,296 | | | $ | — | |
| <600 | | $ | 2,356 | | $ | 4,719 | | $ | 15,894 | | $ | 16,995 | | $ | 17,879 | | $ | 83,310 | | | $ | 141,153 | | | $ | — | |
| 600-679 | | $ | 30,763 | | $ | 39,681 | | $ | 61,969 | | $ | 37,104 | | $ | 39,283 | | $ | 192,786 | | | $ | 401,586 | | | $ | — | |
| 680-759 | | $ | 372,215 | | $ | 257,513 | | $ | 235,167 | | $ | 126,926 | | $ | 147,159 | | $ | 513,020 | | | $ | 1,652,000 | | | $ | — | |
| >=760 | | $ | 734,862 | | $ | 717,600 | | $ | 409,003 | | $ | 181,652 | | $ | 300,200 | | $ | 1,040,208 | | | $ | 3,383,525 | | | $ | — | |
| Total Residential mortgages | | $ | 1,151,800 | | $ | 1,021,134 | | $ | 722,710 | | $ | 363,014 | | $ | 505,475 | | $ | 1,834,427 | | | $ | 5,598,560 | | | $ | — | |
| | | | | | | | | | | |
Home equity(1) | | | | | | | | | | | |
| LTV Ratios | | | | | | | | | | | |
No LTV available (2) | | $ | 1,850 | | $ | 3,003 | | $ | 3,923 | | $ | 4,911 | | $ | 4,808 | | $ | 69,090 | | | $ | 87,585 | | | $ | 50,651 | |
| <= 70% | | $ | 127,313 | | $ | 231,024 | | $ | 297,239 | | $ | 378,399 | | $ | 359,912 | | $ | 1,844,786 | | | $ | 3,238,673 | | | $ | 3,146,199 | |
| 70.01% - 110% | | $ | 40,483 | | $ | 8,133 | | $ | 11,149 | | $ | 6,781 | | $ | 817 | | $ | 80,152 | | | $ | 147,515 | | | $ | 140,959 | |
| Greater than 110% | | $ | 3,357 | | $ | 622 | | $ | — | | $ | — | | $ | — | | $ | 9,482 | | | $ | 13,461 | | | $ | 13,370 | |
| Total Home equity | | $ | 173,003 | | $ | 242,782 | | $ | 312,311 | | $ | 390,091 | | $ | 365,537 | | $ | 2,003,510 | | | $ | 3,487,234 | | | $ | 3,351,179 | |
| | | | | | | | | | | |
| FICO Scores | | | | | | | | | | | |
| No FICO score available | | $ | 1,908 | | $ | 3,121 | | $ | 4,133 | | $ | 4,935 | | $ | 4,879 | | $ | 68,603 | | | $ | 87,579 | | | $ | 50,671 | |
| <600 | | $ | 146 | | $ | 782 | | $ | 3,795 | | $ | 10,135 | | $ | 12,063 | | $ | 111,661 | | | $ | 138,582 | | | $ | 121,597 | |
| 600-679 | | $ | 3,330 | | $ | 8,417 | | $ | 22,910 | | $ | 35,437 | | $ | 32,485 | | $ | 257,159 | | | $ | 359,738 | | | $ | 338,378 | |
| 680-759 | | $ | 64,036 | | $ | 80,209 | | $ | 103,691 | | $ | 129,182 | | $ | 132,671 | | $ | 626,942 | | | $ | 1,136,731 | | | $ | 1,111,686 | |
| >=760 | | $ | 103,583 | | $ | 150,253 | | $ | 177,782 | | $ | 210,402 | | $ | 183,439 | | $ | 939,145 | | | $ | 1,764,604 | | | $ | 1,728,847 | |
| Total Home equity | | $ | 173,003 | | $ | 242,782 | | $ | 312,311 | | $ | 390,091 | | $ | 365,537 | | $ | 2,003,510 | | | $ | 3,487,234 | | | $ | 3,351,179 | |
(1) Excludes LHFS.Loans originated during the year-to-date ended December 31, 2021.
(2) Balances in the "N/A" range for"No LTV available" or "No FICO scoreScore available" ranges primarily represent loans serviced by others, in run-off portfolios or for which a current LTV or FICO score is unavailable.
(3) The ALLL model considers LTV for financing receivables in first lien position and CLTV for financing receivables in second lien position for the Company.
(4) Loans originated during the year ended December 31, 2020.Excludes LHFS.
NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2020 | | Home Equity Loans and Lines of Credit(2) |
| (in thousands) | | Amortized Cost by Origination Year |
| FICO Score | | 2020(4) | 2019 | 2018 | 2017 | 2016 | Prior | Total | Revolving |
| N/A(2) | | | | | | | | | |
| LTV <= 70% | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 77 | | $ | 531 | | $ | 608 | | $ | 608 | |
| 70.01-90% | | 8 | | — | | — | | — | | — | | — | | 8 | | 8 | |
| 90.01-110% | | — | | — | | — | | — | | — | | — | | — | | — | |
| LTV>110% | | — | | — | | — | | — | | — | | — | | — | | — | |
| LTV - N/A(2) | | 2,840 | | 4,407 | | 5,504 | | 5,514 | | 4,083 | | 83,060 | | 105,408 | | 53,654 | |
| | | | | | | | | |
| <600 | | | | | | | | | |
| LTV <= 70% | | $ | 727 | | $ | 3,389 | | $ | 7,255 | | $ | 10,780 | | $ | 15,566 | | $ | 121,240 | | $ | 158,957 | | $ | 137,921 | |
| 70.01-90% | | 238 | | 1,901 | | 4,029 | | 2,727 | | 1,698 | | 13,383 | | 23,976 | | 21,484 | |
| 90.01-110% | | — | | — | | — | | — | | — | | 2,389 | | 2,389 | | 2,017 | |
| LTV>110% | | — | | — | | — | | — | | — | | 2,391 | | 2,391 | | 2,369 | |
| LTV - N/A(2) | | — | | — | | — | | 15 | | — | | 562 | | 577 | | 555 | |
| | | | | | | | | |
| 600-639 | | | | | | | | | |
| LTV <= 70% | | $ | 1,265 | | $ | 2,589 | | $ | 8,921 | | $ | 13,240 | | $ | 11,873 | | $ | 100,148 | | $ | 138,036 | | $ | 128,515 | |
| 70.01-90% | | 728 | | 3,149 | | 5,618 | | 2,491 | | 433 | | 8,812 | | 21,231 | | 19,784 | |
| 90.01-110% | | — | | — | | — | | — | | — | | 1,803 | | 1,803 | | 1,706 | |
| LTV>110% | | — | | — | | — | | — | | — | | 3,235 | | 3,235 | | 2,858 | |
| LTV - N/A(2) | | — | | — | | — | | — | | — | | 51 | | 51 | | 29 | |
| | | | | | | | | |
| 640-679 | | | | | | | | | |
| LTV <= 70% | | $ | 4,983 | | $ | 15,432 | | $ | 23,718 | | $ | 26,211 | | $ | 19,167 | | $ | 152,823 | | $ | 242,334 | | $ | 231,152 | |
| 70.01-90% | | 2,166 | | 8,599 | | 10,455 | | 5,391 | | 1,377 | | 17,425 | | 45,413 | | 44,187 | |
| 90.01-110% | | — | | 53 | | — | | — | | — | | 6,279 | | 6,332 | | 5,784 | |
| LTV>110% | | 48 | | — | | — | | — | | — | | 723 | | 771 | | 533 | |
| LTV - N/A(2) | | 95 | | — | | — | | 100 | | — | | 70 | | 265 | | 265 | |
| | | | | | | | | |
| 680-719 | | | | | | | | | |
| LTV <= 70% | | $ | 26,177 | | $ | 31,112 | | $ | 49,618 | | $ | 53,778 | | $ | 49,893 | | $ | 249,565 | | $ | 460,143 | | $ | 444,254 | |
| 70.01-90% | | 8,483 | | 17,515 | | 19,442 | | 11,250 | | 2,996 | | 24,541 | | 84,227 | | 82,534 | |
| 90.01-110% | | 90 | | — | | — | | — | | — | | 7,810 | | 7,900 | | 7,128 | |
| LTV>110% | | — | | — | | — | | — | | — | | 5,756 | | 5,756 | | 5,477 | |
| LTV - N/A(2) | | — | | 144 | | — | | 63 | | — | | 149 | | 356 | | 351 | |
| | | | | | | | | |
| 720-759 | | | | | | | | | |
| LTV <= 70% | | $ | 39,927 | | $ | 49,716 | | $ | 62,795 | | $ | 79,821 | | $ | 68,503 | | $ | 348,679 | | $ | 649,441 | | $ | 634,206 | |
| 70.01-90% | | 14,064 | | 28,552 | | 30,553 | | 15,094 | | 5,386 | | 35,066 | | 128,715 | | 126,755 | |
| 90.01-110% | | — | | 69 | | — | | — | | — | | 8,270 | | 8,339 | | 7,128 | |
| LTV>110% | | — | | — | | — | | — | | — | | 7,611 | | 7,611 | | 7,313 | |
| LTV - N/A(2) | | 35 | | 56 | | — | | 253 | | — | | 122 | | 466 | | 466 | |
| | | | | | | | | |
| >=760 | | | | | | | | | |
| LTV <= 70% | | $ | 112,532 | | $ | 149,381 | | $ | 178,602 | | $ | 188,693 | | $ | 156,633 | | $ | 896,901 | | $ | 1,682,742 | | $ | 1,646,127 | |
| 70.01-90% | | 30,306 | | 61,647 | | 60,023 | | 34,640 | | 11,120 | | 86,265 | | 284,001 | | 280,811 | |
| 90.01-110% | | 396 | | 21 | | — | | — | | — | | 22,839 | | 23,256 | | 22,252 | |
| LTV>110% | | 710 | | 62 | | — | | — | | — | | 9,700 | | 10,472 | | 9,899 | |
| LTV - N/A(2) | | 185 | | 554 | | 129 | | 68 | | — | | 359 | | 1,295 | | 1,284 | |
| | | | | | | | | |
| Total - All FICO Bands | | | | | | | | | |
| LTV <= 70% | | $ | 185,611 | | $ | 251,619 | | $ | 330,909 | | $ | 372,523 | | $ | 321,712 | | $ | 1,869,887 | | $ | 3,332,261 | | $ | 3,222,783 | |
| LTV 70.01 - 90% | | 55,993 | | 121,363 | | 130,120 | | 71,593 | | 23,010 | | 185,492 | | 587,571 | | 575,563 | |
| LTV 90.01 - 110% | | 486 | | 143 | | — | | — | | — | | 49,390 | | 50,019 | | 46,015 | |
| LTV>110% | | 758 | | 62 | | — | | — | | — | | 29,416 | | 30,236 | | 28,449 | |
LTV - N/A(2) | | 3,155 | | 5,161 | | 5,633 | | 6,013 | | 4,083 | | 84,373 | | 108,418 | | 56,604 | |
| Grand Total | | $ | 246,003 | | $ | 378,348 | | $ | 466,662 | | $ | 450,129 | | $ | 348,805 | | $ | 2,218,558 | | $ | 4,108,505 | | $ | 3,929,414 | |
(1) - (4) Refer to corresponding notes above
NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)
TDR Loans
The following table summarizes the Company’s performing and non-performing TDRs at the dates indicated:
| | (in thousands) | (in thousands) | | September 30, 2021 | | December 31, 2020 | (in thousands) | | March 31, 2022 | | December 31, 2021 |
| | Performing | Performing | | $ | 4,015,933 | | | $ | 3,850,622 | | Performing | | $ | 3,297,361 | | | $ | 3,641,593 | |
| Non-performing | Non-performing | | 570,679 | | | 473,507 | | Non-performing | | 561,204 | | | 607,824 | |
Total (1) | Total (1) | | $ | 4,586,612 | | | $ | 4,324,129 | | Total (1) | | $ | 3,858,565 | | | $ | 4,249,417 | |
(1) Excludes LHFS.
The increase in total TDRs was primarily due to the resumption of the pre-COVID-19 method of determining whether or not a modification qualifies as a TDR for RICs effective January 1, 2021.
TDR Activity by Class of Financing Receivable
The Company's modifications consist primarily of term extensions. The following tables detail the activity of TDRs for the three-monthquarters ended March 31, 2022 and nine-month periods ended September 30, 2021 and 2020:2021:
| | | | Three-Month Period Ended September 30, 2021 | |
| | Number of
Contracts | | Pre-TDR Amortized Cost(1) | | | Post-TDR Amortized Cost(2) | |
| | (dollars in thousands) | |
| Commercial: | | |
| CRE | 1 | | | $ | 458 | | | | $ | 458 | | |
| C&I | 46 | | | 3,299 | | | | 3,295 | | |
| | Other commercial | 10 | | | 174 | | | | 174 | | |
| Consumer: | | | | |
Residential mortgages(3) | 41 | | | 11,217 | | | | 11,205 | | |
| Home equity loans and lines of credit | 132 | | | 18,796 | | | | 18,804 | | |
| RICs and auto loans | 12,680 | | | 238,473 | | | | 239,197 | | |
| Personal unsecured loans | 51 | | | 747 | | | | 744 | | |
| Other consumer | 8 | | | 137 | | | | 137 | | |
| Total | 12,969 | | | $ | 273,301 | | | | $ | 274,014 | | |
| | | | Nine-Month Period Ended September 30, 2021 | | Year-To-Date Ended March 31, 2022 |
| | Number of
Contracts | | Pre-TDR Amortized Cost(1) | | | Post-TDR Amortized Cost(2) | | Number of
Contracts | | Pre-TDR Amortized Cost(1) | | | Post-TDR Amortized Cost(2) |
| | (dollars in thousands) | | (dollars in thousands) |
| Commercial: | Commercial: | | | | Commercial: | | | |
| CRE | CRE | 12 | | | $ | 44,463 | | | | $ | 44,463 | | CRE | 45 | | | $ | 7,465 | | | | $ | 7,465 | |
| C&I | C&I | 416 | | | 46,888 | | | | 46,941 | | C&I | 204 | | | 5,704 | | | | 5,706 | |
| Multi-family | Multi-family | 2 | | | 29,370 | | | | 29,370 | | Multi-family | 8 | | | — | | | | — | |
| Other commercial | Other commercial | 190 | | | 14,827 | | | | 14,827 | | Other commercial | 10 | | | 219 | | | | 219 | |
| Consumer: | Consumer: | | | | Consumer: | | | |
Residential mortgages(3) | Residential mortgages(3) | 384 | | | 105,943 | | | | 105,695 | | Residential mortgages(3) | 16 | | | 4,482 | | | | 4,477 | |
| Home equity loans and lines of credit | Home equity loans and lines of credit | 498 | | | 72,648 | | | | 73,107 | | Home equity loans and lines of credit | 40 | | | 4,867 | | | | 4,913 | |
| RICs and auto loans | RICs and auto loans | 70,117 | | | 1,418,303 | | | | 1,425,079 | | RICs and auto loans | 8,782 | | | 151,593 | | | | 151,433 | |
| Personal unsecured loans | Personal unsecured loans | 128 | | | 1,746 | | | | 1,731 | | Personal unsecured loans | 1 | | | 23 | | | | 23 | |
| Other consumer | Other consumer | 24 | | | 727 | | | | 717 | | Other consumer | 1 | | | 1,250 | | | | 1,250 | |
| Total | Total | 71,771 | | | $ | 1,734,915 | | | | $ | 1,741,930 | | Total | 9,107 | | | $ | 175,603 | | | | $ | 175,486 | |
(1) Pre-TDR modification amount is the month-end balance prior to the month in which the modification occurred.
(2) Post-TDR modification amount is the month-end balance for the month in which the modification occurred.
(3) The post-TDR modification amounts for residential mortgages exclude interest reserves.
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| Year-To-Date Ended March 31, 2021 |
| Number of
Contracts | | Pre-TDR Recorded
Investment(1) | | | | | | | | | Post-TDR Recorded Investment(2) |
| (dollars in thousands) |
| Commercial: | | | | | | | | | | | | |
| CRE | 3 | | | $ | 7,952 | | | | | | | | | | $ | 7,952 | |
| C&I | 311 | | | 15,512 | | | | | | | | | | 15,568 | |
| Multi-family | — | | | — | | | | | | | | | | — | |
| Other commercial | 164 | | | 13,635 | | | | | | | | | | 13,635 | |
| Consumer: | | | | | | | | | | | | |
Residential mortgages(3) | 93 | | | 20,109 | | | | | | | | | | 19,990 | |
| Home equity loans and lines of credit | 43 | | | 4,542 | | | | | | | | | | 4,748 | |
| RICs and auto loans | 45,665 | | | 953,819 | | | | | | | | | | 959,309 | |
| Personal unsecured loans | 25 | | | 248 | | | | | | | | | | 244 | |
| Other consumer | 9 | | | 408 | | | | | | | | | | 408 | |
| Total | 46,313 | | | $ | 1,016,225 | | | | | | | | | | $ | 1,021,854 | |
29(1) - (3) Refer to corresponding notes above
NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three-Month Period Ended September 30, 2020 |
| Number of
Contracts | | Pre-TDR Recorded
Investment(1) | | | | | | | | | Post-TDR Recorded Investment(2) |
| (dollars in thousands) |
| Commercial: | |
| CRE | 20 | | | $ | 33,898 | | | | | | | | | | $ | 33,898 | |
| C&I | 126 | | | 22,611 | | | | | | | | | | 22,631 | |
| | | | | | | | | | | | |
| Other commercial | 4 | | | 894 | | | | | | | | | | 894 | |
| Consumer: | | | | | | | | | | | | |
Residential mortgages(3) | 161 | | | 12,422 | | | | | | | | | | 12,419 | |
| Home equity loans and lines of credit | 21 | | | 2,189 | | | | | | | | | | 2,295 | |
| RICs and auto loans | 14,885 | | | 327,080 | | | | | | | | | | 328,610 | |
| Personal unsecured loans | 2 | | | 7 | | | | | | | | | | — | |
| Other consumer | 1 | | | 1,250 | | | | | | | | | | 1,250 | |
| Total | 15,220 | | | $ | 400,351 | | | | | | | | | | $ | 401,997 | |
| | | | | | | | | | | | |
| |
| Nine-Month Period Ended September 30, 2020 |
| Number of
Contracts | | Pre-TDR Recorded
Investment(1) | | | | | | | | | Post-TDR Recorded Investment(2) |
| (dollars in thousands) |
| Commercial: | | | | | | | | | | | | |
| CRE | 31 | | | $ | 48,872 | | | | | | | | | | $ | 48,872 | |
| C&I | 515 | | | 50,576 | | | | | | | | | | 50,694 | |
| Multi-family | 5 | | | 51,466 | | | | | | | | | | 51,466 | |
| Other commercial | 9 | | | 1,011 | | | | | | | | | | 1,011 | |
| Consumer: | | | | | | | | | | | | |
Residential mortgages(3) | 189 | | | 16,094 | | | | | | | | | | 16,234 | |
| Home equity loans and lines of credit | 71 | | | 6,956 | | | | | | | | | | 7,329 | |
| RICs and auto loans | 70,527 | | | 1,428,155 | | | | | | | | | | 1,446,032 | |
| Personal unsecured loans | 4 | | | 7 | | | | | | | | | | — | |
| Other consumer | 12 | | | 1,323 | | | | | | | | | | 1,306 | |
| Total | 71,363 | | | $ | 1,604,460 | | | | | | | | | | $ | 1,622,944 | |
(1) Pre-TDR modification outstanding recorded investment amount is the month-end balance prior to the month in which the modification occurred.
(2)Post-TDR modification outstanding recorded investment amount is the month-end balance for the month in which the modification occurred.
(3)The post-TDR modification outstanding recorded investment amounts for residential mortgages exclude interest reserves.
NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)
NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)
TDRs Which Have Subsequently Defaulted
A TDR is generally considered to have subsequently defaulted if, after modification, the loan becomes 90 DPD. For RICs, a TDR is considered to have subsequently defaulted after modification at the earlier of the date of repossession or 120 DPD. The following table details period-end amortized cost balances of TDRs that became TDRs during the past twelve-month period and have subsequently defaulted during the three-monthquarters ended March 31, 2022 and nine-month periods ended September 30, 2021, and 2020, respectively.
| | | Three-Month Period Ended September 30, | | Nine-Month Period Ended September 30, | | | | | Year-to-Date Ended March 31 | |
| | 2021 | | 2020 | | 2021 | | 2020 | | | | | 2022 | | 2021 | |
| | Number of
Contracts | | Recorded Investment(1) | | Number of
Contracts | | Recorded Investment(1) | | Number of
Contracts | | Recorded Investment(1) | | Number of
Contracts | | Recorded Investment(1) | | | | | Number of
Contracts | | Recorded Investment(1) | | Number of
Contracts | | Recorded Investment(1) | |
| | (dollars in thousands) | | (dollars in thousands) | | | | (dollars in thousands) |
| Commercial | Commercial | | | Commercial | | | |
| CRE | CRE | 1 | | | $ | 738 | | | 2 | | | $ | 3,011 | | | 1 | | | $ | 738 | | | 34 | | | $ | 8,125 | | | CRE | | | — | | | $ | — | | | — | | | $ | — | | |
| C&I | C&I | 33 | | | 8,391 | | | 26 | | | 905 | | | 87 | | | 10,464 | | | 42 | | | 9,165 | | | C&I | | | — | | | — | | | 30 | | | 1,172 | | |
| | Multifamily | | Multifamily | | | — | | | — | | | — | | | — | | |
| Other commercial | Other commercial | — | | | — | | | — | | | — | | | 1 | | | 17 | | | 1 | | | 45 | | | Other commercial | | | — | | | — | | | 1 | | | 17 | | |
| Consumer: | Consumer: | | | | | | Consumer: | | | |
| Residential mortgages | Residential mortgages | 11 | | | 2,553 | | | 3 | | | 397 | | | 21 | | | 4,037 | | | 33 | | | 5,278 | | | Residential mortgages | | | 74 | | | 26,561 | | | — | | | — | | |
| Home equity loans and lines of credit | Home equity loans and lines of credit | 3 | | | 104 | | | — | | | — | | | 7 | | | 869 | | | 22 | | | 3,104 | | | Home equity loans and lines of credit | | | 29 | | | 4,401 | | | 1 | | | 613 | | |
| RICs and auto loans | RICs and auto loans | 4,749 | | | 91,722 | | | 4,398 | | | 83,849 | | | 14,554 | | | 285,451 | | | 10,519 | | | 186,049 | | | RICs and auto loans | | | 1,809 | | | 33,049 | | | 5,656 | | | 110,780 | | |
| Personal unsecured loans | Personal unsecured loans | 3 | | | 56 | | | — | | | — | | | 9 | | | 139 | | | — | | | — | | | Personal unsecured loans | | | 9 | | | 92 | | | — | | | — | | |
| Other consumer | Other consumer | 4 | | | 61 | | | — | | | — | | | 4 | | | 61 | | | 1 | | | 44 | | | Other consumer | | | 2 | | | 57 | | | — | | | — | | |
| Total | Total | 4,804 | | | $ | 103,625 | | | 4,429 | | | $ | 88,162 | | | 14,684 | | | $ | 301,776 | | | 10,652 | | | $ | 211,810 | | | Total | | | 1,923 | | | $ | 64,160 | | | 5,688 | | | $ | 112,582 | | |
(1)Represents the period-end balance. Does not include Chapter 7 bankruptcy TDRs.
NOTE 4. OPERATING LEASE ASSETS, NET
The Company has operating leases, including leased vehicles and commercial equipment vehicles and aircraft, which are included in the Company's Condensed Consolidated Balance Sheets as Operating lease assets, net. The leased vehicle portfolio consists primarily of leases originated under the MPLFA.
Income continues to accrue during the extension period and remaining lease payments are recorded on a straight-line basis over the modified lease term.Beginning in the third quarter of 2021, SC agreed to provide SBNA with support services in connection with the origination and servicing of vehicle leases, primarily from Stellantis dealers, that are funded and owned by SBNA. SC recognizes referral fee and servicing fee income in connection with these agreements that eliminate in consolidation.
Operating lease assets, net consisted of the following as of September 30, 2021March 31, 2022 and December 31, 2020:2021:
| | (in thousands) | (in thousands) | | September 30, 2021 | | December 31, 2020 | (in thousands) | | March 31, 2022 | | December 31, 2021 |
| | Leased vehicles | Leased vehicles | | $ | 20,280,991 | | | $ | 22,056,063 | | Leased vehicles | | $ | 19,247,623 | | | $ | 19,662,593 | |
| Less: accumulated depreciation | Less: accumulated depreciation | | (3,924,669) | | | (4,796,595) | | Less: accumulated depreciation | | (3,653,353) | | | (3,789,882) | |
| Depreciated net capitalized cost | Depreciated net capitalized cost | | 16,356,322 | | | 17,259,468 | | Depreciated net capitalized cost | | 15,594,270 | | | 15,872,711 | |
| Manufacturer Subvention payments, net of accretion | | (708,216) | | | (934,381) | | |
| Manufacturer subvention payments, net of accretion | | Manufacturer subvention payments, net of accretion | | (538,176) | | | (604,104) | |
| Origination fees and other costs | Origination fees and other costs | | 122,214 | | | 66,020 | | Origination fees and other costs | | 147,919 | | | 136,013 | |
| Leased vehicles, net | Leased vehicles, net | | 15,770,320 | | | 16,391,107 | | Leased vehicles, net | | 15,204,013 | | | 15,404,620 | |
| | Commercial equipment vehicles and aircraft, gross | Commercial equipment vehicles and aircraft, gross | | 2,677 | | | 28,661 | | Commercial equipment vehicles and aircraft, gross | | 2,515 | | | 2,677 | |
| Less: accumulated depreciation | Less: accumulated depreciation | | (809) | | | (6,839) | | Less: accumulated depreciation | | (913) | | | (895) | |
Commercial equipment vehicles and aircraft, net | Commercial equipment vehicles and aircraft, net | | 1,868 | | | 21,822 | | Commercial equipment vehicles and aircraft, net | | 1,602 | | | 1,782 | |
| | Total operating lease assets, net | Total operating lease assets, net | | $ | 15,772,188 | | | $ | 16,412,929 | | Total operating lease assets, net | | $ | 15,205,615 | | | $ | 15,406,402 | |
The following summarizes the future minimum rental payments due to the Company as lessor under operating leases as of September 30, 2021March 31, 2022 (in thousands):
| | 2021 | | $ | 919,573 | | |
| 2022 | 2022 | | 2,137,143 | | 2022 | | $ | 1,776,466 | |
| 2023 | 2023 | | 1,398,539 | | 2023 | | 1,784,019 | |
| 2024 | 2024 | | 306,335 | | 2024 | | 691,649 | |
| 2025 | 2025 | | 26,952 | | 2025 | | 96,344 | |
| 2026 | | 2026 | | 749 | |
| Thereafter | Thereafter | | 1,295 | | Thereafter | | — | |
| Total | Total | | $ | 4,789,837 | | Total | | $ | 4,349,227 | |
During the three-monthquarters ended March 31, 2022, and nine-month periods ended September 30, 2021, the Company recognized $103.2$26.0 million and $390.0$108.3 million, respectively, of net gains on the sale of operating lease assets that had been returned to the Company at the end of the lease term, compared to $120.4 million and $170.5 million for the corresponding periods in 2020.term. These amounts are recorded within Miscellaneous income, net in the Company's Condensed Consolidated Statements of Operations.
NOTE 5. GOODWILL AND OTHER INTANGIBLES
Goodwill
Goodwill is assigned to reporting units, which are operating segments or one level below an operating segment, as of the acquisition date. The following table presents the roll-forward of the Company's goodwill by its reporting units as of September 30, 2021:for the quarter ended March 31, 2022:
| | (in thousands) | (in thousands) | | CBB | | C&I | | CRE & VF | | CIB | | SC | | | Total | (in thousands) | | Auto | | CBB | | C&I | | CRE | | CIB | | SC | | | Total |
| Goodwill at December 31, 2021 | | Goodwill at December 31, 2021 | | $ | — | | | $ | 297,802 | | | $ | 52,198 | | | $ | 1,095,071 | | | $ | 131,130 | | | $ | 1,019,960 | | | | $ | 2,596,161 | |
| | Goodwill at September 30, 2021 | | $ | 297,802 | |
| $ | 52,198 | | | $ | 1,095,071 | |
| $ | 131,130 | |
| $ | 1,019,960 | |
| | $ | 2,596,161 | | |
| Re-allocation of goodwill | | Re-allocation of goodwill | | 1,238,918 | | | (138,802) | | | — | | | (80,156) | | | — | | | (1,019,960) | | | | — | |
| Goodwill at March 31, 2022 | | Goodwill at March 31, 2022 | | $ | 1,238,918 | | | $ | 159,000 | |
| $ | 52,198 | | | $ | 1,014,915 | |
| $ | 131,130 | |
| $ | — | |
| | $ | 2,596,161 | |
During the three-month and nine-month periodsquarter ended September 30, 2021,March 31, 2022, there were no disposals, additions, impairments or re-allocationsimpairments of goodwill. In connection with the Company's organizational changes discussed further in Note 18 to these Condensed Consolidated Financial Statements, the Company has created a new Auto reportable segment and has re-allocated a portion of its goodwill based on the relative fair value of business activities moved from the CBB and CRE reporting units and moved all of the goodwill from the SC reporting unit to the Auto reporting unit. Prior to the re-allocation, and upon completion of the re-allocation, the Company performed updated impairment tests for affected reporting units and determined that no impairment existed.
NOTE 5. GOODWILL AND OTHER INTANGIBLES (continued)
The Company evaluates goodwill for impairment at the reporting unit level. The Company completes its annual goodwill impairment test as of October 1 of each year. The Company conducted its last annual goodwill impairment tests as of October 1, 20202021 using generally accepted valuation methods. As a result of that impairment test, no goodwill impairment was identified.
NOTE 5. GOODWILL AND OTHER INTANGIBLES (continued)
During the second quarter of 2020, primarily due to the ongoing economic impacts of the COVID-19 pandemic, the Company determined that a goodwill triggering event occurred for the CBB, C&I, and CRE & VF reporting units. Based on its goodwill impairment analysis performed as of June 30, 2020, the Company concluded that a goodwill impairment charge of $1.6 billion and $0.3 billion was required for the CBB and C&I reporting units, respectively. The CRE & VF reporting unit’s estimated fair value exceeded its carrying value by less than 5%. The goodwill allocated to these reporting units has become more sensitive to impairment as the valuation is highly correlated with forecasted interest rates, credit costs, and other factors.
During the fourth quarter of 2020, the Company implemented organizational changes which resulted in the transfer of Upper Business Banking customers into the C&I segment from the CBB segment. Refer to Note 18 to these Consolidated Financial Statements for additional details on the Company's reportable segments. As a result of the re-organization, the Company re-allocated approximately $25.1 million of goodwill from the CBB reporting unit to the C&I reporting unit. Upon re-allocation, the Company performed a post evaluation for impairment on the CBB and C&I reporting units utilizing assumptions consistent with our October 1, 2020 impairment test and noted no impairment.
Other Intangible Assets
The following table details amounts related to the Company's intangible assets subject to amortization for the dates indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2021 | | December 31, 2020 |
| (in thousands) | | Net Carrying
Amount | | Accumulated Amortization (2) | | Net Carrying
Amount | | Accumulated
Amortization |
| Intangibles subject to amortization: | | | | | | | | |
| Dealer networks | | $ | 289,833 | | | $ | (180,167) | | | $ | 308,768 | | | $ | (271,232) | |
| Chrysler relationship | | 23,750 | | | (115,000) | | | 35,000 | | | (103,750) | |
| Trade name | | — | | | — | | | 12,300 | | | (5,700) | |
Other intangibles(1) | | 35,981 | | | (46,891) | | | 1,479 | | | (55,694) | |
| Total intangibles subject to amortization | | $ | 349,564 | | | $ | (342,058) | | | $ | 357,547 | | | $ | (436,376) | |
(1) Includes approximately $37 million of intangible assets added in connection with the close of its agreement with Crédit Agricole Corporate and Investment Bank, S.A.to take over management of global wealth management client assets and liabilities. This intangible asset will be amortized over a six year useful life.
(2) Includes removal of accumulated amortization on fully-amortized intangible assets. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | March 31, 2022 | | December 31, 2021 |
| (in thousands) | | Net Carrying
Amount | | Accumulated
Amortization | | Net Carrying
Amount | | Accumulated
Amortization |
| Intangibles subject to amortization: | | | | | | | | |
| Dealer networks | | $ | 278,083 | | | $ | (191,917) | | | $ | 283,958 | | | $ | (186,042) | |
| Chrysler relationship | | 16,250 | | | (122,500) | | | 20,000 | | | (118,750) | |
| Other intangibles | | 33,526 | | | (50,168) | | | 35,121 | | | (48,541) | |
| Total intangibles subject to amortization | | $ | 327,859 | | | $ | (364,585) | | | $ | 339,079 | | | $ | (353,333) | |
At September 30, 2021March 31, 2022 and December 31, 2020,2021, the Company did not have any intangibles, other than goodwill, that were not subject to amortization.
Amortization expense on intangible assets was $11.4$11.3 million and $33.5$11.3 million for the three-monthquarters ended March 31, 2022 and nine-month periods ended September 30, 2021, respectively, and $14.7 million and $44.2 million for the corresponding periods in 2020.respectively.
The estimated aggregate amortization expense related to intangibles, excluding any impairment charges, for each of the five succeeding calendar years ending December 31 is:
| | Year | Year | | Calendar Year Amount | | Recorded To Date | | Remaining Amount To Record | Year | | Calendar Year Amount | | Recorded To Date | | Remaining Amount To Record |
| | | (in thousands) | | | | | | | (in thousands) | | | | |
| 2021 | | $ | 43,462 | | | $ | 33,450 | | | $ | 10,012 | | |
| 2022 | 2022 | | 44,874 | | | — | | | 44,874 | | 2022 | | $ | 45,003 | | | $ | 11,252 | | | $ | 33,751 | |
| 2023 | 2023 | | 33,621 | | | — | | | 33,621 | | 2023 | | 33,757 | | | — | | | 33,757 | |
| 2024 | 2024 | | 29,764 | | | — | | | 29,764 | | 2024 | | 29,899 | | | — | | | 29,899 | |
| 2025 | 2025 | | 29,729 | | | — | | | 29,729 | | 2025 | | 29,854 | | | — | | | 29,854 | |
| 2026 | | 2026 | | 29,846 | | | — | | | 29,846 | |
| Thereafter | Thereafter | | 201,572 | | | — | | | 201,572 | | Thereafter | | 170,752 | | | — | | | 170,752 | |
NOTE 6. OTHER ASSETS
The following is a detail of items that comprised Other assets at September 30, 2021March 31, 2022 and December 31, 2020:2021:
| | (in thousands) | (in thousands) | | September 30, 2021 | | December 31, 2020 | (in thousands) | | March 31, 2022 | | December 31, 2021 |
| Operating lease ROU assets | Operating lease ROU assets | | $ | 529,222 | | | $ | 540,222 | | Operating lease ROU assets | | $ | 509,173 | | | $ | 531,408 | |
| Deferred tax assets | Deferred tax assets | | 45,614 | | | 11,114 | | Deferred tax assets | | 147,275 | | | 87,931 | |
| Accrued interest receivable | Accrued interest receivable | | 512,407 | | | 634,509 | | Accrued interest receivable | | 469,611 | | | 482,469 | |
| Derivative assets at fair value | Derivative assets at fair value | | 774,978 | | | 1,219,090 | | Derivative assets at fair value | | 723,530 | | | 661,080 | |
| Other repossessed assets | Other repossessed assets | | 233,558 | | | 207,900 | | Other repossessed assets | | 250,194 | | | 248,051 | |
| Equity method investments | Equity method investments | | 251,025 | | | 272,633 | | Equity method investments | | 259,132 | | | 260,010 | |
| MSRs | MSRs | | 79,580 | | | 77,545 | | MSRs | | 99,517 | | | 79,107 | |
| OREO | OREO | | 3,960 | | | 29,799 | | OREO | | 4,322 | | | 3,724 | |
| Income tax receivables | Income tax receivables | | 194,646 | | | 225,736 | | Income tax receivables | | 213,025 | | | 173,060 | |
| Prepaid expense | Prepaid expense | | 296,563 | | | 225,251 | | Prepaid expense | | 295,926 | | | 283,909 | |
Miscellaneous assets and receivables | Miscellaneous assets and receivables | | 603,594 | | | 608,431 | | Miscellaneous assets and receivables | | 691,170 | | | 524,674 | |
| Total Other assets | Total Other assets | | $ | 3,525,147 | | | $ | 4,052,230 | | Total Other assets | | $ | 3,662,875 | | | $ | 3,335,423 | |
Operating lease ROU assets
We have operating leases for real estate and non-real estate assets. Real estate leases relate to office space and bank/lending retail branches. Non-real estate leases include disaster recovery centers, data centers, ATMs, vehicles and certain equipment leases. Real estate leases may include one or more options to renew, with renewal terms that can extend the lease term generally from one to five years. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.
For the three-monthquarters ended March 31, 2022 and nine-month periods ended September 30, 2021, operating lease expenses were $32.2$31.3 million and $109.0$39.7 million, respectively, compared to $36.8and sublease income was $1.0 million and $112.6 million for the corresponding periods in 2020. Sublease income was $1.1 million, and $3.4 million, respectively, for the three-month and nine-month periods ended September 30, 2021 compared to $0.7 million and $3.3 million for the corresponding periods in 2020.respectively. These are reported within Occupancy and equipment expenses in the Company’s Condensed Consolidated Statements of Operations.
NOTE 6. OTHER ASSETS (continued)
Supplemental balance sheet information related to leases was as follows:
| | Maturity of Lease Liabilities at September 30, 2021 | | Total Operating leases | |
| Maturity of Lease Liabilities at March 31, 2022 | | Maturity of Lease Liabilities at March 31, 2022 | | Total Operating leases |
| | | (in thousands) | | | (in thousands) |
| 2021 | | $ | 35,618 | | |
| 2022 | 2022 | | 137,500 | | 2022 | | $ | 136,065 | |
| 2023 | 2023 | | 120,166 | | 2023 | | 120,831 | |
| 2024 | 2024 | | 104,982 | | 2024 | | 104,883 | |
| 2025 | 2025 | | 79,129 | | 2025 | | 76,485 | |
| 2026 | | 2026 | | 53,912 | |
| Thereafter | Thereafter | | 169,556 | | Thereafter | | 125,196 | |
| Total lease liabilities | Total lease liabilities | | $ | 646,951 | | Total lease liabilities | | $ | 617,372 | |
| Less: Interest | Less: Interest | | (51,996) | | Less: Interest | | (50,107) | |
| Present value of lease liabilities | Present value of lease liabilities | | $ | 594,955 | | Present value of lease liabilities | | $ | 567,265 | |
| | Supplemental Balance Sheet Information | Supplemental Balance Sheet Information | | September 30, 2021 | | December 31, 2020 | Supplemental Balance Sheet Information | | March 31, 2022 | | December 31, 2021 |
| Operating lease ROU assets | Operating lease ROU assets | | $529,222 | | $540,222 | Operating lease ROU assets | | $509,173 | | $531,408 |
| Other liabilities | Other liabilities | | 594,955 | | 606,000 | Other liabilities | | $567,265 | | $593,137 |
| Weighted-average remaining lease term (years) | Weighted-average remaining lease term (years) | | 6.2 | | 6.5 | Weighted-average remaining lease term (years) | | 6.3 | | 6.4 |
| Weighted-average discount rate | Weighted-average discount rate | | 2.8% | | 2.9% | Weighted-average discount rate | | 2.8% | | 2.8% |
| | | Nine-Month Period Ended September 30, | | Year-to-Date Ended March 31 |
| Other Information | Other Information | | 2021 | | 2020 | Other Information | | 2022 | | 2021 |
| | | (in thousands) | | | (in thousands) |
Operating cash flows from operating leases(1) | Operating cash flows from operating leases(1) | | $ | (108,458) | | | $ | (105,497) | | Operating cash flows from operating leases(1) | | $ | (35,990) | | | $ | (35,499) | |
| Leased assets obtained in exchange for new operating lease liabilities | Leased assets obtained in exchange for new operating lease liabilities | | $ | 68,248 | | | $ | 34,921 | | Leased assets obtained in exchange for new operating lease liabilities | | $ | 1,768 | | | $ | 15,653 | |
(1) Activity is included within the net change in other liabilities on the Consolidated SCF.
The remainder of Other assets is comprised of:
•Deferred tax asset, net - Refer to Note 15 of these Condensed Consolidated Financial Statements for more information on tax-related activities.
•Derivative assets at fair value - Refer to the "Offsetting of Financial Assets" table in Note 12 to these Condensed Consolidated Financial Statements for the detail of these amounts.
•Equity method investments - The Company makes certain equity investments in various limited partnerships, some of which are considered VIEs, that invest in and lend to qualified community development entities, such as renewable energy investments, through the NMTC and CRA programs. The Company acts only in a limited partner capacity in connection with these partnerships, so the Company has determined that it is not the primary beneficiary of the partnerships because it does not have the power to direct the activities of the partnerships that most significantly impact the partnerships' economic performance.
•MSRs - See further discussion on the valuation of the MSRs in Note 13.
•Income tax receivables - Refer to Note 15 of these Condensed Consolidated Financial Statements for more information on tax-related activities.
•OREO and other repossessed assets includes property and vehicles recovered through foreclosure and repossession.
•Miscellaneous assets and receivables includes Subvention receivables in connection with the agreement with CCAP, investment and capital market receivables, derivatives trading receivables, and unapplied payments.
NOTE 7. VIEs
The Company transfers RICs and vehicle leases into newly-formed Trusts that then issue one or more classes of notes payable backed by the collateral. The Company’s continuing involvement with these Trusts is in the form of servicing the assets and, generally, through holding residual interests in the Trusts. The Trusts are considered VIEs under GAAP, and the Company may or may not consolidate these VIEs on its Condensed Consolidated Balance Sheets.
For further descriptionThe collateral, borrowings under credit facilities and securitization notes payable of the Company’s securitization activities, involvement withconsolidated VIEs remain on the Condensed Consolidated Balance Sheets. The Company recognizes finance charges, fee income, and accounting policies regarding consolidationprovision for credit losses on the RICs, and leased vehicles and interest expense on the debt. Revolving credit facilities generally also utilize entities that are considered VIEs which are included on the Condensed Consolidated Balance Sheets.
The Company also uses a titling Trust to originate and hold its leased vehicles and the associated leases, in order to facilitate the pledging of VIEs, see Part II, Item 8 - Financial Statementsleases to financing facilities or the sale of leases to other parties without incurring the costs and Supplementary Data (Note 8) inadministrative burden of retitling the Company's 2020 Annual Report on Form 10-K.leased vehicles. This titling Trust is considered a VIE.
On-balance sheet VIEs
The assets of consolidated VIEs presented based upon the legal transfer of the underlying assets in order to reflect legal ownership, that can be used only to settle obligations of the consolidated VIEs and the liabilities of those entities for which creditors (or beneficial interest holders) do not have recourse to the Company's general credit, were as follows:
| | (in thousands) | (in thousands) | | September 30, 2021 | | December 31, 2020 | (in thousands) | | March 31, 2022 | | December 31, 2021 |
| Assets | Assets | | | | | Assets | | | | |
| Restricted cash | Restricted cash | | $ | 1,682,654 | | | $ | 1,737,021 | | Restricted cash | | $ | 1,649,539 | | | $ | 1,637,311 | |
| LHFS | | 113,313 | | | 581,938 | | |
| | LHFI | LHFI | | 21,785,308 | | | 22,572,549 | | LHFI | | 21,480,838 | | | 20,551,716 | |
| Operating lease assets, net | Operating lease assets, net | | 15,529,610 | | | 16,391,107 | | Operating lease assets, net | | 13,606,242 | | | 14,668,336 | |
| Various other assets | Various other assets | | 706,130 | | | 791,306 | | Various other assets | | 638,871 | | | 629,364 | |
| Total Assets | Total Assets | | $ | 39,817,015 | | | $ | 42,073,921 | | Total Assets | | $ | 37,375,490 | | | $ | 37,486,727 | |
| Liabilities | Liabilities | | | | | Liabilities | | | | |
| Notes payable | Notes payable | | $ | 30,632,558 | | | $ | 31,700,709 | | Notes payable | | $ | 28,929,305 | | | $ | 29,199,966 | |
| Various other liabilities | Various other liabilities | | 107,743 | | | 84,922 | | Various other liabilities | | 101,532 | | | 81,098 | |
| Total Liabilities | Total Liabilities | | $ | 30,740,301 | | | $ | 31,785,631 | | Total Liabilities | | $ | 29,030,837 | | | $ | 29,281,064 | |
Certain amounts shown above are greater than the amounts shown in the corresponding line items in the accompanying Condensed Consolidated Balance Sheets due to intercompany eliminations between the VIEs and other entities consolidated by the Company. For example, for most of its securitizations, the Company retains one or more of the lowest tranches of bonds. Rather than showing investment in bonds as an asset and the associated debt as a liability, these amounts are eliminated in consolidation as required by GAAP.
The Company retains servicing rights for receivables transferred to the Trusts and receives a monthly servicing fee on the outstanding principal balance. Supplemental fees, such as late charges, for servicing the receivables are reflected in Miscellaneous income, net.
As of September 30, 2021March 31, 2022 and December 31, 2020,2021, the Company was servicing $26.1$25.2 billion and $27.7$24.3 billion, respectively, of gross RICs that have been transferred to consolidated Trusts. The remainder of the Company’s RICs remain unpledged.
NOTE 7. VIEs (continued)
A summary of the cash flows received from the consolidated Trusts for the three-month and nine-monthrespective periods ended September 30, 2021, and 2020 is as follows:
| | | Three-Month Period Ended September 30, | | Nine-Month Period Ended September 30, | | | Year-to-Date Ended March 31 |
| (in thousands) | (in thousands) | | 2021 | | 2020 | | 2021 | | 2020 | | (in thousands) | | | 2022 | | 2021 | |
| Assets securitized | Assets securitized | | $ | 7,095,782 | | | $ | 5,282,901 | | | $ | 18,457,441 | | | $ | 15,845,707 | | | Assets securitized | | | $ | 5,160,287 | | | $ | 4,123,051 | | |
| Net proceeds from new securitizations (1) | Net proceeds from new securitizations (1) | | $ | 6,591,786 | | | $ | 4,662,211 | | | $ | 16,168,394 | | | $ | 11,470,857 | | | Net proceeds from new securitizations (1) | | | $ | 4,049,721 | | | $ | 3,586,124 | | |
| Net proceeds from sale of retained bonds | Net proceeds from sale of retained bonds | | — | | | 1,293 | | | 195,967 | | | 57,286 | | | Net proceeds from sale of retained bonds | | | 384,376 | | | 63,781 | | |
Cash received for servicing fees (2) | Cash received for servicing fees (2) | | 228,194 | | | 242,245 | | | 686,789 | | | 735,533 | | | Cash received for servicing fees (2) | | | 237,593 | | | 228,188 | | |
| Net distributions from Trusts (2) | Net distributions from Trusts (2) | | 1,391,970 | | | 1,173,276 | | | 4,435,605 | | | 2,730,657 | | | Net distributions from Trusts (2) | | | 1,114,363 | | | 1,140,377 | | |
| Total cash received from Trusts | Total cash received from Trusts | | $ | 8,211,950 | | | $ | 6,079,025 | | | $ | 21,486,755 | | | $ | 14,994,333 | | | Total cash received from Trusts | | | $ | 5,786,053 | | | $ | 5,018,470 | | |
(1) Includes additional advances on existing securitizations.
(2) These amounts are not reflected in the accompanying Condensed Consolidated SCF because the cash flows are between the VIEs and other entities included in the consolidation.
Off-balance sheet VIEs
During the nine-month periodsquarter ended September 30,March 31, 2022, SC sold no gross RICs to third-party investors in off-balance sheet securitizations and recorded no gain or loss on securitization. During the quarter ended March 31, 2021, and 2020, SC sold $1.9 billion and $1.1 billion, respectively, of gross RICs to third-party investors in off-balance sheet securitizations forand recorded a gain of $7.2 million and a loss of $40.6 million, respectively.million. The gains and losses were recorded in Miscellaneous income, net, in the accompanying Condensed Consolidated Statements of Income.
As of September 30, 2021March 31, 2022 and December 31, 2020,2021, the Company was servicing $2.8 billion and $2.2 billion, respectively, of gross RICs that have been sold in off-balance sheet securitizations and were subject to an optional clean-up call. The portfolio was comprisedcall as follows:
| | (in thousands) | (in thousands) | | | September 30, 2021 | | December 31, 2020 | | (in thousands) | | | March 31, 2022 | | December 31, 2021 | |
| Related party SPAIN securitizations | Related party SPAIN securitizations | | | $ | 687,158 | | | $ | 1,214,644 | | | Related party SPAIN securitizations | | | $ | 438,332 | | | $ | 554,040 | | |
| | Third-party SCART serviced securitizations | Third-party SCART serviced securitizations | | | 2,067,156 | | | 929,429 | | | Third-party SCART serviced securitizations | | | 1,595,349 | | | 1,817,936 | | |
| Third-party CCAP securitizations | | | — | | | 82,713 | | | |
| | | Total serviced for other portfolio | Total serviced for other portfolio | | | $ | 2,754,314 | | | $ | 2,226,786 | | | Total serviced for other portfolio | | | $ | 2,033,681 | | | $ | 2,371,976 | | |
Other than repurchases of sold assets due to standard representations and warranties, the Company has no exposure to loss as a result of its involvement with these VIEs.
A summary of cash flows received from Trusts for the three-month and nine-monthrespective periods ended September 30, 2021 and 2020, respectively, were as follows:
| | | Three-Month Period Ended September 30, | | Nine-Month Period Ended September 30, | | | Year-to-Date Ended March 31 |
| (in thousands) | (in thousands) | | 2021 | | 2020 | | 2021 | | 2020 | | (in thousands) | | | 2022 | | 2021 | |
Receivables securitized (1) | Receivables securitized (1) | | $ | — | | | $ | 636,301 | | | $ | 1,891,278 | | | $ | 1,148,587 | | | Receivables securitized (1) | | | — | | | 1,891,278 | | |
| | Net proceeds from new securitizations | Net proceeds from new securitizations | | — | | | 592,455 | | | 1,779,532 | | | 1,052,541 | | | Net proceeds from new securitizations | | | — | | | 1,779,532 | | |
| Cash received for servicing fees | Cash received for servicing fees | | 8,041 | | | 6,598 | | | 24,061 | | | 17,856 | | | Cash received for servicing fees | | | 5,940 | | | 6,726 | | |
| Total cash received from Trusts | Total cash received from Trusts | | $ | 8,041 | | | $ | 599,053 | | | $ | 1,803,593 | | | $ | 1,070,397 | | | Total cash received from Trusts | | | $ | 5,940 | | | $ | 1,786,258 | | |
(1) Represents the unpaid principal balanceUPB at the time of original securitization.
NOTE 8. DEPOSITS AND OTHER CUSTOMER ACCOUNTS
Deposits and other customer accounts are summarized as follows:
| | | September 30, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
| (dollars in thousands) | (dollars in thousands) | | Balance | | Percent of total deposits | | Balance | | Percent of total deposits | (dollars in thousands) | | Balance | | Percent of total deposits | | Balance | | Percent of total deposits |
| Interest-bearing demand deposits | Interest-bearing demand deposits | | $ | 12,840,744 | | | 16.2 | % | | $ | 11,097,595 | | | 14.7 | % | Interest-bearing demand deposits | | $ | 13,444,446 | | | 17.1 | % | | $ | 16,335,499 | | | 20.0 | % |
| Non-interest-bearing demand deposits | Non-interest-bearing demand deposits | | 24,143,966 | | | 30.4 | % | | 21,800,278 | | | 28.9 | % | Non-interest-bearing demand deposits | | 21,618,277 | | | 27.5 | % | | 22,443,957 | | | 27.5 | % |
| Savings | Savings | | 5,533,013 | | | 7.0 | % | | 4,827,065 | | | 6.4 | % | Savings | | 5,712,088 | | | 7.3 | % | | 5,564,934 | | | 6.8 | % |
| Customer repurchase accounts | Customer repurchase accounts | | 385,667 | | | 0.5 | % | | 323,398 | | | 0.4 | % | Customer repurchase accounts | | 294,039 | | | 0.4 | % | | 338,698 | | | 0.4 | % |
| Money market | Money market | | 33,798,890 | | | 42.5 | % | | 33,358,315 | | | 44.4 | % | Money market | | 35,225,418 | | | 44.8 | % | | 34,390,613 | | | 42.1 | % |
| CDs | CDs | | 2,757,910 | | | 3.4 | % | | 3,897,056 | | | 5.2 | % | CDs | | 2,294,848 | | | 2.9 | % | | 2,524,471 | | | 3.2 | % |
Total deposits (1) | Total deposits (1) | | $ | 79,460,190 | | | 100.0 | % | | $ | 75,303,707 | | | 100.0 | % | Total deposits (1) | | $ | 78,589,116 | | | 100.0 | % | | $ | 81,598,172 | | | 100.0 | % |
(1) Includes foreign deposits, as defined by the FRB, of $6.3$7.1 billion and $5.8$6.4 billion at September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively.
DepositsPublic fund deposits collateralized by investment securities, loans, and other financial instruments totaled $3.0$2.5 billion and $2.2$3.2 billion at September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively.
Demand deposit overdrafts that have been reclassified as loan balances were $258.9$170.0 million and $110.5$133.1 million at September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively.
At September 30, 2021March 31, 2022 and December 31, 2020,2021, the Company had $198.0$562.4 million and $768.2$635.0 million, respectively, of CDs greater than $250 thousand.
NOTE 9. BORROWINGS
Total borrowings and other debt obligations at September 30, 2021March 31, 2022 were $43.7$40.2 billion, compared to $46.4$41.1 billion at December 31, 2020.2021. The Company's debt agreements impose certain limitations on dividend payments and other transactions. The Company is currently in compliance with these limitations.
Periodically, as part of the Company's wholesale funding management, it opportunistically repurchases outstanding borrowings in the open market and subsequently retires the obligations.
SBNA
SBNA had no securities issuances duringOn January 6, 2022, the nine-month periods ended September 30, 2021 or 2020Company completed the public offering and no repurchases duringsale of $1 billion aggregate principal amount of its 2.49% Fixed-to-Floating Rate Senior Notes due January 2028. On February 28, 2022, the nine-month period ended September 30, 2021.
DuringCompany redeemed its 3.70% Senior Notes due March 2022, of which $706.8 million aggregate principal amount was outstanding. On April 14, 2022, the nine-month period ended September 30, 2020, the Bank repurchased the following borrowingsCompany redeemed its 3.50% Senior Notes due 2023, of which $447.1 million aggregate principal amount was outstanding and other debt obligations:
• $126.4issued $433.6 million of its REIT preferred debt.
• $1.0 billion prepayment of FHLB advances.
SHUSA
SHUSA had no securities issuances during the nine-month period ended September 30, 2021.
During the nine-month period ended September 30, 2021, SHUSA called $427.9 million of its senior floating-rate notes due June 2022.
During the nine-month period ended September 30, 2020, the Company issued $2.1 billion of debt, consisting of:
•$500.0 million 5.83% senior fixedfloating rate note due March 2023 to Santander, an affiliate.
•$447.1 million of its senior fixed-rate notes due April 2023.
•$1.0 billion 3.45% senior fixed-rate notes due June 2025.
•$125.0 million 2.0% short-term borrowing due February 2021 to an affiliate.
NOTE 9. BORROWINGS (continued)
During the nine-month period ended September 30, 2020, the Company repurchased the following borrowings and other debt obligations:
•$1.0 billion of its 2.65% senior notes due April 2020.
•$114.5 million of senior floating rate notes due September 2020
Parent Company and other Subsidiary Borrowings and Debt Obligations
The following table presents information regarding the Parent Company and its subsidiaries' borrowings and other debt obligations at the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2021 | | December 31, 2020 |
| (dollars in thousands) | | Balance | | Effective
Rate | | Balance | | Effective
Rate |
| Parent Company | | | | | | | | |
| | | | | | | | |
| 4.45% senior notes due December 2021 | | $ | 491,998 | | | 4.61 % | | $ | 491,411 | | | 4.61 % |
| 3.70% senior notes due March 2022 | | 706,757 | | | 3.67 % | | 707,896 | | | 3.67 | % |
| 3.40% senior notes due January 2023 | | 998,269 | | | 3.54 % | | 997,298 | | | 3.54 % |
| 3.50% senior notes due June 2024 | | 1,097,516 | | | 4.56 % | | 996,687 | | | 3.60 % |
| 4.50% senior notes due July 2025 | | 1,049,556 | | | 4.40 % | | 1,097,074 | | | 4.56 % |
| 4.40% senior notes due July 2027 | | 997,376 | | | 3.60 % | | 1,049,531 | | | 4.40 % |
2.88% senior notes due January 2024 (3) | | 750,000 | | | 2.88 % | | 750,000 | | | 2.88 % |
5.83% senior notes due March 2023 (3) | | 500,000 | | | 5.83 % | | 500,000 | | | 5.83 % |
| 3.24% senior notes due November 2026 | | 917,427 | | | 3.97 % | | 913,239 | | | 3.97 % |
| 3.45% senior notes, due June 2025 | | 995,701 | | | 3.58 % | | 994,871 | | | 3.58 % |
| 3.50% senior notes, due April 2023 | | 447,090 | | | 3.52 % | | 447,039 | | | 3.52 % |
| | | | | | | | |
Senior notes due June 2022(1) | | 720,937 | | | 1.30 % | | 427,925 | | | 1.84 % |
Senior notes due January 2023 (2) | | 439,069 | | | 1.31 % | | 720,904 | | | 2.06 % |
Senior notes due July 2023 (2) | | — | | | — | % | | 439,022 | | | 2.04 % |
| Short-term borrowing due within one year, with an affiliate | | — | | | — | % | | 123,453 | | | 2.00 % |
| Subsidiaries | | | | | | | | |
| 2.00% subordinated debt maturing through 2021 | | 11 | | | 2.00 | % | | 11 | | | 2.00 | % |
| Short-term borrowing with an affiliate, maturing January 2021 | | — | | | — | % | | 200,000 | | | 0.10 | % |
| Short-term borrowing due within one year, maturing October 2021 | | 33,365 | | | 0.05 | % | | 15,750 | | | 0.05 | % |
| Total Parent Company and subsidiaries' borrowings and other debt obligations | | $ | 10,145,072 | | | 3.65 % | | $ | 10,872,111 | | | 3.57 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | March 31, 2022 | | December 31, 2021 |
| (dollars in thousands) | | Balance | | Effective
Rate | | Balance | | Effective
Rate |
| Parent Company | | | | | | | | |
| 3.70% senior notes due March 2022 | | $ | — | | | — | % | | $ | 706,819 | | | 3.67 | % |
| | | | | | | | |
Senior notes due January 2023 (1) | | 720,959 | | | 1.34 | % | | 720,947 | | | 1.28 | % |
| 3.40% senior notes due January 2023 | | 998,931 | | | 3.54 | % | | 998,599 | | | 3.54 | % |
| | | | | | | | |
| 3.50% senior notes due April 2023 | | 447,124 | | | 3.52 | % | | 447,107 | | | 3.52 | % |
Senior notes due July 2023 (1) | | 439,100 | | | 1.36 | % | | 439,085 | | | 1.29 | % |
2.88% senior notes due January 2024 (2) | | 750,000 | | | 2.88 | % | | 750,000 | | | 2.88 | % |
| 3.50% senior notes due June 2024 | | 997,846 | | | 3.60 | % | | 997,610 | | | 3.60 | % |
| 3.45% senior notes, due June 2025 | | 996,267 | | | 3.58 | % | | 995,983 | | | 3.58 | % |
| 4.50% senior notes due July 2025 | | 1,097,819 | | | 4.56 | % | | 1,097,667 | | | 4.56 | % |
| 3.24% senior notes, due November 2026 | | 920,290 | | | 3.97 | % | | 918,851 | | | 3.97 | % |
| 4.40% senior notes, due July 2027 | | 1,049,574 | | | 4.40 | % | | 1,049,565 | | | 4.40 | % |
| 2.49% senior notes due January 2028 | | 996,232 | | | 2.56 | % | | — | | | — | % |
2.88% subordinate note, due November 2031 (2) | | 500,000 | | | 2.88 | % | | 500,000 | | | 2.88 | % |
| | | | | | | | |
| | | | | | | | |
| Subsidiaries | | | | | | | | |
| 2.00% subordinated debt maturing through 2040 | | 11 | | | 2.00 | % | | 11 | | | 2.00 | % |
| Short-term borrowing due within one year, maturing April 2022 | | 2,364 | | | 0.05 | % | | — | | | — | % |
| Short-term borrowing due within one year, maturing January 2022 | | — | | | — | % | | 57,365 | | | 0.05 | % |
| Total Parent Company and subsidiaries' borrowings and other debt obligations | | $ | 9,916,517 | | | 3.35 | % | | $ | 9,679,609 | | | 3.44 | % |
(1) These notes bear interest at a rate equal to the three-month LIBOR plus 100 basis points per annum.
(2) This note will bear interest at a rate equal to the three-month LIBOR plus 110 basis points per annum.
(3)(2) These notes are payable to SHUSA's parent company, Santander.
SBNA Borrowings and Debt Obligations
The following table presents information regarding SBNA's borrowings and other debt obligations at the dates indicated:
| | | | | September 30, 2021 | | December 31, 2020 | | | March 31, 2022 | | December 31, 2021 |
| (dollars in thousands) | (dollars in thousands) | | Balance | | Effective
Rate | | Balance | | Effective
Rate | (dollars in thousands) | | Balance | | Effective
Rate | | Balance | | Effective
Rate |
| | FHLB advances, maturing through May 2022 | FHLB advances, maturing through May 2022 | | $ | 750,000 | | | 0.63 % | | $ | 1,150,000 | | | 0.64 % | FHLB advances, maturing through May 2022 | | $ | 250,000 | | | 0.93 | % | | $ | 250,000 | | | 0.93 | % |
| Credit-linked notes due December 2031 (1) | | Credit-linked notes due December 2031 (1) | | 257,743 | | | 2.59 | % | | 293,749 | | | 2.53 | % |
| Total Bank borrowings and other debt obligations | | Total Bank borrowings and other debt obligations | | $ | 507,743 | | | 1.77 | % | | $ | 543,749 | | | 1.79 | % |
(1) Issued in December 2021 in the amount of $298 million. Notes are tied to the performance of a $2 billion original reference pool of SBNA prime auto loans. The contractual residual amount is $36 million.
SBNA had outstanding irrevocable letters of credit totaling $153.5 million from the FHLB of Pittsburgh at September 30, 2021 used to secure uninsured deposits placed with SBNA by state and local governments and their political subdivisions.
NOTE 9. BORROWINGS (continued)
Credit-Linked Notes
SBNA's credit-linked notes effectively transfer credit risk on a reference pool of loans to the purchaser of the notes. In the event of credit losses on the reference pool in excess of the contractual residual amount, the principal balance of the notes will be reduced to the extent of such loss up to the amount of notes issued and recognized as a debt extinguishment gain within Miscellaneous income, net. SBNA has the option to redeem the notes once the UPB of the reference pool is less than or equal to 10% of the initial principal balance.
SBNA had outstanding irrevocable letters of credit totaling $37.3 million from the FHLB of Pittsburgh at March 31, 2022 used to secure uninsured deposits placed with SBNA by state and local governments and their political subdivisions.
SC Credit Facilities
The following tables present information regarding SC's credit facilities as of September 30, 2021 and December 31, 2020, respectively:at the dates indicated:
| | | | | September 30, 2021 | | | | March 31, 2022 | |
| (dollars in thousands) | (dollars in thousands) | | Balance | | Committed Amount | | Effective
Rate | | Assets Pledged | | Restricted Cash Pledged | | (dollars in thousands) | | Balance | | Committed Amount | | Effective
Rate | | Assets Pledged | | Restricted Cash Pledged | |
| | Warehouse line due January 2023 | | Warehouse line due January 2023 | | $ | — | | | $ | 1,000,000 | | | 2.16 | % | | $ | 1,273,299 | | | $ | — | | |
| Warehouse line due March 2023 | | Warehouse line due March 2023 | | — | | | 1,250,000 | | | — | % | | — | | | 1 | | |
| Warehouse line due June 2023 | Warehouse line due June 2023 | | $ | — | | | $ | 500,000 | | | — | % | | $ | 367,404 | | | $ | — | | | Warehouse line due June 2023 | | — | | | 500,000 | | | — | % | | — | | | — | | |
| Warehouse line due March 2023 | | — | | | 1,250,000 | | | — | % | | 246,480 | | | 1 | | | |
| Warehouse line due October 2022 | | — | | | 1,500,000 | | | — | % | | 121,046 | | | — | | | |
| Warehouse line due October 2022 | | — | | | 3,500,000 | | | — | % | | 133,429 | | | — | | | |
| Warehouse line due October 2022 | | — | | | 500,000 | | | — | % | | 13,409 | | | 500 | | | |
| Warehouse line due October 2022 | | — | | | 2,100,000 | | | — | % | | 175,624 | | | 64 | | | |
| Warehouse line due January 2023 | | — | | | 1,000,000 | | | — | % | | 477,840 | | | — | | | |
| Warehouse line due November 2022 | | — | | | 500,000 | | | — | % | | 279,703 | | | — | | | |
| Warehouse line due July 2022 | | — | | | 900,000 | | | — | % | | — | | | — | | | |
| Warehouse line due July 2023 | | Warehouse line due July 2023 | | — | | | 600,000 | | | — | % | | — | | | — | | |
| Warehouse line due October 2023 | | Warehouse line due October 2023 | | — | | | 500,000 | | | 2.35 | % | | 431,734 | | | — | | |
| Warehouse line due October 2023 | | Warehouse line due October 2023 | | — | | | 2,100,000 | | | — | % | | — | | | 64 | | |
| Warehouse line due November 2023 | | Warehouse line due November 2023 | | — | | | 1,000,000 | | | — | % | | — | | | — | | |
| Warehouse line due November 2023 | | Warehouse line due November 2023 | | — | | | 3,500,000 | | | — | % | | 171,784 | | | — | | |
| | Total facilities with third parties | Total facilities with third parties | | $ | — | | | $ | 11,750,000 | | | — | % | | $ | 1,814,935 | | | $ | 565 | | | Total facilities with third parties | | $ | — | | | $ | 10,450,000 | | | — | % | | $ | 1,876,817 | | | $ | 65 | | |
| | Promissory note with Santander due June 2022 | Promissory note with Santander due June 2022 | | $ | 2,000,000 | | | $ | 2,000,000 | | | 2.03 | % | | $ | — | | | $ | — | | | Promissory note with Santander due June 2022 | | $ | 2,000,000 | | | $ | 2,000,000 | | | 1.35 | % | | $ | — | | | $ | — | | |
| Promissory note with Santander due September 2022 | Promissory note with Santander due September 2022 | | 2,000,000 | | | 2,000,000 | | | 1.01 | % | | — | | | — | | | Promissory note with Santander due September 2022 | | 2,000,000 | | | 2,000,000 | | | 1.01 | % | | — | | | — | | |
| Total facilities with related parties | Total facilities with related parties | | $ | 4,000,000 | | | $ | 4,000,000 | | | 1.52 | % | | $ | — | | | $ | — | | | Total facilities with related parties | | $ | 4,000,000 | | | $ | 4,000,000 | | | 1.18 | % | | $ | — | | | $ | — | | |
| | Total SC credit facilities | Total SC credit facilities | | $ | 4,000,000 | | | $ | 15,750,000 | | | 1.52 | % | | $ | 1,814,935 | | | $ | 565 | | | Total SC credit facilities | | $ | 4,000,000 | | | $ | 14,450,000 | | | 1.18 | % | | $ | 1,876,817 | | | $ | 65 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2020 |
| (dollars in thousands) | | Balance | | Committed Amount | | Effective
Rate | | Assets Pledged | | Restricted Cash Pledged |
| Warehouse line due March 2022 | | $ | 942,845 | | | $ | 1,250,000 | | | 1.34 | % | | $ | 1,621,206 | | | $ | 1 | |
| Warehouse line due November 2022 | | 177,600 | | | 500,000 | | | 1.18 | % | | 371,959 | | | — | |
| Warehouse line due October 2022 | | 168,300 | | | 500,000 | | | 3.07 | % | | 243,649 | | | 1,201 | |
| Warehouse line due October 2022 | | 845,800 | | | 2,100,000 | | | 3.29 | % | | 1,156,885 | | | — | |
| Warehouse line due August 2022 | | — | | | 500,000 | | | 1.50 | % | | 159,348 | | | — | |
| Warehouse line due January 2022 | | 415,700 | | | 1,000,000 | | | 1.81 | % | | 595,518 | | | — | |
| Warehouse line due July 2022 | | — | | | 900,000 | | | 1.46 | % | | — | | | 1,684 | |
| Warehouse line due October 2022 | | 1,000,600 | | | 1,500,000 | | | 1.85 | % | | 639,875 | | | — | |
| Warehouse line due October 2022 | | 441,143 | | | 3,500,000 | | | 3.45 | % | | 2,057,758 | | | — | |
| Repurchase facility due January 2021 | | 167,967 | | | 167,967 | | | 1.64 | % | | 217,200 | | | — | |
| | | | | | | | | | |
| Total facilities with third parties | | $ | 4,159,955 | | | $ | 11,917,967 | | | 2.21 | % | | $ | 7,063,398 | | | $ | 2,886 | |
| | | | | | | | | | |
| Promissory note with Santander due June 2022 | | $ | 2,000,000 | | | $ | 2,000,000 | | | 1.40 | % | | $ | — | | | $ | — | |
| Promissory note with Santander due September 2022 | | 2,000,000 | | | 2,000,000 | | | 1.04 | % | | — | | | — | |
| Total facilities with related parties | | $ | 4,000,000 | | | $ | 4,000,000 | | | 1.22 | % | | $ | — | | | $ | — | |
| | | | | | | | | | |
| Total SC credit facilities | | $ | 8,159,955 | | | $ | 15,917,967 | | | 1.72 | % | | $ | 7,063,398 | | | $ | 2,886 | |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2021 |
| (dollars in thousands) | | Balance | | Committed Amount | | Effective
Rate | | Assets Pledged | | Restricted Cash Pledged |
| Warehouse line due November 2022 | | $ | — | | | $ | 500,000 | | | — | % | | $ | — | | | $ | — | |
| Warehouse line due January 2023 | | — | | | 1,000,000 | | | — | % | | — | | | — | |
| Warehouse line due March 2023 | | — | | | 1,250,000 | | | — | % | | — | | | 1 | |
| Warehouse line due June 2023 | | — | | | 500,000 | | | — | % | | — | | | — | |
| Warehouse line due July 2023 | | — | | | 600,000 | | | — | % | | — | | | — | |
| Warehouse line due October 2023 | | — | | | 500,000 | | | — | % | | 12,428 | | | — | |
| Warehouse line due October 2023 | | — | | | 2,100,000 | | | — | % | | — | | | 64 | |
| Warehouse line due November 2023 | | — | | | 1,000,000 | | | — | % | | — | | | — | |
| Warehouse line due November 2023 | | — | | | 3,500,000 | | | — | % | | 124,624 | | | — | |
| | | | | | | | | | |
| | | | | | | | | | |
| Total facilities with third parties | | $ | — | | | $ | 10,950,000 | | | — | % | | $ | 137,052 | | | $ | 65 | |
| | | | | | | | | | |
| Promissory note with Santander due June 2022 | | $ | 2,000,000 | | | $ | 2,000,000 | | | 2.03 | % | | $ | — | | | $ | — | |
| Promissory note with Santander due September 2022 | | 2,000,000 | | | 2,000,000 | | | 1.01 | % | | — | | | — | |
| Total facilities with related parties | | $ | 4,000,000 | | | $ | 4,000,000 | | | 1.52 | % | | $ | — | | | $ | — | |
| | | | | | | | | | |
| Total SC credit facilities | | $ | 4,000,000 | | | $ | 14,950,000 | | | 1.52 | % | | $ | 137,052 | | | $ | 65 | |
| | | | | | | | | | |
The warehouse lines and repurchase facilities are fully collateralized by a designated portion of SC's RICs, leased vehicles, securitization notes payable and residuals retained by SC.
NOTE 9. BORROWINGS (continued)
Secured Structured Financings
The following tables present information regarding SC's secured structured financings as of September 30, 2021 and December 31, 2020, respectively:at the dates indicated:
| | | September 30, 2021 | | March 31, 2022 |
| (dollars in thousands) | (dollars in thousands) | | Balance | | Initial Note Amounts Issued(3) | | Initial Weighted Average Interest Rate Range | | Collateral(2) | | Restricted Cash | (dollars in thousands) | | Balance | | Initial Note Amounts Issued(3) | | Initial Weighted Average Interest Rate Range | | Collateral(2) | | Restricted Cash |
SC public securitizations maturing on various dates between July 2022 and March 2029(1) | | $ | 24,657,131 | | | $ | 51,829,495 | | | 0.48% - 3.42% | | $ | 31,403,177 | | | $ | 1,665,870 | | |
SC public securitizations maturing on various dates between July 2022 and July 2029(1) | | SC public securitizations maturing on various dates between July 2022 and July 2029(1) | | $ | 23,244,911 | | | $ | 53,565,975 | | | 0.48% - 3.42% | | $ | 31,220,196 | | | $ | 1,633,441 | |
SC privately issued amortizing notes maturing on various dates between June 2022 and December 2027 (3) | SC privately issued amortizing notes maturing on various dates between June 2022 and December 2027 (3) | | 4,174,727 | | | 8,761,563 | | | 1.28% - 3.90% | | 6,757,436 | | | 16,219 | | SC privately issued amortizing notes maturing on various dates between June 2022 and December 2027 (3) | | 2,570,423 | | | 6,966,393 | | | 1.28% - 3.90% | | 3,996,290 | | | 16,034 | |
| Total SC secured structured financings | Total SC secured structured financings | | $ | 28,831,858 | | | $ | 60,591,058 | | | 0.48% - 3.90% | | $ | 38,160,613 | | | $ | 1,682,089 | | Total SC secured structured financings | | $ | 25,815,334 | | | $ | 60,532,368 | | | 0.48% - 3.90% | | $ | 35,216,486 | | | $ | 1,649,475 | |
(1) Securitizations executed under Rule 144A of the Securities Act are included within this balance.
(2) Secured structured financings may be collateralized by SC's collateral overages of other issuances.
(3) Excludes securitizations which no longer have outstanding debt and excludes any incremental borrowings.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| (dollars in thousands) | | Balance | | Initial Note Amounts Issued | | Initial Weighted Average Interest Rate Range | | Collateral | | Restricted Cash |
| SC public securitizations maturing on various dates between May 2022 and May 2028 | | $ | 18,942,160 | | | $ | 44,775,735 | | | 0.60% - 3.42% | | $ | 25,022,577 | | | $ | 1,710,351 | |
| SC privately issued amortizing notes maturing on various dates between June 2022 and December 2027 | | 7,235,241 | | | 10,747,563 | | | 1.28% - 3.90% | | 11,232,123 | | | 23,785 | |
| Total SC secured structured financings | | $ | 26,177,401 | | | $ | 55,523,298 | | | 0.60% - 3.90% | | $ | 36,254,700 | | | $ | 1,734,136 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| (dollars in thousands) | | Balance | | Initial Note Amounts Issued | | Initial Weighted Average Interest Rate Range | | Collateral | | Restricted Cash |
SC public securitizations maturing on various dates between July 2022 and March 2029(1) | | $ | 23,531,904 | | | $ | 54,534,275 | | | 0.48% - 3.42% | | $ | 30,692,331 | | | $ | 1,621,026 | |
SC privately issued amortizing notes maturing on various dates between June 2022 and December 2027 (3) | | 3,377,925 | | | 8,761,563 | | | 1.28% - 3.90% | | 5,728,292 | | | 16,220 | |
| Total SC secured structured financings | | $ | 26,909,829 | | | $ | 63,295,838 | | | 0.48% - 3.90% | | $ | 36,420,623 | | | $ | 1,637,246 | |
Most of SC's secured structured financings are in the form of public, SEC-registered securitizations. SC also executes private securitizations under Rule 144A of the Securities Act, and periodically issues private term amortizing notes, which are structured similarly to securitizations but are acquired by banks and conduits. SC's securitizations and private issuances are collateralized by vehicle RICs and loans or leases. As of September 30, 2021 and December 31, 2020, SC had private issuances of notes backed by vehicle leases outstanding totaling $6.6 billion and $8.7 billion, respectively.
NOTE 10. ACCUMULATED OTHER COMPREHENSIVE INCOME / (LOSS)
The following table presents the components of AOCI, net of related tax, for the three-monthquarters ended March 31, 2022 and nine-month periods ended September 30, 2021, and 2020, respectively.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Total Other
Comprehensive Income/(Loss) | | Total Accumulated
Other Comprehensive Income/(Loss) |
| | | Three-Month Period Ended September 30, 2021 | | June 30, 2021 | | | | September 30, 2021 |
| (in thousands) | | Pretax
Activity | | Tax
Effect | | Net Activity | | Beginning
Balance | | Net
Activity | | Ending
Balance |
| Change in AOCI on cash flow hedge derivative financial instruments | | | $ | (32,419) | | | $ | 7,022 | | | $ | (25,397) | | | | | | | |
Reclassification adjustment for net (gains)/losses on cash flow hedge derivative financial instruments(1) | | | 8,043 | | | (2,007) | | | 6,036 | | | | | | | |
| Net unrealized gains/(losses) on cash flow hedge derivative financial instruments | | | (24,376) | | | 5,015 | | | (19,361) | | | $ | 12,009 | | | $ | (19,361) | | | $ | (7,352) | |
| | | | | | | | | | | | | |
| Change in unrealized (losses) on investments in debt securities AFS | | | (35,412) | | | 9,304 | | | (26,108) | | | | | | | |
Reclassification adjustment for (gains)/losses included in net income/(expense) on debt securities AFS (2) | | | 105 | | | (28) | | | 77 | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Net unrealized gains on investments in debt securities AFS | | | (35,307) | | | 9,276 | | | (26,031) | | | 4,107 | | | (26,031) | | | (21,924) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Pension and post-retirement actuarial gain(3) | | | 756 | | | (130) | | | 626 | | | (27,636) | | | 626 | | | (27,010) | |
| | | | | | | | | | | | | |
| As of September 30, 2021 | | | $ | (58,927) | | | $ | 14,161 | | | $ | (44,766) | | | $ | (11,520) | | | $ | (44,766) | | | $ | (56,286) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total Other
Comprehensive Income/(Loss) | | Total Accumulated
Other Comprehensive Income/(Loss) |
| | Three-Month Period Ended September 30, 2020 | | June 30, 2020 | | | | September 30, 2020 |
| (in thousands) | | Pretax
Activity | | Tax
Effect | | Net Activity | | Beginning
Balance | | Net
Activity | | Ending
Balance |
| Change in AOCI on cash flow hedge derivative financial instruments | | $ | (34,921) | | | $ | (4,073) | | | $ | (38,994) | | | | | | | |
Reclassification adjustment for net (gains)/losses on cash flow hedge derivative financial instruments(1) | | 274 | | | 18 | | | 292 | | | | | | | |
| Net unrealized gains on cash flow hedge derivative financial instruments | | (34,647) | | | (4,055) | | | (38,702) | | | $ | 135,539 | | | $ | (38,702) | | | $ | 96,837 | |
| | | | | | | | | | | | |
| Change in unrealized gains on investment securities | | (15,446) | | | 2,124 | | | (13,322) | | | | | | | |
Reclassification adjustment for net (gains)/losses included in net income/(expense) on debt securities AFS(2)(4) | | (32,731) | | | 4,502 | | | (28,229) | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Net unrealized (losses) on investment securities AFS | | (48,177) | | | 6,626 | | | (41,551) | | | 168,240 | | | (41,551) | | | 126,689 | |
| | | | | | | | | | | | |
Pension and post-retirement actuarial gain(3) | | 18,368 | | | (128) | | | 18,240 | | | (44,093) | | | 18,240 | | | (25,853) | |
| | | | | | | | | | | | |
| As of September 30, 2020 | | $ | (64,456) | | | $ | 2,443 | | | $ | (62,013) | | | $ | 259,686 | | | $ | (62,013) | | | $ | 197,673 | |
| | | | | | | | | | | | |
NOTE 10. ACCUMULATED OTHER COMPREHENSIVE INCOME / (LOSS) (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Total Other
Comprehensive Income/(Loss) | | Total Accumulated
Other Comprehensive Income/(Loss) |
| | | Nine-Month Period Ended September 30, 2021 | | December 31, 2020 | | | | September 30, 2021 |
| (in thousands) | | Pretax
Activity | | Tax
Effect | | Net Activity | | Beginning
Balance | | Net
Activity | | Ending
Balance |
| Change in AOCI on cash flow hedge derivative financial instruments | | | $ | (122,661) | | | $ | 30,017 | | | $ | (92,644) | | | | | | | |
Reclassification adjustment for net (gains)/losses on cash flow hedge derivative financial instruments(1) | | | 8,326 | | | (1,201) | | | 7,125 | | | | | | | |
| Net unrealized gains/(losses) on cash flow hedge derivative financial instruments | | | (114,335) | | | 28,816 | | | (85,519) | | | $ | 78,167 | | | $ | (85,519) | | | $ | (7,352) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Change in unrealized gains/(losses) on investments in debt securities | | | (173,102) | | | 45,108 | | | (127,994) | | | | | | | |
Reclassification adjustment for net (gains)/losses included in net income/(expense) on debt securities AFS (2) | | | (15,138) | | | 3,945 | | | (11,193) | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Net unrealized gains/(losses) on investments in debt securities | | | (188,240) | | | 49,053 | | | (139,187) | | | 117,263 | | | (139,187) | | | (21,924) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Pension and post-retirement actuarial gain(3) | | | 2,738 | | | (613) | | | 2,125 | | | (29,135) | | | 2,125 | | | (27,010) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| As of September 30, 2021 | | | $ | (299,837) | | | $ | 77,256 | | | $ | (222,581) | | | $ | 166,295 | | | $ | (222,581) | | | $ | (56,286) | |
(1) Net gains/(losses) reclassified into Interest on borrowings and other debt obligations in the Condensed Consolidated Statements of Operations for settlements of interest rate swap contracts designated as cash flow hedges.
(2) Net (gains)/losses reclassified into Net gain on sale of investment securities sales in the Condensed Consolidated Statements of Operations for the sale of debt securities AFS.
(3) Included in the computation of net periodic pension costs.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total Other
Comprehensive Income/(Loss) | | Total Accumulated
Other Comprehensive Income/(Loss) |
| | Nine-Month Period Ended September 30, 2020 | | December 31, 2019 | | | | September 30, 2020 |
| (in thousands) | | Pretax
Activity | | Tax
Effect | | Net Activity | | Beginning
Balance | | Net
Activity | | Ending
Balance |
| Change in AOCI on cash flow hedge derivative financial instruments | | $ | 180,139 | | | $ | (63,520) | | | $ | 116,619 | | | | | | | |
Reclassification adjustment for net loss/(gains) on cash flow hedge derivative financial instruments(1) | | 411 | | | (79) | | | 332 | | | | | | | |
| Net unrealized gains on cash flow hedge derivative financial instruments | | 180,550 | | | (63,599) | | | 116,951 | | | $ | (20,114) | | | $ | 116,951 | | | $ | 96,837 | |
Cumulative impact of adoption of new ASUs (4) | | | | | | | | | | — | | | |
| Net unrealized (losses) on cash flow hedge derivative financial instruments upon adoption | | | | | | | | | | 116,951 | | | 96,837 | |
| | | | | | | | | | | | |
| Change in unrealized gains/(losses) on investments in debt securities | | 257,976 | | | (70,309) | | | 187,667 | | | | | | | |
Reclassification adjustment for net (gains)/losses included in net income/(expense) on debt securities AFS (2) | | (55,246) | | | 17,148 | | | (38,098) | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Net unrealized gains/(losses) on investment securities | | 202,730 | | | (53,161) | | | 149,569 | | | (22,880) | | | 149,569 | | | 126,689 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Pension and post-retirement actuarial gain(3) | | 19,874 | | | (514) | | | 19,360 | | | (45,213) | | | 19,360 | | | (25,853) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| As of September 30, 2020 | | $ | 403,154 | | | $ | (117,274) | | | $ | 285,880 | | | $ | (88,207) | | | $ | 285,880 | | | $ | 197,673 | |
(1)- (3) Refer to the corresponding explanations in the table
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Total Other
Comprehensive Income/(Loss) | | Total Accumulated
Other Comprehensive Income/(Loss) |
| | | Year-To-Date Ended March 31, 2022 | | December 31, 2021 | | | | March 31, 2022 |
| (in thousands) | | Pretax
Activity | | Tax
Effect | | Net Activity | | Beginning
Balance | | Net
Activity | | Ending
Balance |
| Change in AOCI on cash flow hedge derivative financial instruments | | | $ | (341,828) | | | $ | 89,514 | | | $ | (252,314) | | | | | | | |
Reclassification adjustment for net (gains)/losses on cash flow hedge derivative financial instruments(1) | | | 7,446 | | | (1,548) | | | 5,898 | | | | | | | |
| Net unrealized gains/(losses) on cash flow hedge derivative financial instruments | | | (334,382) | | | 87,966 | | | (246,416) | | | $ | (80,017) | | | $ | (246,416) | | | $ | (326,433) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Change in unrealized gains/(losses) on investments in debt securities | | | (466,764) | | | 122,493 | | | (344,271) | | | | | | | |
Reclassification adjustment for net (gains)/losses included in net income/(expense) on debt securities (2) | | | (13,955) | | | 2,901 | | | (11,054) | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Net unrealized gains/(losses) on investments in debt securities | | | (480,719) | | | 125,394 | | | (355,325) | | | (79,905) | | | (355,325) | | | (435,230) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Pension and post-retirement actuarial gain / (loss)(3) | | | 726 | | | (166) | | | 560 | | | (28,188) | | | 560 | | | (27,628) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| As of March 31, 2022 | | | $ | (814,375) | | | $ | 213,194 | | | $ | (601,181) | | | $ | (188,110) | | | $ | (601,181) | | | $ | (789,291) | |
(1) Net gains/(losses) reclassified into Interest on borrowings and other debt obligations in the Condensed Consolidated Statements of Operations for settlements of interest rate swap contracts designated as cash flow hedges.
(2) Net (gains)/losses reclassified into Net gain on sale of investment securities sales in the Condensed Consolidated Statements of Operations for the sale of debt securities.
(3) Included in the computation of net periodic pension costs.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total Other
Comprehensive Income/(Loss) | | Total Accumulated
Other Comprehensive Income/(Loss) |
| | Year-To-Date Ended March 31, 2021 | | December 31, 2020 | | | | March 31, 2021 |
| (in thousands) | | Pretax
Activity | | Tax
Effect | | Net Activity | | Beginning
Balance | | Net
Activity | | Ending
Balance |
| Change in AOCI on cash flow hedge derivative financial instruments | | $ | (87,120) | | | $ | 24,323 | | | $ | (62,797) | | | | | | | |
Reclassification adjustment for net (gains)/losses on cash flow hedge derivative financial instruments(1) | | 141 | | | (20) | | | 121 | | | | | | | |
| Net unrealized gains/(losses) on cash flow hedge derivative financial instruments | | (86,979) | | | 24,303 | | | (62,676) | | | $ | 78,167 | | | $ | (62,676) | | | $ | 15,491 | |
| | | | | | | | | | | | |
| Change in unrealized gains/(losses) on investments in debt securities | | (155,025) | | | 40,184 | | | (114,841) | | | | | | | |
Reclassification adjustment for net (gains)/losses included in net income/(expense) on debt securities AFS (2) | | (9,874) | | | 2,559 | | | (7,315) | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Net unrealized gains/(losses) on investments in debt securities | | (164,899) | | | 42,743 | | | (122,156) | | | 117,263 | | | (122,156) | | | (4,893) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Pension and post-retirement actuarial gain / (loss)(3) | | 1,225 | | | (287) | | | 938 | | | (29,135) | | | 938 | | | (28,197) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| As of March 31, 2021 | | $ | (250,653) | | | $ | 66,759 | | | $ | (183,894) | | | $ | 166,295 | | | $ | (183,894) | | | $ | (17,599) | |
(1)- (3) Refer to the corresponding explanations in the table
NOTE 11. SECURITIES FINANCING AGREEMENTSACTIVITIES
The Company may enter into Securities Financing AgreementsActivities primarily to deploy the Company’s excess cash and investment positions. Securities Financing AgreementsActivities are treated as collateralized financings and are included in "Federal funds sold and securities purchased under resale agreements or similar arrangements" and "Federal funds purchased and securities loaned or sold under repurchase agreements" on the Company’s Condensed ConsoliConsolidated Balance Sheetsdated Balance Sheets. Resale and repurchase agreements are generally carried at the amounts at which the securities will be subsequently sold or. repurchased. These agreements are generally carried at the amount of cash collateral advanced or received plus accrued interest. Where appropriate under applicable accounting guidance, Securities Financing Agreements with the same counterparty are reported on a net basis. Refer to Note 1 of the Annual Report on Form 10-K for further discussion of accounting for and the offsetting of securities financing assets and liabilities.
Securities transferred to counterparties under repurchase agreements and securities lending transactions continue to be recognized on the Condensed Consolidated Balance Sheets, are measured at fair value, and are included in Investment securities AFS on the Company’s Condensed Consolidated Balance Sheets. Securities received from counterparties under reverse repurchase agreements and securities borrowed transactions are not recognized on the Condensed Consolidated Balance Sheets unless the counterparty defaults. The securities transferred under Securities Financing Agreements typically are U.S. Treasury and agency securities or residential agency MBS. In general, the securities transferred can be sold, re-pledged or otherwise used by the party in possession. No restrictions exist on the use of cash collateral by either party. The Company may be exposed to counterparty risk, with such risk managed by performing assessments independent of business line managers, and establishing concentration limits on each counterparty. Additionally, these transactions include collateral arrangements that require the fair values of the underlying securities to be determined daily, resulting in cash being obtained or refunded to counterparties to maintain specified collateral levels. These financing transactions do not create material credit risk given the collateral provided and the related monitoring process.
Securities borrowed and purchased under agreements to resell, at their respective carrying values, consisted of the following:
| | | | | | | | | | | |
(in thousands) | September 30, 2021 | | December 31, 2020 |
Securities purchased under agreements to resell | $ | 623,140 | | | $ | — | |
Securities borrowed | 966,184 | | | — | |
Total | $ | 1,589,324 | | | $ | — | |
| | | |
| | | |
| | | | | | | | | | | |
| (in thousands) | March 31, 2022 | | December 31, 2021 |
| Securities purchased under agreements to resell | $ | 1,914,756 | | | $ | 2,422,042 | |
| Securities borrowed | 2,989,314 | | | 2,924,426 | |
| Total | $ | 4,904,070 | | | $ | 5,346,468 | |
| | | |
| | | |
Securities loaned or sold under agreements to repurchase, at their respective carrying values, consisted of the following:
| | | | | | | | | | | |
(in thousands) | September 30, 2021 | | December 31, 2020 |
Securities sold under agreements to repurchase | $ | 1,586,537 | | | $ | — | |
| | | |
| | | |
| | | | | | | | | | | |
| (in thousands) | March 31, 2022 | | December 31, 2021 |
| Securities sold under agreements to repurchase | $ | 4,820,950 | | | $ | 5,258,875 | |
| | | |
| | | |
NOTE 11. SECURITIES FINANCING AGREEMENTS (continued)
Securities Financing AgreementsActivities are generally executed under standard industry agreements, including master agreements that create a single contract under which all transactions between two counterparties are executed, allowing for trade aggregation of receivables and payables into a single net payment or settlement.settlement. At September 30,March 31, 2022 and December 31, 2021, there was an immaterial amountthe following amounts of Securities Financing Agreementsecurities financing assets or liabilities which qualified for offset in the Condensed Consolidated Balance Sheets.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | March 31, 2022 |
| (in thousands) | | Gross amounts of recognized assets | | Gross amounts offset on the Condensed Consolidated Balance Sheets(1) | | Net amounts of assets included on the Condensed Consolidated Balance Sheets | | | | |
| | | | | | | | | | |
| Securities purchased under agreements to resell | | $ | 2,008,756 | | | $ | (94,000) | | | $ | 1,914,756 | | | | | |
| Securities borrowed | | 2,989,314 | | | — | | | 2,989,314 | | | | | |
| Total | | $ | 4,998,070 | | | $ | (94,000) | | | $ | 4,904,070 | | | | | |
| | | | | | | | | | |
| | March 31, 2022 |
| (in thousands) | | Gross amounts of recognized liabilities | | Gross amounts offset on the Condensed Consolidated Balance Sheets(1) | | Net amounts of liabilities included on the Condensed Consolidated Balance Sheets | | | | |
| | | | | | | | | | |
| Securities sold under agreements to repurchase | | $ | 4,914,950 | | | $ | (94,000) | | | $ | 4,820,950 | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| (1) Includes financial instruments subject to enforceable master netting agreements that are permitted to be offset under ASC 210-20-45. | | | | |
The following tables present the gross amounts
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2021 |
| (in thousands) | Open and overnight | | Up to 30 days | | 31-90 days | | Greater than 90 days | | Total |
| Securities sold under agreements to repurchase | $ | 1,586,537 | | | $ | — | | | $ | — | | | $ | — | | | $ | 1,586,537 | |
| | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | December 31, 2021 |
| (in thousands) | | Gross amounts of recognized assets | | Gross amounts offset on the Condensed Consolidated Balance Sheets(1) | | Net amounts of assets included on the Condensed Consolidated Balance Sheets | | | | |
| | | | | | | | | | |
| Securities purchased under agreements to resell | | $ | 2,746,948 | | | $ | (324,906) | | | $ | 2,422,042 | | | | | |
| Securities borrowed | | 2,924,426 | | | — | | | 2,924,426 | | | | | |
| Total | | $ | 5,671,374 | | | $ | (324,906) | | | $ | 5,346,468 | | | | | |
| | | | | | | | | | |
| | December 31, 2021 |
| (in thousands) | | Gross amounts of recognized liabilities | | Gross amounts offset on the Condensed Consolidated Balance Sheets(1) | | Net amounts of liabilities included on the Condensed Consolidated Balance Sheets | | | | |
| | | | | | | | | | |
| Securities sold under agreements to repurchase | | $ | 5,583,781 | | | $ | (324,906) | | | $ | 5,258,875 | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| (1) Includes financial instruments subject to enforceable master netting agreements that are permitted to be offset under ASC 210-20-45. | | | | |
The following tables present the gross amounts of liabilities associated with Securities Financing AgreementsActivities by remaining contractual maturity:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 |
| (in thousands) | Open and overnight | | Up to 30 days | | 31-90 days | | Greater than 90 days | | Total |
| Securities sold under agreements to repurchase | $ | 4,914,950 | | | $ | — | | | $ | — | | | $ | — | | | $ | 4,914,950 | |
| | | | | | | | | | |
| | | | | | | | | |
The following tables present the gross amounts of liabilities associated with Securities Financing Activities by class of underlying collateral as of September 30, 2021:the following dates:
| | | | | | | | | | | | |
(in thousands) | Repurchase agreements | | | | |
U.S. Treasury and federal agency securities | $ | 946,745 | | | | | |
Residential agency MBS | $ | 639,792 | | | | | |
Total | $ | 1,586,537 | | | | | |
| | | | | | | | | | | | | | | | | | |
| Repurchase agreements | | | | |
| (in thousands) | March 31, 2022 | | December 31, 2021 | | | | |
| U.S. Treasury | $ | 2,969,950 | | | $ | 3,124,781 | | | | | |
| Residential agency MBS | 1,945,000 | | | 2,459,000 | | | | | |
| Total | $ | 4,914,950 | | | $ | 5,583,781 | | | | | |
NOTE 12. DERIVATIVES
General
Derivatives represent contracts between parties that usually require little or no initial net investment and result in one or both parties delivering cash or another type of asset to the other party based on a notional amount and an underlying asset, index, interest rate or future purchase commitment or option as specified in the contract. Derivative transactions are often measured in terms of notional amount, but this amount is generally not exchanged, is not recorded on the balance sheet, and does not represent the Company`s exposure to credit loss. The notional amount is the basis on which the financial obligation of each party to the derivative contract is calculated to determine required payments under the contract. The Company controls the credit risk of its derivative contracts through credit approvals, limits and monitoring procedures. The underlying asset is typically a referenced interest rate (commonly the OIS rate, a SOFR-based rate, or LIBOR), security, credit spread or index.
The Company’s capital markets and mortgage banking activities are subject to price risk. The Company employs various tools to measure and manage price risk in its portfolios. In addition, the Board of Directors has established certain limits relative to positions and activities. The level of price risk exposure at any given time depends on the market environment and expectations of future price and market movements and will vary from period to period.
See Note 13 to these Condensed Consolidated Financial Statements for discussion of the valuation methodology for derivative instruments.
NOTE 12. DERIVATIVES (continued)
Credit Risk Contingent Features
The Company has entered into certain derivative contracts that require the posting of collateral to counterparties when those contracts are in a net liability position. The amount of collateral to be posted is based on the amount of the net liability and thresholds generally related to the Company's long-term senior unsecured credit ratings. In a limited number of instances, counterparties also have the right to terminate their ISDA Master Agreements if the Company's ratings fall below a specified level, typically investment grade. As of September 30, 2021,March 31, 2022, derivatives in this category had a fair value of $0.6$0.3 million. The credit ratings of the Company and SBNA are currently considered investment grade. During the third quarterAs of 2021, noMarch 31, 2022, 0 additional collateral would be required if there were a further 1- or 2- notch downgrade by either S&P or Moody's.
As of September 30, 2021March 31, 2022 and December 31, 2020,2021, 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 $8.5$9.1 million and $9.9$7.7 million, respectively. The Company had $8.6$1.6 million and $3.9$8.8 million in cash and securities collateral posted to cover those positions as of September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively.
Hedge Accounting
Management uses derivative instruments designated as hedges to mitigate the impact of interest rate and foreign exchange rate movements on the fair value of certain assets and liabilities and on highly probable forecasted cash flows. These instruments primarily include interest rate swaps that have underlying interest rates based on key benchmark indices. The nature and volume of the derivative instruments used to manage interest rate risk depend on the level and type of assets and liabilities on the balance sheet and the risk management strategies for the current and anticipated interest rate environment.
Interest rate swaps are generally used to convert fixed-rate assets and liabilities to variable rate assets and liabilities and vice versa. The Company utilizes interest rate swaps that have a high degree of correlation to the related financial instrument.
Fair Value Hedges
During the second quarter of 2021, the Company began entering into derivatives to hedge the risk of changes in fair value of a portion of its LHFI portfolio. These derivatives are designated as fair value hedges at inception. The gains/(losses) from changes in the fair value of the hedging derivative and the offsetting gains/(losses) from changes in the fair value of the related underlying hedged items are reporting in the same line item in the Condensed Consolidated Statements of Operations as earnings from the hedged items. The cumulative fair value hedge basis adjustments included in the carrying amount of hedged assets is reversed through earnings in future periods as an adjustment to yield. The Company includes gains/(losses) on the hedging derivatives and the related hedged items in the assessment of hedge effectiveness. All of these swaps have been deemed highly effective fair value hedges. The last of the hedges is scheduled to expire in September 2026.
NOTE 12. DERIVATIVES (continued)
Cash Flow Hedges
The Company has outstanding interest rate swap agreements designed to hedge a portion of the Company’s floating rate assets and liabilities (including its borrowed funds). All of these swaps have been deemed highly effective cash flow hedges. The gain or loss on the derivative instrument is reported as a component of AOCI and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings and is presented in the same Condensed Consolidated Statements of Operations line item as the earnings effect of the hedged item.
The last of the hedges is scheduled to expire in March 2027. The Company includes all components of each derivative's gain or loss in the assessment of hedge effectiveness. As of September 30, 2021,March 31, 2022, the Company estimated that approximately $24.3$22.2 million of unrealized gainslosses included in AOCI would be reclassified to earnings during the subsequent twelve months as the future cash flows occur.
NOTE 12. DERIVATIVES (continued)
Derivatives Designated in Hedge Relationships – Notional and Fair Values
Derivatives designated as accounting hedges at September 30, 2021March 31, 2022 and December 31, 20202021 included:
| | (dollars in thousands) | (dollars in thousands) | | Notional
Amount | | Asset | | Liability | | Weighted Average Receive Rate | | Weighted Average Pay
Rate | | Weighted Average Life
(Years) | (dollars in thousands) | | Notional
Amount | | Asset | | Liability | | Weighted Average Receive Rate | | Weighted Average Pay
Rate | | Weighted Average Life
(Years) |
| September 30, 2021 | | | | | | | | | | | | | |
| March 31, 2022 | | March 31, 2022 | | | | | | | | | | | | |
| Fair value hedges: | Fair value hedges: | | Fair value hedges: | |
| Cross-currency swaps | Cross-currency swaps | | $ | 14,743 | | | $ | 421 | | | $ | 22 | | | 1.34 | % | | 7.3 % | | 1.84 | Cross-currency swaps | | $ | 29,563 | | | $ | 469 | | | $ | 114 | | | 1.57 | % | | 7.30 | % | | 1.09 |
| Interest rate swaps | Interest rate swaps | | $ | 39,300 | | | $ | 139 | | | $ | 275 | | | 0.05 | % | | 0.71 % | | 4.74 | Interest rate swaps | | 409,659 | | | 8,440 | | | — | | | 0.28 | % | | 0.89 | % | | 3.08 |
| Cash flow hedges: | Cash flow hedges: | | | | | | | | | | | | Cash flow hedges: | | | | | | | | | | | |
| | Pay variable - receive fixed interest rate swaps | Pay variable - receive fixed interest rate swaps | | 11,945,000 | | | 78,699 | | | 44,857 | | | 0.99 % | | 0.08 % | | 2.19 | Pay variable - receive fixed interest rate swaps | | 13,325,000 | | | 2,161 | | | 412,605 | | | 0.94 | % | | 0.41 | % | | 2.18 |
| Interest rate floor | Interest rate floor | | 925,000 | | | 612 | | | — | | | 0.05 % | | — | % | | 1.93 | Interest rate floor | | 1,025,000 | | | 290 | | | — | | | — | % | | — | % | | 1.41 |
| Total | Total | | $ | 12,924,043 | | | $ | 79,871 | | | $ | 45,154 | | | 0.92 % | | 0.08 % | | 2.18 | Total | | $ | 14,789,222 | | | $ | 11,360 | | | $ | 412,719 | | | 0.86 | % | | 0.41 | % | | 2.15 |
| | December 31, 2020 | | | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2021 | | | | | | | | | | | | |
| Fair value hedges: | | Fair value hedges: | |
| Cross-currency swaps | | Cross-currency swaps | | $ | 14,743 | | | $ | 655 | | | $ | — | | | 1.34 | % | | 7.30 | % | | 1.84 |
| Interest rate swaps | | Interest rate swaps | | 128,789 | | | 1,188 | | | — | | | 0.05 | % | | 0.71 | % | | 3.59 |
| Cash flow hedges: | | Cash flow hedges: | | | | | | | | | | | | |
| | Cash flow hedges: | | | | | | | | | | | | | |
| Pay fixed — receive variable interest rate swaps | | $ | 2,450,000 | | | $ | 124 | | | $ | 70,589 | | | 0.18 % | | 1.50 % | | 1.90 | |
| Pay variable - receive fixed interest rate swaps | Pay variable - receive fixed interest rate swaps | | 8,745,000 | | | 150,206 | | | 182 | | | 1.16 % | | 0.14 % | | 2.12 | Pay variable - receive fixed interest rate swaps | | 11,995,000 | | | 41,980 | | | 111,093 | | | 0.88 | % | | 0.09 | % | | 2.28 |
| Interest rate floor | Interest rate floor | | 3,525,000 | | | 27,507 | | | — | | | 1.28 % | | — | % | | 1.10 | Interest rate floor | | 925,000 | | | 150 | | | — | | | 0.03 | % | | — | % | | 1.68 |
| Total | Total | | $ | 14,720,000 | | | $ | 177,837 | | | $ | 70,771 | | | 1.03 % | | 0.33 % | | 1.84 | Total | | $ | 13,063,532 | | | $ | 43,973 | | | $ | 111,093 | | | 0.81 | % | | 0.10 | % | | 2.25 |
During 2018, 2019, and 2020, SC entered into interest rate swap agreements with an aggregate notional amount of $2.2 billion. The interest rate swaps were to be used to hedge SC’s variable rate debt and had maturity dates ranging from two to five years. During the third quarter ofIn 2021, SC de-designated the hedge relationships and terminated the swaps resulting in a fair value adjustment of $6.5 million recorded as a reduction to interest expense. Amounts previously recorded in AOCI related to these interest rate swaps, totaling $50.6 million, are being reclassified into earnings over the term as the previously hedged cash flow impacts earnings. For the terminated swaps, SC reclassified $7.9$7.3 million previously recorded in AOCI into interest expense during the quarter ending September 30, 2021.ended March 31, 2022.
Other Derivative Activities
The Company also enters into derivatives that are not designated as accounting hedges under GAAP. The majority of these derivatives are customer-related derivatives relating to foreign exchange and lending arrangements, as well as derivatives to hedge interest rate risk on SC's secured structured financings and the borrowings under its revolving credit facilities. SC uses both interest rate swaps and interest rate caps to satisfy these requirements and to hedge the variability of cash flows on securities issued by Trusts and borrowings under its warehouse facilities. In addition, derivatives are used to manage risks related to residential and commercial mortgage banking and investing activities. Although these derivatives are used to hedge risk and are considered economic hedges, they are not designated as accounting hedges because the contracts they are hedging are carried at fair value on the balance sheet, resulting in generally symmetrical accounting treatment for the hedging instrument and the hedged item.
NOTE 12. DERIVATIVES (continued)
Mortgage Banking Derivatives
The Company's derivatives portfolio includes mortgage banking interest rate lock commitments, forward sale commitments and interest rate swaps. As part of its overall business strategy, the Company originates fixed-rate and adjustable rate residential mortgages. It sells a portion of this production to the FHLMC, the FNMA, and private investors. The Company uses forward sales as a means of hedging against the economic impact of changes in interest rates on the mortgages that are originated for sale and on interest rate lock commitments.
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.
NOTE 12. DERIVATIVES (continued)
Customer-related derivatives
The Company offers derivatives to its customers in connection with their risk management needs and requirements. These financial derivative transactions primarily consist of interest rate swaps, caps, floors and foreign exchange contracts. Risk exposure from customer positions is managed through transactions with other dealers, including Santander.
Other derivative activities
The Company uses foreign exchange contracts to manage the foreign exchange risk associated with certain foreign currency-denominated assets and liabilities. Foreign exchange contracts, which include spot and forward contracts as well as cross-currency swaps, represent agreements to exchange the currency of one country for the currency of another country at an agreed-upon price on an agreed-upon settlement date and may or may not be physically settled depending on the Company’s needs. Exposure to gains and losses on these contracts will increase or decrease over their respective lives as currency exchange and interest rates fluctuate.
Other derivative instruments primarily include forward contracts related to certain investment securities sales, an OIS, and 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.
NOTE 12. DERIVATIVES (continued)shares.
Derivatives Not Designated in Hedge Relationships – Notional and Fair Values
Other derivative activities at September 30, 2021March 31, 2022 and December 31, 20202021 included:
| | | Notional | | Asset derivatives
Fair value | | Liability derivatives
Fair value | | Notional | | Asset derivatives
Fair value | | Liability derivatives
Fair value |
| (in thousands) | (in thousands) | | September 30, 2021 | | December 31, 2020 | | September 30, 2021 | | December 31, 2020 | | September 30, 2021 | | December 31, 2020 | (in thousands) | | March 31, 2022 | | December 31, 2021 | | March 31, 2022 | | December 31, 2021 | | March 31, 2022 | | December 31, 2021 |
| Mortgage banking derivatives: | Mortgage banking derivatives: | | | | | | | | | | | | | Mortgage banking derivatives: | | | | | | | | | | | | |
| Forward commitments to sell loans | Forward commitments to sell loans | | $ | 351,750 | | | $ | 520,299 | | | $ | 1,980 | | | $ | — | | | $ | — | | | $ | 3,835 | | Forward commitments to sell loans | | $ | 90,366 | | | $ | 264,188 | | | $ | 1,404 | | | $ | — | | | $ | — | | | $ | 21 | |
| Interest rate lock commitments | Interest rate lock commitments | | 165,172 | | | 262,471 | | | 4,141 | | | 13,202 | | | — | | | — | | Interest rate lock commitments | | 7,281 | | | 99,752 | | | — | | | 2,852 | | | 104 | | | — | |
| Mortgage servicing | Mortgage servicing | | 593,000 | | | 495,000 | | | 21,933 | | | 33,419 | | | 9,534 | | | 13,402 | | Mortgage servicing | | 638,000 | | | 593,000 | | | 3,640 | | | 15,841 | | | 11,103 | | | 8,111 | |
| Total mortgage banking risk management | Total mortgage banking risk management | | 1,109,922 | | | 1,277,770 | | | 28,054 | | | 46,621 | | | 9,534 | | | 17,237 | | Total mortgage banking risk management | | 735,647 | | | 956,940 | | | 5,044 | | | 18,693 | | | 11,207 | | | 8,132 | |
| | Customer-related derivatives: | Customer-related derivatives: | | Customer-related derivatives: | |
| Swaps receive fixed | Swaps receive fixed | | 14,840,199 | | | 15,350,026 | | | 505,972 | | | 901,509 | | | 53,816 | | | 8,778 | | Swaps receive fixed | | 15,335,553 | | | 14,801,189 | | | 101,240 | | | 400,168 | | | 403,991 | | | 89,767 | |
| Swaps pay fixed | Swaps pay fixed | | 15,144,606 | | | 15,749,590 | | | 64,419 | | | 14,644 | | | 487,824 | | | 874,260 | | Swaps pay fixed | | 15,570,273 | | | 15,141,223 | | | 427,383 | | | 102,312 | | | 92,538 | | | 383,987 | |
| | Other | Other | | 5,187,393 | | | 3,781,316 | | | 25,480 | | | 15,446 | | | 24,374 | | | 13,782 | | Other | | 5,539,085 | | | 6,384,285 | | | 32,481 | | | 25,542 | | | 30,286 | | | 26,741 | |
| Total customer-related derivatives | Total customer-related derivatives | | 35,172,198 | | | 34,880,932 | | | 595,871 | | | 931,599 | | | 566,014 | | | 896,820 | | Total customer-related derivatives | | 36,444,911 | | | 36,326,697 | | | 561,104 | | | 528,022 | | | 526,815 | | | 500,495 | |
| | Other derivative activities: | Other derivative activities: | | Other derivative activities: | |
| | Foreign exchange contracts | Foreign exchange contracts | | 4,455,165 | | | 4,258,869 | | | 57,649 | | | 52,530 | | | 47,727 | | | 62,616 | | Foreign exchange contracts | | 6,107,095 | | | 5,085,973 | | | 51,801 | | | 35,899 | | | 51,597 | | | 33,836 | |
| Interest rate swap agreements | | 250,000 | | | 250,000 | | | — | | | — | | | 8,085 | | | 12,934 | | |
| | Interest rate cap agreements | Interest rate cap agreements | | 7,649,971 | | | 10,199,134 | | | 13,314 | | | 4,617 | | | — | | | — | | Interest rate cap agreements | | 4,908,191 | | | 7,007,441 | | | 94,191 | | | 34,290 | | | — | | | — | |
| Options for interest rate cap agreements | Options for interest rate cap agreements | | 7,649,971 | | | 10,199,134 | | | — | | | — | | | 13,314 | | | 4,617 | | Options for interest rate cap agreements | | 4,908,191 | | | 7,007,441 | | | — | | | — | | | 94,191 | | | 34,290 | |
| | Other | Other | | 112,799 | | | 240,083 | | | 219 | | | 5,886 | | | 1,789 | | | 7,031 | | Other | | 109,011 | | | 111,373 | | | 30 | | | 203 | | | 1,364 | | | 2,367 | |
| | Total | Total | | $ | 56,400,026 | | | $ | 61,305,922 | | | $ | 695,107 | | | $ | 1,041,253 | | | $ | 646,463 | | | $ | 1,001,255 | | Total | | $ | 53,213,046 | | | $ | 56,495,865 | | | $ | 712,170 | | | $ | 617,107 | | | $ | 685,174 | | | $ | 579,120 | |
NOTE 12. DERIVATIVES (continued)
Gains (Losses) on All Derivatives
The following Condensed Consolidated StatementStatements of Operations line items were impacted by the Company’s derivative activities for the three-monthquarters ended March 31, 2022 and nine-month periods ended September 30, 2021 and 2020:2021:
| | (in thousands) | (in thousands) | | | | Three-Month Period Ended September 30, | | Nine-Month Period Ended September 30, | (in thousands) | | | | | Year-to-Date Ended March 31 |
| | Line Item | | 2021 | | 2020 | | 2021 | | 2020 | | | Line Item | | | 2022 | | 2021 | |
| | Fair value hedges: | Fair value hedges: | | | Fair value hedges: | | | | |
| Cross-currency swaps | Cross-currency swaps | | Net interest income | | $ | 421 | | | $ | — | | | $ | 421 | | | $ | — | | | Cross-currency swaps | | Net interest income | | | $ | (367) | | | $ | — | | |
| | Interest rate swaps | Interest rate swaps | | Net interest income | | $ | 69 | | | $ | — | | | $ | 139 | | | $ | — | | | Interest rate swaps | | Net interest income | | | 7,088 | | | — | | |
| | Cash flow hedges: | Cash flow hedges: | | | | | | | | | | Cash flow hedges: | | | | | | |
| Pay fixed-receive variable interest rate swaps | Pay fixed-receive variable interest rate swaps | | Interest expense on borrowings | | (6,946) | | | (8,939) | | | (22,254) | | | (17,260) | | | Pay fixed-receive variable interest rate swaps | | Interest expense on borrowings | | | (7,275) | | | (7,657) | | |
| Pay variable receive-fixed interest rate swap | Pay variable receive-fixed interest rate swap | | Interest income on loans | | 26,396 | | | 34,767 | | | 75,499 | | | 57,691 | | | Pay variable receive-fixed interest rate swap | | Interest income on loans | | | 23,251 | | | 23,116 | | |
| Interest rate floors | Interest rate floors | | Interest income on loans | | 2,790 | | | — | | | 20,867 | | | — | | | Interest rate floors | | Interest income on loans | | | 67 | | | 11,315 | | |
| Other derivative activities: | Other derivative activities: | | | | | | | | Other derivative activities: | | | | |
| Forward commitments to sell loans | Forward commitments to sell loans | | Miscellaneous income, net | | 2,102 | | | 3,175 | | | 5,815 | | | 85 | | | Forward commitments to sell loans | | Miscellaneous income, net | | | 1,425 | | | 10,715 | | |
| Interest rate lock commitments | Interest rate lock commitments | | Miscellaneous income, net | | (1,374) | | | (316) | | | (9,061) | | | 13,077 | | | Interest rate lock commitments | | Miscellaneous income, net | | | (2,955) | | | (7,373) | | |
| Mortgage servicing | Mortgage servicing | | Miscellaneous income, net | | (649) | | | 62 | | | (5,993) | | | 32,175 | | | Mortgage servicing | | Miscellaneous income, net | | | (17,293) | | | (9,732) | | |
| Customer-related derivatives | Customer-related derivatives | | Miscellaneous income, net | | 7,111 | | | 5,741 | | | 20,904 | | | 13,861 | | | Customer-related derivatives | | Miscellaneous income, net | | | 4,525 | | | 7,655 | | |
| | Foreign exchange | Foreign exchange | | Miscellaneous income, net | | (498) | | | 755 | | | 5,696 | | | 13,560 | | | Foreign exchange | | Miscellaneous income, net | | | 1,962 | | | 1,687 | | |
| Interest rate swaps, caps, and options | Interest rate swaps, caps, and options | | Miscellaneous income, net | | (143) | | | (567) | | | (113) | | | (11,253) | | | Interest rate swaps, caps, and options | | Miscellaneous income, net | | | (22) | | | 244 | | |
| | | Other | Other | | Miscellaneous income, net | | (144) | | | 4,502 | | | (553) | | | 583 | | | Other | | Miscellaneous income, net | | | 371 | | | 1,418 | | |
|
(1) Gains are disclosed as positive numbers while losses are shown as a negative number regardless of the line item being affected.
The net amount of change recognized in OCI for cash flow hedge derivatives was a losslosses of $25.4$252.3 million and $92.6$62.8 million, net of tax, for the three-monthquarters ended March 31, 2022, and nine-month periods ended September 30, 2021, respectively, and a loss of $39.0 million and a gain of $116.6 million, net of tax, for the three-month and nine-month periods ended September 30, 2020, respectively.
The net amount of changes reclassified from OCI into earnings for cash flow hedge derivatives werewas losses of $6.0$5.9 million and $7.1$0.1 million, net of tax, for the three-monthquarters ended March 31, 2022 and nine-month periods ended September 30, 2021, respectively, and losses of $0.3 million and $0.3 million, net of tax, for the three-month and nine-month periods ended September 30, 2020, respectively.
Disclosures about Offsetting Assets and Liabilities
The Company enters into legally enforceable master netting agreements which reduce risk by permitting netting of transactions with the same counterparty on the occurrence of certain events. A master netting agreement allows two counterparties the ability to net-settle amounts under all contracts, including any related collateral posted, through a single payment and in a single currency. The right to offset and certain terms regarding the collateral process, such as valuation, credit events and settlement, are contained in the applicable master agreement. The Company's financial instruments, including resell and repurchase agreements, securities lending arrangements, derivatives and cash collateral, may be eligible for offset on its Condensed Consolidated Balance Sheets.
The Company has elected to present derivative balances on a gross basis even if the derivative is subject to a legally enforceable nettable ISDA Master Agreement for all trades executed after April 1, 2013. Collateral that is received or pledged for these transactions is disclosed within the “Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets” section of the tables below. Prior to April 1, 2013, the Company had elected to net all caps, floors, and interest rate swaps when it had an ISDA Master Agreement with the counterparty. The collateral received or pledged in connection with these transactions is disclosed within the “Gross Amounts Offset in the Condensed Consolidated Balance Sheets" section of the tables below.
NOTE 12. DERIVATIVES (continued)
Information about financial assets and liabilities that are eligible for offset on the Condensed Consolidated Balance Sheets as of September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively, is presented in the following tables:
| | | Offsetting of Financial Assets | | Offsetting of Financial Assets |
| | | | Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets | | | | Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets |
| (in thousands) | (in thousands) | | Gross Amounts of Recognized Assets | | Gross Amounts Offset in the Condensed Consolidated Balance Sheets | | Net Amounts of Assets Presented in the Condensed Consolidated Balance Sheets | | | Collateral Received (3) | | | Net Amount | (in thousands) | | Gross Amounts of Recognized Assets | | Gross Amounts Offset in the Condensed Consolidated Balance Sheets | | Net Amounts of Assets Presented in the Condensed Consolidated Balance Sheets | | | Collateral Received (3) | | | Net Amount |
| September 30, 2021 | | | | | | | | | | | | | |
| March 31, 2022 | | March 31, 2022 | | | | | | | | | | | | |
| Fair value hedges | Fair value hedges | | $ | 560 | | | $ | — | | | $ | 560 | | | | 0 | | | $ | 560 | | Fair value hedges | | $ | 8,909 | | | $ | — | | | $ | 8,909 | | | | 0 | | | $ | 8,909 | |
| Cash flow hedges | Cash flow hedges | | 79,311 | | | — | | | 79,311 | | | | $ | — | | | | 79,311 | | Cash flow hedges | | 2,451 | | | — | | | 2,451 | | | | $ | — | | | | 2,451 | |
Other derivative activities(1) | Other derivative activities(1) | | 688,986 | | | — | | | 688,986 | | | | 24,297 | | | | 664,689 | | Other derivative activities(1) | | 710,766 | | | — | | | 710,766 | | | | 101,710 | | | | 609,056 | |
| Total derivatives subject to a master netting arrangement or similar arrangement | Total derivatives subject to a master netting arrangement or similar arrangement | | 768,857 | | | — | | | 768,857 | | | | 24,297 | | | | 744,560 | | Total derivatives subject to a master netting arrangement or similar arrangement | | 722,126 | | | — | | | 722,126 | | | | 101,710 | | | | 620,416 | |
Total derivatives not subject to a master netting arrangement or similar arrangement(2) | Total derivatives not subject to a master netting arrangement or similar arrangement(2) | | 6,121 | | | — | | | 6,121 | | | | 2,472 | | | | 3,649 | | Total derivatives not subject to a master netting arrangement or similar arrangement(2) | | 1,404 | | | — | | | 1,404 | | | | 1,404 | | | | — | |
| Total Derivative Assets | Total Derivative Assets | | $ | 774,978 | | | $ | — | | | $ | 774,978 | | | | $ | 26,769 | | | | $ | 748,209 | | Total Derivative Assets | | $ | 723,530 | | | $ | — | | | $ | 723,530 | | | | $ | 103,114 | | | | $ | 620,416 | |
| | | | December 31, 2020 | | | | | | |
| | December 31, 2021 | | December 31, 2021 | | | | | |
| Fair value hedges | | Fair value hedges | | $ | 1,843 | | | $ | — | | | $ | 1,843 | | | | 0 | | | $ | 1,843 | |
| Cash flow hedges | Cash flow hedges | | $ | 177,837 | | | $ | — | | | $ | 177,837 | | | | $ | 85,065 | | | | $ | 92,772 | | Cash flow hedges | | 42,130 | | | — | | | 42,130 | | | | $ | — | | | | 42,130 | |
Other derivative activities(1) | Other derivative activities(1) | | 1,028,051 | | | — | | | 1,028,051 | | | | 7,771 | | | | 1,020,280 | | Other derivative activities(1) | | 614,255 | | | — | | | 614,255 | | | | 41,899 | | | | 572,356 | |
| Total derivatives subject to a master netting arrangement or similar arrangement | Total derivatives subject to a master netting arrangement or similar arrangement | | 1,205,888 | | | — | | | 1,205,888 | | | | 92,836 | | | | 1,113,052 | | Total derivatives subject to a master netting arrangement or similar arrangement | | 658,228 | | | — | | | 658,228 | | | | 41,899 | | | | 616,329 | |
Total derivatives not subject to a master netting arrangement or similar arrangement(2) | Total derivatives not subject to a master netting arrangement or similar arrangement(2) | | 13,202 | | | — | | | 13,202 | | | | — | | | | 13,202 | | Total derivatives not subject to a master netting arrangement or similar arrangement(2) | | 2,852 | | | — | | | 2,852 | | | | 122 | | | | 2,730 | |
| Total Derivative Assets | Total Derivative Assets | | $ | 1,219,090 | | | $ | — | | | $ | 1,219,090 | | | | $ | 92,836 | | | | $ | 1,126,254 | | Total Derivative Assets | | $ | 661,080 | | | $ | — | | | $ | 661,080 | | | | $ | 42,021 | | | | $ | 619,059 | |
|
(1)Includes customer-related and other derivatives.
(2)Includes mortgage banking derivatives.
(3)Collateral received includes cash, cash equivalents, and other financial instruments. Cash collateral received is reported in Other liabilities, as applicable, in the Condensed Consolidated Balance Sheets. Financial instruments that are pledged to the Company are not reflected in the accompanying Condensed Consolidated Balance Sheets since the Company does not control or have the ability to re-hypothecate these instruments.
NOTE 12. DERIVATIVES (continued)
| | | Offsetting of Financial Liabilities | | Offsetting of Financial Liabilities |
| | | | Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets | | | | Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets |
| (in thousands) | (in thousands) | | Gross Amounts of Recognized Liabilities | | Gross Amounts Offset in the Condensed Consolidated Balance Sheets | | Net Amounts of Liabilities Presented in the Condensed Consolidated Balance Sheets | | | Collateral Pledged (3) | | | Net Amount | (in thousands) | | Gross Amounts of Recognized Liabilities | | Gross Amounts Offset in the Condensed Consolidated Balance Sheets | | Net Amounts of Liabilities Presented in the Condensed Consolidated Balance Sheets | | | Collateral Pledged (3) | | | Net Amount |
| September 30, 2021 | | | | | | | | | | | | | |
| March 31, 2022 | | March 31, 2022 | | | | | | | | | | | | |
| Fair value hedges | Fair value hedges | | $ | 297 | | | $ | — | | | $ | 297 | | | | 0 | | | $ | 297 | | Fair value hedges | | $ | 114 | | | $ | — | | | $ | 114 | | | | 0 | | | $ | 114 | |
| Cash flow hedges | Cash flow hedges | | $ | 44,857 | | | $ | — | | | $ | 44,857 | | | | $ | 9,986 | | | | $ | 34,871 | | Cash flow hedges | | 412,605 | | | — | | | 412,605 | | | | $ | 241,174 | | | | 171,431 | |
Other derivative activities(1) | Other derivative activities(1) | | 646,463 | | | 2,694 | | | 643,769 | | | | 305,390 | | | | 338,379 | | Other derivative activities(1) | | 685,070 | | | 1,203 | | | 683,867 | | | | 108,003 | | | | 575,864 | |
| Total derivatives subject to a master netting arrangement or similar arrangement | Total derivatives subject to a master netting arrangement or similar arrangement | | 691,617 | | | 2,694 | | | 688,923 | | | | 315,376 | | | | 373,547 | | Total derivatives subject to a master netting arrangement or similar arrangement | | 1,097,789 | | | 1,203 | | | 1,096,586 | | | | 349,177 | | | | 747,409 | |
Total derivatives not subject to a master netting arrangement or similar arrangement(2) | Total derivatives not subject to a master netting arrangement or similar arrangement(2) | | — | | | — | | | — | | | | — | | | | — | | Total derivatives not subject to a master netting arrangement or similar arrangement(2) | | 104 | | | — | | | 104 | | | | — | | | | 104 | |
| Total Derivative Liabilities | Total Derivative Liabilities | | $ | 691,617 | | | $ | 2,694 | | | $ | 688,923 | | | | $ | 315,376 | | | | $ | 373,547 | | Total Derivative Liabilities | | $ | 1,097,893 | | | $ | 1,203 | | | $ | 1,096,690 | | | | $ | 349,177 | | | | $ | 747,513 | |
| | | December 31, 2020 | | | | | | |
| December 31, 2021 | | December 31, 2021 | | | | | |
| | Cash flow hedges | Cash flow hedges | | $ | 70,771 | | | $ | — | | | $ | 70,771 | | | | $ | 70,589 | | | | $ | 182 | | Cash flow hedges | | $ | 111,093 | | | $ | — | | | $ | 111,093 | | | | $ | 59,073 | | | | $ | 52,020 | |
Other derivative activities(1) | Other derivative activities(1) | | 997,420 | | | 3,517 | | | 993,903 | | | | 584,971 | | | | 408,932 | | Other derivative activities(1) | | 579,099 | | | 2,058 | | | 577,041 | | | | 268,352 | | | | 308,689 | |
| Total derivatives subject to a master netting arrangement or similar arrangement | Total derivatives subject to a master netting arrangement or similar arrangement | | 1,068,191 | | | 3,517 | | | 1,064,674 | | | | 655,560 | | | | 409,114 | | Total derivatives subject to a master netting arrangement or similar arrangement | | 690,192 | | | 2,058 | | | 688,134 | | | | 327,425 | | | | 360,709 | |
Total derivatives not subject to a master netting arrangement or similar arrangement(2) | Total derivatives not subject to a master netting arrangement or similar arrangement(2) | | 3,835 | | | — | | | 3,835 | | | | 2,382 | | | | 1,453 | | Total derivatives not subject to a master netting arrangement or similar arrangement(2) | | 21 | | | — | | | 21 | | | | 21 | | | | — | |
| Total Derivative Liabilities | Total Derivative Liabilities | | $ | 1,072,026 | | | $ | 3,517 | | | $ | 1,068,509 | | | | $ | 657,942 | | | | $ | 410,567 | | Total Derivative Liabilities | | $ | 690,213 | | | $ | 2,058 | | | $ | 688,155 | | | | $ | 327,446 | | | | $ | 360,709 | |
|
(1)Includes customer-related and other derivatives.
(2)Includes mortgage banking derivatives.
(3)Cash collateral pledged and financial instruments pledged is reported in Other assets in the Condensed Consolidated Balance Sheets. In certain instances, the Company is over-collateralized since the actual amount of collateral pledged exceeds the associated financial liability. As a result, the actual amount of collateral pledged that is reported in Other assets may be greater than the amount shown in the table above.
NOTE 13. FAIR VALUE
The Company estimates the fair value of certain assets and liabilities for both measurement and disclosure purposes. The fair value hierarchy categorizes the underlying assumptions and inputs to valuation techniques that are used to measure fair value into three levels. The three fair value hierarchy classification levels are defined as follows:
•Level 1 inputs are quoted prices in active markets for identical assets or liabilities that can be accessed as of the measurement date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
•Level 2 inputs are those other than quoted prices included in Level 1 that are observable for the assets or liabilities, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
•Level 3 inputs are those that are unobservable or not readily observable for the asset or liability and are used to measure fair value to the extent relevant observable inputs are not available.
Assets and liabilities measured at fair value, by their nature, result in a higher degree of financial statement volatility. See Note 1 of the 2020 Annual Report on Form 10-K for a broad discussion of fair value measurement techniques. When available, the Company uses quoted market prices or matrix pricing in active markets to determine fair value and classifies such items as Level 1 or Level 2 assets or liabilities. If quoted market prices in active markets are not available, fair value is determined using third-party broker quotes and/or DCF models incorporating various assumptions including interest rates, prepayment speeds and credit losses. Assets and liabilities valued using broker quotes and/or DCF models are classified as either Level 2 or Level 3, depending on the lowest level classification of an input that is considered significant to the overall valuation.
NOTE 13. FAIR VALUE (continued)
The Company values assets and liabilities based on the principal market in which each would be sold (in the case of assets) or transferred (in the case of liabilities). The principal market is the forum with the greatest volume and level of activity. In the absence of a principal market, the valuation is based on the most advantageous market. In the absence of observable market transactions, the Company considers liquidity valuation adjustments to reflect the uncertainty in pricing the instruments. The fair value of a financial asset is measured on a stand-alone basis and cannot be measured as a group, with the exception of certain financial instruments held and managed on a net portfolio basis. In measuring the fair value of a nonfinancial asset, the Company assumes the highest and best use of the asset by a market participant, not just the intended use, to maximize the value of the asset. The Company also considers whether any credit valuation adjustments are necessary based on the counterparty's credit quality.
Any models used to determine fair values or validate dealer quotes based on the descriptions below are subject to review and testing as part of the Company's model validation and internal control testing processes.
The Company's Market Risk Department is responsible for determining and approvingapproves the fair valuesmethodologies used in the estimations of all assets and liabilities valued at fair value, including the Company's Level 3 assets and liabilities. Price validation procedures are performed and the results are reviewed for Level 3 assets and liabilities by the Market Risk Department. Price validation procedures performed for these assets and liabilities can include comparing current prices to historical pricing trends by collateral type and vintage, comparing prices by product type to indicative pricing grids published by market makers, and obtaining corroborating dealer prices for significant securities.
The Company reviews the assumptions utilized to determine fair value on a quarterly basis. Any changes in methodologies or significant inputs used in determining fair values are further reviewed to determine if a change in fair value level hierarchy has occurred.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables present the assets and liabilities that are measured at fair value on a recurring basis by major product category and fair value hierarchy as of September 30, 2021March 31, 2022 and December 31, 2020:2021:
| | (in thousands) | (in thousands) | | Level 1 | | Level 2 | | Level 3 | | Balance at
September 30, 2021 | | Level 1 | | Level 2 | | Level 3 | | Balance at
December 31, 2020 | (in thousands) | | Level 1 | | Level 2 | | Level 3 | | Balance at March 31, 2022 | | Level 1 | | Level 2 | | Level 3 | | Balance at
December 31, 2021 |
| Financial assets: | Financial assets: | | | | | | | | | | | | | | | | | Financial assets: | | | | | | | | | | | | | | | | |
| U.S. Treasury securities | U.S. Treasury securities | | $ | — | | | $ | 90,688 | | | $ | — | | | $ | 90,688 | | | $ | — | | | $ | 170,653 | | | $ | — | | | $ | 170,653 | | U.S. Treasury securities | | $ | 253,150 | | | $ | — | | | $ | — | | | $ | 253,150 | | | $ | 73,618 | | | $ | — | | | $ | — | | | $ | 73,618 | |
| Corporate debt | Corporate debt | | — | | | 239,805 | | | — | | | 239,805 | | | — | | | 155,715 | | | — | | | 155,715 | | Corporate debt | | — | | | 291,749 | | | — | | | 291,749 | | | — | | | 276,007 | | | — | | | 276,007 | |
| ABS | ABS | | — | | | 544,525 | | | — | | | 544,525 | | | — | | | 58,945 | | | 50,393 | | | 109,338 | | ABS | | — | | | 525,937 | | | — | | | 525,937 | | | — | | | 537,722 | | | — | | | 537,722 | |
| | MBS | MBS | | — | | | 10,501,834 | | | — | | | 10,501,834 | | | — | | | 10,877,783 | | | — | | | 10,877,783 | | MBS | | — | | | 7,372,920 | | | — | | | 7,372,920 | | | — | | | 10,426,590 | | | — | | | 10,426,590 | |
Investment in debt securities AFS(2) | Investment in debt securities AFS(2) | | — | | | 11,376,852 | | | — | | | 11,376,852 | | | — | | | 11,263,096 | | | 50,393 | | | 11,313,489 | | Investment in debt securities AFS(2) | | 253,150 | | | 8,190,606 | | | — | | | 8,443,756 | | | 73,618 | | | 11,240,319 | | | — | | | 11,313,937 | |
| Other investments - trading securities | Other investments - trading securities | | — | | | 38,748 | | | — | | | 38,748 | | | — | | | 40,435 | | | — | | | 40,435 | | Other investments - trading securities | | 5 | | | 33,314 | | | — | | | 33,319 | | | 64 | | | 35,727 | | | — | | | 35,791 | |
RICs HFI(3) | RICs HFI(3) | | — | | | 3,774 | | | 35,616 | | | 39,390 | | | — | | | — | | | 50,391 | | | 50,391 | | RICs HFI(3) | | — | | | — | | | 29,485 | | | 29,485 | | | — | | | — | | | 33,529 | | | 33,529 | |
LHFS (1)(4) | LHFS (1)(4) | | — | | | 194,078 | | | — | | | 194,078 | | | — | | | 265,428 | | | — | | | 265,428 | | LHFS (1)(4) | | — | | | 81,120 | | | — | | | 81,120 | | | — | | | 166,811 | | | — | | | 166,811 | |
| MSRs | MSRs | | — | | | — | | | 79,580 | | | 79,580 | | | — | | | — | | | 77,545 | | | 77,545 | | MSRs | | — | | | — | | | 99,517 | | | 99,517 | | | — | | | — | | | 79,107 | | | 79,107 | |
Other assets - derivatives (2) | Other assets - derivatives (2) | | — | | | 770,816 | | | 4,162 | | | 774,978 | | | — | | | 1,205,690 | | | 13,400 | | | 1,219,090 | | Other assets - derivatives (2) | | — | | | 723,500 | | | 30 | | | 723,530 | | | — | | | 658,187 | | | 2,893 | | | 661,080 | |
| Total financial assets (5) | Total financial assets (5) | | $ | — | | | $ | 12,384,268 | | | $ | 119,358 | | | $ | 12,503,626 | | | $ | — | | | $ | 12,774,649 | | | $ | 191,729 | | | $ | 12,966,378 | | Total financial assets (5) | | $ | 253,155 | | | $ | 9,028,540 | | | $ | 129,032 | | | $ | 9,410,727 | | | $ | 73,682 | | | $ | 12,101,044 | | | $ | 115,529 | | | $ | 12,290,255 | |
| Financial liabilities: | Financial liabilities: | | | | | | | | | | | | | | | | | Financial liabilities: | | | | | | | | | | | | | | | | |
Other liabilities - derivatives (2) | Other liabilities - derivatives (2) | | — | | | 689,828 | | | 1,789 | | | 691,617 | | | — | | | 1,068,074 | | | 3,952 | | | 1,072,026 | | Other liabilities - derivatives (2) | | — | | | 1,096,475 | | | 1,418 | | | 1,097,893 | | | — | | | 687,846 | | | 2,367 | | | 690,213 | |
| | | Total financial liabilities | Total financial liabilities | | $ | — | | | $ | 689,828 | | | $ | 1,789 | | | $ | 691,617 | | | $ | — | | | $ | 1,068,074 | | | $ | 3,952 | | | $ | 1,072,026 | | Total financial liabilities | | $ | — | | | $ | 1,096,475 | | | $ | 1,418 | | | $ | 1,097,893 | | | $ | — | | | $ | 687,846 | | | $ | 2,367 | | | $ | 690,213 | |
(1) LHFS disclosed on the Condensed Consolidated Balance Sheets also includes LHFS that are held at the lower of cost or fair value and are not presented within this table.
(2) Refer to Note 2 for the fair value of investment securities and to Note 12 for the fair values of derivative assets and liabilities on a further disaggregated basis.
(3) RICs collateralized by vehicle titles at SC and RV/marine loans at SBNA.
(4) Residential mortgage loans.
(5) Approximately $119.4$129.0 million of these financial assets were measured using model-based techniques, or Level 3 inputs, and represented approximately 1.0%1.4% of total assets measured at fair value on a recurring basis and approximately 0.1% of total consolidated assets.
NOTE 13. FAIR VALUE (continued)
Valuation Processes and Techniques - Recurring Fair Value Assets and Liabilities
The following is a description of the valuation techniques used for instruments measured at fair value on a recurring basis:
Investments in debt securities AFS
Investments in debt securities AFS are accounted for at fair value. The Company utilizes a third-party pricing service to value its investment securities portfolios on a global basis. Its primary pricing service has consistently proved to be a high quality third-party pricing provider. For those investments not valued by pricing vendors, other trusted market sources are utilized. The Company monitors and validates the reliability of vendor pricing on an ongoing basis, which can include pricing methodology reviews, performing detailed reviews of the assumptions and inputs used by the vendor to price individual securities, and price validation testing. Price validation testing is performed independently of the risk-taking function and can include corroborating the prices received from third-party vendors with prices from another third-party source, reviewing valuations of comparable instruments, comparison to internal valuations, or by reference to recent sales of similar securities.
The classification of securities within the fair value hierarchy is based upon the activity level in the market for the security type and the observability of the inputs used to determine their fair values. Actively traded quoted market prices for debt securities AFS, such as U.S. Treasury and government agency securities, corporate debt, state and municipal securities, and MBS, are not readily available. The Company's principal markets for its investment securities are the secondary institutional markets with an exit price that is predominantly reflective of bid-level pricing in these markets. These investment securities are priced by third-party pricing vendors. The third-party vendors use a variety of methods when pricing these securities that incorporate relevant observable market data to arrive at an estimate of what a buyer in the marketplace would pay for a security under current market conditions. These investment securities are, therefore, considered Level 2.
Certain ABS are valued using DCF models. The DCF models are obtained from a third-party pricing vendor which uses observable market data and therefore are classified as Level 2. Other ABS that could not be valued using a third-party pricing service are valued using an internally-developed DCF model and are classified as Level 3.
Realized gains and losses on investments in debt securities are recognized in the Condensed Consolidated Statements of Operations through Net gain / (loss) on sale of investment securities.
RICs HFILHFI
For certain RICs reported in LHFI, net, the Company has elected the FVO. The estimated fair value of all RICs HFI is estimated using a DCF model and are classified as Level 3.
LHFS
The Company's LHFS portfolios that are measured at fair value on a recurring basis consist primarily of residential mortgage LHFS. The fair values of LHFS are estimated using published forward agency prices to agency buyers such as FNMA and FHLMC. The majority of the residential mortgage LHFS portfolio is sold to these two agencies. The fair value is determined using current secondary market prices for portfolios with similar characteristics, adjusted for servicing values and market conditions.
These loans are regularly traded in active markets, and observable pricing information is available from market participants. The prices are adjusted as necessary to include the embedded servicing value in the loans as well as the specific characteristics of certain loans that are priced based on the pricing of similar loans. These adjustments represent unobservable inputs to the valuation, and are not significant given the relative insensitivity of the value to changes in these inputs to the fair value of the loans. Accordingly, residential mortgage LHFS are classified as Level 2. Gains and losses on residential mortgage LHFS are recognized in the Condensed Consolidated Statements of Operations through Miscellaneous income, net. See further discussion below in the section captioned "FVO for Financial Assets and Financial Liabilities."
NOTE 13. FAIR VALUE (continued)
MSRs
The Company maintains an MSR asset for sold residential real estate loans serviced for others. At March 31, 2022 and December 31, 2021, the balance of these loans serviced for others accounted for at fair value was $10.1 billion and $10.4 billion, respectively. Changes in fair value are recorded through Miscellaneous income, net on the Condensed Consolidated Statements of Operations.
The Company has elected to measure most of its residential MSRs at fair value to be consistent with the risk management strategy to hedge changes in the fair value of these assets. The fair value of residential MSRs is estimated by using a cash flow valuation model which calculates the present value of estimated future net servicing cash flows, taking into consideration actual and expected mortgage loan prepayment rates, discount rates (reflective of a market participant’s return on an investment for similar assets), servicing costs, and other economic factors which are determined based on current market conditions. Historically, servicing costs and discount rates have been less volatile than prepayment rates, which are directly correlated with changes in market interest rates. Increases in prepayment rates, discount rates and servicing costs result in lower valuations of MSRs. Decreases in the anticipated earnings rate on escrow and similar balances result in lower valuations of MSRs. Assumptions incorporated into the residential MSR valuation model reflect management's best estimate of factors that a market participant would use in valuing the residential MSRs, as well as future expectations. Although sales of residential MSRs do occur, residential MSRs do not trade in an active market with readily observable prices. ThoseAs deemed appropriate, the Company economically hedges MSRs not accounted for at fair value are accounted for at amortized cost, less impairment.using interest rate swaps and forward contracts to purchase MBS. See further discussion on these derivative activities in Note 12 to these Condensed Consolidated Financial Statements.
As a benchmark for the reasonableness of the residential MSRs fair value, opinions of value from brokers are obtained. Brokers provide a range of values based upon their own DCF calculations of our portfolio that reflect conditions in the secondary market and any recently executed servicing transactions. Management compares the internally-developed residential MSR values to the ranges of values received from brokers. If the residential MSRs fair value falls outside of the brokers' ranges, management will assess whether a valuation adjustment is warranted. The residential MSRs value is considered to represent a reasonable estimate of fair value. MSR’s are classified as Level 3.
Gains and losses on MSRs are recognized on the Condensed Consolidated Statements of Operations through Miscellaneous income, net.
Significant assumptions used in the valuation of residential MSRs include CPRs and the discount rate. Other important valuation assumptions include market-based servicing costs and the anticipated earnings on escrow and similar balances held by the Company in the normal course of mortgage servicing activities. Below is a sensitivity analysis of the most significant inputs utilized by the Company in the evaluation of residential MSRs:
• A 10% and 20% increase in the CPR speed would decrease the fair value of the residential servicing asset by $3.5$3.3 million and $6.9$6.4 million, respectively, at September 30, 2021.March 31, 2022.
•A 10% and 20% increase in the discount rate would decrease the fair value of the residential servicing asset by $2.4$3.5 million and $4.7$6.8 million, respectively, at September 30, 2021.March 31, 2022.
Significant increases/(decreases) in any of those inputs in isolation would result in significantly (lower)/higher fair value measurements, respectively. These sensitivity calculations are hypothetical and should not be considered to be predictive of future performance. Changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, the effect of an adverse variation in a particular assumption on the fair value of the MSRs is calculated without changing any other assumption, while in reality changes in one factor may result in changes in another, which may either magnify or counteract the effect of the change. Prepayment estimates generally increase when market interest rates decline and decrease when market interest rates rise. Discount rates typically increase when market interest rates increase and/or credit and liquidity risks increase, and decrease when market interest rates decline and/or credit and liquidity conditions improve.
Derivatives
The valuation of these instruments is determined using commonly accepted valuation techniques, including DCF analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable and unobservable market-based inputs. The fair value represents the estimated amount the Company would receive or pay to terminate the contract or agreement, taking into account current interest rates, foreign exchange rates, equity prices and, when appropriate, the current creditworthiness of the counterparties.
NOTE 13. FAIR VALUE (continued)
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.
NOTE 13. FAIR VALUE (continued)
Theguarantees.The Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy. Certain of the Company's derivatives utilize Level 3 inputs, which are primarily related to mortgage banking derivatives-interest rate lock commitments and total return settlement derivative contracts.
The DCF model is utilized to determine the fair value of the mortgage banking derivatives-interest rate lock commitments and the total return settlement derivative contracts. The significant unobservable inputs for mortgage banking derivatives used in the fair value measurement of the Company's loan commitments are "pull through" percentage and the MSR value that is inherent in the underlying loan value. The pull through percentage is an estimate of loan commitments that will result in closed loans. The significant unobservable inputs for total return settlement derivative contracts used in the fair value measurement of the Company's liabilities are discount percentages, which are based on comparable financial instruments. Significant increases (decreases) in any of these inputs in isolation would result in significantly higher (lower) fair value measurements. Significant increases (decreases) in the fair value of a mortgage banking derivative asset (liability) results when the probability of funding increases (decreases). Significant increases (decreases) in the fair value of a mortgage loan commitment result when the embedded servicing value increases (decreases).
See Note 12 to these Consolidated Financial Statements for a discussion of derivatives activity.
Level 3 Rollforward for Assets and Liabilities Measured at Fair Value on a Recurring Basis
The tables below present the changes in Level 3 balances for the three-monthquarters ended March 31, 2022 and nine-month periods ended September 30, 2021, and 2020, respectively, for those assets and liabilities measured at fair value on a recurring basis.
| | | | | | Three-Month Period Ended September 30, 2021 | | Three-Month Period Ended September 30, 2020 | | | Year-To-Date Ended March 31, 2022 | | Year-To-Date Ended March 31, 2021 |
| (in thousands) | (in thousands) | | Investments
AFS | | RICs HFI | | MSRs | | Derivatives, net | | | Total | | Investments
AFS | | RICs HFI | | MSRs | | Derivatives, net | | | Total | (in thousands) | | | RICs HFI | | MSRs | | Derivatives, net | | | Total | | Investments
AFS | | RICs HFI | | MSRs | | Derivatives, net | | | Total |
| Balances, beginning of period | Balances, beginning of period | | $ | 50,063 | | | $ | 39,436 | | | $ | 79,730 | | | $ | 3,471 | | | | $ | 172,700 | | | $ | 50,664 | | | $ | 72,862 | | | $ | 88,674 | | | $ | 9,970 | | | | $ | 222,170 | | Balances, beginning of period | | | $ | 33,529 | | | $ | 79,107 | | | $ | 526 | | | | $ | 113,162 | | | $ | 50,393 | | | $ | 50,391 | | | $ | 77,545 | | | $ | 9,448 | | | | $ | 187,777 | |
| Losses in OCI | Losses in OCI | | (63) | | | — | | | — | | | — | | | | (63) | | | (97) | | | — | | | — | | | — | | | | (97) | | Losses in OCI | | | — | | | — | | | — | | | | — | | | (156) | | | — | | | — | | | — | | | | (156) | |
| Gains/(losses) in earnings | Gains/(losses) in earnings | | — | | | — | | | 1,878 | | | (1,097) | | | | 781 | | | — | | | 3,895 | | | (2,834) | | | 495 | | | | 1,556 | | Gains/(losses) in earnings | | | — | | | 22,765 | | | (1,914) | | | | 20,851 | | | — | | | — | | | 13,578 | | | (5,257) | | | | 8,321 | |
| Additions/Issuances | Additions/Issuances | | — | | | 1,171 | | | 3,343 | | | — | | | | 4,514 | | | — | | | — | | | 3,365 | | | — | | | | 3,365 | | Additions/Issuances | | | — | | | 2,520 | | | — | | | | 2,520 | | | — | | | — | | | 3,611 | | | — | | | | 3,611 | |
| Settlements(1) | Settlements(1) | | (50,000) | | | (4,991) | | | (5,371) | | | — | | | | (60,362) | | | (1) | | | (15,309) | | | (7,429) | | | 65 | | | | (22,674) | | Settlements(1) | | | (4,044) | | | (4,875) | | | — | | | | (8,919) | | | — | | | (5,823) | | | (8,081) | | | 78 | | | | (13,826) | |
| Balances, end of period | Balances, end of period | | $ | — | | | $ | 35,616 | | | $ | 79,580 | | | $ | 2,374 | | | | $ | 117,570 | | | $ | 50,566 | | | $ | 61,448 | | | $ | 81,776 | | | $ | 10,530 | | | | $ | 204,320 | | Balances, end of period | | | $ | 29,485 | | | $ | 99,517 | | | $ | (1,388) | | | | $ | 127,614 | | | $ | 50,237 | | | $ | 44,568 | | | $ | 86,653 | | | $ | 4,269 | | | | $ | 185,727 | |
| Changes in unrealized gains (losses) included in earnings related to balances still held at end of period | Changes in unrealized gains (losses) included in earnings related to balances still held at end of period | | $ | — | | | $ | — | | | $ | 1,878 | | | $ | 276 | | | | $ | 2,154 | | | $ | — | | | $ | 3,895 | | | $ | (2,834) | | | $ | 812 | | | | $ | 1,873 | | Changes in unrealized gains (losses) included in earnings related to balances still held at end of period | | | $ | — | | | $ | 22,765 | | | $ | 1,043 | | | | $ | 23,808 | | | $ | — | | | $ | — | | | $ | 13,578 | | | $ | 2,116 | | | | $ | 15,694 | |
| | Nine-Month Period Ended September 30, 2021 | | Nine-Month Period Ended September 30, 2020 | |
| (in thousands) | | Investments
AFS | | RICs HFI | | MSRs | | Derivatives, net | | | Total | | Investments
AFS | | RICs HFI | | MSRs | | Derivatives, net | | | Total | |
| Balances, beginning of period | | $ | 50,393 | | | $ | 50,391 | | | $ | 77,545 | | | $ | 9,448 | | | | $ | 187,777 | | | $ | 63,235 | | | $ | 84,334 | | | $ | 130,855 | | | $ | 255 | | | | $ | 278,679 | | |
| Losses in OCI | | (393) | | | — | | | — | | | — | | | | (393) | | | (416) | | | — | | | — | | | — | | | | (416) | | |
| Gains/(losses) in earnings | | — | | | — | | | 10,530 | | | (7,074) | | | | 3,456 | | | — | | | 10,845 | | | (38,457) | | | 10,045 | | | | (17,567) | | |
| Additions/Issuances | | — | | | — | | | 10,969 | | | — | | | | 10,969 | | | — | | | 2,512 | | | 9,788 | | | — | | | | 12,300 | | |
Transfer from level 2(3) | | — | | | 1,171 | | | — | | | — | | | | 1,171 | | | — | | | 17,634 | | | — | | | — | | | | 17,634 | | |
Settlements(1) | | (50,000) | | | (15,946) | | | (19,464) | | | — | | | | (85,410) | | | (12,253) | | | (53,877) | | | (20,410) | | | 230 | | | | (86,310) | | |
| Balances, end of period | | $ | — | | | $ | 35,616 | | | $ | 79,580 | | | $ | 2,374 | | | | $ | 117,570 | | | $ | 50,566 | | | $ | 61,448 | | | $ | 81,776 | | | $ | 10,530 | | | | $ | 204,320 | | |
| Changes in unrealized gains (losses) included in earnings related to balances still held at end of period | | $ | — | | | $ | — | | | $ | 10,530 | | | $ | 1,987 | | | | $ | 12,517 | | | $ | — | | | $ | 10,845 | | | $ | (38,457) | | | $ | (3,031) | | | | $ | (30,643) | | |
(1)Settlements include charge-offs, prepayments, paydowns and maturities.
(2) The Company transferred RICs from Level 2 to Level 3 during 2020 because the fair value for these assets cannot be determined by using readily observable inputs. There were no other transfers into or out of Level 3 during the three-month and nine-month periods ended September 30, 2021 or 2020.
NOTE 13. FAIR VALUE (continued)
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
The Company may be required to measure certain assets and liabilities at fair value on a nonrecurring basis in accordance with GAAP from time to time. These adjustments to fair value usually result from application of lower-of-cost-or-fair value accounting or certain impairment measures. Assets measured at fair value on a nonrecurring basis that were still held on the balance sheet were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | | Level 1 | | Level 2 | | Level 3 | | Balance at
September 30, 2021 | | Level 1 | | Level 2 | | Level 3 | | Balance at
December 31, 2020 |
| Impaired commercial LHFI | | $ | — | | | $ | 18,005 | | | $ | 696 | | | $ | 18,701 | | | $ | — | | | $ | 32,609 | | | $ | 11,925 | | | $ | 44,534 | |
| Foreclosed assets | | — | | | (279) | | | — | | | (279) | | | — | | | 8,232 | | | 23,528 | | | 31,760 | |
| Vehicle inventory | | — | | | 271,040 | | | — | | | 271,040 | | | — | | | 313,754 | | | — | | | 313,754 | |
LHFS(1) | | — | | | — | | | 496,489 | | | 496,489 | | | — | | | — | | | 1,960,768 | | | 1,960,768 | |
| Auto loans impaired due to bankruptcy | | — | | | 204,594 | | | — | | | 204,594 | | | — | | | 191,785 | | | — | | | 191,785 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
(1) These amounts include zero and $0.9 billion of personal LHFS that were impaired as of September 30, 2021 and December 31, 2020, respectively. On March 16, 2021 the Company sold the personal lending portfolio. Refer to Note 1 for more information. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | | Level 1 | | Level 2 | | Level 3 | | Balance at
March 31, 2022 | | Level 1 | | Level 2 | | Level 3 | | Balance at
December 31, 2021 |
| Impaired commercial LHFI | | $ | — | | | $ | 14,164 | | | $ | 26,345 | | | $ | 40,509 | | | $ | — | | | $ | 17,180 | | | $ | 614 | | | $ | 17,794 | |
| Foreclosed assets | | — | | | 2,407 | | | — | | | 2,407 | | | — | | | 1,322 | | | — | | | 1,322 | |
| Vehicle inventory | | — | | | 266,316 | | | — | | | 266,316 | | | — | | | 271,396 | | | — | | | 271,396 | |
| LHFS | | — | | | 171,432 | | | 75,611 | | | 247,043 | | | — | | | — | | | 88,212 | | | 88,212 | |
| Auto loans impaired due to bankruptcy | | — | | | 197,260 | | | — | | | 197,260 | | | — | | | 202,448 | | | — | | | 202,448 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Valuation Processes and Techniques - Nonrecurring Fair Value Assets and Liabilities
Impaired commercial LHFI in the table above represents the recorded investment of impaired commercial loans for which the Company measures impairment during the period based on the fair value of the underlying collateral supporting the loan. Written offers to purchase a specific impaired loan are considered observable market inputs, which are considered Level 1 inputs. Appraisals are obtained to support the fair value of the collateral and incorporate measures such as recent sales prices for comparable properties and are considered Level 2 inputs. Loans for which the value of the underlying collateral is determined using a combination of real estate appraisals, field examinations and internal calculations are classified as Level 3. The inputs in the internal calculations may include the loan balance, estimation of the collectability of the underlying receivables held by the customer used as collateral, sale and liquidation value of the inventory held by the customer used as collateral and historical loss-given-default parameters. In cases in which the carrying value exceeds the fair value of the collateral less cost to sell, an impairment charge is recognized. The net carrying value of these loans was $12.7$51.2 million and $33.2$9.0 million at September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively. Loans previously impaired which were not marked to fair value during the periods presented are excluded from this table.
Foreclosed assets represent the recorded investment in assets taken during the period presented in foreclosure of defaulted loans, and are primarily comprised of commercial and residential real properties and generally measured at fair value less costs to sell. The fair value of the real property is generally determined using appraisals or other indications of market value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace.
The Company estimates the fair value of its vehicles, which are obtained either through repossession or lease termination, using historical auction rates and current market values of used cars.
The Company's LHFS portfolios that are measured at fair value on a nonrecurring basis primarily consist of personal, commercial, and RICs LHFS. The estimated fair value of these LHFS is calculated based on a combination of estimated market rates for similar loans with similar credit risks and a DCF analysis in which the Company uses significant unobservable inputs on key assumptions, including historical default rates and adjustments to reflect voluntary prepayments, prepayment rates, discount rates reflective of the cost of funding, and credit loss expectations. The lower of cost or fair value adjustment for personal LHFS includes customer default activity and adjustments related to the net change in the portfolio balance during the reporting period.
For loans that are considered collateral-dependent, such as certain bankruptcy loans, impairment is measured based on the fair value of the collateral less its estimated cost to sell. For the underlying collateral, the estimated fair value is obtained using historical auction rates and current market levels of the collateral securing the loans.
NOTE 13. FAIR VALUE (continued)
The estimated fair value of goodwill is valued using unobservable inputs and is classified as Level 3 at October 1 annually3. Goodwill is written down to fair value when, as a result of an annual or more frequently ifinterim goodwill impairment indicators are present attest, an interim date.impairment is identified and recognized. Fair value is calculated using widely-accepted valuation techniques, such as the guideline public company market approach (earnings and price-to-tangible book value multiples of comparable public companies) and the income approach (the DCF method). The Company uses a combination of these accepted methodologies to determine the fair valuation of reporting units. Several factors are taken into account, including actual operating results, future business plans, economic projections, and market data. On a quarterly basis, the Company assesses whether or not impairment indicators are present. For information on the Company's goodwill impairment test and the results of the most recent goodwill impairment test, see Note 5 for a description of the Company's goodwill valuation methodology.
Fair Value Adjustments
The following table presents the increases and decreases in value of certain assets that are measured at fair value on a nonrecurring basis for which a fair value adjustment has been included in the Condensed Consolidated Statements of Operations relating to assets held at period-end:
| | | Three-Month Period Ended September 30, | | Nine-Month Period Ended September 30, | | | | Year-to-Date Ended March 31 |
| (in thousands) | (in thousands) | Statement of Operations Location | | 2021 | | 2020 | | 2021 | | 2020 (2) | | (in thousands) | Statement of Operations Location | | | 2022 | | 2021 | |
| Impaired LHFI | Impaired LHFI | Credit loss expense | | $ | (1,021) | | | $ | (12,036) | | | $ | (6,008) | | | $ | (5,883) | | | Impaired LHFI | Credit loss expense (1) | | | $ | 10,675 | | | $ | (6,583) | | |
| Foreclosed assets | Foreclosed assets | Miscellaneous income, net (1) | | — | | | (736) | | | (321) | | | (3,857) | | | Foreclosed assets | Miscellaneous income, net (1) | | | — | | | (338) | | |
| LHFS | Miscellaneous income | | — | | | (56,598) | | | — | | | (387,900) | | | |
| | Auto loans impaired due to bankruptcy | Credit loss expense | | — | | | — | | | — | | | — | | | |
| |
(1) Gains are disclosed as positive numbers while losses are shown as a negative number regardless of the line item being affected.
(2) Also included $1.8 billion of impairment of goodwill taken in the second quarter of 2020. Refer to Note 5 to these Condensed Consolidated Financial Statements for further information.information on the review of goodwill for impairment.
Level 3 Inputs - Significant Recurring and Nonrecurring Fair Value Assets and Liabilities
The following table presents quantitative information about the significant unobservable inputs within significant Level 3 recurring and nonrecurring assets and liabilities at September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (dollars in thousands) | | Fair Value at September 30, 2021March 31, 2022 (4)(3)
| | Valuation Technique | | Unobservable Inputs | | Range
(Weighted Average) |
| Financial Assets: | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
RICs HFS | | 359,561 | | | DCF | | Discount rate | | 1.00 % - 2.00 % (2.00 %) | |
| | | | | | Default rate | | 4.00 % - 10.00 % (7.00%) |
| | | | | | Prepayment rate | | 15.00 % - 20.00 % (17.00 %) |
| | | | | | Loss severity rate | | 50.00 % - 55.00 % (52.00 %) |
| MSRs | | 79,580$ | 99,517 | | | DCF | | CPR (2)(1) | | 0.00%6.65% - 74.44% (13.47%85.85% (8.76%) |
| | | | | | Discount rate (3)(2) | | 9.35 | % |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
(1) Based on the applicable term and discount index. The Company owns one financing bond security.
(2) Average CPR projected from collateral stratified by loan type and note rate. Weighted average amount was developed by weighting the associated relative unpaid principal balances.
(3)(2) Average discount rate from collateral stratified by loan type and note rate. Weighted average amount was developed by weighting the associated relative unpaid principal balances.
(4)(3) Excluded insignificant levelLevel 3 assets and liabilities.
NOTE 13. FAIR VALUE (continued)
| | | | | | | | | | | | | | | | | | | | | | | |
| (dollars in thousands) | Fair Value at December 31, 2020 | | Valuation Technique | | Unobservable Inputs | | Range
(Weighted Average) |
| Financial Assets: | |
| ABS | | | | | | | |
| Financing bonds | $ | 50,393 | | | DCF | | Discount rate (1) | | 0.22% |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Personal LHFS (4) | 893,479 | | | Lower of market or income approach | | Market participant view | | 60.00% - 70.00% |
| | | | | Discount rate | | 20.00% - 30.00% |
| | | | | Default rate | | 35.00% - 45.00% |
| | | | | Net principal & interest payment rate | | 65.00% - 75.00% |
| | | | | Loss severity rate | | 90.00% - 95.00% |
| RICs HFS | $ | 674,048 | | | DCF | | Discount Rate | | 1.5% - 2.5% (2.0%) |
| | | | | Default Rate | | 2.0% - 4.0% (3.0%) |
| | | | | Prepayment Rate | | 10.0% - 20.0% (15.0%) |
| | | | | Loss Severity Rate | | 50.0% - 60.0% (55.0%) |
| MSRs | 77,545 | | | DCF | | CPR (2) | | 7.66% - 45.35% (16.11%) |
| | | | | Discount rate (3) | | 9.37 | % |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| (dollars in thousands) | Fair Value at December 31, 2021 (3) | | Valuation Technique | | Unobservable Inputs | | Range
(Weighted Average) |
| Financial Assets: | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
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| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| MSRs | $ | 79,107 | | | DCF | | CPR (2) | | 7.42% - 82.71% (12.86%) |
| | | | | Discount rate (3) | | 9.35 | % |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
(1), (2), (3) - See corresponding footnotes to the September 30, 2021March 31, 2022 Level 3 significant inputs table above.
(4) Excludes non-significant Level 3 LHFS portfolios. The estimated fair value for personal LHFS (Bluestem) is calculated based on the lower of market participant view, a DCF analysis in which the Company uses significant unobservable inputs on key assumptions, and also considers the possible outcomes of the Bluestem bankruptcy process.
Fair Value of Financial Instruments
The carrying amounts and estimated fair values, as well as the level within the fair value hierarchy, of the Company's financial instruments are as follows:
| | | | | September 30, 2021 | | December 31, 2020 | | | March 31, 2022 | | December 31, 2021 |
| (in thousands) | (in thousands) | | Carrying Value | | Fair Value | | Level 1 | | Level 2 | | Level 3 | | Carrying Value | | Fair Value | | Level 1 | | Level 2 | | Level 3 | (in thousands) | | Carrying Value | | Fair Value | | Level 1 | | Level 2 | | Level 3 | | Carrying Value | | Fair Value | | Level 1 | | Level 2 | | Level 3 |
| Financial assets: | Financial assets: | | | | | | | | | | | | | | | | | | | | | Financial assets: | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | Cash and cash equivalents | | $ | 18,605,798 | | | $ | 18,605,798 | | | $ | 18,605,798 | | | $ | — | | | $ | — | | | $ | 12,621,281 | | | $ | 12,621,281 | | | $ | 12,621,281 | | | $ | — | | | $ | — | | Cash and cash equivalents | | $ | 13,519,278 | | | $ | 13,519,278 | | | $ | 13,519,278 | | | $ | — | | | $ | — | | | $ | 19,305,530 | | | $ | 19,305,530 | | | $ | 19,305,530 | | | $ | — | | | $ | — | |
Federal funds sold and securities purchased under resale agreements or similar arrangements(3) | Federal funds sold and securities purchased under resale agreements or similar arrangements(3) | | 1,589,324 | | | 1,609,687 | | | — | | | 1,609,687 | | | — | | | — | | | — | | | — | | | — | | | — | | Federal funds sold and securities purchased under resale agreements or similar arrangements(3) | | 4,904,070 | | | 4,901,580 | | | — | | | 4,901,580 | | | — | | | 5,346,468 | | | 5,372,052 | | | — | | | 5,372,052 | | | — | |
| Investments in debt securities AFS | Investments in debt securities AFS | | 11,392,791 | | | 11,376,852 | | | — | | | 11,376,852 | | | — | | | 11,313,489 | | | 11,313,489 | | | — | | | 11,263,096 | | | 50,393 | | Investments in debt securities AFS | | 8,443,756 | | | 8,443,756 | | | 253,150 | | | 8,190,606 | | | — | | | 11,313,937 | | | 11,313,937 | | | 73,618 | | | 11,240,319 | | | — | |
| Investments in debt securities HTM | Investments in debt securities HTM | | 6,594,046 | | | 6,609,487 | | | — | | | 6,609,487 | | | — | | | 5,504,685 | | | 5,677,929 | | | — | | | 5,677,929 | | | — | | Investments in debt securities HTM | | 9,388,092 | | | 8,968,074 | | | — | | | 8,968,074 | | | — | | | 6,702,471 | | | 6,629,206 | | | — | | | 6,629,206 | | | — | |
Other investments (2) | Other investments (2) | | 538,748 | | | 539,371 | | | — | | | 539,371 | | | — | | | 790,435 | | | 801,056 | | | — | | | 801,056 | | | — | | Other investments (2) | | 433,319 | | | 436,851 | | | 5 | | | 436,846 | | | — | | | 285,791 | | | 286,526 | | | 64 | | | 286,462 | | | — | |
| LHFI, net | LHFI, net | | 85,106,617 | | | 88,509,050 | | | — | | | 18,053 | | | 88,490,997 | | | 84,794,689 | | | 89,395,086 | | | — | | | 32,609 | | | 89,362,477 | | LHFI, net | | 85,370,336 | | | 88,603,043 | | | — | | | 14,164 | | | 88,588,879 | | | 85,614,402 | | | 89,039,439 | | | — | | | 17,180 | | | 89,022,259 | |
| LHFS | LHFS | | 690,567 | | | 690,567 | | | — | | | 325,721 | | | 364,846 | | | 2,226,196 | | | 2,226,196 | | | — | | | 265,428 | | | 1,960,768 | | LHFS | | 328,164 | | | 328,163 | | | — | | | 252,552 | | | 75,611 | | | 255,023 | | | 255,023 | | | — | | | 166,811 | | | 88,212 | |
| Restricted cash | Restricted cash | | 5,612,743 | | | 5,612,743 | | | 5,612,743 | | | — | | | — | | | 5,303,460 | | | 5,303,460 | | | 5,303,460 | | | — | | | — | | Restricted cash | | 5,944,767 | | | 5,944,767 | | | 5,944,767 | | | — | | | — | | | 5,711,705 | | | 5,711,705 | | | 5,711,705 | | | — | | | — | |
| MSRs | MSRs | | 79,580 | | | 79,580 | | | — | | | — | | | 79,580 | | | 77,545 | | | 77,545 | | | — | | | — | | | 77,545 | | MSRs | | 99,517 | | | 99,517 | | | — | | | — | | | 99,517 | | | 79,107 | | | 79,107 | | | — | | | — | | | 79,107 | |
| Derivatives | Derivatives | | 774,978 | | | 774,978 | | | — | | | 770,816 | | | 4,162 | | | 1,219,090 | | | 1,219,090 | | | — | | | 1,205,690 | | | 13,400 | | Derivatives | | 723,530 | | | 723,530 | | | — | | | 723,500 | | | 30 | | | 661,080 | | | 661,080 | | | — | | | 658,187 | | | 2,893 | |
| | Financial liabilities: | Financial liabilities: | | | | | | | | | | Financial liabilities: | | | | | | | | | |
Deposits (1) | Deposits (1) | | 2,757,910 | | | 2,764,659 | | | — | | | 2,764,659 | | | — | | | 3,897,056 | | | 3,920,096 | | | — | | | 3,920,096 | | | — | | Deposits (1) | | 2,294,848 | | | 2,295,313 | | | — | | | 2,295,313 | | | — | | | 2,524,471 | | | 2,524,707 | | | — | | | 2,524,707 | | | — | |
Federal funds purchased and securities loaned or sold under repurchase agreements(3) | Federal funds purchased and securities loaned or sold under repurchase agreements(3) | | 1,586,537 | | | 1,586,744 | | | — | | | 1,586,744 | | | — | | | — | | | — | | | — | | | — | | | — | | Federal funds purchased and securities loaned or sold under repurchase agreements(3) | | 4,820,950 | | | 4,820,943 | | | — | | | 4,820,943 | | | — | | | 5,258,875 | | | 5,258,874 | | | — | | | 5,258,874 | | | — | |
| Borrowings and other debt obligations | Borrowings and other debt obligations | | 43,726,930 | | | 44,515,357 | | | — | | | 33,512,352 | | | 11,003,005 | | | 46,359,467 | | | 47,081,852 | | | — | | | 30,538,951 | | | 16,542,901 | | Borrowings and other debt obligations | | 40,239,594 | | | 39,965,388 | | | — | | | 33,191,303 | | | 6,774,085 | | | 41,133,187 | | | 41,600,737 | | | — | | | 33,874,253 | | | 7,726,484 | |
| Derivatives | Derivatives | | 691,617 | | | 691,617 | | | — | | | 689,828 | | | 1,789 | | | 1,072,026 | | | 1,072,026 | | | — | | | 1,068,074 | | | 3,952 | | Derivatives | | 1,097,893 | | | 1,097,893 | | | — | | | 1,096,475 | | | 1,418 | | | 690,213 | | | 690,213 | | | — | | | 687,846 | | | 2,367 | |
(1) This line item excludes deposit liabilities with no defined or contractual maturities in accordance with ASU 2016-01.
(2) This line item includes CDs with a maturity greater than 90 days and investments in trading securities.
(3) Approximates the fair value of the underlying collateral.
NOTE 13. FAIR VALUE (continued)
Valuation Processes and Techniques - Financial Instruments
The preceding tables present disclosures about the fair value of the Company's financial instruments. Those fair values for certain instruments are presented based upon subjective estimates of relevant market conditions at a specific point in time and information about each financial instrument. In cases in which quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. These techniques involve uncertainties resulting in variability in estimates affected by changes in assumptions and risks of the financial instruments at a certain point in time. Therefore, the derived fair value estimates presented above for certain instruments cannot be substantiated by comparison to independent markets. In addition, the fair values do not reflect any premium or discount that could result from offering for sale at one time an entity’s entire holding of a particular financial instrument, nor do they reflect potential taxes and the expenses that would be incurred in an actual sale or settlement. Accordingly, the aggregate fair value amounts presented above do not represent the underlying value of the Company.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments not measured at fair value on the Condensed Consolidated Balance Sheets:
Cash, cash equivalents and restricted cash
Cash and cash equivalents include cash and due from depository institutions, interest-bearing deposits in other banks, federal funds sold, and securities purchased under agreements to resell. The related fair value measurements have been classified as Level 1, since their carrying value approximates fair value due to the short-term nature of the asset.
Restricted cash is related to cash restricted for investment purposes, cash posted for collateral purposes, cash advanced for loan purchases, and lockbox collections. Cash and cash equivalents, including restricted cash, have maturities of three months or less and, accordingly, the carrying amount of these instruments is deemed to be a reasonable estimate of fair value.
Securities Financing AgreementsActivities
No quoted prices exist for Securities Financing Agreements include repurchase and reverse repurchase agreements, including bonds borrowed. The relatedActivities, so fair measurements have beenvalue is determined using a discounted cash flow technique. Cash flows are estimated based on the terms of the contract. These cash flows are discounted using interest rates appropriate to the maturity of the instrument as well as the nature of the underlying collateral. Securities Financing Activities are classified as Level 2, based on2. At March 31, 2022, the fair value of the underlying collateral was $4.9 billion, all of which is comprised of Level 2 U.S. Treasury and mortgage-backed agency debt securitieswas sold or re-pledged.
Investments in debt securities HTM
Investments in debt securities HTM are recorded at amortized cost and are priced by third-party pricing vendors. The third-party vendors use a variety of methods when pricing these securities that incorporate relevant observable market data to arrive at an estimate of what a buyer in the marketplace would pay for a security under current market conditions. These investment securities are, therefore, considered Level 2.
LHFI, net
The fair values of loans are estimated based on groupings of similar loans, including but not limited to stratifications by type, interest rate, maturity, and borrower creditworthiness. Discounted future cash flow analyses are performed for these loans incorporating assumptions of current and projected voluntary prepayment speeds. Discount rates are determined using the Company's current origination rates on similar loans, adjusted for changes in current liquidity and credit spreads (if necessary). Because the current liquidity spreads are generally not observable in the market and the expected loss assumptions are based on the Company's experience, these are Level 3 valuations. Impaired loans are valued at fair value on a nonrecurring basis. See further discussion under the section captioned "Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis" above.
LHFS
The Company has LHFS portfolios that are accounted for at the lower of cost or market. This primarily consists of RICs HFS for which the estimated fair value is based on prices obtained in recent market transactions or expected to be obtained in the subsequent sales for similar assets.
NOTE 13. FAIR VALUE (continued)
Deposits
For deposits with no stated maturity, such as non-interest-bearing and interest-bearing demand deposit accounts, savings accounts and certain money market accounts, the carrying value approximates fair values. The fair value of fixed-maturity deposits is estimated by discounting cash flows using currently offered rates for deposits of similar remaining maturities and have been classified as Level 2.
Borrowings and other debt obligations
Fair value is estimated by discounting cash flows using rates currently available to the Company for other borrowings with similar terms and remaining maturities. Certain other debt obligation instruments are valued using available market quotes for similar instruments, which contemplates issuer default risk. The related fair value measurements have generally been classified as Level 2. A certain portion of debt relating to revolving credit facilities is classified as Level 3. Management believes that the terms of these credit agreements approximate market terms for similar credit agreements and, therefore, they are considered to be Level 3.
Residential MSRs
The Company maintains an MSR asset for sold residential real estate loans serviced for others. The Company elected to account for the majority of its existing portfolio of MSRs at fair value. This election created greater flexibility with regard to risk management of the asset by aligning the accounting for the MSRs with the accounting for risk management instruments, which are also generally carried at fair value. At September 30, 2021 and December 31, 2020, the balance of these loans serviced for others accounted for at fair value was $10.8 billion and $12.5 billion, respectively. Changes in fair value are recorded through Miscellaneous income, net on the Condensed Consolidated Statements of Operations. As deemed appropriate, the Company economically hedges MSRs using interest rate swaps and forward contracts to purchase MBS. See further discussion on these derivative activities in Note 12 to these Condensed Consolidated Financial Statements. The remainder of the MSRs are accounted for using the lower of cost or fair value and are presented above in the section captioned "Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis."
FVO for Financial Assets and Financial Liabilities
LHFS
The Company's LHFS portfolios that are measured using the FVO consist of residential mortgage LHFS. The adoption of the FVO for residential mortgage loans classified as HFS allows the Company to record the mortgage LHFS portfolio at fair market value compared toinstead of using the lower of amortized cost net of deferred fees, deferred origination costs, or market.market approach. The Company economically hedges its residential LHFS portfolio, whichand the offsetting hedge instrument is reported at fair value. A lower of cost or market accounting treatment would not allow the Company to record the excess of the fair market value over book value, but would require the Company to record the corresponding reduction in value on the hedges. BothAs a result, both the loans and related hedges are carried at fair value, which reduces earnings volatility, as the amounts more closely offset.
RICs HFI
To reduce accounting and operational complexity, the Company elected the FVO for certain of its RICs HFI. These loans consisted primarily of SC’s RICs accounted for by SC under ASC 310-30 and NPLs acquired by SC under optional clean up calls from its non-consolidated Trusts.
The following table summarizes the differences between the fair value and the principal balance of LHFS and RICs measured at fair value on a recurring basis as of September 30, 2021March 31, 2022 and December 31, 2020:2021:
| | | September 30, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
| (in thousands) | (in thousands) | | Fair Value | | Aggregate UPB | | Difference | | Fair Value | | Aggregate UPB | | Difference | (in thousands) | | Fair Value | | Aggregate UPB | | Difference | | Fair Value | | Aggregate UPB | | Difference |
LHFS(1) | LHFS(1) | | $ | 194,078 | | | $ | 188,892 | | | $ | 5,186 | | | $ | 265,428 | | | $ | 250,822 | | | $ | 14,606 | | LHFS(1) | | $ | 81,120 | | | $ | 82,393 | | | $ | (1,273) | | | $ | 166,811 | | | $ | 162,525 | | | $ | 4,286 | |
| | RICs HFI | RICs HFI | | 39,391 | | | 39,591 | | | (200) | | | 50,391 | | | 50,624 | | | (233) | | RICs HFI | | 29,485 | | | 29,785 | | | (300) | | | 33,529 | | | 33,737 | | | (208) | |
| Nonaccrual loans | Nonaccrual loans | | 541 | | | 619 | | | (78) | | | 1,474 | | | 2,178 | | | (704) | | Nonaccrual loans | | 385 | | | 405 | | | (20) | | | 435 | | | 457 | | | (22) | |
(1) LHFS disclosed on the Condensed Consolidated Balance Sheets also includes LHFS that are held at the lower of cost or fair value that are not presented within this table. There were no nonaccrual loans related to the LHFS measured using the FVO.
NOTE 14. NON-INTEREST INCOME AND OTHER EXPENSES
The following table presents the details of the Company's Non-interest income for the following periods:
| | | Three-Month Period Ended September 30, | | Nine-Month Period Ended September 30, | | | Year-to-Date Ended March 31 |
| (in thousands) | (in thousands) | | 2021 | | 2020 | | 2021 | | 2020 | | (in thousands) | | | 2022 | | 2021 | |
| Non-interest income: | Non-interest income: | | | | | | | | | | Non-interest income: | | | | | | |
| Consumer and commercial fees | Consumer and commercial fees | | $ | 109,475 | | | $ | 123,834 | | | $ | 335,620 | | | $ | 356,907 | | | Consumer and commercial fees | | | $ | 97,490 | | | $ | 119,220 | | |
| Lease income | Lease income | | 708,814 | | | 742,946 | | | 2,214,598 | | | 2,269,613 | | | Lease income | | | 671,204 | | | 772,892 | | |
| Capital market revenue | | Capital market revenue | | | 64,759 | | | 81,788 | | |
| Miscellaneous income, net | Miscellaneous income, net | | | Miscellaneous income, net | | | | |
| Mortgage banking income, net | Mortgage banking income, net | | 13,024 | | | 14,115 | | | 34,437 | | | 47,243 | | | Mortgage banking income, net | | | 11,381 | | | 20,739 | | |
| BOLI | BOLI | | 15,051 | | | 14,855 | | | 45,984 | | | 43,764 | | | BOLI | | | 15,617 | | | 15,545 | | |
| Capital market revenue | | 47,082 | | | 56,949 | | | 189,016 | | | 179,417 | | | |
| Net gain on sale of operating leases | Net gain on sale of operating leases | | 103,172 | | | 120,387 | | | 389,979 | | | 170,484 | | | Net gain on sale of operating leases | | | 26,046 | | | 108,263 | | |
| Asset and wealth management fees | Asset and wealth management fees | | 60,251 | | | 52,984 | | | 177,722 | | | 156,575 | | | Asset and wealth management fees | | | 66,702 | | | 58,727 | | |
| | Gain / (loss) on sale of non-mortgage loans | Gain / (loss) on sale of non-mortgage loans | | 3,420 | | | (56,684) | | | (19,766) | | | (241,324) | | | Gain / (loss) on sale of non-mortgage loans | | | 324 | | | (38,017) | | |
| Other miscellaneous income / (loss), net | Other miscellaneous income / (loss), net | | 7,381 | | | 105,616 | | | 51,619 | | | (25,994) | | | Other miscellaneous income / (loss), net | | | 13,778 | | | 35,465 | | |
| Net gain on sale of investment securities | Net gain on sale of investment securities | | (106) | | | (148) | | | 15,138 | | | 31,646 | | | Net gain on sale of investment securities | | | 13,955 | | | 9,874 | | |
| Total Non-interest income | Total Non-interest income | | $ | 1,067,564 | | | $ | 1,174,854 | | | $ | 3,434,347 | | | $ | 2,988,331 | | | Total Non-interest income | | | $ | 981,256 | | | $ | 1,184,496 | | |
Disaggregation of Revenue from Contracts with Customers
The following table presents the Company's Non-interest income disaggregated by revenue source:
| | | Three-Month Period Ended September 30, | | Nine-Month Period Ended September 30, | | | | Year-to-Date Ended March 31 |
| (in thousands) | (in thousands) | | 2021 | | 2020 | | 2021 | | 2020 | | (in thousands) | | | 2022 | | 2021 | |
| Non-interest income: | Non-interest income: | | | | | | | | | | Non-interest income: | | | | | | |
| In-scope of revenue from contracts with customers: | In-scope of revenue from contracts with customers: | | | In-scope of revenue from contracts with customers: | | | |
Depository services(1) | Depository services(1) | | $ | 47,725 | | | $ | 45,674 | | | $ | 134,265 | | | $ | 144,703 | | | Depository services(1) | | | $ | 39,900 | | | $ | 43,035 | | |
Commission and trailer fees(2) | Commission and trailer fees(2) | | 51,189 | | | 47,466 | | | 159,253 | | | 144,730 | | | Commission and trailer fees(2) | | | 59,186 | | | 54,539 | | |
Interchange income, net(2) | Interchange income, net(2) | | 18,589 | | | 15,648 | | | 53,351 | | | 47,567 | | | Interchange income, net(2) | | | 18,018 | | | 16,509 | | |
Underwriting service fees(2) | Underwriting service fees(2) | | 26,156 | | | 35,186 | | | 121,075 | | | 110,593 | | | Underwriting service fees(2) | | | 35,662 | | | 59,073 | | |
Asset and wealth management fees(2) | Asset and wealth management fees(2) | | 36,679 | | | 32,283 | | | 100,428 | | | 101,574 | | | Asset and wealth management fees(2) | | | 37,924 | | | 32,242 | | |
Other revenue from contracts with customers(2) | Other revenue from contracts with customers(2) | | 8,556 | | | 13,577 | | | 29,589 | | | 52,168 | | | Other revenue from contracts with customers(2) | | | 12,004 | | | 17,966 | | |
| Total in-scope of revenue from contracts with customers | Total in-scope of revenue from contracts with customers | | 188,894 | | | 189,834 | | | 597,961 | | | 601,335 | | | Total in-scope of revenue from contracts with customers | | | 202,694 | | | 223,364 | | |
| Out-of-scope of revenue from contracts with customers: | Out-of-scope of revenue from contracts with customers: | | | Out-of-scope of revenue from contracts with customers: | | | |
Consumer and commercial fees(3) | Consumer and commercial fees(3) | | 46,610 | | | 64,860 | | | 155,945 | | | 178,248 | | | Consumer and commercial fees(3) | | | 41,534 | | | 61,949 | | |
| Lease income | Lease income | | 708,814 | | | 742,946 | | | 2,214,598 | | | 2,269,613 | | | Lease income | | | 671,204 | | | 772,892 | | |
Other miscellaneous income / (loss), net (3) | Other miscellaneous income / (loss), net (3) | | 123,352 | | | 177,362 | | | 450,705 | | | (92,511) | | | Other miscellaneous income / (loss), net (3) | | | 51,869 | | | 116,417 | | |
| Net gain/(loss) on sale of investment securities | Net gain/(loss) on sale of investment securities | | (106) | | | (148) | | | 15,138 | | | 31,646 | | | Net gain/(loss) on sale of investment securities | | | 13,955 | | | 9,874 | | |
| Total out-of-scope of revenue from contracts with customers | Total out-of-scope of revenue from contracts with customers | | 878,670 | | | 985,020 | | | 2,836,386 | | | 2,386,996 | | | Total out-of-scope of revenue from contracts with customers | | | 778,562 | | | 961,132 | | |
| Total non-interest income | Total non-interest income | | $ | 1,067,564 | | | $ | 1,174,854 | | | $ | 3,434,347 | | | $ | 2,988,331 | | | Total non-interest income | | | $ | 981,256 | | | $ | 1,184,496 | | |
(1) Primarily recorded in the Company's Consolidated Statements of Operations within Consumer and commercial fees.
(2) Primarily recorded in the Company's Consolidated Statements of Operations within Miscellaneous income, net.
(3) The balance presented excludes certain revenue streams that are considered in-scope and presented above.
NOTE 14. NON-INTEREST INCOME AND OTHER EXPENSES (continued)
Other Expenses
The following table presents the Company's other expenses for the following periods:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three-Month Period Ended September 30, | | Nine-Month Period Ended September 30, |
| (in thousands) | | 2021 | | 2020 | | 2021 | | 2020 | | |
| Other expenses: | | | | | | | | | | |
| Amortization of intangibles | | $ | 11,416 | | | $ | 14,724 | | | $ | 33,450 | | | $ | 44,211 | | | |
| Deposit insurance premiums and other expenses | | 6,982 | | | 13,440 | | | 25,950 | | | 39,779 | | | |
| Loss on debt extinguishment | | — | | | — | | | — | | | 1,026 | | | |
| | | | | | | | | | |
| Other administrative expenses | | 146,123 | | | 115,909 | | | 301,565 | | | 313,344 | | | |
| Other miscellaneous expenses | | 6,680 | | | 6,176 | | | 23,158 | | | 29,618 | | | |
| Total Other expenses | | $ | 171,201 | | | $ | 150,249 | | | $ | 384,123 | | | $ | 427,978 | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | Year-to-Date Ended March 31 |
| (in thousands) | | | | | | 2022 | | 2021 | | |
| Other expenses: | | | | | | | | | | |
| Amortization of intangibles | | | | | | $ | 11,252 | | | $ | 11,286 | | | |
| Deposit insurance premiums and other expenses | | | | | | 8,230 | | | 9,320 | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Other administrative expenses | | | | | | 88,751 | | | 72,976 | | | |
| Other miscellaneous expenses | | | | | | 27,004 | | | 10,841 | | | |
| Total Other expenses | | | | | | $ | 135,237 | | | $ | 104,423 | | | |
NOTE 15. INCOME TAXES
An income tax expense of $227.3$161.7 million and a benefit of $53.3$286.8 million were recorded for the three-month periodsquarters ended September 30,March 31, 2022 and 2021, and 2020, respectively. An income tax expense of $885.8 million and a benefit of $272.9 million were recorded for the nine-month periods ended September 30, 2021 and 2020, respectively. This resulted in an ETR of 21.0%20.8% and (6.5)%24.3% for the three-month periodsquarters ended September 30,March 31, 2022 and 2021, and 2020, respectively, and 23.3% and 19.3% for the nine-month periods ended September 30, 2021 and 2020, respectively. The increasedecrease in the ETR for the three-month and nine-month periodsquarter ended September 30, 2021,March 31, 2022, compared to the three-month and nine-month periodsquarter ended September 30, 2020,March 31, 2021, was primarily the result of a decrease in expected pre-tax income and an increase in electric vehicle tax credits for 2021,2022 compared to a pre-tax loss in 2020, and the impairment of goodwill in 2020 that was non-deductible for tax purposes.2021.
The Company is subject to the income tax laws of the U.S., its states and municipalities and certain foreign countries. These tax laws are complex and are potentially subject to different interpretations by the taxpayer and the relevant governmental taxing authorities. In establishing a provision for income tax expense, the Company must make judgments and interpretations about the application of these inherently complex tax laws.
Actual income taxes paid may vary from estimates depending upon changes in income tax laws, actual results of operations, and the final audit of tax returns by taxing authorities. Tax assessments may arise several years after tax returns have been filed. The Company reviews its tax balances quarterly and, as new information becomes available, the balances are adjusted as appropriate. The Company is subject to ongoing tax examinations and assessments in various jurisdictions.
NOTE 15. INCOME TAXES (continued)
With few exceptions, the Company is no longer subject to federal state and non-U.S. income tax examinations by tax authorities for years prior to 2011 and state income tax examinations for years prior to 2006.
The Company applies an aggregate portfolio approach whereby income tax effects from AOCI are released only when an entire portfolio (i.e., all related units of account) of a particular type is liquidated, sold or extinguished.
The Company had a net deferred tax liability balance of $602.8$567.3 million at September 30, 2021March 31, 2022 (consisting of a deferred tax asset balance of $45.6$147.3 million and a deferred tax liability balance of $648.4$714.6 million with respect to jurisdictional netting), compared to a net deferred tax liability balance of $171.2$683.4 million at December 31, 20202021 (consisting of a deferred tax asset balance of $11.1$87.9 million and a deferred tax liability balance of $182.4$771.3 million). The $431.6$116.1 million increasedecrease in net deferred liability for the nine-month periodquarter ended September 30, 2021March 31, 2022 was primarily due to an increase in the accumulated other comprehensive income deferred tax asset due to a loan transfer from available for sale to held to maturity and a decrease in the deferred tax liability related to leasing transactions partially offset by a decrease in net operating loss carryforwards.
NOTE 16. COMMITMENTS, CONTINGENCIES, AND GUARANTEES
Off-Balance Sheet Risk - Financial Instruments
In the normal course of business, the Company utilizes a variety of financial instruments with off-balance sheet risk to meet the financing needs of its customers and manage its exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit, letters of credit, loans sold with recourse, forward contracts, and interest rate and cross currency swaps, caps and floors. These financial instruments may involve, to varying degrees, elements of credit, liquidity, and interest rate risk in excess of the amount recognized on the Condensed Consolidated Balance Sheets. The contractual or notional amounts of these financial instruments reflect the extent of involvement the Company has in particular classes of financial instruments.
The Company’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit, letters of credit and loans sold with recourse is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. For forward contracts and interest rate swaps, caps and floors, the contract or notional amounts do not represent exposure to credit loss. The Company controls the credit risk of its forward contracts and interest rate swaps, caps and floors through credit approvals, limits and monitoring procedures. See Note 12 to these Condensed Consolidated Financial Statements for discussion of all derivative contract commitments.
NOTE 16. COMMITMENTS, CONTINGENCIES, AND GUARANTEES (continued)
The following table details the amount of commitments at the dates indicated:
| | Other Commitments | Other Commitments | | September 30, 2021 | | December 31, 2020 | Other Commitments | | March 31, 2022 | | December 31, 2021 |
| | | | (in thousands) | | | (in thousands) |
| Commitments to extend credit | Commitments to extend credit | | $ | 28,118,571 | | | $ | 30,883,502 | | Commitments to extend credit | | $ | 27,454,152 | | | $ | 27,648,128 | |
| Letters of credit | Letters of credit | | 1,324,186 | | | 1,432,764 | | Letters of credit | | 1,398,343 | | | 1,374,081 | |
| Commitments to sell loans | Commitments to sell loans | | 33,038 | | | 49,791 | | Commitments to sell loans | | 65,405 | | | 56,725 | |
| | Recourse exposure on sold loans | Recourse exposure on sold loans | | 19,621 | | | 26,362 | | Recourse exposure on sold loans | | 18,656 | | | 19,095 | |
| Total commitments | Total commitments | | $ | 29,495,416 | | | $ | 32,392,419 | | Total commitments | | $ | 28,936,556 | | | $ | 29,098,029 | |
Commitments to Extend Credit
Commitments to extend credit generally have fixed expiration dates, are variable rate, and contain provisions that permit the Company to terminate or otherwise renegotiate the contracts in the event of a significant deterioration in the customer’s credit quality. These arrangements normally require payment of a fee by the customer, the pricing of which is based on prevailing market conditions, credit quality, probability of funding, and other relevant factors. Since many of these commitments are expected to expire without being drawn upon, the contract amounts are not necessarily indicative of future cash requirements.
Included within the reported balances for Commitments to extend credit at September 30, 2021March 31, 2022 and December 31, 20202021 were $4.1$4.0 billion and $5.4$3.8 billion, respectively, of commitments that can be canceled by the Company without notice.
Commitments to extend credit also include amounts committed by the Company to fund its investments in CRA, LIHTC, and other equity method investments in which it is a limited partner.
Letters of Credit
The Company’s letters of credit meet the definition of a guarantee. Letters of credit commit the Company to make payments on behalf of its customers if specified future events occur. The guarantees are primarily issued to support public and private borrowing arrangements. The weighted average term of these commitments at September 30, 2021March 31, 2022 was 15.912.3 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.assets. The maximum undiscounted exposure related to these commitments at September 30, 2021March 31, 2022 was $1.3$1.4 billion. The fees related to letters of credit are deferred and amortized over the lives of the respective commitments, and were immaterial to the Company’s financial statements at September 30, 2021.March 31, 2022. Management believes that the utilization rate of these letters of credit will continue to be substantially less than the amount of the commitments, as has been the Company’s experience to date. The credit risk associated with letters of credit is monitored using the same risk rating system utilized within the loan and financing lease portfolio. As of September 30, 2021March 31, 2022 and December 31, 2020,2021, the liability related to unfunded lending commitments was $135.5$91.4 million and $146.5$104.1 million, respectively.
Unsecured Revolving Lines of Credit
Such commitments arise primarily from agreements with customers for unused lines of credit on unsecured revolving accounts and credit cards, provided there is no violation of conditions in the underlying agreement. These commitments, substantially all of which the Company can terminate at any time and which do not necessarily represent future cash requirements, are reviewed periodically based on account usage, customer creditworthiness and loan qualifications.
Loans Sold with Recourse
The Company has loans sold with recourse that meet the definition of a guarantee. For loans sold with recourse under the terms of its multifamily sales program with the FNMA, the Company retained a portion of the associated credit risk.
NOTE 16. COMMITMENTS, CONTINGENCIES, AND GUARANTEES (continued)
Commitments to Sell Loans
The Company enters into forward contracts relating to its mortgage banking business to hedge the exposures from commitments to make new residential mortgage loans with existing customers and from mortgage loans classified as LHFS. These contracts mature in less than one year.
Securities Borrowed and Lending Subject to Repurchase or Resale Agreements
In the second quarter of 2021, the Company began entering into Securities Financing AgreementsActivities primarily to deploy the Company’s excess cash and investments. Refer to Note 11 to these Condensed Consolidated Financial Statements for further discussion of the Company's commitments in connection with those agreements.
SC Commitments
The following table summarizes liabilities recorded for commitments and contingencies as of September 30, 2021March 31, 2022 and December 31, 2020,2021, all of which are included in Accounts payable and accrued expenses in the accompanying Condensed Consolidated Balance Sheets:
| | Agreement or Legal Matter | Agreement or Legal Matter | | Commitment or Contingency | | September 30, 2021 | | December 31, 2020 | Agreement or Legal Matter | | Commitment or Contingency | | March 31, 2022 | | December 31, 2021 |
| | | | | (in thousands) | | | | | (in thousands) |
| MPLFA | MPLFA | | Revenue-sharing and gain/(loss), net-sharing payments | | $ | 70,675 | | | $ | 43,778 | | MPLFA | | Revenue-sharing and gain/(loss), net-sharing payments | | $ | 25,112 | | | $ | 41,995 | |
| Agreement with Bank of America | Agreement with Bank of America | | Servicer performance fee | | 462 | | | 1,200 | | Agreement with Bank of America | | Servicer performance fee | | 462 | | | 462 | |
| Agreement with CBP | Agreement with CBP | | Loss-sharing payments | | 286 | | | 181 | | Agreement with CBP | | Loss-sharing payments | | 261 | | | 273 | |
| Other contingencies | Other contingencies | | Consumer arrangements | | 29,070 | | | 22,155 | | Other contingencies | | Consumer arrangements | | 6,273 | | | 6,937 | |
Following is a description of the agreements and legal matters pursuant to which the liabilities in the preceding table were recorded.
MPLFA
Under the terms of the MPLFA, SC must make revenue sharing payments to Stellantis and also must share with Stellantis when residual gains/(losses) on leased vehicles exceed a specified threshold. The MPLFA also requires that SC maintain at least $5.0 billion in funding available for floor plan loans and $4.5 billion of financing dedicated to Stellantis retail financing. In turn, Stellantis must provide designated minimum threshold percentages of its Subvention business to SC.
Agreement with Bank of America
Until January 2017, SC had a flow agreement with Bank of America whereby SC was committed to sell up to $300.0 million of eligible loans to the bank each month. SC retains servicing on all sold loans and may receive or pay a servicer performance payment based on an agreed-upon formula if performance on the sold loans is better or worse, respectively, than expected performance at the time of sale. Servicer performance payments are due six years from the cut-off date of each loan sale.
Agreement with CBP
Until May 2017, SC sold loans to CBP under terms of a flow agreement and predecessor sale agreements. SC retained servicing on the sold loans and owes CBP a loss-sharing payment capped at 0.5% of the original pool balance if losses exceed a specified threshold, established on a pool-by-pool basis. Loss-sharing payments are due the month in which net losses exceed the established threshold of each loan sale.
NOTE 16. COMMITMENTS, CONTINGENCIES, AND GUARANTEES (continued)
Agreements
Bluestem
SC is party to agreements with Bluestem whereby SC is committed to purchase certain new advances on personal revolving financings receivables, along with existing balances on accounts with new advances, originated by Bluestem through April 2022.
During the first quarter inof 2021, SC completed the sale of the Bluestem personal lending portfolio to a third party. In addition, SC executed a forward flow sale agreement with a third party to purchase all personal lending receivables that SC purchases from Bluestem through the term of the agreement with Bluestem.
As of December 31, 2020, the total unused credit available to customers was $2.7 billion. In 2021, SC purchased $0.3 billion of receivables out of the $2.7 billion of unused credit available to customers as of December 31, 2020. In 2020, SC purchased $1.2 billion of receivables out of the $3.0 billion of unused credit available to customers as of December 31, 2019. In addition, SC purchased $24.9 million and $151.2 million of receivables related to newly-opened customer accounts during the nine-month periods ended September 30, 2021 and 2020, respectively.
Each customer account generated under the agreements generally is approved with a credit limit higher than the amount of the initial purchase, with each subsequent purchase automatically approved as long as it does not cause the account to exceed its limit and the customer is in good standing.
Others
Under terms of an application transfer agreement with Nissan, SC has the first opportunity to review for its own portfolio any credit applications turned down by Nissan’s captive finance company. The agreement does not require SC to originate any loans, but for each loan originated by SC, it will pay Nissan a referral fee.
In connection with the sale of RICs through securitizations and other sales, SC has made standard representations and warranties customary to the consumer finance industry. Violations of these representations and warranties may require SC to repurchase loans previously sold to on- or off-balance sheet Trusts or other third parties. As of September 30, 2021,March 31, 2022, there were no loans that were the subject of a demand to repurchase or replace for breach of representations and warranties for SC's ABS or other sales. In the opinion of management, the potential exposure of other recourse obligations related to SC’s RIC sale agreements is not expected to have a material adverse effect on the Company's or SC’s business, consolidated financial position, results of operations, or cash flows.
Santander has provided guarantees on the covenants, agreements, and obligations of SC under the governing documents of its warehouse facilities and privately issued amortizing notes. These guarantees are limited to the obligations of SC as servicer.
In November 2015, SC executed a forward flow asset sale agreement with a third party under the terms of which SC is committed to sell $350.0 million in charged-off loan receivables in bankruptcy status on a quarterly basis. However, any sale of more than $275.0 million is subject to a market price check. The remaining aggregate commitment as of September 30, 2021March 31, 2022 and December 31, 20202021 not subject to a market price check was $6.2 million$110.0 thousand and $15.3$3.0 million, respectively.
Other Off-Balance Sheet Risk
Other off-balance sheet risk stems from financial instruments that do not meet the definition of guarantees under applicable accounting guidance and from other relationships that include items such as indemnifications provided in the ordinary course of business and intercompany guarantees.
NOTE 16. COMMITMENTS, CONTINGENCIES, AND GUARANTEES (continued)
Legal and Regulatory Proceedings
The Company, including its subsidiaries, is and in the future periodically expects to be party to, or otherwise involved in, various claims, disputes, lawsuits, investigations, regulatory matters and other legal matters and proceedings that arise in the ordinary course of business. In view of the inherent difficulty of predicting the outcome of any such claim, dispute, lawsuit, investigation, regulatory matter and/or legal proceeding, particularly where the claimants seek very large or indeterminate damages or where the matters present novel legal theories or involve a large number of parties, the Company generally cannot predict the eventual outcome of the pending matters, the timing of the ultimate resolution of the matters, or the eventual loss, fines or penalties related to the matters, if any. Accordingly, except as provided below, the Company is unable to reasonably estimate a range of its potential exposure, if any, to these claims, disputes, lawsuits, investigations, regulatory matters and other legal proceedings at this time. It is reasonably possible that actual outcomes or losses may differ materially from the Company's current assessments and estimates, and any adverse resolution of any of these matters against it could materially and adversely affect the Company's business, financial position, liquidity, and results of operations.
In accordance with applicable accounting guidance, the Company establishes an accrued liability for legal and regulatory proceedings when those matters present material loss contingencies that are both probable and estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. When a loss contingency is not both probable and estimable, the Company does not establish an accrued liability. As a legal or regulatory proceeding develops, the Company, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether the matter presents a material loss contingency that is probable and estimable. If a determination is made during a given quarter that a material loss contingency is probable and estimable, an accrued liability is established during such quarter with respect to such loss contingency, and the Company continues to monitor the matter for further developments that could affect the amount of the accrued liability previously established.
As of September 30, 2021March 31, 2022 and December 31, 2020,2021, the Company accrued aggregate legal and regulatory liabilities of approximately $28.7$33.9 million and $109.5$44.0 million, respectively. Further, the Company estimates the aggregate range of reasonably possible losses for legal and regulatory proceedings, in excess of reserves established, of up to approximately $15.6$10.5 million as of September 30, 2021.March 31, 2022. Set forth below are descriptions of the material lawsuits, regulatory matters and other legal proceedings to which the Company is subject.
SBNA Matters
Mortgage Escrow Interest Putative Class Action
SBNA is a defendant in a putative class action lawsuit in the United States District Court, Southern District of New York, captioned Daniel and Rebecca Ruf-Tepper v. Santander Bank, N.A., No. 20-cv-00501. The Tepper Lawsuit, filed in January 2020, alleges that SBNA is obligated to pay interest on mortgage escrow accounts pursuant to state law. Plaintiffs filed an amended complaint and SBNA has filed a motion to dismiss. On July 12, 2021, plaintiffs filed a motion seeking preliminary approval of a settlement with SBNA pursuant to which SBNA will pay a total of $2 million to resolve the litigation.
Overtime Putative Class Action
SBNA is a defendant in a putative class action lawsuit in the United States District Court, District of New Jersey, captioned Crystal Sanchez, et. Al. v. Santander Bank, N.A., No. 17-cv-5775. The lawsuit alleges that SBNA failed to pay overtime to current and former branch operations managers. The Court denied SBNA’s motion to dismiss. Plaintiff'sOn January 28, 2022, plaintiffs filed a motion seeking preliminary approval of a settlement with SBNA pursuant to amend its complaintwhich SBNA will pay a total of $4.25 million to add additional state law claims is fully briefed.resolve the litigation. On February 23, 2022, the court granted preliminary approval of the settlement and set the final approval hearing for June 21, 2022.
NOTE 16. COMMITMENTS, CONTINGENCIES, AND GUARANTEES (continued)
SC Matters
Shareholder Derivative Lawsuits
Seattle City Employees Retirement System v. Santander Holdings USA, Inc., et al: In November 2020, a shareholder derivative complaint was filed in the Court of Chancery of the State of Delaware, captioned Seattle City v. Santander Holdings USA, Inc., C.A. No. 2020-0977-AGB. The plaintiff seeks unspecified monetary damages and other injunctive relief in the complaint. The complaint alleges, among other things, that SHUSA and the current directorSC directors breached their fiduciary duties by causing SC to engage in share repurchases for the purpose of increasing SHUSA’s ownership of SC above 80%, which the complaint alleges would allow SHUSA to obtain tax and other benefits not available to the rest of SC’s shareholders. The defendants filed an answer to the complaint. The complaint was dismissed with prejudice in February 2022.
Caldwell v. Santander Consumer USA Holdings Inc.: In September 2020,2021, a purported shareholder of SC Common Stock filed a complaint against SC and its Board of Directors in the United States District Court for the Southern District of New York, captioned Craig Caldwell v. Santander Consumer USA Holdings Inc., 1:21-cv-07842, alleging violations of the Exchange Act when the Board allegedly authorized the filing of a materially incomplete and misleading Solicitation/Recommendation Statement with the SEC in connection with SHUSA’s proposed purchase of the remaining shares of SC Common Stock not already owned by SHUSA. The plaintiff seekssought to enjoin the defendants from proceeding with the proposed transaction. SC’s response to the complaint was due on February 15, 2022. On March 1, 2022, the plaintiff voluntarily dismissed the complaint.
Consumer Lending Cases
The Company and its subsidiaries are also party to various lawsuits pending in federal and state courts alleging violations of state and federal consumer lending laws, including, without limitation, the Equal Credit Opportunity Act, the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, Section 5 of the Federal Trade Commission Act, the Telephone Consumer Protection Act, the Truth in Lending Act, wrongful repossession laws, usury laws and laws related to unfair and deceptive acts or practices. In general, these cases seek damages and equitable and/or other relief.
Kelly v. SC. A putative Pennsylvania-only class action pending in the United States District Court for the Eastern District of Pennsylvania, captioned Hugh and Christina Kelly v. Santander Consumer USA Holdings Inc., 2:20-cv-03698, alleges that SC violated the Uniform Commercial Code and Pennsylvania Motor Vehicle Sales Finance Act, and that repossessions were not commercially reasonable or done in good faith when the post-repossession notice included a storage fee of $25 that was less than the stated amount. Plaintiffs also allege that SC failed to inform the consumers of a required fee to retrieve their personal affects. Plaintiffs allege that any fee charged by a recovery agent or auction house was impermissible due to SC’s failure to disclose them. SC filed an answer to the complaint.
Regulatory Investigations and Proceedings
SC is party to, or is periodically otherwise involved in, reviews, investigations, examinations and proceedings (both formal and informal), and information-gathering requests, by government and self-regulatory agencies, including the FRB of Boston, the CFPB, the DOJ, the SEC, the Federal Trade Commission and various state regulatory and enforcement agencies.
Currently, such matters include, but are not limited to, the following:
MississippiMassachusetts Attorney General Lawsuit:Investigation – Repossession Notices. In January 2017, MississippiThe Massachusetts Attorney General filedissued a lawsuit againstCID to SC inseeking all notices provided to Massachusetts residents from March 30, 2017 to the Chancery Courtpresent regarding repossession or auction of a repossessed vehicle. On February 18, 2022, the First Judicial District of Hinds County, Mississippi, captioned State of Mississippi ex rel. Jim Hood,Massachusetts Attorney General of the State of Mississippi v. Santander Consumer USA Inc., C.A. # G-2017-28. In July 2021, SC and the state of Mississippipublicly announced that it had entered into a settlement agreementan Assurance of Discontinuance with SC resolving this matter for a monetary payment of $3.7$5.6 million to the state of Mississippi. On July 21, 2021, the Mississippi Attorney General publicly announced the settlement agreement.by SC.
IHC Matters
Periodically, SSLLC is party to pending and threatened legal actions and proceedings, including FINRA arbitration actions and class action claims.
Puerto Rico FINRA Arbitrations
As of September 30, 2021, SSLLC had received 773 FINRA arbitration cases related to Puerto Rico bonds and Puerto Rico CEFs that SSLLC previously recommended and/or sold to clients. Most of these cases are based upon concerns regarding the local Puerto Rico securities market. The statements of claims allege, among other things, fraud, negligence, breach of fiduciary duty, breach of contract, unsuitability, over-concentration and failure to supervise. There were 19 arbitration cases pending as of September 30, 2021. The Company has experienced a decrease in the volume of claims since September 30, 2019 and does not expect to see a significant increase in claims in future periods.
NOTE 16. COMMITMENTS, CONTINGENCIES, AND GUARANTEES (continued)
Puerto Rico Putative Class Action: SSLLC, SBC, BSPR, the Company and Santander are defendants in a putative class action alleging federal securities and common law claims relating to the solicitation and purchase of more than $180.0 million of Puerto Rico bonds and $101.0 million of CEFs during the period from December 2012 to October 2013. The case is pending in the United States District Court for the District of Puerto Rico and is captioned Jorge Ponsa-Rabell, et. al. v. SSLLC, Civ. No. 3:17-cv-02243. The amended complaint alleges that defendants acted in concert to defraud purchasers in connection with the underwriting and sale of Puerto Rico municipal bonds, CEFs and open-end funds. In May 2019, the defendants filed a motion to dismiss the amended complaint. On July 22, 2020, the District Court dismissed the complaint. Plaintiffs have appealed to the United States Court of Appeals for the First Circuit.
Puerto Rico Municipal Bond Insurer Litigation: On August 8, 2019, bond insurers National Public Finance Guarantee Corporation and MBIA Insurance Corporation filed suit in Puerto Rico state court against 8 Puerto Rico municipal bond underwriters, including SSLLC, alleging that the underwriters made misrepresentations in connection with the issuance of the debt and that the bond insurers relied on such misrepresentations in agreeing to insure certain of the bonds. The complaint alleges damages of not less than $720.0$720.0 million.
NOTE 16. COMMITMENTS, CONTINGENCIES, AND GUARANTEES (continued)
On September 16, 2020, the defendants moved to dismiss the complaint. On June 2, 2021, the court denied the defendants’ motion to dismiss. Defendants are seekingappealed the decision and, on December 17, 2021, the Puerto Rico Court of Appeals reversed the trial court decision and dismissed the complaint. The Court of Appeals denied plaintiffs' motion to reconsider the court's decision and plaintiffs have sought permission to appeal to the decision.Puerto Rico Supreme Court.
On October 28, 2020, bond insurer Ambac Assurance Corporation filed an amended complaint in Puerto Rico state court adding SSLLC and 4 other Puerto Rico municipal bond underwriters to a pending suit against 7 underwriters, alleging that the underwriters made misrepresentations in connection with the issuance of the debt and that Ambac relied on such misrepresentations in agreeing to insure certain of the bonds. The amended complaint alleges damages of not less than $508 million. On July 30, 2021, the court granted the defendants’ motion to dismiss the complaint. Plaintiffs have appealed.
On November 27, 2020, bond insurer Financial Guaranty Insurance Company filed suit in Puerto Rico state court against 12 Puerto Rico municipal bond underwriters, including SSLLC, alleging that the underwriters made misrepresentations in connection with the issuance of the debt and that Financial Guaranty Insurance Company relied on such misrepresentations in agreeing to insure certain of the bonds. The complaint alleges damages of not less than $447 million. On February 1, 2021, the defendants moved to dismiss the complaint. On July 9, 2021, the court granted the defendants’ motion to dismiss. Plaintiff has appealed.
Real Legacy Assurance ERISA Litigation: On April 13, 2020, participants of the Real Legacy Assurance Plan, a pension plan, filed an amended complaint adding SSLLC as a defendant to an ERISA putative class action pending against the owner of Real Legacy, Real Legacy Board members, the Plan’s Trustee, actuaries and other defendants. The case is pending in the United States District Court for the District of Puerto Rico and captioned Vega-Ortiz et al v. Cooperativa de Seguros Multiples de Puerto Rico, et al, Civ. No. 3:19-cv-02056. The amended complaint alleges that SSLLC served as an investment manager to the Real Legacy Assurance Plan and breached its fiduciary duties by failing to ensure the Plan was adequately funded. On November 24, 2021, the court denied each of the defendants’ motions to dismiss. SSLLC filed its Answer and discovery is ongoing.
These matters are ongoing and could in the future result in the imposition of damages, fines or other penalties. No assurance can be given that the ultimate outcome of these matters or any resulting proceedings would not materially and adversely affect the Company's business, financial condition and results of operations.
NOTE 17. RELATED PARTY TRANSACTIONS
The Company and its affiliates have various debt and derivative agreements with Santander. For further details of these agreements, see Note 10 and Note 20 to the Consolidated Financial Statements of the Company's Annual Report on Form 10-K for the year ended December 31, 2020.2021. The Company and its affiliates also entered into or were subject to various service agreements with Santander and its affiliates. Each of these agreements was made in the ordinary course of business and on market terms.
SC had an MSPA with Santander, whereby SC has the option to sell a contractually determined amount of eligible prime loans to Santander through the SPAIN trust securitization platform for a term that ended in December 2018. SC provides servicing on all loans originated under this arrangement. For the three-month and nine-month periods ended September 30, 2021, servicing fee income of $2.0 million and $7.3 million, respectively, was recognized in the Condensed Consolidated Statements of Operations compared to $4.5 million and $15.7 million for the three-month and nine-month periods ended September 30, 2020, respectively. SC had $4.8 million and $6.2 million of collections due to Santander as of September 30, 2021 and December 31, 2020, respectively.
Beginning in 2018, SC agreed to provide SBNA with origination support services in connection with the processing, underwriting, and purchase of RICs, primarily from Stellantis dealers. In addition, SC agreed to perform the servicing for any RICs originated on SBNA's behalf. For the three-month and nine-month periods ended September 30, 2021, SC facilitated the purchase of RICs of $1.5 billion and $6.1 billion, respectively. For the three-month and nine-month periods ended September 30, 2020, SC facilitated the purchase of RICs of $1.1 billion and $3.9 billion, respectively. SC recognizes referral fee income and servicing fee income related to this agreement that eliminates in the consolidation of SHUSA.
NOTE 17. RELATED PARTY TRANSACTIONS (continued)
Beginning in the third quarter of 2021, SC agreed to provide SBNA with support services in connection with the origination and servicing of vehicle leases, primarily from Stellantis dealers, that are funded and owned by SBNA. SC recognizes referral fee and servicing fee income in connection with these agreements that eliminate in consolidation.
Banco Santander (Brasil) S.A. had deposits with the Bank of $0.2 billionzero and $2.01.5 billion as of September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively. Banco Santander-Chile had deposits with the Bank of $1.2 billionzero and $0.81.0 billion as of September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively. Banco Santander Rio had deposits with the Bank of $0.1 billion$110.0 million and 0$110.0 million as of September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively. TheseThese transactions do not eliminate in the consolidation of SHUSA.
On March 2, 2022, the Company purchased an equity investment in AutoFi, a privately held corporation that provides technology solutions to the auto industry, including services to online auto marketplaces, auto dealers, and auto lenders, including SC. The investment consisted of $22.9 million of common stock purchased from existing shareholders and $41.1 million of preferred shares of a new series issuance, for a $64.0 million total resulting in the Company holding approximately 9.4% of the total equity shares of AutoFi. The Company did not obtain voting rights for its shares; however, it was granted 1 seat on AutoFi’s Board of Directors (now consisting of 6 voting members including SHUSA). In addition to the Company's investment, Mouro Capital, which is a wholly-owned subsidiary of Santander, owns 10.3% of the total equity of AutoFi Inc.
NOTE 18. BUSINESS SEGMENT INFORMATION
Business Segment Products and Services
In the first quarter of 2022, the Company announced organizational changes to meet the evolving needs of its customers and to assist management in making strategic decisions on the allocation of its resources. These changes primarily resulted in the creation of a new Auto reportable segment that includes the prior SC segment, SBNA's auto loan and lease portfolio business, previously in the CBB segment, and SBNA's dealer financing business, previously in the CRE&VF segment. In addition, the Company has established a new reportable segment for its Wealth Management business, previously included in Other. The Company has also aligned the insurance and investment services activities to CBB previously reported in Other. These changes were effective for internal reporting on March 31, 2022. Prior period information presented below has been reclassified to reflect these changes.
The Company’s reportable segments are focused principally around the customers the Company serves. The Company has identified the following reportable segments: Auto, CBB, C&I, CRE, & VF, CIB, and SC.Wealth Management.
•The CBBAuto segment includes the products and services provided to BankCompany's consumer and small business banking customers, including consumer deposit, small business banking, residential mortgage, unsecured lending and investment services. This segment offers a wide range of products and services to consumers and business banking customers, including demand and interest-bearing demand deposit accounts, money market and savings accounts, CDs and retirement savings products. It also offers lending products such as credit cards, mortgages, home equity lines of credit, and businesscommercial auto loans such as business lines of credit and commercial cards. SBNA also finances indirect consumer automobile RICs and leases through intercompany agreements with SC. In addition, SBNA provides investment services to its retail customers, including annuities, mutual funds, and insurance products. Santander Universities, which provides grants and scholarships to universities and colleges as a way to foster education through research, innovation and entrepreneurship, is the last component of this segment.
•The C&I segment currently provides commercial lines, loans, letters of credit, receivables financing and deposits to lower middle market commercial customers and to medium- and large-sized commercial customers, as well as financing and deposits for government entities. This segment also provides niche product financing for specific industries.
•The CRE & VF segment offers CRE loans and multifamily loans to customers. This segment also offersCompany's commercial loans to dealers and dealer floor plan financing for commercial equipment and vehicles.products. This category also includes SBNA’s community development finance activities, including originating CRA-eligible loans and making CRA-eligible investments.
•The CIB segment serves the needs of global commercial and institutional customers by leveraging the international footprint of Santander to provide financing and banking services to corporations with over $500 million in annual revenues. CIB also includes SIS, a registered broker-dealer located in New York that provides services in investment banking, institutional sales, and trading and offering research reports of Latin American and European equity and fixed-income securities. CIB's offerings and strategy are based on Santander's local and global capabilities in wholesale banking.
•SC is aCompany's specialized consumer finance companysubsidiary focused on vehicle finance and third-party servicing. SC’sThe specialized consumer finance primary business is the indirect origination of RICs, principally through manufacturer-franchised dealers in connection with their sale of new and used vehicles to retail consumers. In conjunction with the MPLFA, SCThe Company offers a full spectrum of auto financing products and services to Stellantis customers and dealers under the CCAP brand.captive financing companies. These products and services include consumer RICs and leases, as well as dealer loans for inventory, construction, real estate, working capital and revolving lines of credit. SC also originates vehicle loans through a web-based direct lending program, purchases vehicle RICs from other lenders, and services automobile, recreational and marine vehicle portfolios for other lenders. During 2015, SC announced its intention to exit the personal lending business. SC has entered into a number of intercompany agreements with the Bank as described above as part of the Other segment. All intercompany revenue and fees between SBNA and SC are eliminated in the consolidated results of the Company.
•The CBB segment includes the products and services provided to Bank consumer and small business banking customers, including consumer deposit, small business banking, unsecured lending and investment services. This segment offers a wide range of products and services to consumers and business banking customers, including demand and interest-bearing demand deposit accounts, money market and savings accounts, CDs and retirement savings products. It also offers lending products such as credit cards, and business loans such as business lines of credit and commercial cards. In addition, SBNA makes investment services available to its retail customers, including products such as annuities, mutual funds, managed accounts and insurance products through a networking agreement with a consolidated affiliate. Santander Universities, which provides grants and scholarships to universities and colleges as a way to foster education through research, innovation and entrepreneurship, is the last component of this segment.
•The C&I segment currently provides commercial lines, loans, letters of credit, receivables financing, cash management and deposit services to lower middle market commercial customers and to medium- and large-sized commercial customers, as well as financing and deposits for government entities. This segment also provides niche product financing for specific industries.
•The CRE segment offers CRE loans and multifamily loans, as well as cash management and deposit services to customers. This category also includes SBNA’s community development finance activities, including originating CRA-eligible loans and making CRA-eligible investments.
•The CIB segment serves the needs of global corporate and institutional customers by leveraging the international footprint of Santander to provide financing and banking services to corporations with over $500 million in annual revenues. CIB also includes the Company's registered institutional broker-dealer that provides services in investment banking, sales, trading and equity research reports. CIB's offerings and strategy are based on Santander's local and global capabilities in wholesale banking.
•The Wealth Management segment consists of the Company's international private banking and financial operations Services include the full range of banking and asset management services to foreign individuals and corporations based primarily in Latin America
SBNA also offers customer-relatedcustomer-related derivatives to hedge interest rate risk, and for C&I, CRE, commercial loans to dealers in the auto segment and CIB offers derivatives relating to foreign exchange and lending arrangements. See Note 1112 to the Consolidated Financial Statements for additional details.
The Other category includes certain immaterial subsidiaries such as BSI, SSLLC, and several other subsidiaries, the unallocated interest expense on the Company's borrowings and other debt obligations and certain unallocated corporate income and indirect expenses.
NOTE 18. BUSINESS SEGMENT INFORMATION (continued)
The Company’s segment results excluding SC and the entities that have been transferred to the Company as the IHC, are derived from the Company’s business unit profitability reporting system by specifically attributing managed balance sheet assets, deposits and other liabilities and their related interest income or expense to each of the segments. Funds transfer pricing methodologies are utilized to allocate a cost for funds used or a credit for funds provided to business line deposits, loans and selected other assets using a matched funding concept. The methodology includes a liquidity premium adjustment, which considers an appropriate market participant spread for commercial loans and deposits by analyzing the mix of borrowings available to the Company with comparable maturity periods.
Other income and expenses are managed directly by each reportable segment, including fees, service charges, salaries and benefits, and other direct expenses, as well as certain allocated corporate expenses, and are accounted for within each segment’s financial results. Accounting policies for the lines of business are the same as those used in preparation of the Condensed Consolidated Financial Statements with respect to activities specifically attributable to each business line. However, the preparation of business line results requires management to establish methodologies to allocate funding costs and benefits, expenses and other financial elements to each line of business. Where practical, the results are adjusted to present consistent methodologies for the segments.
The application and development of management reporting methodologies is a dynamic process and is subject to periodic enhancements. The implementation of these enhancements to the internal management reporting methodology may materially affect the results disclosed for each segment with no impact on consolidated results. Whenever significant changes to management reporting methodologies take place, prior period information is reclassified wherever practicable.
During the fourth quarter of 2020, the Company implemented organizational changes to meet the evolving needs of its business customers including the re-alignment of Upper Business Banking with the C&I segment from the CBB segment. In addition, the Company moved the assets associated with its Community Development Finance business from its “Other” category to the CRE&VF segment to align its LIHTC assets with similar CRE assets and liabilities. All prior period results have been revised for these segment changes.
The CODM manages SC on a historical basis by reviewing the results of SC on a pre-Change in Control basis. The Results of Segments table below discloses SC's operating information on the same basis that it is reviewed by the CODM. The adjustments column includes adjustments to reconcile SC's GAAP results to SHUSA's consolidated results.
Results of Segments
The following tables present certain information regarding the Company’s segments. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three-Month Period Ended | SHUSA Reportable Segments | | | | |
| September 30, 2021 | CBB | C&I | CRE & VF | CIB(4) | Other(1) | | SC(2) | SC Purchase Price Adjustments(3) | Eliminations(3) | | Total |
| (in thousands) |
| Net interest income | $ | 367,414 | | $ | 70,511 | | $ | 93,061 | | $ | 25,514 | | $ | (48,074) | | | $ | 1,019,999 | | $ | (280) | | $ | 6,006 | | | $ | 1,534,151 | |
| Non-interest income | 79,955 | | 16,480 | | 7,354 | | 48,352 | | 105,497 | | | 821,398 | | — | | (11,472) | | | 1,067,564 | |
| Credit loss expense / (benefit) | (14,248) | | 6,826 | | (5,087) | | (9,775) | | (281) | | | 42,058 | | — | | — | | | 19,493 | |
| Total expenses | 373,697 | | 63,244 | | 35,478 | | 68,592 | | 129,693 | | | 827,408 | | 5,875 | | (5,784) | | | 1,498,203 | |
| Income/(loss) before income taxes | 87,920 | | 16,921 | | 70,024 | | 15,049 | | (71,989) | | | 971,931 | | (6,155) | | 318 | | | 1,084,019 | |
| Intersegment revenue/(expense) | (194) | | 2,853 | | 757 | | (3,415) | | (1) | | | — | | — | | — | | | — | |
| | | | | | | | | | | |
| | | | | | | | | | | |
NOTE 18. BUSINESS SEGMENT INFORMATION (continued)
| | For the Year-to-Date Ended | SHUSA Reportable Segments | | |
| September 30, 2021 | CBB | C&I | CRE & VF | CIB(4) | Other(1) | | SC(2) | SC Purchase Price Adjustments(3) | Eliminations(3) | | Total | |
| Year-To-Date Ended | | Year-To-Date Ended | SHUSA Reportable Segments | |
| | March 31, 2022 | | March 31, 2022 | Auto | CBB | | C&I | CRE | CIB | Wealth Management | Other(1) | | Total |
| | (in thousands) | | (in thousands) |
| Net interest income | Net interest income | $ | 1,087,118 | | $ | 215,573 | | $ | 281,023 | | $ | 83,170 | | $ | (146,536) | | | $ | 3,149,027 | | $ | (207) | | $ | 16,150 | | | $ | 4,685,318 | | Net interest income | $ | 1,051,266 | | $ | 301,955 | | | $ | 67,661 | | $ | 78,435 | | $ | 25,888 | | $ | 19,143 | | $ | (64,342) | | | $ | 1,480,006 | |
| Non-interest income | Non-interest income | 227,746 | | 52,197 | | 28,364 | | 179,627 | | 319,613 | | | 2,666,681 | | — | | (39,881) | | | 3,434,347 | | Non-interest income | 706,514 | | 78,153 | | | 15,942 | | 15,340 | | 67,841 | | 77,650 | | 19,816 | | | 981,256 | |
| Credit loss expense / (benefit) | Credit loss expense / (benefit) | (50,839) | | (45,236) | | (4,167) | | (32,102) | | (3,896) | | | (85,484) | | — | | — | | | (221,724) | | Credit loss expense / (benefit) | 220,526 | | 7,045 | | | 3,634 | | (19,338) | | 6,393 | | — | | (1,451) | | | 216,809 | |
| Total expenses | Total expenses | 1,113,128 | | 190,759 | | 108,287 | | 199,551 | | 366,573 | | | 2,562,527 | | 18,935 | | (20,246) | | | 4,539,514 | | Total expenses | 802,084 | | 383,948 | | | 67,486 | | 29,199 | | 75,553 | | 61,658 | | 46,762 | | | 1,466,690 | |
| Income/(loss) before income taxes | Income/(loss) before income taxes | 252,575 | | 122,247 | | 205,267 | | 95,348 | | (189,600) | | | 3,338,665 | | (19,142) | | (3,485) | | | 3,801,875 | | Income/(loss) before income taxes | 735,170 | | (10,885) | | | 12,483 | | 83,914 | | 11,783 | | 35,135 | | (89,837) | | | 777,763 | |
| Intersegment revenue/(expense) | (665) | | 9,077 | | 1,879 | | (10,291) | | — | | | — | | — | | — | | | — | | |
| | Total assets | Total assets | 23,633,610 | | 7,133,308 | | 18,870,996 | | 12,560,907 | | 44,587,236 | | | 49,074,450 | | — | | — | | | 155,860,507 | | Total assets | 61,182,043 | | 12,661,670 | | | 6,847,050 | | 17,637,567 | | 15,369,237 | | 8,675,004 | | 31,413,607 | | | 153,786,178 | |
(1) Other includes the results of the immaterial entities, transferred to the IHC, with the exception of SIS, earnings from non-strategic assets, the investment portfolio, interest expense on SBNA’s and the Company's borrowings and other debt obligations, amortization of intangible assets and certain unallocated corporate income and indirect expenses.
(2) Management of SHUSA manages SC by analyzing the historical results of SC, which are presented in this column.
(3) SC Purchase Price Adjustments represents the impact that SC purchase marks had on the results of SC included within the consolidated operations of SHUSA, while eliminations eliminate intercompany transactions.
(4) Includes results and assets of SIS.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three-Month Period Ended | SHUSA Reportable Segments | | | | |
| September 30, 2020 | CBB | C&I | CRE & VF | CIB(4) | Other(1) | | SC(2) | SC Purchase Price Adjustments(3) | Eliminations(3) | | Total |
| (in thousands) |
| Net interest income | $ | 352,604 | | $ | 82,926 | | $ | 94,532 | | $ | 34,125 | | $ | (9,090) | | | $ | 1,061,986 | | $ | (165) | | $ | 4,474 | | | $ | 1,621,392 | |
| Non-interest income | 71,175 | | 16,214 | | 4,606 | | 71,931 | | 186,863 | | | 830,126 | | 3,035 | | (9,096) | | | 1,174,854 | |
| Credit loss expense / (benefit) | 31,755 | | 40,897 | | 11,963 | | (15,384) | | (4,181) | | | 340,548 | | 227 | | — | | | 405,825 | |
| Total expenses | 381,824 | | 66,453 | | 36,454 | | 63,762 | | 127,743 | | | 888,973 | | 9,804 | | (5,785) | | | 1,569,228 | |
| Income/(loss) before income taxes | 10,200 | | (8,210) | | 50,721 | | 57,678 | | 54,211 | | | 662,591 | | (7,161) | | 1,163 | | | 821,193 | |
| Intersegment revenue/(expense) | (342) | | 3,462 | | 1,232 | | (4,351) | | (1) | | | — | | — | | — | | | — | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | For the Year-to-Date Ended | SHUSA Reportable Segments | | |
| September 30, 2020 | CBB | C&I | CRE & VF | CIB(4) | Other(1) | | SC(2) | SC Purchase Price Adjustments(3) | Eliminations(3) | | Total | |
| Year-To-Date Ended | | Year-To-Date Ended | SHUSA Reportable Segments | |
| | March 31, 2021 | | March 31, 2021 | Auto | CBB | | C&I | CRE | CIB(4) | Wealth Management | Other(1) | | Total |
| | (in thousands) | | (in thousands) |
| Net interest income | Net interest income | $ | 1,021,721 | | $ | 250,603 | | $ | 286,639 | | $ | 101,642 | | $ | 16,974 | | | $ | 3,058,137 | | $ | (588) | | $ | 11,032 | | | $ | 4,746,160 | | Net interest income | $ | 1,072,248 | | $ | 402,337 | | | $ | 73,775 | | $ | 85,283 | | $ | 27,411 | | $ | 23,680 | | $ | (65,402) | | | $ | 1,619,332 | |
| Non-interest income | Non-interest income | 220,052 | | 48,318 | | 8,971 | | 212,440 | | 253,029 | | | 2,271,200 | | 8,056 | | (33,735) | | | 2,988,331 | | Non-interest income | 917,857 | | 67,209 | | | 16,402 | | 5,616 | | 77,549 | | 63,246 | | 36,617 | | | 1,184,496 | |
| Credit loss expense / (benefit) | Credit loss expense / (benefit) | 363,363 | | 132,951 | | 78,800 | | 18,071 | | (135,366) | | | 2,110,330 | | 659 | | — | | | 2,568,808 | | Credit loss expense / (benefit) | 121,385 | | (4,321) | | | (31,341) | | 1,776 | | (8,694) | | (73) | | (2,665) | | | 76,067 | |
| Total expenses | Total expenses | 2,682,735 | | 491,436 | | 106,689 | | 189,961 | | 408,065 | | | 2,692,396 | | 29,397 | | (17,958) | | | 6,582,721 | | Total expenses | 890,593 | | 402,335 | | | 63,259 | | 28,024 | | 67,330 | | 50,562 | | 46,326 | | | 1,548,429 | |
| Income/(loss) before income taxes | Income/(loss) before income taxes | (1,804,325) | | (325,466) | | 110,121 | | 106,050 | | (2,696) | | | 526,611 | | (22,588) | | (4,745) | | | (1,417,038) | | Income/(loss) before income taxes | 978,127 | | 71,532 | | | 58,259 | | 61,099 | | 46,324 | | 36,437 | | (72,446) | | | 1,179,332 | |
| Intersegment revenue/(expense) | (735) | | 9,759 | | 3,985 | | (13,009) | | — | | | — | | — | | — | | | — | | |
| | Total assets | Total assets | 22,311,101 | | 7,871,856 | | 20,454,646 | | 11,532,762 | | 35,120,309 | | | 48,448,921 | | — | | — | | | 145,739,595 | | Total assets | 59,882,586 | | 13,782,238 | | | 7,679,097 | | 17,794,929 | | 10,786,520 | | 6,824,500 | | 29,840,471 | | | 146,590,341 | |
(1)- (4) Refer to corresponding notes above.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EXECUTIVE SUMMARY
SHUSA is the parent holding company of SBNA, a national banking association; SC, a consumer finance company headquartered in Dallas, Texas; SSLLC, a broker-dealer headquartered in Boston, Massachusetts; BSI, a financial services company headquartered in Miami, Florida that offers a full range of banking services to foreign individuals and corporations based primarily in Latin America; SIS, a registered broker-dealer headquartered in New York providing services in investment banking, institutional sales, trading and offering research reports of Latin American and European equity and fixed-income securities; SFS, a consumer credit institution headquartered in Puerto Rico; and several other subsidiaries. SHUSA is headquartered in Boston, Massachusetts and SBNA's main office is in Wilmington, Delaware. SSLLC and SIS and another SHUSA subsidiary, SAM, areis a registered investment advisersadviser with the SEC. SHUSA's two largest subsidiaries by asset size and revenue are SBNA and SC. SHUSA is a wholly-owned subsidiary of Santander.
As of September 30, 2021, SC was owned approximately 80.2% by SHUSA and 19.8% by other shareholders. SC Common Stock is listed on the NYSE under the trading symbol "SC." Refer to Note 1 of the Condensed Consolidated Financial Statements for additional information on SHUSA's proposal to acquireJanuary 31, 2022 acquisition of the remainder of SC's outstanding shares.
SBNA's primary business consists of attracting deposits and providing other retail banking services through its network of retail branches, and originating small business loans, middle market, large and global commercial loans, multifamily loans, residential mortgage loans, home equity lines of credit, and auto and other consumer loans throughout the Mid-Atlantic and Northeastern areas of the United States, principally located in Massachusetts, New Hampshire, Connecticut, Rhode Island, New York, New Jersey, Pennsylvania, and Delaware. SBNA uses its deposits, as well as other financing sources, to fund its loan and investment portfolios. SBNA earns interest income on its loan and investment portfolios. In addition, SBNA generates non-interest income from a number of sources, including deposit and loan services, sales of loans and investment securities, capital markets products and BOLI. SBNA's principal non-interest expenses include employee compensation and benefits, occupancy and facility-related costs, technology and other administrative expenses. The financial results of SBNA are affected by the economic environment, including interest rates and consumer and business confidence and spending, as well as the competitive conditions within SBNA's geographic footprint.
SC is a specialized consumer finance company focused on vehicle finance and third-party servicing and delivering service to dealers and customers across the full credit spectrum. SC's primary business is the indirect origination and servicing of RICs and auto leases, principally through manufacturer-franchised dealers in connection with their sale of new and used vehicles to retail consumers. Additionally, SC sells consumer RICs through flow agreements and, when market conditions are favorable, it accesses the ABS market through securitizations of consumer RICs. SAF is SC’s primary vehicle financing brand, and is available as a finance option for automotive dealers across the United States Further information about SC’s business is provided below in the “CCAP” section.States.
SC is managed through a single reporting segment which includes vehicle financial products and services, including RICs, vehicle leases, and dealer loans, as well as financial products and services related to recreational and marine vehicles and other consumer finance products.
SC also originates vehicle loans through a web-based direct lending program, purchases vehicle RICs from other lenders, and services automobile and recreational and marine vehicle portfolios for other lenders. Additionally, SC has other relationships through which it holds other consumer finance products.
Since May 2013, under the MPLFA with Stellantis, the Company has operated as Stellantis's preferred provider for consumer loans, leases and dealer loans and provides services to Stellantis customers and dealers under the CCAP brand. Subsequent to March 31, 2022, SC announced it had reached an agreement with Stellantis to amend and extend the MPLFA through December 2025.
In addition, SC announced a new partnership with Mistubishi Motors North America, Inc. ("MMNA"), to provide customer and dealer financing programs that will help MMNA achieve its goal of improving the car-buying experience. The captive-like, full-spectrum financing program launches in June 2022.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
CCAP
Since May 2013, under the MPLFA with Stellantis, the Company has operated as Stellantis's preferred provider for consumer loans, leases and dealer loans and provides services to Stellantis customers and dealers under the CCAP brand. The Company's average penetration rate under the MPLFA for the nine-month period ended September 30, 2021 was 27%, a decrease from 33% for the nine-month period ended December 31, 2020.
SC has dedicated financing facilities in place for its CCAP business and has pursued a strategy of working collaboratively with Stellantis to continue to strengthen their relationship and create value within the CCAP program. During the nine-month period ended September 30, 2021, SC originated $11.1 billion in CCAP loans, which represented 53% of the UPB of its total RIC originations, as well as $5.8 billion in CCAP leases. Additionally, all of the leases originated by SC during nine-month period ended September 30, 2021 were under the MPLFA.
ECONOMIC AND BUSINESS ENVIRONMENT
Overview
The unemployment rate at September 30, 2021March 31, 2022 was 4.8%3.6% compared to 5.9%4.0% at June 30,December 31, 2021 and 7.9%6.0% one year ago, which represented an improvement off the April 2020 peak of unemployment associated with the COVID-19 outbreak.ago. According to the U.S. Bureau of Labor Statistics, the improvement from March 2021 reflects the continuing resumption of economic activity, particularly in the leisure and hospitality, public and private education, professional and business services, retail trade and other services.
Market year-to-date returns for the following indices based on closing prices at September 30, 2021March 31, 2022 were:
| | | | | | | | | | |
| | September 30, 2021March 31, 2022 | | |
| Dow Jones Industrial Average | | 10.6%(4.6)% | | |
| S&P 500 | | 14.7%(4.9)% | | |
| NASDAQ Composite | | 12.1%(9.1)% | | |
In light of the effects the COVID-19 pandemic continues to have on economic activity, atAt its September 2021March 2022 meeting, the Federal Open Market Committee decided to maintainraise the federal funds rate target range at 0.00%25 basis points to 0.25%. to 0.50% in response to persistently high inflation above the 2.0% target rate. The Committee expects to maintain thisanticipates ongoing increases in the target rate until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability.range. This action willis expected to help support economic activity, strongreturn inflation to the 2.0% committee objective, while allowing the labor market conditions and inflation to remain at the targeted rate of 2.0%.strong.
The ten-year Treasury bond rate at September 30, 2021March 31, 2022 was 1.53%2.33%, up from 0.92%1.51% at December 31, 2020.2021. Within the industry, changes in this metric are often considered to correspond to changes in 15-year and 30-year mortgage rates.
Changing market conditions are considered a significant risk factor to the Company. The interest rate environment can present challenges in the growth of net interest income for the banking industry, which continues to rely on non-interest activities to support revenue growth. Changing market conditions and political uncertainty could have an overall impact on the Company's results of operations and financial condition. Such conditions could also impact the Company's credit risk and the associated credit loss expense and legal expense.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Credit Rating Actions
The following table presents Moody’s, S&P and Fitch credit ratings for SBNA, SHUSA, and Santander senior debt / long-term issuer rating:
| | | | | | | | | | | | | | | | | | | | | | | |
| | SANTANDER (1) | | SHUSA | | SBNA (2) | Overall Outlook |
| Fitch | | A | | BBB+ | | BBB+ | Stable |
| Moody's | | A2 | | Baa3 | | Baa1 | Stable |
| S&P | | A | | BBB+ | | A- | Stable |
(1) Senior preferred rating
(2) Moody's rating represents SBNA long-term issuer rating
SHUSA funds its operations independently of the other entities owned by Santander, and believes its business is not necessarily closely related to the business or outlook of other entities owned by Santander. Future changes in the credit ratings of its parent, Santander, or the Kingdom of Spain, however, could impact SHUSA's or its subsidiaries' credit ratings, and any other change in the condition of Santander could affect SHUSA.
At this time, SC is not rated by the major credit rating agencies.
COVID-19 Summary
In March 2020, the novel strain of coronavirus, or COVID-19, had materially impacted our business. Similar to many other financial institutions, we took measures to mitigate our customers’ COVID-19-related economic challenges. We experienced an increase in requests for interest and amortization payment deferments extensions and modifications related to COVID-19 nationwide and a significant number of such payment deferments, extensions and modifications have been granted as detailed in the section of this MD&A captioned "TDRs". The Bank also joined other U.S. banks in providing overdrawn customers full access to their EIPs by providing a temporary credit in the amount of their overdrawn balance as of the end of the day prior to receipt of their EIP (up to a limit of $5,000) for each of the three rounds of EIP.
Please refer to Item 7 of the 2020 Annual Report on Form 10-K for additional details regarding COVID-19.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
REGULATORY MATTERS
The activities of the Company and its subsidiaries, including SBNA and SC, are subject to regulation under various U.S. federal laws and regulatory agencies which impose regulations, supervise and conduct examinations, and may affect the operations and management of the Company and its ability to take certain actions, including making distributions to our parent, Santander. The Company is regulated on a consolidated basis by the Federal Reserve, including the FRB of Boston, and the CFPB. The Company's subsidiaries are further supervised by the OCC, the FRB of Atlanta, and the NYDFS.New York Department of Financial Services.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Payment of Dividends
SHUSA is the parent holding company of SBNA. SHUSA and SBNA are subject to various regulatory restrictions relating to the payment of dividends, including regulatory capital minimums and the requirement to remain "well-capitalized" under prompt corrective action regulations. As a consolidated subsidiary of the Company, SC is included in various regulatory restrictions relating to the payment of dividends as described under the caption “Stress Tests and Capital Planning” in this section. Refer to the "Liquidity and Capital Resources" section of this MD&A for detail of the capital actions of the Company and its subsidiaries during the period.
In response to COVID-19, from June 2020 through June 30, 2021 the Federal Reserve implemented the Interim Policy, which restricted capital distributions to various measures of prior earnings.
On April 27, 2021, the Company received written notification from the FRB that the FRB has approved SHUSA’s request for an exception from the prohibition in the Interim Policy restricting the payment of certain dividends in the second quarter of 2021. On April 30, 2021, the SC’s Board of Directors declared a dividend of $0.22 per share for shareholders as of May 10, 2021 and payable on May 20, 2021.
On March 25, 2021, the Federal Reserve announced that the temporary restrictions imposed by the Interim Policy would end June 30, 2021.Beginning July 1, 2021, firms are subject to the SCB capital rules.SHUSA’s 2020 SCB was 2.5%, equating to a 7% minimum limit under the SCB rules.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Regulatory Capital Requirements
U.S. Basel III regulatory capital rules are applicable to both SHUSA and SBNA.
These rules narrow the definition of regulatory capital and establish higher minimum risk-based capital ratios and prompt corrective action thresholds that require banking organizations, including the Company and SBNA, to maintain a minimum CET1 capital ratio of 4.5%, a Tier 1 capital ratio of 6.0%, a total capital ratio of 8.0% and a minimum leverage ratio, calculated as the ratio of Tier 1 capital to average consolidated assets for the quarter, of 4.0%. A further capital conservation buffer of 2.5% above these minimum ratios was phased in effective January 1, 2019. This buffer is required for banking institutions to make capital distributions, including paying dividends.
As described in Note 1 to these Consolidated Financial Statements, on January 1, 2020, we adopted the CECL standard, which upon adoption resulted in a reduction to our opening retained earnings balance, net of income tax, and an increase to the allowance for loan losses of approximately $2.5 billion. As also described Note 1, theThe U.S. banking agencies in December 2018 approved a final rule to address the impact of CECL on regulatory capital by allowing banking organizations, including the Company, the option to phase in the day-one impact of CECL until the first quarter of 2023. On March 26, 2020, the U.S. banking agencies issued an interim final rule that provides banking organizations with an alternative option to delay for two years an estimate of CECL’s effect on regulatory capital relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period. This interim rule was subsequently updated with technical amendments in a final rule dated September 30, 2020. The Company has elected this alternative option instead of the one described in the December 2018 rule.
See the "Bank Regulatory Capital" section of this MD&A for the Company's capital ratios under Basel III standards. The implementation of certain regulations and standards relating to regulatory capital could disproportionately affect the Company's regulatory capital position relative to that of its competitors, including those that may not be subject to the same regulatory requirements as the Company.
Material restrictions can be imposed on SBNA, including restrictions on interest payable on accounts, dismissal of management and, in critically undercapitalized situations, appointment of a receiver or conservator. Critically undercapitalized banks generally may not make any payment of principal or interest on their subordinated debt and all but well-capitalized banks are prohibited from accepting brokered deposits without prior regulatory approval. Pursuant to the FDIA and OCC regulations, institutions which are not categorized as well-capitalized or adequately-capitalized are restricted from making capital distributions, which include cash dividends,dividends, stock redemptions or repurchases, cash-out mergers, interest payments on certain convertible debt and other transactions charged to the capital account of the institution. At September 30, 2021,March 31, 2022, SBNA met the criteria to be classified as “well-capitalized.”
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
On March 4, 2020, the Federal Reserve adopted a final rule to simplify capital rules for large banks. Under the final rule, firms' supervisory stress test results are now used to establish the size of the SCB requirement, replacing the 2.5% of the RWA component under the prior capital conservation buffer requirement. The SCB is calculated as the maximum decline in CET1 in the severely adverse scenario (subject to a 2.5% floor) plus four quarters of dividends. The rule results in new regulatory capital minimums which are equal to 4.5% of CET1 plus the SCB, any GSIB surcharge, and any countercyclical capital buffer. The GSIB buffer is applicable only to the largest and most complex firms and does not apply to SHUSA. In the event a firm falls below its new minimums, the rule imposes restrictions on capital distributions and discretionary bonuses. Firms continue to submit a capital plan annually. Supervisory expectations for capital planning processes do not change under the final rule.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Liquidity Rules
The Federal Reserve, the FDIC, and the OCC have established a rule to implement the Basel III LCR for certain internationally active banks and nonbank financial companies, and a modified version of the LCR for certain depository institution holding companies that are not internationally active. The LCR is designed to ensure that a banking entity maintains an adequate level of unencumbered high-quality liquid assets equal to its expected net cash outflow for a 30-day time horizon. Smaller covered companies (more than $50 billion in assets) such as the Company wereare required to calculate the LCR monthly beginning January 2016.monthly.
In October 2019, the Federal Reserve finalized rules that tailor the liquidity requirements based on a company’s asset size, cross-jurisdictional activity, reliance on short-term wholesale funding, nonbank assets, and off-balance sheet exposure. In light of the fact that the Company is under $250 billion in assets and has less than $50 billion in short-term wholesale funding, the Company is no longer required to disclose the US LCR.
Resolution Planning
The DFA requires the Company to prepare and update resolution plans. The 165(d) resolution plan must assume that the covered company is resolved under the U.S. Bankruptcy Code and that no “extraordinary support” is received from the U.S. or any other government. The most recent 165(d) resolution plan was submitted to the Federal Reserve and FDIC in December 2018. In addition, under amended FDIA rules, the IDI resolution plan rule requires that a bank with assets of $50 billion or more develop a plan for its resolution that supports depositors’ rapid access to their insured deposits, maximizes the net present value return from the sale or disposition of its assets, and minimizes the amount of any loss realized by creditors in resolution.
TLAC
The TLAC Rule requires certain U.S. organizations to maintain a minimum amount of loss-absorbing instruments, including a minimum amount of unsecured LTD. The TLAC Rule applies to U.S. GSIBs and to IHCs with $50 billion or more in U.S. non-branch assets that are controlled by a global systemically important FBO. The Company is such an IHC.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Under the TLAC Rule, companies are required to maintain a minimum amount of TLAC, which consists of a minimum amount of LTD and Tier 1 capital. As a result, SHUSA must hold the higher of 18% of its RWAs or 9% of its total consolidated assets in the form of TLAC, of which 6% of its RWAs or 3.5% of total consolidated assets must consist of LTD. In addition, SHUSA must maintain a TLAC buffer composed solely of CET1 capital and will be subject to restrictions on capital distributions and discretionary bonus payments based on the size of the TLAC buffer it maintains. The TLAC Rule became effective on January 1, 2019.
Volcker Rule
Section 13 of the BHCA, commonly referred to as the “Volcker Rule,” prohibits a “banking entity” from engaging in “proprietary trading” or engaging in any of the following activities with respect to a Covered Fund: (i) acquiring or retaining any equity, partnership or other ownership interest in the Covered Fund; (ii) controlling the Covered Fund; or (iii) engaging in certain transactions with the fund if the banking entity or any affiliate is an investment adviser or sponsor to the Covered Fund. These prohibitions are subject to certain exemptions for permitted activities.
Because the term “banking entity” includes an IDI, a depository institution holding company and any of their affiliates, the Volcker Rule has sweeping worldwide application and covers entities such as Santander, the Company, and certain of the Company’s subsidiaries (including SBNA and SC), as well as other Santander subsidiaries in the United States and abroad.
The Company implemented certain policies and procedures, training programs, recordkeeping, internal controls and other compliance requirements that were necessary to comply with the Volcker Rule. As required by the Volcker Rule, the compliance infrastructure has been tailored to each banking entity based on its size and its level of trading and Covered Fund activities. SHUSA's compliance program includes, among other things, processes for prior approval of new activities and investments permitted under the Volcker Rule, testing and auditing for compliance and a process for attesting annually that the compliance program is reasonably designed to achieve compliance with the rule.
In October 2019, the joint agencies responsible for administering the Volcker Rule finalized revisions to Volcker Rule. The final rule tailors the Volcker Rule’s compliance requirements to the amount of a firm’s trading activity, revise the definition of a trading account, clarify certain key provisions in the Volcker Rule, and simplify the information companies are required to provide the banking agencies.
72
In July 2020, the joint agencies finalized a rule that revised the Volcker Rule further.
The 2020 revisions provide an exemption for activities
Item 2. Management’s Discussion and Analysis of qualifying foreign excluded funds, revise the exclusions from the definitionFinancial Condition and Results of a “covered fund”, create new exclusions from the definition of a covered fund, and modify the definition of an ownership interest.Operations
The new rule became effective on October 1, 2020, and the Company is in the process of transitioning to the requirements of this revised rule.
Risk Retention Rule
The Federal Reserve's final credit risk retention rule generally requires sponsors of ABS to retain at least five percent of the credit risk of the assets collateralizing ABS. SHUSA, primarily through SC, is an active participant in the structured finance markets and complies with these retention requirements.
Market Risk Rule
The market risk rule requires certain national banks to measure and hold risk-based regulatory capital for the market risk of their covered positions. The bank must measure and hold capital for its market risk using its internal-riskinternal risk based models. The market risk rule outlines quantitative requirements for the bank's internal risk based models, as well as qualitative requirements for the bank's management of market risk. Banks subject to the market risk rule must also measure and hold market risk regulatory capital for the specific risk associated with certain debt and equity positions.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
A bank is subject to the market risk capital rules if its consolidated trading activity, defined as the sum of trading assets and liabilities as reported in its FFIEC 031 and FR Y-9C for the previous quarter, equals the lesser of: (1) 10 percent or more of the bank's total assets as reported in its Call Report and FR Y-9C for the previous quarter, or (2) $1 billion or more. At September 30, 2019, SBNA reported aggregate trading exposure in excess of the market risk threshold and, as a result, both the Company and SBNA began holding the market risk component within RWAs of the risk-based capital ratios, and submitted the FFIEC 102 - Market Risk Regulatory Report beginning for the period ended December 31, 2019. The incorporation of market risk within regulatory capital has resulted in a decrease in the Company's risk-based capital ratios.
Heightened Standards
OCC guidelines to strengthen the governance and risk management practices of large financial institutions are commonly referred to as “heightened standards.” The heightened standards apply to insured national banks with $50 billion or more in consolidated assets. The heightened standards require covered institutions to establish and adhere to a written risk governance framework to manage and control their risk-taking activities. The heightened standards also provide minimum standards for the institutions’ boards of directors to oversee the risk governance framework.
Transactions with Affiliates
Depository institutions must remain in compliance with Sections 23A and 23B of the Federal Reserve Act and the Federal Reserve's Regulation W, which governs transactions between SBNA and affiliated companies and individuals. Section 23A imposes limits on certain specified “covered transactions,” which include loans, lines, and letters of credit to affiliated companies or individuals, and investments in affiliated companies, as well as certain other transactions with affiliated companies and individuals.
Section 23B of the Federal Reserve Act prohibits a depository institution from engaging in certain transactions with affiliates unless the transactions are considered arms'-length. As a U.S. domiciled subsidiary of a global parent with significant non-bank affiliates, the Company faces elevated compliance risk in this area.
Regulation AB II
Regulation AB II, among other things, expanded disclosure requirements and modified the offering and shelf registration process for ABS. SC must comply with these rules, which impact all offerings of publicly registered ABS and all reports under the Exchange Act, for outstanding publicly-registered ABS, and affect SC's public securitization platform.
CRA
SBNA is subject to the requirements of the CRA, which requires the appropriate federal financial supervisory agency to assess an institution's record of helping to meet the credit needs of the local communities in which it is located. SBNA’s current CRA rating is "Outstanding." The OCC takes into account SBNA’s CRA rating in considering certain regulatory applications SBNA makes, including applications related to establishing and relocating branches, and the Federal Reserve does the same with respect to certain regulatory applications the Company makes.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Reference Rate Reform
The March 5, 2021 announcement by the U.K.’s Financial Conduct Authority confirmed the unavailability of LIBOR rates beyond June 30, 2023 and cessation of one-week and two-month LIBOR by December 31, 2021. ISDA announced these statements are an “Index Cessation Event” under the IBOR Fallbacks Supplement and the ISDA 2020 IBOR Fallbacks Protocol, which in turn triggers a “Spread Adjustment Fixing Date” under the Bloomberg IBOR Fallback Rate Adjustments Rule Book. As a result, when LIBOR tenors cease and the fallback rates apply, fallbacks for derivatives under ISDA’s documentation shift to forms of the SOFR plus the fixed spread adjustment.
The regulatory agencies also confirmed that the March 5, 2021 announcements constitute a “Benchmark Transition Event” with respect to all LIBOR settings.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
We hold loans, derivatives, and other financial instruments that use LIBOR as a reference rate and that will be impacted by the cessation of LIBOR.moved to alternative rates. Transition away from LIBOR to new reference rates presents legal, financial, reputational, and operational risks to the Company as well as to otherother participants in the market. As of September 30, 2021,March 31, 2022, the Company had approximately $21$17 billion of loans and approximately $5$4 billion of borrowings with LIBOR exposure. We also had approximately $64$56 billion in notional amounts of derivative contracts with LIBOR exposure.
We continue to monitor and respond accordingly to the Company’s LIBOR exposures, alternative reference rate originations, and legacy contract renegotiation. Contracts for many of our financial instruments contain fallback language that prescribes the transition to alternative rates at the appropriate time. For others, we are working closely with customers and counterparties to insert conforming changes necessary for the implementation and operation of alternative reference rates prior to LIBOR cessation. The Company expects additional amendments to be sent this year in certain situations, e.g., to address loan-to-hedge matching, or for loan amendments created before the availability of current reference rates or without specific fallback rates.
Under the guidance of our cross-functional LIBOR transition program, the Company is on track to offerbegan offering products linked to alternative reference rates and to remediatehas progressed on remediating existing contracts that use the LIBOR reference rate. We will substantially limitlimited originations of new LIBOR-referenced products byas of December 1, 2021, and cease all new2021. On January 1, 2022, we ceased originations of new LIBOR-referenced products by December 31, 2021.that do not fall under 'approved us' categories. Limited exceptions with fallbacks may be granted for limited use of LIBOR in 2022 if clients are unready or unprepared for alternative reference rates.
We have progressed onThe Company has completed the following aspects of the LIBOR transition to date:program:
Communications and training
•Created and updatedPublished employee and customer-facing LIBOR transition web pages
•Communicated with clients about the LIBOR transition through existing channels
•Launched conductConduct risk training for client-facing staff members
•Completed internalInternal training on alternative reference rate product offerings
Contracts remediation
•Maintained current inventory of clients and contracts that have a dependency on LIBOR and that require re-negotiation
•Prepared and deliveredDelivered amendments to clients
•Utilized LIBOR amendment fallback language for new or re-negotiated contracts without sufficient fallback.
•Adhered to the ISDA IBOR Fallbacks Protocol
Products
•Launched SOFR-based conforming adjustable rate mortgages (in line with FNMASOFR-referenced products across consumer, commercial, derivatives, and FHLMC requirements) in the third quarter of 2020corporate investment channels.
•Maintained quarterly LIBOR exposure reporting
•DevelopedProvided SOFR pricing framework and shared withto internal teams
Models
•Created an inventory and planCompleted development for remediation ofall models potentially impacted by theidentified in scope for LIBOR cessationremediation.
•Started development andCompleted validation for approximately 90% of models impactedand on track to complete validation for the remaining 10% of models by the transition to alternative reference ratesQ3 2022.
Accounting and tax
•Started analysis of the accounting and tax impacts based onImplemented relevant FASB and IRS guidance
•Documented approach to hedging
Systems
•Completed technologyTechnology systems updates and testing to support alternative reference rates
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
RESULTS OF OPERATIONS
NET INTEREST INCOME AND NET INTEREST MARGIN
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| CONSOLIDATED AVERAGE BALANCE SHEET / NET INTEREST MARGIN ANALYSIS |
| THREE-MONTH PERIODS ENDED SEPTEMBER 30, 2021 AND 2020 |
| 2021 (1) | | 2020 (1) | | Interest | Change due to | |
| (dollars in thousands) | Average
Balance | | Interest | | Yield/ Rate(2) | | Average
Balance | | Interest | | Yield/
Rate(2) | | Increase/(Decrease) | Volume | Rate | | | | | |
| EARNING ASSETS | | | | | | | | | | | | | | | | | | | | |
INVESTMENTS AND INTEREST EARNING DEPOSITS(3) | $ | 34,595,548 | | | $ | 63,246 | | | 0.73 | % | | $ | 26,828,719 | | | $ | 75,241 | | | 1.12 | % | | $ | (11,995) | | $ | 59,139 | | $ | (71,134) | | | | | | |
LOANS(4): | | | | | | | | | | | | | | | | | | | | |
| Commercial loans | 30,685,084 | | | 231,156 | | | 3.01 | % | | 33,281,183 | | | 276,206 | | | 3.32 | % | | (45,050) | | (20,507) | | (24,543) | | | | | | |
| Multifamily | 7,820,441 | | | 67,308 | | | 3.44 | % | | 8,512,238 | | | 73,134 | | | 3.44 | % | | (5,826) | | (5,826) | | — | | | | | | |
| Total commercial loans | 38,505,525 | | | 298,464 | | | 3.10 | % | | 41,793,421 | | | 349,340 | | | 3.34 | % | | (50,876) | | (26,333) | | (24,543) | | | | | | |
| Consumer loans: | | | | | | | | | | | | | | | | | | | | |
| Residential mortgages | 5,993,158 | | | 47,752 | | | 3.19 | % | | 8,155,884 | | | 71,210 | | | 3.49 | % | | (23,458) | | (17,715) | | (5,743) | | | | | | |
| Home equity loans and lines of credit | 3,691,936 | | | 28,270 | | | 3.06 | % | | 4,375,284 | | | 34,251 | | | 3.13 | % | | (5,981) | | (5,232) | | (749) | | | | | | |
| Total consumer loans secured by real estate | 9,685,094 | | | 76,022 | | | 3.14 | % | | 12,531,168 | | | 105,461 | | | 3.37 | % | | (29,439) | | (22,947) | | (6,492) | | | | | | |
| RICs and auto loans | 43,299,400 | | | 1,324,661 | | | 12.24 | % | | 40,026,191 | | | 1,322,556 | | | 13.22 | % | | 2,105 | | 22,512 | | (20,407) | | | | | | |
| Personal unsecured | 983,977 | | | 31,294 | | | 12.72 | % | | 1,841,369 | | | 134,260 | | | 29.17 | % | | (102,966) | | (46,572) | | (56,394) | | | | | | |
Other consumer(5) | 168,585 | | | 2,651 | | | 6.29 | % | | 255,944 | | | 4,474 | | | 6.99 | % | | (1,823) | | (1,410) | | (413) | | | | | | |
| Total consumer | 54,137,056 | | | 1,434,628 | | | 10.60 | % | | 54,654,672 | | | 1,566,751 | | | 11.47 | % | | (132,123) | | (48,417) | | (83,706) | | | | | | |
| Total loans | 92,642,581 | | | 1,733,092 | | | 7.48 | % | | 96,448,093 | | | 1,916,091 | | | 7.95 | % | | (182,999) | | (74,750) | | (108,249) | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| TOTAL EARNING ASSETS | 127,238,129 | | | 1,796,338 | | | 5.65 | % | | 123,276,812 | | | 1,991,332 | | | 6.46 | % | | (194,994) | | (15,611) | | (179,383) | | | | | | |
Allowance for loan losses (6) | (6,885,043) | | | | | | | (7,192,161) | | | | | | | | | | | | | | |
Other assets(7) | 33,184,080 | | | | | | | 34,156,248 | | | | | | | | | | | | | | |
| TOTAL ASSETS | $ | 153,537,166 | | | | | | | $ | 150,240,899 | | | | | | | | | | | | | | |
| INTEREST BEARING FUNDING LIABILITIES | | | | | | | | | | | | | | | | | | | | |
| Deposits and other customer related accounts: | | | | | | | | | | | | | | | | | | | | |
| Interest-bearing demand deposits | $ | 12,986,771 | | | $ | 1,639 | | | 0.05 | % | | $ | 11,334,566 | | | $ | 1,936 | | | 0.07 | % | | $ | (297) | | $ | 309 | | $ | (606) | | | | | | |
| Savings | 5,505,487 | | | 515 | | | 0.04 | % | | 5,957,740 | | | 1,937 | | | 0.13 | % | | (1,422) | | (140) | | (1,282) | | | | | | |
| Money market | 35,084,264 | | | 12,088 | | | 0.14 | % | | 30,775,793 | | | 30,032 | | | 0.39 | % | | (17,944) | | 5,014 | | (22,958) | | | | | | |
| CDs | 2,746,937 | | | 3,933 | | | 0.57 | % | | 5,148,959 | | | 18,420 | | | 1.43 | % | | (14,487) | | (6,328) | | (8,159) | | | | | | |
| TOTAL INTEREST-BEARING DEPOSITS | 56,323,459 | | | 18,175 | | | 0.13 | % | | 53,217,058 | | | 52,325 | | | 0.39 | % | | (34,150) | | (1,145) | | (33,005) | | | | | | |
| Federal funds purchased | 1,167,174 | | | 133 | | | 0.05 | % | | — | | | — | | | — | % | | 133 | | 133 | | — | | | | | | |
| BORROWED FUNDS: | | | | | | | | | | | | | | | | | | | | |
| FHLB advances | 751,087 | | | 1,221 | | | 0.65 | % | | 4,015,217 | | | 6,680 | | | 0.67 | % | | (5,459) | | (5,266) | | (193) | | | | | | |
| Other borrowings | 42,151,617 | | | 242,658 | | | 2.30 | % | | 45,076,390 | | | 310,935 | | | 2.76 | % | | (68,277) | | (19,131) | | (49,146) | | | | | | |
TOTAL BORROWED FUNDS (8) | 42,902,704 | | | 243,879 | | | 2.27 | % | | 49,091,607 | | | 317,615 | | | 2.59 | % | | (73,736) | | (24,397) | | (49,339) | | | | | | |
| TOTAL INTEREST-BEARING FUNDING LIABILITIES | 100,393,337 | | | 262,187 | | | 1.04 | % | | 102,308,665 | | | 369,940 | | | 1.45 | % | | (107,753) | | (25,409) | | (82,344) | | | | | | |
| Noninterest bearing demand deposits | 21,163,682 | | | | | | | 19,141,277 | | | | | | | | | | | | | | |
Other liabilities(9) | 8,312,435 | | | | | | | 7,920,941 | | | | | | | | | | | | | | |
| TOTAL LIABILITIES | 129,869,454 | | | | | | | 129,370,883 | | | | | | | | | | | | | | |
| STOCKHOLDER’S EQUITY | 23,667,712 | | | | | | | 20,870,016 | | | | | | | | | | | | | | |
| TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY | $ | 153,537,166 | | | | | | | $ | 150,240,899 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
NET INTEREST SPREAD (10) | | | | | 4.61 | % | | | | | | 5.01 | % | | | | | | | | | |
NET INTEREST MARGIN (11) | | | | | 4.82 | % | | | | | | 5.26 | % | | | | | | | | | |
NET INTEREST INCOME (12) | | | $ | 1,534,151 | | | | | | | $ | 1,621,392 | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
| | | CONSOLIDATED AVERAGE BALANCE SHEET / NET INTEREST MARGIN ANALYSIS | |
| | | NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2021 AND 2020 | | YEARS-TO-DATE ENDED MARCH 31, 2022 and 2021 |
| | 2021 (1) | | 2020 (1) | | Change due to | | 2022 (1) | | 2021 (1) | | Change due to |
| (dollars in thousands) | (dollars in thousands) | Average
Balance | | Interest | | Yield/
Rate(2) | | Average
Balance | | Interest | | Yield/
Rate(2) | | Increase/(Decrease) | Volume | Rate | (dollars in thousands) | Average
Balance | | Interest | | Yield/
Rate(2) | | Average
Balance | | Interest | | Yield/
Rate(2) | | Increase/(Decrease) | Volume | Rate |
| EARNING ASSETS | EARNING ASSETS | | | | | | | | | | | | | | EARNING ASSETS | | | | | | | | | | | | | |
INVESTMENTS AND INTEREST-EARNING DEPOSITS(3) | $ | 31,268,177 | | | $ | 180,517 | | | 0.77 | % | | $ | 26,940,052 | | | $ | 295,996 | | | 1.46 | % | | $ | (115,479) | | $ | 59,472 | | $ | (174,951) | | |
TOTAL SECURITIES FINANCING ACTIVITIES, INVESTMENTS AND INTEREST-EARNING DEPOSITS(3) | | TOTAL SECURITIES FINANCING ACTIVITIES, INVESTMENTS AND INTEREST-EARNING DEPOSITS(3) | $ | 38,858,377 | | | $ | 77,105 | | | 0.79 | % | | $ | 28,361,244 | | | $ | 59,196 | | | 0.83 | % | | $ | 17,909 | | $ | 20,590 | | $ | (2,681) | |
LOANS(4): | LOANS(4): | | | | | | | | | | | | | LOANS(4): | | | | | | | | | | | | |
| Commercial loans | 31,149,170 | | | 718,923 | | | 3.08 | % | | 33,430,857 | | | 885,374 | | | 3.53 | % | | (166,451) | | (58,041) | | (108,410) | | |
| C&I | | C&I | 14,420,518 | | | 114,340 | | | 3.17 | % | | 16,483,191 | | | 142,180 | | | 3.45 | % | | (27,840) | | (16,888) | | (10,952) | |
| CRE | | CRE | 7,223,994 | | | 51,437 | | | 2.85 | % | | 7,447,802 | | | 53,791 | | | 2.89 | % | | (2,354) | | (1,612) | | (742) | |
| Other commercial loans | | Other commercial loans | 8,171,434 | | | 40,110 | | | 1.96 | % | | 7,429,629 | | | 47,482 | | | 2.56 | % | | (7,372) | | 5,471 | | (12,843) | |
| Multifamily | Multifamily | 8,002,324 | | | 203,959 | | | 3.40 | % | | 8,501,040 | | | 229,027 | | | 3.59 | % | | (25,068) | | (13,178) | | (11,890) | | Multifamily | 7,489,872 | | | 58,257 | | | 3.11 | % | | 8,204,141 | | | 70,897 | | | 3.46 | % | | (12,640) | | (5,847) | | (6,793) | |
| Total commercial loans | Total commercial loans | 39,151,494 | | | 922,882 | | | 3.14 | % | | 41,931,897 | | | 1,114,401 | | | 3.54 | % | | (191,519) | | (71,219) | | (120,300) | | Total commercial loans | 37,305,818 | | | 264,144 | | | 2.83 | % | | 39,564,763 | | | 314,350 | | | 3.18 | % | | (50,206) | | (18,876) | | (31,330) | |
| Consumer loans: | Consumer loans: | | | | | | | | | | | | | | Consumer loans: | | | | | | | | | | | | | |
| Residential mortgages | Residential mortgages | 6,336,042 | | | 149,036 | | | 3.14 | % | | 8,532,737 | | | 237,596 | | | 3.71 | % | | (88,560) | | (55,465) | | (33,095) | | Residential mortgages | 5,660,603 | | | 43,811 | | | 3.10 | % | | 6,747,397 | | | 51,917 | | | 3.08 | % | | (8,106) | | (8,446) | | 340 | |
| Home equity loans and lines of credit | Home equity loans and lines of credit | 3,847,240 | | | 88,841 | | | 3.08 | % | | 4,522,847 | | | 121,949 | | | 3.60 | % | | (33,108) | | (16,832) | | (16,276) | | Home equity loans and lines of credit | 3,429,461 | | | 26,003 | | | 3.03 | % | | 4,013,586 | | | 32,256 | | | 3.21 | % | | (6,253) | | (4,514) | | (1,739) | |
| Total consumer loans secured by real estate | Total consumer loans secured by real estate | 10,183,282 | | | 237,877 | | | 3.11 | % | | 13,055,584 | | | 359,545 | | | 3.67 | % | | (121,668) | | (72,297) | | (49,371) | | Total consumer loans secured by real estate | 9,090,064 | | | 69,814 | | | 3.07 | % | | 10,760,983 | | | 84,173 | | | 3.13 | % | | (14,359) | | (12,960) | | (1,399) | |
| RICs and auto loans | RICs and auto loans | 42,254,454 | | | 3,986,350 | | | 12.58 | % | | 38,269,859 | | | 3,847,016 | | | 13.40 | % | | 139,334 | | 337,969 | | (198,635) | | RICs and auto loans | 43,265,679 | | | 1,254,220 | | | 11.60 | % | | 40,894,433 | | | 1,321,893 | | | 12.93 | % | | (67,673) | | 87,440 | | (155,113) | |
| Personal unsecured | Personal unsecured | 1,196,633 | | | 198,932 | | | 22.17 | % | | 2,180,322 | | | 437,300 | | | 26.74 | % | | (238,368) | | (172,888) | | (65,480) | | Personal unsecured | 2,201,176 | | | 55,035 | | | 10.00 | % | | 1,657,386 | | | 141,890 | | | 34.24 | % | | (86,855) | | 75,025 | | (161,880) | |
Other consumer(5) | 190,141 | | | 9,615 | | | 6.74 | % | | 281,204 | | | 14,840 | | | 7.04 | % | | (5,225) | | (4,617) | | (608) | | |
| Other consumer | | Other consumer | 134,492 | | | 1,871 | | | 5.56 | % | | 212,912 | | | 3,405 | | | 6.40 | % | | (1,534) | | (1,131) | | (403) | |
| Total consumer | Total consumer | 53,824,510 | | | 4,432,774 | | | 10.98 | % | | 53,786,969 | | | 4,658,701 | | | 11.55 | % | | (225,927) | | 88,167 | | (314,094) | | Total consumer | 54,691,411 | | | 1,380,940 | | | 10.10 | % | | 53,525,714 | | | 1,551,361 | | | 11.59 | % | | (170,421) | | 148,374 | | (318,795) | |
| Total loans | Total loans | 92,976,004 | | | 5,355,656 | | | 7.68 | % | | 95,718,866 | | | 5,773,102 | | | 8.04 | % | | (417,446) | | 16,948 | | (434,394) | | Total loans | 91,997,229 | | | 1,645,084 | | | 7.15 | % | | 93,090,477 | | | 1,865,711 | | | 8.02 | % | | (220,627) | | 129,498 | | (350,125) | |
| | TOTAL EARNING ASSETS | TOTAL EARNING ASSETS | 124,244,181 | | | 5,536,173 | | | 5.94 | % | | 122,658,918 | | | 6,069,098 | | | 6.60 | % | | (532,925) | | 76,420 | | (609,345) | | TOTAL EARNING ASSETS | 130,855,606 | | | 1,722,189 | | | 5.26 | % | | 121,451,721 | | | 1,924,907 | | | 6.34 | % | | (202,718) | | 150,088 | | (352,806) | |
Allowance for loan losses(6) | (7,110,537) | | | | | | | (6,711,184) | | | | | | | | |
Other assets(7) | 33,242,170 | | | 34,537,325 | | | | | | | | | | |
Allowance for loan losses(5) | | Allowance for loan losses(5) | (6,472,894) | | | | | | | (7,316,533) | | | |
Other assets(6) | | Other assets(6) | 32,050,520 | | | 33,005,218 | | |
| TOTAL ASSETS | TOTAL ASSETS | $ | 150,375,814 | | | $ | 150,485,059 | | | TOTAL ASSETS | $ | 156,433,232 | | | $ | 147,140,406 | | |
| INTEREST-BEARING FUNDING LIABILITIES | INTEREST-BEARING FUNDING LIABILITIES | | | | | | | | | | | | | INTEREST-BEARING FUNDING LIABILITIES | | | | | | | | | | | | |
| Deposits and other customer related accounts: | Deposits and other customer related accounts: | | | | | | | | | | | | | Deposits and other customer related accounts: | | | | | | | | | | | | |
| Interest-bearing demand deposits | Interest-bearing demand deposits | $ | 12,411,427 | | | $ | 4,544 | | | 0.05 | % | | $ | 11,345,723 | | | $ | 21,851 | | | 0.26 | % | | $ | (17,307) | | $ | 2,278 | | $ | (19,585) | | Interest-bearing demand deposits | $ | 14,407,174 | | | $ | 1,662 | | | 0.05 | % | | $ | 11,754,935 | | | $ | 1,408 | | | 0.05 | % | | $ | 254 | | $ | 254 | | $ | — | |
| Savings | Savings | 5,314,258 | | | 1,521 | | | 0.04 | % | | 5,898,275 | | | 7,296 | | | 0.16 | % | | (5,775) | | (673) | | (5,102) | | Savings | 5,601,687 | | | 494 | | | 0.04 | % | | 4,998,441 | | | 483 | | | 0.04 | % | | 11 | | 11 | | — | |
| Money market | Money market | 34,530,372 | | | 44,027 | | | 0.17 | % | | 29,070,436 | | | 140,333 | | | 0.64 | % | | (96,306) | | 33,091 | | (129,397) | | Money market | 34,583,976 | | | 11,785 | | | 0.14 | % | | 33,947,692 | | | 17,900 | | | 0.21 | % | | (6,115) | | 364 | | (6,479) | |
| CDs | CDs | 3,123,615 | | | 19,854 | | | 0.85 | % | | 6,756,472 | | | 80,580 | | | 1.59 | % | | (60,726) | | (32,549) | | (28,177) | | CDs | 2,417,549 | | | 3,004 | | | 0.50 | % | | 3,576,850 | | | 9,995 | | | 1.12 | % | | (6,991) | | (2,582) | | (4,409) | |
| TOTAL INTEREST-BEARING DEPOSITS | TOTAL INTEREST-BEARING DEPOSITS | 55,379,672 | | | 69,946 | | | 0.17 | % | | 53,070,906 | | | 250,060 | | | 0.63 | % | | (180,114) | | 2,147 | | (182,261) | | TOTAL INTEREST-BEARING DEPOSITS | 57,010,386 | | | 16,945 | | | 0.12 | % | | 54,277,918 | | | 29,786 | | | 0.22 | % | | (12,841) | | (1,953) | | (10,888) | |
| Federal funds purchased | 511,286 | | | 154 | | | 0.04 | % | | — | | | — | | | — | % | | 154 | | 154 | | — | | |
| BORROWED FUNDS: | | | | | | | | | | | | | | |
| | Fed funds purchased and securities sold under agreements to repurchase | | Fed funds purchased and securities sold under agreements to repurchase | 5,185,142 | | | 843 | | | 0.07 | % | | — | | | — | | | — | % | | 843 | | 843 | | — | |
| FHLB advances | FHLB advances | 881,465 | | | 4,223 | | | 0.64 | % | | 5,973,325 | | | 64,866 | | | 1.45 | % | | (60,643) | | (36,634) | | (24,009) | | FHLB advances | 250,000 | | | 580 | | | 0.93 | % | | 1,042,755 | | | 1,657 | | | 0.64 | % | | (1,077) | | (2,666) | | 1,589 | |
| Other borrowings | Other borrowings | 43,066,558 | | | 776,532 | | | 2.40 | % | | 44,698,919 | | | 1,008,012 | | | 3.01 | % | | (231,480) | | (35,347) | | (196,133) | | Other borrowings | 40,927,235 | | | 223,815 | | | 2.19 | % | | 43,898,212 | | | 274,132 | | | 2.50 | % | | (50,317) | | (17,767) | | (32,550) | |
TOTAL BORROWED FUNDS (8) | 43,948,023 | | | 780,755 | | | 2.37 | % | | 50,672,244 | | | 1,072,878 | | | 2.82 | % | | (292,123) | | (71,981) | | (220,142) | | |
TOTAL SECURITIES FINANCING ACTIVITIES AND BORROWED FUNDS (7) | | TOTAL SECURITIES FINANCING ACTIVITIES AND BORROWED FUNDS (7) | 46,362,377 | | | 225,238 | | | 1.94 | % | | 44,940,967 | | | 275,789 | | | 2.45 | % | | (50,551) | | (19,590) | | (30,961) | |
| TOTAL INTEREST-BEARING FUNDING LIABILITIES | TOTAL INTEREST-BEARING FUNDING LIABILITIES | 99,838,981 | | | 850,855 | | | 1.14 | % | | 103,743,150 | | | 1,322,938 | | | 1.70 | % | | (472,237) | | (69,834) | | (402,403) | | TOTAL INTEREST-BEARING FUNDING LIABILITIES | 103,372,763 | | | 242,183 | | | 0.94 | % | | 99,218,885 | | | 305,575 | | | 1.23 | % | | (63,392) | | (21,543) | | (41,849) | |
| Noninterest bearing demand deposits | Noninterest bearing demand deposits | 20,150,361 | | | | | | | 17,529,234 | | | | | | | | Noninterest bearing demand deposits | 21,172,667 | | | | | | | 19,085,040 | | | | | | | |
Other liabilities(9) | 7,712,391 | | | 7,357,434 | | | |
Other liabilities(8) | | Other liabilities(8) | 8,642,346 | | | 7,376,334 | | |
| TOTAL LIABILITIES | TOTAL LIABILITIES | 127,701,733 | | | 128,629,818 | | | TOTAL LIABILITIES | 133,187,776 | | | 125,680,259 | | |
| STOCKHOLDER’S EQUITY | STOCKHOLDER’S EQUITY | 22,674,081 | | | 21,855,241 | | | STOCKHOLDER’S EQUITY | 23,245,456 | | | 21,460,147 | | |
| TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY | TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY | $ | 150,375,814 | | | $ | 150,485,059 | | | TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY | $ | 156,433,232 | | | $ | 147,140,406 | | |
| NET INTEREST SPREAD (10) | | | | | 4.80 | % | | 4.90 | % | | |
NET INTEREST MARGIN (11) | | | | | 5.03 | % | | 5.16 | % | | |
NET INTEREST INCOME (12) | | $ | 4,685,318 | | | | | $ | 4,746,160 | | | | | |
NET INTEREST SPREAD (9) | | NET INTEREST SPREAD (9) | | | | | 4.32 | % | | 5.11 | % | |
NET INTEREST MARGIN (10) | | NET INTEREST MARGIN (10) | | | | | 4.52 | % | | 5.33 | % | |
| NET INTEREST INCOME | | NET INTEREST INCOME | | $ | 1,480,006 | | | | | $ | 1,619,332 | | | | |
|
(1)Average balances are based on daily averages when available. When daily averages are unavailable, mid-month averages are substituted.
(2)Yields calculated using taxable equivalent net interest income.
(3)Includes Federal funds sold and securities purchased under resale agreements or similar arrangements
(4)Interest on loans includes amortization of premiums and discounts on purchased loan portfolios and amortization of deferred loan fees, net of origination costs. Average loan balances includes non-accrual loans and LHFS.
(5)Other consumer primarily includes RV and marine loans.
(6)Refer to Note 3 to the Condensed Consolidated Financial Statements for further discussion.
(7)(6)Other assets primarily includes leases, goodwill and intangibles, premise and equipment, net deferred tax assets, equity method investments, BOLI, accrued interest receivable, derivative assets, miscellaneous receivables, prepaid expenses and MSRs. Refer to Note 6 to the Condensed Consolidated Financial Statements for further discussion.
(8)(7)Refer to Note 9 and Note 11 to the Condensed Consolidated Financial Statements for further discussion.
(9)(8)Other liabilities primarily includes accounts payable and accrued expenses, derivative liabilities, net deferred tax liabilities and the unfunded lending commitments liability.
(10)(9)Represents the difference between the yield on total earning assets and the cost of total funding liabilities.
(11)(10)Represents annualized, taxable equivalent net interest income divided by average interest-earning assets.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
NET INTEREST INCOME
Net interest income decreased $139.3 million for the quarter ended March 31, 2022, respectively, compared to 2021. The most significant factors contributing to the change were as follows:
•Interest income on investment securities and interest-earning deposits increased $17.9 million for the quarter ended March 31, 2022 compared to the corresponding period in the prior year, attributable to an increase average balances of $20.6 million and a decrease in average rates of $2.7 million. The decrease in rate was attributable to Federal Reserve actions in response to the COVID-19 pandemic.
•Interest income on loans decreased $220.6 million for the quarter ended March 31, 2022 compared to the corresponding period in the prior year, attributable to a increase in average loan balances of $129.5 million and a decrease in average rates of $350.1 million. This was the result of a lower overall interest rate environment.
•Interest expense on deposits and related customer accounts decreased $12.8 million for the quarter ended March 31, 2022 compared to the corresponding period in the prior year, attributable to a decrease in average interest-bearing deposit balances of $2.0 million and a decrease in average rates of $10.9 million.
•Interest expense on securities financing activities and borrowed funds decreased $50.6 million for the quarter ended March 31, 2022 compared to the corresponding period in the prior year, attributable to a decrease in average interest-bearing borrowings balances of $19.6 million and a decrease in average rates of $31.0 million. This was the result of an overall lower interest rate environment along with the repayment of debt.
CREDIT LOSS EXPENSE (BENEFIT)
The Company had a credit loss expense of $216.8 million for the quarter ended March 31, 2022, compared to credit loss expense of $76.1 million for the corresponding period in the prior year.
Credit loss expense on commercial loans increased $10.4 million compared to the corresponding period in the prior year, primarily driven by a release of allowance across several commercial segments offset by a decrease in net charge-offs of $15.4 million.
Credit loss expense on consumer loans increased $120.9 million compared to the corresponding period in the prior year, primarily driven by an increase in RIC charge-offs. Net charge-offs on the consumer portfolios increased by $24.6 million, respectively, compared to 2021.
The provision on unfunded credit losses increased $9.4 million compared to 2021.
NON-INTEREST INCOME
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Year-to-Date Ended March 31 | | | | YTD Change |
| (dollars in thousands) | | | | | | 2022 | | 2021 | | | | | | Dollar increase/(decrease) | | Percentage |
| Consumer fees | | | | | | $ | 62,053 | | | $ | 83,693 | | | | | | | $ | (21,640) | | | (25.9) | % |
| Commercial fees | | | | | | 35,437 | | | 35,527 | | | | | | | (90) | | | (0.3) | % |
| Lease income | | | | | | 671,204 | | | 772,892 | | | | | | | (101,688) | | | (13.2) | % |
| Capital Market Revenue | | | | | | 64,759 | | | 81,788 | | | | | | | (17,029) | | | (20.8) | % |
| Miscellaneous income, net | | | | | | 133,848 | | | 200,722 | | | | | | | (66,874) | | | (33.3) | % |
| Net gains recognized in earnings | | | | | | 13,955 | | | 9,874 | | | | | | | 4,081 | | | 41.3 | % |
| Total non-interest income | | | | | | $ | 981,256 | | | $ | 1,184,496 | | | | | | | $ | (203,240) | | | (17.2) | % |
Total non-interest income decreased $203.2 million for the quarter ended March 31, 2022 compared to the corresponding period in the prior year. The change for the quarter ended March 31, 2022 was primarily due to a decrease in lease income $101.7 million, and a decrease in miscellaneous income $66.9 million, net discussed further below.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Miscellaneous income
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Year-to-Date Ended March 31 | | | | YTD Change |
| (dollars in thousands) | | | | | | 2022 | | 2021 | | | | | | Dollar increase/(decrease) | | Percentage |
| Mortgage banking income, net | | | | | | $ | 11,381 | | | $ | 20,739 | | | | | | | $ | (9,358) | | | (45.1) | % |
| BOLI | | | | | | 15,617 | | | 15,545 | | | | | | | 72 | | | 0.5 | % |
| Net gain on sale of operating leases | | | | | | 26,046 | | | 108,263 | | | | | | | (82,217) | | | (75.9) | % |
| Asset and wealth management fees | | | | | | 66,702 | | | 58,727 | | | | | | | 7,975 | | | 13.6 | % |
| Gain on sale of non-mortgage loans | | | | | | 324 | | | (38,017) | | | | | | | 38,341 | | | 100.9 | % |
| Other miscellaneous income / (loss), net | | | | | | 13,778 | | | 35,465 | | | | | | | (21,687) | | | (61.2) | % |
| Total miscellaneous income | | | | | | $ | 133,848 | | | $ | 200,722 | | | | | | | $ | (66,874) | | | (33.3) | % |
Miscellaneous income decreased $66.9 million for the quarter ended March 31, 2022 compared to the corresponding period in the prior year. This increase was primarily related to:
•Gain on sale of operating leases decreased for the quarter ended March 31, 2022 compared to the corresponding period in the prior year, primarily driven by limited new and used car supply.
•Gain on the sale of non-mortgage loans increased for the quarter ended March 31, 2022 compared to the corresponding period in the prior year, primarily attributable to the consumer RIC portfolio.
GENERAL, ADMINISTRATIVE AND OTHER EXPENSES
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year-to-Date Ended March 31 | | | | YTD Change |
| (dollars in thousands) | | | | | 2022 | | 2021 | | | | | | Dollar increase/(decrease) | | Percentage |
| Compensation and benefits | | | | | $ | 495,325 | | | $ | 465,258 | | | | | | | $ | 30,067 | | | 6.5 | % |
| Occupancy and equipment expenses | | | | | 151,550 | | | 172,076 | | | | | | | (20,526) | | | (11.9) | % |
| Technology, outside services, and marketing expense | | | | | 137,684 | | | 134,752 | | | | | | | 2,932 | | | 2.2 | % |
| Loan expense | | | | | 65,592 | | | 111,580 | | | | | | | (45,988) | | | (41.2) | % |
| Lease expense | | | | | 481,302 | | | 560,340 | | | | | | | (79,038) | | | (14.1) | % |
| | | | | | | | | | | | | | | |
| Other expenses | | | | | 135,237 | | | 104,423 | | | | | | | 30,814 | | | 29.5 | % |
| Total general, administrative and other expenses | | | | | $ | 1,466,690 | | | $ | 1,548,429 | | | | | | | $ | (81,739) | | | (5.3) | % |
Total general, administrative and other expenses decreased $81.7 million for the quarter ended March 31, 2022 compared to 2021. The most significant contributing factors were as follows:
•Loan expense decreased $46.0 million for the quarter ended March 31, 2022, compared to the corresponding period in the prior year, due to decreases in loan servicing expense.
•Lease expense decreased for the quarter ended March 31, 2022, compared to the corresponding period in the prior year, due to a shortage in automobile supply and receipt of lease subvention payments, which reduce lease expense related to depreciation.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Net interest income decreased $87.2 million and $60.8 million for the three-month and nine-month periods ended September 30, 2021, respectively, compared to 2020. The most significant factors contributing to the change were as follows:
•Interest income on investment securities and interest-earning deposits decreased $115.5 million for the nine-month period ended September 30, 2021 compared to 2020, attributable to an increase in average balances of $59.5 million and a decrease in average rates of $175.0 million. The decrease in rate was attributable to Federal Reserve actions in response to the COVID-19 pandemic.
•Interest income on loans decreased $417.4 million for the nine-month period ended September 30, 2021 compared to 2020, attributable to an increase in average loan balances of $16.9 million and a decrease in average rates of $434.4 million. This was the result of a lower overall interest rate environment offset by continued growth in RIC volume.
•Interest expense on deposits and related customer accounts decreased $180.1 million for the nine-month period ended September 30, 2021 compared to 2020, attributable to an increase in average interest-bearing deposit balances of $2.1 million and a decrease in average rates of $182.3 million. This was the result of lower deposit rates from the Federal Reserve setting overnight rates at zero in response to the economic uncertainty from COVID-19.
•Interest expense on borrowed funds decreased $292.1 million for the nine-month period ended September 30, 2021 compared to 2020, attributable to a decrease in average interest-bearing borrowings balances of $72.0 million and a decrease in average rates of $220.1 million. This was the result of an overall lower interest rate environment along with the repayment of debt.
CREDIT LOSS EXPENSE (BENEFIT)
The Company had a Credit loss expense / (benefit) of $19.5 million and $(221.7) million for the three-month and nine-month periods ended September 30, 2021, respectively, compared to Credit loss expense $405.8 million and $2.6 billion for the comparable periods in 2020. The change year-over-year was primarily driven by the additional reserve in prior year to address credit risk associated with the COVID-19 outbreak and associated economic recession during 2020.
NON-INTEREST INCOME
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three-Month Period Ended September 30, | | Nine-Month Period Ended September 30, | | QTD Change | | YTD Change |
| (dollars in thousands) | | 2021 | | 2020 | | 2021 | | 2020 | | Dollar increase/(decrease) | | Percentage | | Dollar increase/(decrease) | | Percentage |
| Consumer fees | | $ | 75,264 | | | $ | 88,239 | | | $ | 231,939 | | | $ | 254,953 | | | $ | (12,975) | | | (14.7) | % | | $ | (23,014) | | | (9.0) | % |
| Commercial fees | | 34,211 | | | 35,595 | | | 103,681 | | | 101,954 | | | (1,384) | | | (3.9) | % | | 1,727 | | | 1.7 | % |
| Lease income | | 708,814 | | | 742,946 | | | 2,214,598 | | | 2,269,613 | | | (34,132) | | | (4.6) | % | | (55,015) | | | (2.4) | % |
| Miscellaneous income, net | | 249,381 | | | 308,222 | | | 868,991 | | | 330,165 | | | (58,841) | | | (19.1) | % | | 538,826 | | | 163.2 | % |
| Net gains recognized in earnings | | (106) | | | (148) | | | 15,138 | | | 31,646 | | | 42 | | | 28.4 | % | | (16,508) | | | (52.2) | % |
| Total non-interest income | | $ | 1,067,564 | | | $ | 1,174,854 | | | $ | 3,434,347 | | | $ | 2,988,331 | | | $ | (107,290) | | | (9.1) | % | | $ | 446,016 | | | 14.9 | % |
Total non-interest income decreased $107.3 million and increased $446.0 million for the three-month and nine-month periods ended September 30, 2021, respectively, compared to the corresponding periods in 2020. The changes for the three-month and nine-month periods ended September 30, 2021 were primarily due to an increase in miscellaneous income, net discussed further below.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Miscellaneous income
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| | Three-Month Period Ended September 30, | | Nine-Month Period Ended September 30, | | QTD Change | | YTD Change |
| (dollars in thousands) | | 2021 | | 2020 | | 2021 | | 2020 | | Dollar increase/(decrease) | | Percentage | | Dollar increase/(decrease) | | Percentage |
| Mortgage banking income, net | | $ | 13,024 | | | $ | 14,115 | | | $ | 34,437 | | | $ | 47,243 | | | $ | (1,091) | | | (7.7) | % | | $ | (12,806) | | | (27.1) | % |
| BOLI | | 15,051 | | | 14,855 | | | 45,984 | | | 43,764 | | | 196 | | | 1.3 | % | | 2,220 | | | 5.1 | % |
| Capital market revenue | | 47,082 | | | 56,949 | | | 189,016 | | | 179,417 | | | (9,867) | | | (17.3) | % | | 9,599 | | | 5.4 | % |
| Net gain on sale of operating leases | | 103,172 | | | 120,387 | | | 389,979 | | | 170,484 | | | (17,215) | | | (14.3) | % | | 219,495 | | | 128.7 | % |
| Asset and wealth management fees | | 60,251 | | | 52,984 | | | 177,722 | | | 156,575 | | | 7,267 | | | 13.7 | % | | 21,147 | | | 13.5 | % |
| Loss on sale of non-mortgage loans | | 3,420 | | | (56,684) | | | (19,766) | | | (241,324) | | | 60,104 | | | 106.0 | % | | 221,558 | | | 91.8 | % |
| Other miscellaneous income / (loss), net | | 7,381 | | | 105,616 | | | 51,619 | | | (25,994) | | | (98,235) | | | (93.0) | % | | 77,613 | | | 298.6 | % |
| Total miscellaneous income | | $ | 249,381 | | | $ | 308,222 | | | $ | 868,991 | | | $ | 330,165 | | | $ | (58,841) | | | (19.1) | % | | $ | 538,826 | | | 163.2 | % |
Miscellaneous income decreased $58.8 million and increased $538.8 million for the three-month and nine-month periods ended September 30, 2021, respectively, compared to the corresponding periods in 2020. This increase was primarily related to:
•Gain on sale of operating leases increased for the nine-month period ended September 30, 2021 compared to 2020, driven by an increase in liquidated units.
•Loss on the sale of non-mortgage loans increased for the three-month and nine-month periods ended September 30, 2021 compared to 2020, primarily attributable to the consumer RIC portfolio.
•Other miscellaneous income / (loss), net increased for the nine-month period ended September 30, 2021, compared to the corresponding period in 2020, primarily due to $387.9 million in market value adjustments, which netted down prior year income related to the Bluestem portfolio which was sold in Q1 2021.
GENERAL, ADMINISTRATIVE AND OTHER EXPENSES
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| Three-Month Period Ended September 30, | | Nine-Month Period Ended September 30, | | QTD Change | | YTD Change |
| (dollars in thousands) | 2021 | | 2020 | | 2021 | | 2020 | | Dollar increase/(decrease) | | Percentage | | Dollar increase/(decrease) | | Percentage |
| Compensation and benefits | $ | 478,577 | | | $ | 461,992 | | | $ | 1,432,036 | | | $ | 1,391,786 | | | $ | 16,585 | | | 3.6 | % | | $ | 40,250 | | | 2.9 | % |
| Occupancy and equipment expenses | 164,119 | | | 152,998 | | | 504,609 | | | 464,784 | | | 11,121 | | | 7.3 | % | | 39,825 | | | 8.6 | % |
| Technology, outside services, and marketing expense | 149,610 | | | 124,211 | | | 423,980 | | | 386,192 | | | 25,399 | | | 20.4 | % | | 37,788 | | | 9.8 | % |
| Loan expense | 66,356 | | | 67,139 | | | 248,441 | | | 219,483 | | | (783) | | | (1.2) | % | | 28,958 | | | 13.2 | % |
| Lease expense | 468,340 | | | 612,639 | | | 1,546,325 | | | 1,844,270 | | | (144,299) | | | (23.6) | % | | (297,945) | | | (16.2) | % |
| Impairment of goodwill | — | | | — | | | — | | | 1,848,228 | | | — | | | 0% | | (1,848,228) | | | (100.0) | % |
| Other expenses | 171,201 | | | 150,249 | | | 384,123 | | | 427,978 | | | 20,952 | | | 13.9 | % | | (43,855) | | | (10.2) | % |
| Total general, administrative and other expenses | $ | 1,498,203 | | | $ | 1,569,228 | | | $ | 4,539,514 | | | $ | 6,582,721 | | | $ | (71,025) | | | (4.5) | % | | $ | (2,043,207) | | | (31.0) | % |
Total general, administrative and other expenses decreased $71.0 million and $2.0 billion for the three-month and nine-month periods ended September 30, 2021, respectively, compared to 2020. The most significant contributing factors were as follows:
•Lease expense decreased for the three-month and nine-month periods ended September 30, 2021 due to a shortage in car supply and receipt of lease subvention payments, which reduce lease expense related to depreciation.
•The Company recorded no goodwill impairment in the three-month and nine-month periods ended September 30, 2021, compared to $1.8 billion during 2020.
•Other expenses decreased $43.9 million for the nine-month period ended September 30, 2021 compared to 2020 mainly due to lower operational risk expense and legal fees, offset by a slight increase in employee expenses such as travel during the three-month period ended September 30, 2021.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
INCOME TAX PROVISION
An incomeIncome tax expense of $227.3$161.7 million and a benefit of $53.3$286.8 million were recorded for the three-month periodsquarters ended September 30,March 31, 2022 and 2021, and 2020, respectively. An income tax expense of $885.8 million and a benefit of $272.9 million were recorded for the nine-month periods ended September 30, 2021 and 2020, respectively. This resulted in an ETR of 21.0%20.8% and (6.5)%24.3% for the three-month periodsquarters ended September 30,March 31, 2022 and 2021, and 2020, respectively, and 23.3% and 19.3%respectively. Refer to Note 15 to the Condensed Consolidated Financial Statements for the nine-month periods ended September 30, 2021 and 2020, respectively.year-to-year comparison of the ETR.
The Company's ETR in future periods will be affected by the results of operations allocated to the various tax jurisdictions in which the Company operates, any change in income tax laws or regulations within those jurisdictions, and interpretations of income tax regulations that differ from the Company's interpretations by tax authorities that examine tax returns filed by the Company or any of its subsidiaries.
Refer to Note 15 to the Condensed Consolidated Financial Statements for the year-to-year comparison of the ETR.
LINE OF BUSINESS RESULTS
GeneralThe Company manages its business activities by it six reportable segments, Auto, CBB, C&I, CRE, CIB, and Wealth Management. The tables below reflect certain information by reportable segment and includes additional supplementary information related to consumer activities and commercial activities.The supplementary information is deemed to be useful as it represents a view in how we manage the business and also aligns with how our parent, Santander, manages its business from a global perspective.
Consumer Activities
Consumer activities consists of the Company's CBB reportable segment and Auto reportable segment.
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| Year-To-Date Ended | 2022 | | 2021 | Total Consumer Activities |
| March 31, 2022 | Auto | CBB | Total Consumer activities | | Auto | CBB | Total Consumer Activities | Dollar increase/(decrease) | Percentage |
| Net interest income | $ | 1,051,266 | | $ | 301,955 | | $ | 1,353,221 | | | $ | 1,072,248 | | $ | 402,337 | | $ | 1,474,585 | | $ | (121,364) | | (8.2) | % |
| Non-interest income | 706,514 | | 78,153 | | $ | 784,667 | | | 917,857 | | 67,209 | | $ | 985,066 | | $ | (200,399) | | (20.3) | % |
| Credit loss expense / (benefit) | 220,526 | | 7,045 | | $ | 227,571 | | | 121,385 | | (4,321) | | $ | 117,064 | | $ | 110,507 | | 94.4 | % |
| Total expenses | 802,084 | | 383,948 | | $ | 1,186,032 | | | 890,593 | | 402,335 | | $ | 1,292,928 | | $ | (106,896) | | (8.3) | % |
| Income/(loss) before income taxes | 735,170 | | (10,885) | | $ | 724,285 | | | 978,127 | | 71,532 | | $ | 1,049,659 | | $ | (325,374) | | (31.0) | % |
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| Total assets | 61,182,043 | | 12,661,670 | | $ | 73,843,713 | | | 59,882,586 | | 13,782,238 | | $ | 73,664,824 | | $ | 178,889 | | 0.2 | % |
The Company's segments at September 30,Company reported total income before income taxes related to its Consumer activities of $724.3 million and $1.0 billion, respectively, for the periods ending March 31, 2022 and 2021, and 2020 consisted of CBB, C&I, CRE & VF, CIB and SC.
Results Summary
CBB
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| | Three-Month Period Ended September 30, | | Nine-Month Period Ended September 30, | | QTD Change | | YTD Change |
| (dollars in thousands) | 2021 | | 2020 | | 2021 | | 2020 | | Dollar increase/(decrease) | | Percentage | | Dollar increase/(decrease) | | Percentage |
| Net interest income | $ | 367,414 | | | $ | 352,604 | | | $ | 1,087,118 | | | $ | 1,021,721 | | | $ | 14,810 | | | 4.2 | % | | $ | 65,397 | | | 6.4 | % |
| Total non-interest income | 79,955 | | | 71,175 | | | 227,746 | | | 220,052 | | | 8,780 | | | 12.3 | % | | 7,694 | | | 3.5 | % |
| Credit loss expense / (benefit) | (14,248) | | | 31,755 | | | (50,839) | | | 363,363 | | | (46,003) | | | (144.9) | % | | (414,202) | | | (114.0) | % |
| Total expenses | 373,697 | | | 381,824 | | | 1,113,128 | | | 2,682,735 | | | (8,127) | | | (2.1) | % | | (1,569,607) | | | (58.5) | % |
| Income / (Loss) before income taxes | 87,920 | | | 10,200 | | | 252,575 | | | (1,804,325) | | | 77,720 | | | 762.0 | % | | 2,056,900 | | | 114.0 | % |
| Intersegment revenue / (expense) | (194) | | | (342) | | | (665) | | | (735) | | | 148 | | | 43.3 | % | | 70 | | | 9.5 | % |
| Total assets | 23,633,610 | | | 22,311,101 | | | 23,633,610 | | | 22,311,101 | | | 1,322,509 | | | 5.9 | % | | 1,322,509 | | | 5.9 | % |
CBB reportedwhich included income before income taxes of $87.9$735.2 million and $252.6$978.1 million foron Auto in the three-month and nine-monthrespective periods, ended September 30, 2021, respectively, compared to income before income taxes of $10.2 million and a loss before income taxes of $1.8 billion for$10.9 million and income before income taxes of $71.5 million on CBB in the three-month and nine-month periods ended September 30, 2020. Factors contributing to these changesrespective periods. The most significant drivers of the change were:
•Credit loss expenseNet interest income on CBB decreased $46.0$100.4 million, and $414.2 million for the three-month and nine-month periods ended September 30, 2021, respectively, compared to the corresponding periods of 2020. These decreases were due to an improved credit outlook, higher quality of originations and lower realized loan losses than were projected due to the COVID-19 pandemic.
•Total expenses decreased $1.6 billion for the nine-month period ended September 30, 2021 compared to the corresponding period of 2020. These decreases were mainly2021. This decrease was primarily due to goodwill impairment recordedthe sale of the Bluestem portfolio during the secondfirst quarter of 2020.2021.
•Non-interest income on Auto decreased $211.3 million for the quarter ended March 31, 2022, compared to the corresponding period of 2021. This change was primarily due to a lower volume of active leases as a result of supply chain issues impacting new vehicle inventory.
•Total expenses on Consumer activities decreased $106.9 million for the quarter ended March 31, 2022 compared to the corresponding period of 2021, for which Auto decreased by $88.5 million and CBB decreased by $18.4 million, primarily due to the Company's focus on cost efficiency.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
C&I Banking
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| | Three-Month Period Ended September 30, | | Nine-Month Period Ended September 30, | | QTD Change | | YTD Change |
| (dollars in thousands) | 2021 | | 2020 | | 2021 | | 2020 | | Dollar increase/(decrease) | | Percentage | | Dollar increase/(decrease) | | Percentage |
| Net interest income | $ | 70,511 | | | $ | 82,926 | | | $ | 215,573 | | | $ | 250,603 | | | $ | (12,415) | | | (15.0) | % | | $ | (35,030) | | | (14.0) | % |
| Total non-interest income | 16,480 | | | 16,214 | | | 52,197 | | | 48,318 | | | 266 | | | 1.6 | % | | 3,879 | | | 8.0 | % |
| Credit loss expense / (benefit) | 6,826 | | | 40,897 | | | (45,236) | | | 132,951 | | | (34,071) | | | (83.3) | % | | (178,187) | | | (134.0) | % |
| Total expenses | 63,244 | | | 66,453 | | | 190,759 | | | 491,436 | | | (3,209) | | | (4.8) | % | | (300,677) | | | (61.2) | % |
| Income / (Loss) before income taxes | 16,921 | | | (8,210) | | | 122,247 | | | (325,466) | | | 25,131 | | | 306.1 | % | | 447,713 | | | 137.6 | % |
| Intersegment revenue / (expense) | 2,853 | | | 3,462 | | | 9,077 | | | 9,759 | | | (609) | | | (17.6) | % | | (682) | | | (7.0) | % |
| Total assets | 7,133,308 | | | 7,871,856 | | | 7,133,308 | | | 7,871,856 | | | (738,548) | | | (9.4) | % | | (738,548) | | | (9.4) | % |
Commercial activities consists of the Company's C&I reportable segment and CRE reportable segment.
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| Year-To-Date Ended | 2022 | | 2021 | Total Commercial Activities |
| March 31, 2022 | C&I | CRE | Total Commercial Activities | | C&I | CRE | Total Commercial Activities | Dollar increase/(decrease) | Percentage |
| Net interest income | $ | 67,661 | | $ | 78,435 | | $ | 146,096 | | | $ | 73,775 | | $ | 85,283 | | $ | 159,058 | | $ | (12,962) | | (8.1) | % |
| Non-interest income | 15,942 | | 15,340 | | $ | 31,282 | | | 16,402 | | 5,616 | | $ | 22,018 | | $ | 9,264 | | 42.1 | % |
| Credit loss expense / (benefit) | 3,634 | | (19,338) | | $ | (15,704) | | | (31,341) | | 1,776 | | $ | (29,565) | | $ | 13,861 | | 46.9 | % |
| Total expenses | 67,486 | | 29,199 | | $ | 96,685 | | | 63,259 | | 28,024 | | $ | 91,283 | | $ | 5,402 | | 5.9 | % |
| Income/(loss) before income taxes | 12,483 | | 83,914 | | $ | 96,397 | | | 58,259 | | 61,099 | | $ | 119,358 | | $ | (22,961) | | (19.2) | % |
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| Total assets | 6,847,050 | | 17,637,567 | | $ | 24,484,617 | | | 7,679,097 | | 17,794,929 | | $ | 25,474,026 | | $ | (989,409) | | (3.9) | % |
The Company reported total income before income taxes related to its Commercial activities of $96.4 million and $119.4 million, respectively, for the periods ending March 31, 2022 and 2021. This included income before income taxes of $16.9$12.5 million and $122.2$58.3 million foron C&I in the three-monthrespective periods, and nine-month periods ended September 30, 2021, respectively, compared to a lossincome before income taxes of $8.2$83.9 million and $325.5$61.1 million on CRE in the respective periods. The most significant drivers of the change were:
•Credit loss expense on C&I increased $35.0 million for the quarter ended March 31, 2022, compared to the corresponding periods in 2020. Factors contributingperiod of 2021. This change was primarily due to these changes were:
•Credit loss expense on CRE decreased $34.1$21.1 million, and $178.2 million for the three-month and nine-month periods ended September 30, 2021, respectively, compared to the corresponding periods of 2020. These decreases were due to an improved credit outlook and lower realized loan losses than were projected due to the COVID-19 pandemic.
•Total expenses decreased $300.7 million for the nine-month period ended September 30, 2021,, compared to the corresponding period of 2020. This decrease was mainly due to the goodwill impairment recorded during the second quarter of 2020.2021.
•Total assets decreased $738.5 million from the third quarter of 2020 to the third quarter of 2021. This decrease was due to the payback of lines of credit that were drawn down in the first quarter of 2020 in response to COVID-19 economic uncertainty as well as the forgiveness of Paycheck Protection Program loans.
CRE & VF
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| | Three-Month Period Ended September 30, | | Nine-Month Period Ended September 30, | | QTD Change | | YTD Change |
| (dollars in thousands) | 2021 | | 2020 | | 2021 | | 2020 | | Dollar increase/(decrease) | | Percentage | | Dollar increase/(decrease) | | Percentage |
| Net interest income | $ | 93,061 | | | $ | 94,532 | | | $ | 281,023 | | | $ | 286,639 | | | $ | (1,471) | | | (1.6) | % | | $ | (5,616) | | | (2.0) | % |
| Total non-interest income | 7,354 | | | 4,606 | | | 28,364 | | | 8,971 | | | 2,748 | | | 59.7 | % | | 19,393 | | | 216.2 | % |
| Credit loss expense / (benefit) | (5,087) | | | 11,963 | | | (4,167) | | | 78,800 | | | (17,050) | | | (142.5) | % | | (82,967) | | | (105.3) | % |
| Total expenses | 35,478 | | | 36,454 | | | 108,287 | | | 106,689 | | | (976) | | | (2.7) | % | | 1,598 | | | 1.5 | % |
| Income / (Loss) before income taxes | 70,024 | | | 50,721 | | | 205,267 | | | 110,121 | | | 19,303 | | | 38.1 | % | | 95,146 | | | 86.4 | % |
| Intersegment revenue / (expense) | 757 | | | 1,232 | | | 1,879 | | | 3,985 | | | (475) | | | (38.6) | % | | (2,106) | | | (52.8) | % |
| Total assets | 18,870,996 | | | 20,454,646 | | | 18,870,996 | | | 20,454,646 | | | (1,583,650) | | | (7.7) | % | | (1,583,650) | | | (7.7) | % |
CRE & VF reported income before income taxes of $70.0 million and $205.3expenses on Commercial activities increased $5.4 million for the three-month and nine-month periodsquarter ended September 30, 2021, respectively, compared to income before income taxes of $50.7 million and $110.1 million for the corresponding periods in 2020. Factors contributing to these changes were:
•Credit loss expense decreased $17.1 million and $83.0 million for the nine-month period ended September 30, 2021, respectively,March 31, 2022 compared to the corresponding periodsperiod of 2020. These decreases were due to an improved credit outlook2021, for which C&I increased by $4.2 million and lower realized loan losses than were projected due to the COVID-19 pandemic.CRE increased by $1.2 million.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
CIB
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| (dollars in thousands) | (dollars in thousands) | 2021 | | 2020 | | 2021 | | 2020 | | Dollar increase/(decrease) | | Percentage | | Dollar increase/(decrease) | | Percentage | (dollars in thousands) | | 2022 | | 2021 | | | Dollar increase/(decrease) | | Percentage |
| Net interest income | Net interest income | $ | 25,514 | | | $ | 34,125 | | | $ | 83,170 | | | $ | 101,642 | | | $ | (8,611) | | | (25.2) | % | | $ | (18,472) | | | (18.2) | % | Net interest income | | $ | 25,888 | | | $ | 27,411 | | | | $ | (1,523) | | | (5.6) | % |
| Total non-interest income | Total non-interest income | 48,352 | | | 71,931 | | | 179,627 | | | 212,440 | | | (23,579) | | | (32.8) | % | | (32,813) | | | (15.4) | % | Total non-interest income | | 67,841 | | | 77,549 | | | | (9,708) | | | (12.5) | % |
| Credit loss expense / (benefit) | Credit loss expense / (benefit) | (9,775) | | | (15,384) | | | (32,102) | | | 18,071 | | | 5,609 | | | 36.5 | % | | (50,173) | | | (277.6) | % | Credit loss expense / (benefit) | | 6,393 | | | (8,694) | | | | 15,087 | | | 173.5 | % |
| Total expenses | Total expenses | 68,592 | | | 63,762 | | | 199,551 | | | 189,961 | | | 4,830 | | | 7.6 | % | | 9,590 | | | 5.0 | % | Total expenses | | 75,553 | | | 67,330 | | | | 8,223 | | | 12.2 | % |
| Income / (Loss) before income taxes | Income / (Loss) before income taxes | 15,049 | | | 57,678 | | | 95,348 | | | 106,050 | | | (42,629) | | | (73.9) | % | | (10,702) | | | (10.1) | % | Income / (Loss) before income taxes | | 11,783 | | | 46,324 | | | | (34,541) | | | (74.6) | % |
| Intersegment expense | (3,415) | | | (4,351) | | | (10,291) | | | (13,009) | | | 936 | | | 21.5 | % | | 2,718 | | | 20.9 | % | |
| | Total assets | Total assets | 12,560,907 | | | 11,532,762 | | | 12,560,907 | | | 11,532,762 | | | 1,028,145 | | | 8.9 | % | | 1,028,145 | | | 8.9 | % | Total assets | | 15,369,237 | | | 10,786,520 | | | | 4,582,717 | | | 42.5 | % |
CIB reported income before income taxes of $15.0 million and $95.3$11.8 million for the three-month and nine-month periodsquarter ended September 30, 2021, respectively,March 31, 2022, compared to income before income taxes of $57.7 million and $106.1$46.3 million for 2020. the corresponding period in 2021. Factors contributing to these changesthis change were:
•Credit loss expense decreased $50.2increased $15.1 million for the nine-month periodquarter ended September 30, 2021March 31, 2022 compared to the corresponding period of 2020.2021. This decreasechange was due to an improved credit outlook and lower realized loan losses than were projected due to the COVID-19 pandemic.
•Total non-interest income decreased $32.8 million for the nine-month period ended September 30, 2021 compared to the corresponding perioda decrease in 2020, mainly as a result of valuation adjustments on CIB's equity method portfolio.recoveries.
Other
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| (dollars in thousands) | 2021 | | 2020 | | 2021 | | 2020 | | Dollar increase/(decrease) | | Percentage | | Dollar increase/(decrease) | | Percentage |
| Net interest income | $ | (48,074) | | | $ | (9,090) | | | $ | (146,536) | | | $ | 16,974 | | | $ | (38,984) | | | (428.9) | % | | $ | (163,510) | | | (963.3) | % |
| Total non-interest income | 105,497 | | | 186,863 | | | 319,613 | | | 253,029 | | | (81,366) | | | (43.5) | % | | 66,584 | | | 26.3 | % |
| Credit loss expense / (benefit) | (281) | | | (4,181) | | | (3,896) | | | (135,366) | | | 3,900 | | | 93.3 | % | | 131,470 | | | 97.1 | % |
| Total expenses | 129,693 | | | 127,743 | | | 366,573 | | | 408,065 | | | 1,950 | | | 1.5 | % | | (41,492) | | | (10.2) | % |
| Income / (Loss) before income taxes | (71,989) | | | 54,211 | | | (189,600) | | | (2,696) | | | (126,200) | | | (232.8) | % | | (186,904) | | | (6,932.6) | % |
| Intersegment (expense)/revenue | (1) | | | (1) | | | — | | | — | | | — | | | — | % | | — | | | 0% |
| Total assets | 44,587,236 | | | 35,120,309 | | | 44,587,236 | | | 35,120,309 | | | 9,466,927 | | | 27.0 | % | | 9,466,927 | | | 27.0 | % |
The Other category | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Year-to-Date Ended March 31 | | | | YTD Change |
| (dollars in thousands) | | | | | 2022 | | 2021 | | | | | | Dollar increase/(decrease) | | Percentage |
| Net interest income | | | | | $ | 19,143 | | | $ | 23,680 | | | | | | | $ | (4,537) | | | (19.2) | % |
| Total non-interest income | | | | | 77,650 | | | 63,246 | | | | | | | 14,404 | | | 22.8 | % |
| Credit loss expense / (benefit) | | | | | — | | | (73) | | | | | | | 73 | | | 100.0 | % |
| Total expenses | | | | | 61,658 | | | 50,562 | | | | | | | 11,096 | | | 21.9 | % |
| Income / (Loss) before income taxes | | | | | 35,135 | | | 36,437 | | | | | | | (1,302) | | | (3.6) | % |
| | | | | | | | | | | | | | | |
| Total assets | | | | | 8,675,004 | | | 6,824,500 | | | | | | | 1,850,504 | | | 27.1 | % |
Wealth Management reported a lossincome before income taxes of $72.0 million and $189.6$35.1 million for the three-month and nine-month periodsquarter ended September 30, 2021, respectively,March 31, 2022, compared to income before income taxes of $54.2 million and a loss before income taxes of $2.7$36.4 million for the comparable periodscorresponding period in 2020.2021. Factors contributing to these changesthis change were:
•Net interest income decreased $39.0 million and $163.5 million for the three-month and nine-month periods ended September 30, 2021, respectively, compared to the corresponding periods of 2020, due to lower rates and the sale of SBC in 2020.
•Total non-interest income increased $66.6$14.4 million for the nine-month periodquarter ended September 30, 2021March 31, 2022 compared to the corresponding periods of 2020,period in 2021, is due to the transferan increase in structured products, trading volume increases, new income from real estate commissions, and a revaluation of SBC loans to HFS at fair value in the second quarter of 2020.derivative gains.
•Release of credit loss expense was lowerTotal expenses increased $11.1 million for the nine-month periodquarter ended September 30, 2021,March 31, 2022 compared to the corresponding period of 2020,2021. This increase was due to increased headcount partially resulting from the releaserecent acquisition of provision on loans movedCredit Agricole, and increases in expenses related to HFS during the second quarter of 2020.referral fee expense and temporary services expenses.
•
Total expenses decreased $41.5 million for the nine-month period ended September 30, 2021, compared to the corresponding period of 2020, due to
lower operational risk expenses and the sale of SBC.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
SCOther
| | | | Three-Month Period Ended September 30, | | Nine-Month Period Ended September 30, | | QTD Change | | YTD Change | | | Year-to-Date Ended March 31 | | | YTD Change |
| (dollars in thousands) | (dollars in thousands) | 2021 | | 2020 | | 2021 | | 2020 | | Dollar increase/(decrease) | | Percentage | | Dollar increase/(decrease) | | Percentage | (dollars in thousands) | | 2022 | | 2021 | | | Dollar increase/(decrease) | | Percentage |
| Net interest income | Net interest income | $ | 1,019,999 | | | $ | 1,061,986 | | | $ | 3,149,027 | | | $ | 3,058,137 | | | $ | (41,987) | | | (4.0) | % | | $ | 90,890 | | | 3.0 | % | Net interest income | | $ | (64,342) | | | $ | (65,402) | | | | $ | 1,060 | | | 1.6 | % |
| Total non-interest income | Total non-interest income | 821,398 | | | 830,126 | | | 2,666,681 | | | 2,271,200 | | | (8,728) | | | (1.1) | % | | 395,481 | | | 17.4 | % | Total non-interest income | | 19,816 | | | 36,617 | | | | (16,801) | | | (45.9) | % |
| Credit loss expense / (benefit) | Credit loss expense / (benefit) | 42,058 | | | 340,548 | | | (85,484) | | | 2,110,330 | | | (298,490) | | | (87.6) | % | | (2,195,814) | | | (104.1) | % | Credit loss expense / (benefit) | | (1,451) | | | (2,665) | | | | 1,214 | | | 45.6 | % |
| Total expenses | Total expenses | 827,408 | | | 888,973 | | | 2,562,527 | | | 2,692,396 | | | (61,565) | | | (6.9) | % | | (129,869) | | | (4.8) | % | Total expenses | | 46,762 | | | 46,326 | | | | 436 | | | 0.9 | % |
| Income / (Loss) before income taxes | Income / (Loss) before income taxes | 971,931 | | | 662,591 | | | 3,338,665 | | | 526,611 | | | 309,340 | | | 46.7 | % | | 2,812,054 | | | 534.0 | % | Income / (Loss) before income taxes | | (89,837) | | | (72,446) | | | | (17,391) | | | (24.0) | % |
| | Total assets | Total assets | 49,074,450 | | | 48,448,921 | | | 49,074,450 | | | 48,448,921 | | | 625,529 | | | 1.3 | % | | 625,529 | | | 1.3 | % | Total assets | | 31,413,607 | | | 29,840,471 | | | | 1,573,136 | | | 5.3 | % |
SCThe Other category reported incomea loss before income taxes of $971.9$89.8 million and $3.3 billion for the three-month and nine-month periodsquarter ended September 30, 2021, respectively,March 31, 2022, compared to incomea loss before income taxes of $662.6 million and $526.6$72.4 million for the comparable periods in 2020. Contributing to these changes were:
•Non-interest income increased $395.5 million for the nine-month period ended September 30, 2021 compared to the corresponding period of 2020, primarily driven by an increase in residual value of liquidated leased vehicles and SC's sale of the personal lending portfolio.
•Credit loss expense decreased $2.2 billion for the nine-month period ended September 30, 2021 compared to the corresponding period of 2020, primarily driven by the additional reserve to address credit risk associated with the COVID-19 outbreak during the first and second quarters of 2020, and an increase in recoveries, and a decrease in charge-offs due to the increase in used car prices in 2021.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
FINANCIAL CONDITION
LOAN PORTFOLIO
The Company's LHFI portfolio consisted of the following at the dates indicated:
| | | September 30, 2021 | | December 31, 2020 | | Dollar Increase / (Decrease) | Percent Increase (Decrease) | | | March 31, 2022 | | December 31, 2021 | | Dollar Increase / (Decrease) | Percent Increase (Decrease) | |
| | (dollars in thousands) | (dollars in thousands) | | Amount | | Percent | | Amount | | Percent | | | | (dollars in thousands) | | Amount | | Percent | | Amount | | Percent | | | |
| Commercial LHFI: | Commercial LHFI: | | | | | | | | | | | | Commercial LHFI: | | | | | | | | | | | |
| CRE | CRE | | $ | 7,453,398 | | | 8.1 | % | | $ | 7,327,853 | | | 8.0 | % | | $ | 125,545 | | 1.7 | % | | CRE | | $ | 7,350,812 | | | 8.0 | % | | $ | 7,227,003 | | | 7.8 | % | | $ | 123,809 | | 1.7 | % | |
| C&I | C&I | | 14,950,498 | | | 16.3 | % | | 16,537,899 | | | 17.9 | % | | (1,587,401) | | (9.6) | % | | C&I | | 13,868,625 | | | 15.1 | % | | 14,710,864 | | | 16.0 | % | | (842,239) | | (5.7) | % | |
| Multifamily | Multifamily | | 7,325,464 | | | 8.0 | % | | 8,367,147 | | | 9.1 | % | | (1,041,683) | | (12.4) | % | | Multifamily | | 7,709,447 | | | 8.4 | % | | 7,547,382 | | | 8.2 | % | | 162,065 | | 2.1 | % | |
| Other commercial | Other commercial | | 8,082,374 | | | 8.8 | % | | 7,455,504 | | | 8.1 | % | | 626,870 | | 8.4 | % | | Other commercial | | 8,239,438 | | | 9.0 | % | | 8,170,031 | | | 8.9 | % | | 69,407 | | 0.8 | % | |
Total commercial loans (1) | Total commercial loans (1) | | 37,811,734 | | | 41.2 | % | | 39,688,403 | | | 43.1 | % | | (1,876,669) | | (4.7) | % | | Total commercial loans (1) | | 37,168,322 | | | 40.5 | % | | 37,655,280 | | | 40.9 | % | | (486,958) | | (1.3) | % | |
| | Consumer loans secured by real estate: | Consumer loans secured by real estate: | | | Consumer loans secured by real estate: | | |
| Residential mortgages | Residential mortgages | | 5,741,848 | | | 6.3 | % | | 6,590,168 | | | 7.2 | % | | (848,320) | | (12.9) | % | | Residential mortgages | | 5,472,175 | | | 6.0 | % | | 5,598,560 | | | 6.1 | % | | (126,385) | | (2.3) | % | |
| Home equity loans and lines of credit | Home equity loans and lines of credit | | 3,614,472 | | | 3.9 | % | | 4,108,505 | | | 4.5 | % | | (494,033) | | (12.0) | % | | Home equity loans and lines of credit | | 3,359,342 | | | 3.7 | % | | 3,487,234 | | | 3.8 | % | | (127,892) | | (3.7) | % | |
| Total consumer loans secured by real estate | Total consumer loans secured by real estate | | 9,356,320 | | | 10.2 | % | | 10,698,673 | | | 11.7 | % | | (1,342,353) | | (12.5) | % | | Total consumer loans secured by real estate | | 8,831,517 | | | 9.7 | % | | 9,085,794 | | | 9.9 | % | | (254,277) | | (2.8) | % | |
| | Consumer loans not secured by real estate: | Consumer loans not secured by real estate: | | | Consumer loans not secured by real estate: | | |
| RICs and auto loans | RICs and auto loans | | 42,952,453 | | | 46.8 | % | | 40,698,642 | | | 44.1 | % | | 2,253,811 | | 5.5 | % | | RICs and auto loans | | 43,086,645 | | | 46.9 | % | | 43,183,098 | | | 46.9 | % | | (96,453) | | (0.2) | % | |
| Personal unsecured loans | Personal unsecured loans | | 1,542,315 | | | 1.7 | % | | 824,430 | | | 0.9 | % | | 717,885 | | 87.1 | % | | Personal unsecured loans | | 2,562,022 | | | 2.8 | % | | 2,009,654 | | | 2.2 | % | | 552,368 | | 27.5 | % | |
| Other consumer | Other consumer | | 158,883 | | | 0.1 | % | | 223,034 | | | 0.2 | % | | (64,151) | | (28.8) | % | | Other consumer | | 127,061 | | | 0.1 | % | | 141,986 | | | 0.1 | % | | (14,925) | | (10.5) | % | |
| | Total consumer loans | Total consumer loans | | 54,009,971 | | | 58.8 | % | | 52,444,779 | | | 56.9 | % | | 1,565,192 | | 3.0 | % | | Total consumer loans | | 54,607,245 | | | 59.5 | % | | 54,420,532 | | | 59.1 | % | | 186,713 | | 0.3 | % | |
| Total LHFI | Total LHFI | | $ | 91,821,705 | | | 100.0 | % | | $ | 92,133,182 | | | 100.0 | % | | $ | (311,477) | | (0.3) | % | | Total LHFI | | $ | 91,775,567 | | | 100.0 | % | | $ | 92,075,812 | | | 100.0 | % | | $ | (300,245) | | (0.3) | % | |
| | Total LHFI with: | Total LHFI with: | | | Total LHFI with: | | |
| Fixed | Fixed | | $ | 64,095,444 | | | 69.8 | % | | $ | 64,036,154 | | | 69.5 | % | | $ | 59,290 | | 0.1 | % | | Fixed | | $ | 64,993,477 | | | 70.8 | % | | $ | 64,774,941 | | | 70.3 | % | | $ | 218,536 | | 0.3 | % | |
| Variable | Variable | | 27,726,261 | | | 30.2 | % | | 28,097,028 | | | 30.5 | % | | (370,767) | | (1.3) | % | | Variable | | 26,782,090 | | | 29.2 | % | | 27,300,871 | | | 29.7 | % | | (518,781) | | (1.9) | % | |
| Total LHFI | Total LHFI | | $ | 91,821,705 | | | 100.0 | % | | $ | 92,133,182 | | | 100.0 | % | | $ | (311,477) | | (0.3) | % | | Total LHFI | | $ | 91,775,567 | | | 100.0 | % | | $ | 92,075,812 | | | 100.0 | % | | $ | (300,245) | | (0.3) | % | |
(1) As of September 30, 2021,March 31, 2022, the Company had $249.9had $322.8 million of commercial loans that were denominated in a currency other than the U.S. dollar.
Commercial
Commercial loans decreased approximately $1.9 billion,$487.0 million, or 4.7%1.3%, from December 31, 20202021 to September 30, 2021.March 31, 2022. This decrease was comprised of increasesa decrease in C&I loans of $842.2 million, offset by an increase in Multifamily loans of $162.1 million, an increase in CRE of $123.8 million, and an increase in Other commercial of $626.9$69.4 million which includes BSI's acquisition of Crédit Agricole and an increase in CREAgricole's global wealth management client assets.
Consumer Loans Secured By Real Estate
Consumer loans secured by real estate decreased $254.3 million, or 2.8%, from December 31, 2021 to March 31, 2022. This decrease was comprised of $125.5 million. These increases were offset by a decrease in C&I loansthe residential mortgage portfolio of $1.6 billion due to the forgiveness of Paycheck Protection Program loans$126.4 million, and a decrease in multifamilythe home equity loans and lines of $1.0 billion.credit portfolio of $127.9 million.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| | At September 30, 2021, Maturing |
| (in thousands) | | In One Year
Or Less | | One to Five
Years | | After Five
Years | | Total (1) |
| CRE loans | | $ | 1,977,144 | | | $ | 4,871,045 | | | $ | 618,853 | | | $ | 7,467,042 | |
| C&I and other commercial | | 9,941,837 | | | 11,772,072 | | | 1,419,039 | | | 23,132,948 | |
| Multifamily loans | | 906,428 | | | 4,198,186 | | | 2,244,058 | | | 7,348,672 | |
| Total | | $ | 12,825,409 | | | $ | 20,841,303 | | | $ | 4,281,950 | | | $ | 37,948,662 | |
| Loans with: | | | | | | | | |
| Fixed rates | | $ | 3,910,141 | | | $ | 6,637,783 | | | $ | 2,404,046 | | | $ | 12,951,970 | |
| Variable rates | | 8,915,268 | | | 14,203,520 | | | 1,877,904 | | | 24,996,692 | |
| Total | | $ | 12,825,409 | | | $ | 20,841,303 | | | $ | 4,281,950 | | | $ | 37,948,662 | |
(1) Includes LHFS.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Consumer Loans Secured By Real Estate
Consumer loans secured by real estate decreased $1.3 billion, or 12.5%, from December 31, 2020 to September 30, 2021. This decrease was comprised of a decrease in the residential mortgage portfolio of $848.3 million, and a decrease in the home equity loans and lines of credit portfolio of $494.0 million.
Consumer Loans Not Secured By Real Estate
RICs and auto loans
RICs and auto loans increased $2.3 billion,decreased $96.5 million, or 5.5%0.2%, from December 31, 20202021 to September 30, 2021.March 31, 2022. The increasedecrease in the RIC and auto loan portfolio was primarily due to increasesdecreases in originations, net of securitizations, due to the Company's initiatives to improve our pricing, as well as, our dealer and customer experience, which have increased our competitive position in the market.securitizations. RICs are collateralized by vehicle titles, and the lender has the right to repossess the vehicle in the event the consumer defaults on the payment terms of the contract. Most of the Company's RICs HFI are pledged against warehouse lines or securitization bonds. Refer to further discussion of these in Note 9 to the Condensed Consolidated Financial Statements.
As of September 30, 2021, 62.1%March 31, 2022, 61.4% of the Company's RIC and auto loan portfolio balance was comprised of nonprime loans (defined by the Company as customers with a FICO score of below 640) with customers who did not qualify for conventional consumer finance products as a result of, among other things, a lack of or adverse credit history, low income levels and/or the inability to provide adequate down payments. This also includes 7.6%7.2% of loans for which no FICO score was available. While underwriting guidelines are designed to establish that the customer would be a reasonable credit risk, nonprime loans will nonetheless experience higher default rates than a portfolio of obligations of prime customers. Additionally, higher unemployment rates, higher gasoline prices, unstable real estate values, re-sets of adjustable rate mortgages to higher interest rates, the general availability of consumer credit, and other factors that impact consumer confidence or disposable income could lead to an increase in delinquencies, defaults, and repossessions, as well as decreased consumer demand for used automobiles and other consumer products, weaken collateral values and increase losses in the event of default. Because SC's historical focus for such credit has been predominantly on nonprime consumers, the actual rates of delinquencies, defaults, repossessions, and losses on these loans could be more dramatically affected by a general economic downturn.
The Company's automated originations process for these credits reflects a disciplined approach to credit risk management to mitigate the risks of nonprime customers. The Company's robust historical data on both organically originated and acquired loans provides it with the ability to perform advanced loss forecasting. Each applicant is automatically assigned a proprietary custom score using information such as FICO scores, DTI ratios, LTV ratios, and over 30 other predictive factors, placing the applicant in one of 100 pricing tiers. The pricing in each tier is continuously monitored and adjusted to reflect market and risk trends. In addition to the Company's automated process, it maintains a team of underwriters for manual review, consideration of exceptions, and review of deal structures with dealers.
At September 30, 2021, a typical RIC was originated with an average annual percentage rate of 15.0% and was purchased from the dealer at a premium of 2.1%. All of the Company's RICs and auto loans are fixed-rate loans.
Personal unsecured and other consumer loans
During the quarter ended March 31, 2022, SBNA approved and completed purchases of performing personal unsecured loans from third parties with a UPB of approximately $268.2 million. Servicing was retained by the sellers with no future minimum amounts required to be purchased.
Personal unsecured and other consumer loans HFI increased from December 31, 20202021 to September 30, 2021March 31, 2022 by $653.7$537.4 million.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Loans by Maturity and Interest Rate Sensitivity
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | At March 31, 2022, Maturing |
| (in thousands) | | In One Year
Or Less | | One to Five
Years | | Five to 15 Years | | After 15
Years | | Total (1) |
| Fixed Rates: | | | | | | | | | | |
| CRE loans | | $ | 113,928 | | | $ | 295,287 | | | $ | 139,303 | | | $ | 18,833 | | | $ | 567,351 | |
| C&I | | 736,039 | | | 972,553 | | | 548,433 | | | 305 | | | 2,257,330 | |
| Multifamily loans | | 520,166 | | | 2,495,407 | | | 2,464,381 | | | 23,157 | | | 5,503,111 | |
| Other commercial | | 1,870,122 | | | 3,465,763 | | | 1,011,909 | | | — | | | 6,347,794 | |
| Total commercial | | $ | 3,240,255 | | | $ | 7,229,010 | | | $ | 4,164,026 | | | $ | 42,295 | | | $ | 14,675,586 | |
| Residential mortgages | | 802 | | | 25,639 | | | 732,673 | | | 3,982,400 | | | 4,741,514 | |
| Home equity loans and lines of credit | | 16,561 | | | 12,569 | | | 48,650 | | | 33,630 | | | 111,410 | |
| RICs and auto loans | | 546,852 | | | 22,038,393 | | | 20,501,118 | | | 281 | | | 43,086,644 | |
| Personal unsecured loans | | 22,532 | | | 2,221,011 | | | 237,343 | | | 1 | | | 2,480,887 | |
| Other consumer | | 676 | | | 8,887 | | | 12,732 | | | 6,714 | | | 29,009 | |
| Total Fixed Rates | | $ | 3,827,678 | | | $ | 31,535,509 | | | $ | 25,696,542 | | | $ | 4,065,321 | | | $ | 65,125,050 | |
| Variable Rates: | | | | | | | | | | |
| CRE loans | | $ | 1,211,059 | | | $ | 4,586,253 | | | $ | 838,954 | | | $ | 147,196 | | | $ | 6,783,462 | |
| C&I | | 3,043,343 | | | 8,276,785 | | | 500,972 | | | 37,239 | | | 11,858,339 | |
| Multifamily loans | | 373,743 | | | 966,649 | | | 862,472 | | | 3,472 | | | 2,206,336 | |
| Other commercial | | 1,793,954 | | | 97,338 | | | — | | | 352 | | | 1,891,644 | |
| Total commercial | | $ | 6,422,099 | | | $ | 13,927,025 | | | $ | 2,202,398 | | | $ | 188,259 | | | $ | 22,739,781 | |
| Residential Mortgages | | 543 | | | 6,596 | | | 158,690 | | | 645,952 | | | 811,781 | |
| Home equity loans and lines of credit | | 5,754 | | | 3,282 | | | 388,602 | | | 2,850,295 | | | 3,247,933 | |
| RICs and auto loans | | — | | | — | | | — | | | — | | | — | |
| Personal unsecured loans | | 174 | | | 14,405 | | | 66,166 | | | 391 | | | 81,136 | |
| Other consumer | | 1,509 | | | 51,700 | | | 44,843 | | | — | | | 98,052 | |
| Total Variable Rates | | $ | 6,430,079 | | | $ | 14,003,008 | | | $ | 2,860,699 | | | $ | 3,684,897 | | | $ | 26,978,683 | |
| Total | | $ | 10,257,757 | | | $ | 45,538,517 | | | $ | 28,557,241 | | | $ | 7,750,218 | | | $ | 92,103,733 | |
(1) Includes LHFS.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
NON-PERFORMING ASSETS
The following table presents the composition of non-performing assets at the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Period Ended | | Change | | | | | | |
| (dollars in thousands) | | September 30, 2021 | | December 31, 2020 | | Dollar | | Percentage | | | | | | |
| Non-accrual loans: | | | | | | | | | | | | | | |
| Commercial: | | | | | | | | | | | | | | |
| CRE | | $ | 110,376 | | | $ | 106,751 | | | $ | 3,625 | | | 3.4 | % | | | | | | |
| C&I | | 85,597 | | | 107,053 | | | (21,456) | | | (20.0) | % | | | | | | |
| Multifamily | | 116,605 | | | 72,392 | | | 44,213 | | | 61.1 | % | | | | | | |
| Other commercial | | 10,598 | | | 20,019 | | | (9,421) | | | (47.1) | % | | | | | | |
| Total commercial loans | | 323,176 | | | 306,215 | | | 16,961 | | | 5.5 | % | | | | | | |
| | | | | | | | | | | | | | |
| Consumer loans secured by real estate: | | | | | | | | | | | | | | |
| Residential mortgages | | 98,952 | | | 160,172 | | | (61,220) | | | (38.2) | % | | | | | | |
| Home equity loans and lines of credit | | 92,998 | | | 91,606 | | | 1,392 | | | 1.5 | % | | | | | | |
| Consumer loans not secured by real estate: | | | | | | | | | | | | | | |
| RICs and auto loans | | 1,242,960 | | | 1,174,317 | | | 68,643 | | | 5.8 | % | | | | | | |
| | | | | | | | | | | | | | |
| Other consumer | | 4,848 | | | 6,325 | | | (1,477) | | | (23.4) | % | | | | | | |
| Total consumer loans | | 1,439,758 | | | 1,432,420 | | | 7,338 | | | 0.5 | % | | | | | | |
| Total non-accrual loans | | 1,762,934 | | | 1,738,635 | | | 24,299 | | | 1.4 | % | | | | | | |
| | | | | | | | | | | | | | |
| OREO | | 3,960 | | | 29,799 | | | (25,839) | | | (86.7) | % | | | | | | |
| Repossessed vehicles | | 232,614 | | | 204,653 | | | 27,961 | | | 13.7 | % | | | | | | |
| Other repossessed assets | | 944 | | | 3,247 | | | (2,303) | | | (70.9) | % | | | | | | |
| Total OREO and other repossessed assets | | 237,518 | | | 237,699 | | | (181) | | | (0.1) | % | | | | | | |
| Total non-performing assets | | $ | 2,000,452 | | | $ | 1,976,334 | | | $ | 24,118 | | | 1.2 | % | | | | | | |
| | | | | | | | | | | | | | |
| Past due 90 days or more as to interest or principal and accruing interest | | $ | 2,214 | | | $ | 52,863 | | | $ | (50,649) | | | (95.8)% | | | | | | |
Annualized net loan charge-offs to average loans (1) | | 0.6 | % | | 1.7 | % | | n/a | | n/a | | | | | | |
| Non-performing assets as a percentage of total assets | | 1.3 | % | | 1.3 | % | | n/a | | n/a | | | | | | |
| NPLs as a percentage of total loans | | 1.9 | % | | 1.8 | % | | n/a | | n/a | | | | | | |
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| ALLL as a percentage of total NPLs | | 380.9 | % | | 422.1 | % | | n/a | | n/a | | | | | | |
(1) Annualized net loan charge-offs are based on year-to-date charge-offs. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Period Ended | | Change | | | | | | |
| (dollars in thousands) | | March 31, 2022 | | December 31, 2021 | | Dollar | | Percentage | | | | | | |
| Non-accrual loans: | | | | | | | | | | | | | | |
| Commercial: | | | | | | | | | | | | | | |
| CRE | | $ | 29,891 | | | $ | 31,752 | | | $ | (1,861) | | | (5.9) | % | | | | | | |
| C&I | | 86,326 | | | 69,754 | | | 16,572 | | | 23.8 | % | | | | | | |
| Multifamily | | 100,022 | | | 103,299 | | | (3,277) | | | (3.2) | % | | | | | | |
| Other commercial | | 7,654 | | | 9,036 | | | (1,382) | | | (15.3) | % | | | | | | |
| Total commercial loans | | 223,893 | | | 213,841 | | | 10,052 | | | 4.7 | % | | | | | | |
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| Consumer loans secured by real estate: | | | | | | | | | | | | | | |
| Residential mortgages | | 112,990 | | | 123,548 | | | (10,558) | | | (8.5) | % | | | | | | |
| Home equity loans and lines of credit | | 84,339 | | | 88,310 | | | (3,971) | | | (4.5) | % | | | | | | |
| Consumer loans not secured by real estate: | | | | | | | | | | | | | | |
| RICs and auto loans | | 1,196,948 | | | 1,467,928 | | | (270,980) | | | (18.5) | % | | | | | | |
| Personal unsecured loans | | 3,740 | | | 2,892 | | | 848 | | | 29.3 | % | | | | | | |
| Other consumer | | 408 | | | 1,047 | | | (639) | | | (61.0) | % | | | | | | |
| Total consumer loans | | 1,398,425 | | | 1,683,725 | | | (285,300) | | | (16.9) | % | | | | | | |
| Total non-accrual loans | | 1,622,318 | | | 1,897,566 | | | (275,248) | | | (14.5) | % | | | | | | |
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| OREO | | 4,322 | | | 3,724 | | | 598 | | | 16.1 | % | | | | | | |
| Repossessed vehicles | | 249,656 | | | 247,757 | | | 1,899 | | | 0.8 | % | | | | | | |
| Other repossessed assets | | 538 | | | 294 | | | 244 | | | 83.0 | % | | | | | | |
| Total OREO and other repossessed assets | | 254,516 | | | 251,775 | | | 2,741 | | | 1.1 | % | | | | | | |
| Total non-performing assets | | $ | 1,876,834 | | | $ | 2,149,341 | | | $ | (272,507) | | | (12.7) | % | | | | | | |
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| Past due 90 days or more as to interest or principal and accruing interest | | $ | 2,605 | | | $ | 2,314 | | | $ | 291 | | | 12.6% | | | | | | |
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| Non-performing assets as a percentage of total assets | | 1.2 | % | | 1.3 | % | | n/a | | n/a | | | | | | |
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Potential problem loans are loans not currently classified as NPLs for which management has doubts about the borrower's ability to comply with the present repayment terms. These assets are principally loans delinquent for more than 30 days but less than 90 days.days. Potential problem commercial loans totaled approximately $268.4$123.9 million and $229.2$113.9 million at September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively.
Potential problem consumer loans amounted to $3.3$3.3 billion and $3.2$3.7 billion at September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively. ManagementManagement has included these loans in its evaluation of the Company's ACL and reserved for them during the respective periods.
Non-performing assets increased to $2.0 billion, or 1.3% of total assets, at September 30, 2021, compared to $2.0 billion, or 1.3% of total assets, at December 31, 2020, primarily due to government stimulus payments and tax refunds provided to customers.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
CREDIT RATIOS
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| | As of and for the year ended |
| (dollars in thousands) | | March 31, 2022 | | March 31, 2021 | | December 31, 2021 |
| ACL to total loan outstanding | | 7.05 | % | | 7.95 | % | | 7.11 | % |
| ACL | | $ | 6,496,660 | | | $ | 7,284,544 | | | $ | 6,565,504 | |
| Total loans outstanding | | 92,103,731 | | | 91,628,049 | | | 92,330,835 | |
| NPL to total loans outstanding | | 1.8 | % | | 1.6 | % | | 2.1 | % |
| NPL | | $ | 1,622,500 | | | $ | 1,427,892 | | | $ | 1,897,566 | |
| Total loans outstanding | | 92,103,731 | | | 91,628,049 | | | 92,330,835 | |
| ACL to NPL | | 400.4 | % | | 510.2 | % | | 346.0 | % |
| ACL | | $ | 6,496,660 | | | $ | 7,284,544 | | | $ | 6,565,504 | |
| NPL | | 1,622,500 | | | 1,427,892 | | | 1,897,566 | |
| NCO during the period to average loans outstanding: | | | | | | |
| Commercial | | — | % | | 0.04 | % | | 0.18 | % |
| Net charge-offs / (recoveries) during the period | | $ | (1,419) | | | $ | 14,003 | | | $ | 68,949 | |
| Average amount outstanding | | 37,305,818 | | | 39,564,763 | | | 38,771,427 | |
| Consumer | | 0.52 | % | | 0.49 | % | | 1.19 | % |
| Net charge-offs / (recoveries) during the period | | $ | 287,072 | | | $ | 262,468 | | | $ | 643,146 | |
| Average amount outstanding | | 54,691,411 | | | 53,525,714 | | | 54,066,174 | |
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Commercial
Commercial NPLs increased $17.0$10.1 million from December 31, 20202021 to September 30, 2021.March 31, 2022. Commercial NPLs accounted for less than 1.0%1% of commercial LHFI at September 30,March 31, 2022 and 2021, and December 31, 2020, respectively. The change in commercial NPLs was primarily comprised of a an increase of $44.2$16.6 million in the MultifamilyC&I portfolio, offset by a decrease of $21.5$3.3 million in the C&I portfolio.Multifamily portfolio, a decrease of $1.9 million in the CRE portfolio, and a decrease of $1 million in Other commercial.
Consumer Loans Not Secured by Real Estate
RICs and amortizing personal loans
RICs are classified as non-performing when they are more than 60 DPD (i.e., 61 or more DPD) with respect to principal or interest. Except for loans accounted for using the FVO, at the time a loan is placed on non-performing status, previously accrued and uncollected interest is reversed against interest income. When an account is 60 days or less past due, it is returned to performing status and the Company returns to accruing interest on the loan. NPLs in the RIC and auto loan portfolio decreased by $271.0 million from December 31, 2021 to March 31, 2022. Non-performing RICs and auto loans accounted for 2.8% and 3.4% of total RICs and auto loans at March 31, 2022 and December 31, 2021, respectively.
Personal unsecured loans
The accrual of interest on revolving personal loans continues until the loan is charged off.
RIC TDRs Credit cards are placed on non-accrual statuscharged off when the account becomes past due more than 60 days. For loans in non-accrual status, interest income is recognized on a cash basis. For loans on non-accrual status, the accrual of interest is resumed if athey are 180 days delinquent account subsequently becomesor within 60 days after the receipt of notification of the cardholder’s death or less past due.bankruptcy. NPLs in the RIC and auto loanpersonal unsecured portfolio increased by $68.6$0.8 million from December 31, 20202021 to September 30, 2021.March 31, 2022. Non-performing RICs and autopersonal unsecured loans accounted for 2.9%0.1% and 2.9%0.1% of total RICs and autopersonal unsecured loans at September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Consumer Loans Secured by Real Estate
The following table shows NPLs compared to total loans outstanding for the residential mortgage and home equity portfolios as of September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively:
| | | September 30, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
| (dollars in thousands) | (dollars in thousands) | | Residential mortgages | | Home equity loans and lines of credit | | Residential mortgages | | Home equity loans and lines of credit | (dollars in thousands) | | Residential mortgages | | Home equity loans and lines of credit | | Residential mortgages | | Home equity loans and lines of credit |
| NPLs - HFI | NPLs - HFI | | $ | 98,952 | | | $ | 92,998 | | | $ | 74,473 | | | $ | 91,606 | | NPLs - HFI | | $ | 112,990 | | | $ | 84,339 | | | $ | 123,548 | | | $ | 88,310 | |
| Total LHFI | Total LHFI | | 5,741,848 | | | 3,614,472 | | | 6,590,168 | | | 4,108,505 | | Total LHFI | | 5,472,175 | | | 3,359,342 | | | 5,598,560 | | | 3,487,234 | |
| NPLs as a percentage of total LHFI | NPLs as a percentage of total LHFI | | 1.7 | % | | 2.6 | % | | 1.1 | % | | 2.2 | % | NPLs as a percentage of total LHFI | | 2.1 | % | | 2.5 | % | | 2.2 | % | | 2.5 | % |
|
The NPL ratio is usually higher forNPLs as a percentage of LHFI in the Company's residentialResidential mortgage loan portfolio compared to the home equity loans and lines of credit portfoliodecreased year-over-year due to lower NPLs in 2022 on a number of factors, including the prolonged workout and foreclosure resolution processes for residentialdecreasing Residential mortgage loans, differences in risk profiles, and mortgage loans located outside the Northeast and Mid-Atlantic United States.portfolio. Foreclosures on consumer loans secured by real estate were $39.6$60.0 million or 20.6%30.4% of non-performing consumer loans secured by real estate at September 30, 2021,March 31, 2022, compared to $46.2$41.1 million or 27.8%19.4% of consumer loans secured by real estate at December 31, 2020.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Delinquencies
The Company generally considers an account delinquent when an obligor fails to pay substantially all (defined as 90%) of the scheduled payment by the due date.
Overall, total delinquencies decreased by $196.8$450.3 million, or 4.7%10.5%, from December 31, 20202021 to September 30, 2021, most significantly within the residential mortgage portfolio which decreased $172.4 million.March 31, 2022, primarily due to past due auto loans. Delinquent balances and nonaccrual balances overallon mortgages and other consumer loans were lower as of September 30, 2021,March 31, 2022, primarily due to the benefits of government stimulus payments and tax refunds provided to customerscustomers.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
TDRs
TDRs are loans that have been modified as the Company has agreed to make certain concessions to both meet the needs of customers and maximize its ultimate recovery on the loans. TDRs occur when a borrower is experiencing financial difficulties and the loan is modified with terms that would otherwise not be granted to the borrower. The types of concessions granted are generally interest rate reductions, limitations on accrued interest charged, term extensions, and deferments of principal.
TDRs are generally placed on nonaccrual status upon modification, unless the loan was performing immediately prior to modification. For most portfolios, TDRs may return to accrual status after a sustained period of repayment performance, as long as the Company believes the principal and interest of the restructured loan will be paid in full. RIC TDRs are placed on nonaccrual status when the Company believes repayment under the revised terms is not reasonably assured and, at the latest, when the account becomes more than 60 DPD. RIC TDRs are considered for return to accrual when the account becomes 60 days or less past due. To the extent the TDR is determined to be collateral-dependent and the source of repayment depends on the operation of the collateral, the loan may be returned to accrual status based on the foregoing parameters. To the extent the TDR is determined to be collateral-dependent and the source of repayment depends on disposal of the collateral, the loan may not be returned to accrual status.
The following table summarizes TDRs at the dates indicated:
| | | As of September 30, 2021 | | As of March 31, 2022 |
| (in thousands) | (in thousands) | | Commercial | % | | Consumer Loans Secured by Real Estate | % | | RICs and Auto Loans | % | | Other Consumer | % | | Total TDRs | (in thousands) | | Commercial | % | | Consumer Loans Secured by Real Estate | % | | RICs and Auto Loans | % | | Other Consumer | % | | Total TDRs |
| Performing | Performing | | $ | 105,926 | | 46.3 | % | | $ | 188,169 | | 68.9 | % | | $ | 3,695,258 | | 91.1 | % | | $ | 26,580 | | 96.8 | % | | $ | 4,015,933 | | Performing | | $ | 103,756 | | 55.1 | % | | $ | 179,338 | | 63.7 | % | | $ | 2,992,155 | | 88.9 | % | | $ | 22,112 | | 98.4 | % | | $ | 3,297,361 | |
| Non-performing | Non-performing | | 122,753 | | 53.7 | % | | 85,024 | | 31.1 | % | | 362,033 | | 8.9 | % | | 869 | | 3.2 | % | | 570,679 | | Non-performing | | 84,477 | | 44.9 | % | | 102,343 | | 36.3 | % | | 374,031 | | 11.1 | % | | 353 | | 1.6 | % | | 561,204 | |
| Total | Total | | $ | 228,679 | | 100.0 | % | | $ | 273,193 | | 100.0 | % | | $ | 4,057,291 | | 100.0 | % | | $ | 27,449 | | 100.0 | % | | $ | 4,586,612 | | Total | | $ | 188,233 | | 100.0 | % | | $ | 281,681 | | 100.0 | % | | $ | 3,366,186 | | 100.0 | % | | $ | 22,465 | | 100.0 | % | | $ | 3,858,565 | |
| | % of loan portfolio | % of loan portfolio | | 0.6 | % | n/a | | 2.9 | % | n/a | | 9.4 | % | n/a | | 1.6 | % | n/a | | 5.0 | % | % of loan portfolio | | 0.5 | % | n/a | | 3.2 | % | n/a | | 7.8 | % | n/a | | 0.8 | % | n/a | | 4.2 | % |
| (1) Excludes LHFS. | (1) Excludes LHFS. | | (1) Excludes LHFS. | |
| | | As of December 31, 2020 | | As of December 31, 2021 |
| (in thousands) | (in thousands) | | Commercial | % | | Consumer Loans Secured by Real Estate | % | | RICs and Auto Loans | % | | Other Consumer | % | | Total TDRs | (in thousands) | | Commercial | % | | Consumer Loans Secured by Real Estate | % | | RICs and Auto Loans | % | | Other Consumer | % | | Total TDRs |
| Performing | Performing | | $ | 73,950 | | 43.2 | % | | $ | 87,896 | | 66.8 | % | | $ | 3,655,681 | | 91.7 | % | | $ | 33,095 | | 98.0 | % | | $ | 3,850,622 | | Performing | | $ | 103,582 | | 51.2 | % | | $ | 171,991 | | 60.7 | % | | $ | 3,341,939 | | 89.4 | % | | $ | 24,081 | | 97.7 | % | | $ | 3,641,593 | |
| Non-performing | Non-performing | | 97,054 | | 56.8 | % | | 43,605 | | 33.2 | % | | 332,164 | | 8.3 | % | | 684 | | 2.0 | % | | 473,507 | | Non-performing | | 98,620 | | 48.8 | % | | 111,511 | | 39.3 | % | | 397,122 | | 10.6 | % | | 571 | | 2.3 | % | | 607,824 | |
| Total | Total | | $ | 171,004 | | 100.0 | % | | $ | 131,501 | | 100.0 | % | | $ | 3,987,845 | | 100.0 | % | | $ | 33,779 | | 100.0 | % | | $ | 4,324,129 | | Total | | $ | 202,202 | | 100.0 | % | | $ | 283,502 | | 100.0 | % | | $ | 3,739,061 | | 100.0 | % | | $ | 24,652 | | 100.0 | % | | $ | 4,249,417 | |
| | % of loan portfolio | % of loan portfolio | | 0.4 | % | n/a | | 1.2 | % | n/a | | 9.8 | % | n/a | | 3.2 | % | n/a | | 4.7 | % | % of loan portfolio | | 0.5 | % | n/a | | 3.1 | % | n/a | | 8.7 | % | n/a | | 1.1 | % | n/a | | 4.6 | % |
(1) Excludes LHFS.
The following table provides a summary of TDR activity:
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| | Year-To-Date Ended March 31, 2022 | | Year-To-Date Ended March 31, 2021 |
| (in thousands) | | RICs and Auto Loans | | All Other Loans(1)(2) | | RICs and Auto Loans | | All Other Loans(1) |
| TDRs, beginning of period | | $ | 3,731,960 | | | $ | 510,356 | | | $ | 3,987,845 | | | $ | 336,284 | |
New TDRs(1) | | 160,049 | | | 37,932 | | | 651,812 | | | 116,485 | |
| Charged-off TDRs | | (134,226) | | | (4,209) | | | 188,870 | | | (2,832) | |
| Sold TDRs | | — | | | — | | | 48,956 | | | — | |
| Payments on TDRs | | (391,597) | | | (51,700) | | | (428,529) | | | (94,914) | |
| TDRs, end of period | | $ | 3,366,186 | | | $ | 492,379 | | | $ | 4,448,954 | | | $ | 355,023 | |
(1) New TDRs includes drawdowns on lines of credit that have previously been classified as TDRs.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following table provides a summary of TDR activity:
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| | Nine-Month Period Ended September 30, 2021 | | Nine-Month Period Ended September 30, 2020 |
| (in thousands) | | RICs and Auto Loans | | All Other Loans(1)(2) | | RICs and Auto Loans | | All Other Loans(1) |
| TDRs, beginning of period | | $ | 3,987,845 | | | $ | 336,284 | | | $ | 3,847,819 | | | $ | 472,312 | |
New TDRs(1) | | 1,925,149 | | | 405,067 | | | 1,442,007 | | | 189,658 | |
| Charged-Off TDRs | | (599,083) | | | (10,605) | | | (574,501) | | | (5,803) | |
| Sold TDRs | | (1,192,995) | | | — | | | (27,397) | | | (163,210) | |
| Payments on TDRs | | (63,625) | | | (201,425) | | | (864,311) | | | (77,377) | |
| TDRs, end of period | | $ | 4,057,291 | | | $ | 529,321 | | | $ | 3,823,617 | | | $ | 415,580 | |
(1) New TDRs includes drawdowns on lines of credit that have previously been classified as TDRs.
In accordance with the Company’s policies and guidelines, the Company may offer extensions (deferrals) to consumers on its RICs, whereby the consumer is allowed to move a maximum of three payments per event to the end of the loan. The Company’s policies and guidelines limit the frequency of each new deferral to one deferral every six months, regardless of the length of any prior deferral. Further, the maximum number of lifetime months extended for all automobile RICs is eight, while some marine and RV contracts have a maximum of twelve months extended to reflect their longer term. Additionally, the Company generally limits the granting of deferrals on new accounts until a requisite number of months have passed since origination. During the deferral period, the Company continues to accrue and collect interest on the loan in accordance with the terms of the deferral agreement.
In March 2020, the Company began actively working with its borrowers impacted by COVID-19 and provided loan modification programs in accordance with the CARES Act and interagency guidelines to mitigate the adverse effects of COVID-19 on modifications. These programs temporarily revised the practices noted above during 2020 and increased the volume of modifications provided to our customers. Effective January 1, 2021 at SC and April 1, 2021 at SBNA, the Company has generally returned to pre-pandemic servicing practices, with the exception of an increased limit on the total months of extensions allowed. As of September 30, 2021, the overall modification volumes were consistent with volumes experienced before the COVID-19 pandemic and the number and dollar amount of active COVID-19 modifications was immaterial.
The Company evaluates the results of its deferral strategies based upon the amount of cash installments that are collected on accounts after they have been deferred compared to the extent to which the collateral underlying the deferred accounts has depreciated over the same period of time. Based on this evaluation, the Company believes that payment deferrals granted according to its policies and guidelines are an effective portfolio management technique and result in higher ultimate cash collections from the portfolio.
Changes in deferral levels do not have a direct impact on the ultimate amount of consumer finance receivables charged-off. However, the timing of a charge-off may be affected if the previously deferred account ultimately results in a charge-off. To the extent deferrals impact the ultimate timing of when an account is charged-off, historical charge-off ratios, loss confirmation periods, and cash flow forecasts used in the determination of the adequacy of the ALLL for loans classified as TDRs are also impacted. Increased use of deferrals may result in a lengthening of the loss confirmation period, which would increase expectations of credit losses inherent in the portfolio and therefore increase the ALLL and related credit loss expense. Changes in these ratios and periods are considered in determining the appropriate level of the ALLL and related credit loss expense. For loans that are classified as TDRs, the Company generally compares the present value of expected cash flows to the outstanding recorded investment of TDRs to determine the amount of allowance and related credit loss expense that should be recorded. For loans that are considered collateral-dependent, such as certain bankruptcy modifications, impairment is measured based on the fair value of the collateral, less its estimated costs to sell.
CREDIT RISK
The risk inherent in the Company’s loan and lease portfolios is driven by credit and collateral quality, and is affected by borrower-specific and economy-wide facts such as changes in unemployment, GDP, HPI, CRE price index, used vehicle index, growth rates, and other factors. In general, there is an inverse relationship between credit quality of transactions and projections of impairment losses so that transactions with better credit quality require a lower expected loss. The Company manages this risk through its underwriting, pricing and credit approval guidelines and servicing policies and practices, as well as geographic and other concentration limits.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The Company's ACL is principally based on various models subject to the Company's Model Risk Management Framework. New models are approved by the Company's Model Risk Management Committee. Models, inputs and documentation are further reviewed and validated at least annually, and the Company completes a detailed variance analysis of historical model projections against actual observed results on a quarterly basis. Required actions resulting from the Company's analysis, if necessary, are governed by its ACL Committee.
Management uses the qualitative framework to exercise judgment about matters that are inherently uncertain and that are not considered by the quantitative framework. These adjustments are documented and reviewed through the Company’s risk management processes. Furthermore, management reviews, updates, and validates its process and loss assumptions on a periodic basis. This process involves an analysis of data integrity, review of loss and credit trends, a retrospective evaluation of actual loss information to loss forecasts, and other analyses.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
ACL levels are collectively reviewed for adequacy and approved quarterly. Required actions resulting from the Company's analysis, if necessary, are governed by its ACL Committee. The ACL levels are approved by the Board-level committees quarterly.
Note 1 to the Consolidated Financial Statements in the Company's 2020 Annual Report on Form 10-K describes the methodology used to determine the ACL and reserve for unfunded lending commitments in the Consolidated Balance Sheets.
ACL
There were no significant changes to the ACL during the three and six monthsquarter ended September 30, 2021.March 31, 2022. Refer to the rollforward of the ACL in Note 3 to the Condensed ConsolidatedConsolidated Financial Statements.
Reserve for Unfunded Lending Commitments
The reserve for unfunded lending commitments decreased from $146.5$104.1 million at December 31, 20202021 to $135.5$91.4 million at September 30, 2021.March 31, 2022. The decrease of the reserve for unfunded lending commitments was due to the ordinary course of business.a $10.9 million decrease on commercial commitments and a $1.8 million decrease on consumer commitments.
INVESTMENT SECURITIES
The following table presents the Company's investment portfolio at the dates indicated:
| | (in thousands) | (in thousands) | | September 30, 2021 | | December 31, 2020 | (in thousands) | | March 31, 2022 | | December 31, 2021 |
| Investment securities AFS: | Investment securities AFS: | | | | | Investment securities AFS: | | | | |
| U.S. Treasury securities and government agencies | U.S. Treasury securities and government agencies | | $ | 6,330,072 | | | $ | 5,440,140 | | U.S. Treasury securities and government agencies | | $ | 4,831,224 | | | $ | 6,172,652 | |
| FNMA and FHLMC securities | FNMA and FHLMC securities | | 4,262,450 | | | 5,608,296 | | FNMA and FHLMC securities | | 2,794,846 | | | 4,327,556 | |
| Other securities (1) | Other securities (1) | | 784,330 | | | 265,053 | | Other securities (1) | | 817,686 | | | 813,729 | |
| Total investment securities AFS | Total investment securities AFS | | 11,376,852 | | | 11,313,489 | | Total investment securities AFS | | 8,443,756 | | | 11,313,937 | |
| | Investment securities HTM: | | Investment securities HTM: | | | | |
| U.S. government agencies | | U.S. government agencies | | 7,999,449 | | | 6,702,471 | |
| FNMA and FHLMC securities | | FNMA and FHLMC securities | | 1,388,643 | | | — | |
| Total investment securities HTM | Total investment securities HTM | | 6,594,046 | | | 5,504,685 | | Total investment securities HTM | | 9,388,092 | | | 6,702,471 | |
| | Other investments | Other investments | | 1,307,319 | | | 1,553,862 | | Other investments | | 1,311,863 | | | 1,096,138 | |
| Total investment portfolio | Total investment portfolio | | $ | 19,278,217 | | | $ | 18,372,036 | | Total investment portfolio | | $ | 19,143,711 | | | $ | 19,112,546 | |
(1) Other securities primarily include corporate debt securities and ABS.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The Company’s AFS investment strategy is to purchase liquid fixed-rate and floating-rate investments to manage the Company's liquidity position and interest rate risk adequately. The Company's AFS investment portfolioconsisted of the following at the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | March 31, 2022 | | December 31, 2021 | | Change | | Percent |
| (in thousands) | | Fair Value | | Fair Value | | | | |
| U.S. Treasury securities | | $ | 253,150 | | | $ | 73,618 | | | $ | 179,532 | | | 243.9 | % |
| Corporate debt securities | | 291,749 | | | 276,007 | | | 15,742 | | | 5.7 | % |
| ABS | | 525,937 | | | 537,722 | | | (11,785) | | | (2.2) | % |
| | | | | | | | |
| MBS: | | | | | | | | |
| GNMA - Residential | | 3,924,762 | | | 4,066,195 | | | (141,433) | | | (3.5) | % |
| GNMA - Commercial | | 653,312 | | | 2,032,839 | | | (1,379,527) | | | (67.9) | % |
| FHLMC and FNMA - Residential | | 2,691,186 | | | 4,219,641 | | | (1,528,455) | | | (36.2) | % |
| FHLMC and FNMA - Commercial | | 103,660 | | | 107,915 | | | (4,255) | | | (3.9) | % |
| Total investments in debt securities AFS | | $ | 8,443,756 | | | $ | 11,313,937 | | | $ | (2,870,181) | | | (25.4) | % |
The Company’s MBS are either guaranteed as to principal and interest by the issuer or have ratings of “AAA” by S&P and Moody’s at the date of issuance.
The average life of the AFS investment portfolio (excluding certain ABS) at March 31, 2022 was approximately 7.00 years. The average effective duration of the investment portfolio (excluding certain ABS) at March 31, 2022 was approximately 3.15 years. The actual maturities of MBS AFS will differ from contractual maturities because borrowers have the right to prepay obligations without prepayment penalties.
HTM securities are reported at cost and adjusted for amortization of premium and accretion of discount. The Company had 346 investment securities classified as HTM as of March 31, 2022.
| | | | | | | | | | | | | | | | | | | | |
| (in thousands) | | March 31, 2022 | | December 31, 2021 | | Change in unrealized gain/(loss) |
| Total unrealized loss | | $ | (356,661) | | | $ | (138,703) | | | $ | (217,958) | |
| Total unrealized gain | | 5,668 | | | 42,687 | | | (37,019) | |
| Total unrealized gain/(loss) position | | $ | (350,993) | | | $ | (96,016) | | | $ | (254,977) | |
The following table presents the securities of single issuers (other than obligations of the United States and its political subdivisions, agencies, and corporations) having an aggregate book value in excess of 10% of the Company's stockholder's equity that were held by the Company at March 31, 2022:
| | | | | | | | | | | | | | |
| | March 31, 2022 |
| (in thousands) | | Amortized Cost | | Fair Value |
| FNMA | | $ | 1,959,141 | | | $ | 1,887,258 | |
| FHLMC | | 2,392,283 | | | 2,296,231 | |
GNMA (1) | | 12,677,067 | | | 12,079,394 | |
| | | | |
| Total | | $ | 17,028,491 | | | $ | 16,262,883 | |
(1) Includes U.S. government agency MBS.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
GOODWILL
The Company records the excess of the cost of acquired entities over the fair value of identifiable tangible and intangible assets acquired less the fair value of liabilities assumed as goodwill. Consistent with ASC 350, the Company does not amortize goodwill, and reviews the goodwill recorded for impairment on an annual basis or more frequently when events or changes in circumstances indicate the potential for goodwill impairment. At March 31, 2022, goodwill totaled $2.6 billion and represented 1.7% of total assets and 11.8% of total stockholder's equity. The following table shows goodwill by reporting units at March 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | | Auto | | CBB | | C&I | | CRE | | CIB | | | | | | | | Total |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Goodwill at March 31, 2022 | | $ | 1,238,918 | | | $ | 159,000 | | | $ | 52,198 | | | $ | 1,014,915 | | | $ | 131,130 | | | | | | | | | $ | 2,596,161 | |
The Company evaluates goodwill for impairment at the reporting unit level. The Company completes its annual goodwill impairment test as of October 1 of each year. The Company conducted its most recent annual goodwill impairment tests as of October 1, 2021 using generally accepted valuation methods and noted no impairment..
The Company completes a quarterly review for impairment indicators over each of its reporting units, which includes consideration of economic and organizational factors that could impact the fair value of the Company's reporting units. As of the most recent review completed at the end of the first quarter of 2022, the Company did not identify any indicators which resulted in the Company's conclusion that an interim impairment test would be required to be completed.
Refer to Note 5 and Note 18 to these Condensed Consolidated Financial Statements for discussion of changes to the Company's organizational structure impacting goodwill during the first quarter of 2022.
DEFERRED TAXES AND OTHER TAX ACTIVITY
The Company had a net deferred tax liability balance of $567.3 million at March 31, 2022 (consisting of a deferred tax asset balance of $147.3 million and a deferred tax liability balance of $714.6 million with respect to jurisdictional netting), compared to a net deferred tax liability balance of $683.4 million at December 31, 2021 (consisting of a deferred tax asset balance of $87.9 million and a deferred tax liability balance of $771.3 million). Refer to Note 15 to the Condensed Consolidated Financial Statements for further discussion of the change in deferred tax balances.
BANK REGULATORY CAPITAL
The Company's capital priorities are to support client growth and business investment while maintaining appropriate capital in light of economic uncertainty and the Basel III framework.
The Company is subject to the regulations of certain federal, state, and foreign agencies and undergoes periodic examinations by those regulatory authorities. At March 31, 2022 and 2021, based on SBNA’s capital calculations, SBNA was considered well-capitalized under the applicable capital framework. In addition, the Company's capital levels as of March 31, 2022 and 2021, based on the Company’s capital calculations, exceeded the required capital ratios for BHCs.
For a discussion of Basel III, including the standardized approach and related future changes to the minimum U.S. regulatory capital ratios, see the section captioned "Regulatory Matters" in this MD&A.
Federal banking laws, regulations and policies also limit SBNA's ability to pay dividends and make other distributions to the Company. SBNA must obtain prior OCC approval to declare a dividend or make any other capital distribution if, after such dividend or distribution: (1) the bank's total distributions to SHUSA within that calendar year would exceed 100% of its net income during the year plus retained net income for the prior two years, (2) the bank would not meet capital levels imposed by the OCC in connection with any order, or (3) the bank is not adequately capitalized at the time. The OCC's prior approval would also be required if SBNA were notified by the OCC that it is a problem institution or in troubled condition.
Any dividend declared and paid or return of capital has the effect of reducing capital ratios. Refer to the section captioned "Liquidity and Capital Resources" for discussion of the Company's dividends.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following schedule summarizes the actual capital balances of SHUSA and SBNA at March 31, 2022:
| | | | | | | | | | | | | | | | | | | | |
| | SHUSA |
| | | | | | |
| | March 31, 2022 | | Well-capitalized Requirement(1) | | Minimum Requirement(1) |
| CET1 capital ratio | | 18.51 | % | | 6.50 | % | | 4.50 | % |
| Tier 1 capital ratio | | 18.82 | % | | 8.00 | % | | 6.00 | % |
| Total capital ratio | | 20.55 | % | | 10.00 | % | | 8.00 | % |
| Leverage ratio | | 13.56 | % | | 5.00 | % | | 4.00 | % |
| | | | | | | | | | | | | | | | | | | | |
| | SBNA |
| | | | | | |
| | March 31, 2022 | | Well-capitalized Requirement(1) | | Minimum Requirement(1) |
| CET1 capital ratio | | 16.27 | % | | 6.50 | % | | 4.50 | % |
| Tier 1 capital ratio | | 16.27 | % | | 8.00 | % | | 6.00 | % |
| Total capital ratio | | 17.47 | % | | 10.00 | % | | 8.00 | % |
| Leverage ratio | | 11.25 | % | | 5.00 | % | | 4.00 | % |
(1) Capital ratios starting in the first quarter of 2020 calculated under CECL transition provisions permitted by the CARES Act
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
Overall
The Company continues to maintain strong liquidity. Liquidity represents the ability of the Company to obtain cost-effective funding to meet the needs of customers as well as the Company's financial obligations. Factors that impact the liquidity position of the Company include loan origination volumes, loan prepayment rates, the maturity structure of existing loans, core deposit growth levels, CD maturity structure and retention, the Company's credit ratings, investment portfolio cash flows, the maturity structure of the Company's wholesale funding, and other factors. These risks are monitored and managed centrally. The Company's Asset/Liability Committee reviews and approves the Company's liquidity policy and guidelines on a regular basis. This process includes reviewing all available wholesale liquidity sources. The Company also forecasts future liquidity needs and develops strategies to ensure adequate liquidity is available at all times. SHUSA conducts monthly liquidity stress test analyses to manage its liquidity under a variety of scenarios, all of which demonstrate that the Company has ample liquidity to meet its short-term and long-term cash requirements.
Further changes to the credit ratings of SHUSA, Santander and its affiliates or the Kingdom of Spain could have a material adverse effect on SHUSA's business, including its liquidity and capital resources. The credit ratings of SHUSA have changed in the past and may change in the future, which could impact its cost of and access to sources of financing and liquidity. Any reductions in the long-term or short-term credit ratings of SHUSA would increase its borrowing costs and require it to replace funding lost due to the downgrade, which may include the loss of customer deposits, limit its access to capital and money markets and trigger additional collateral requirements in derivatives contracts and other secured funding arrangements. See further discussion on the impacts of credit ratings actions in the "Economic and Business Environment" section of this MD&A.
Sources of Liquidity
Company and Bank
The Company and SBNA have several sources of funding to meet liquidity requirements, including SBNA's core deposit base, liquid investment securities portfolio, ability to acquire large deposits, FHLB borrowings, wholesale deposit purchases, and federal funds purchased, as well as through securitizations in the ABS market and committed credit lines from third-party banks and Santander. In addition, the Company has other sources of funding to meet its liquidity requirements such as dividends and returns of investments from its subsidiaries, short-term investments held by non-bank affiliates, and access to the capital markets.
As of March 31, 2022, SBNA has borrowed $1.0 billion from SHUSA. This transaction eliminates in consolidation.
SC
SC requires a significant amount of liquidity to originate and acquire loans and leases and to service debt. SC funds its operations through its lending relationships with 12 third-party banks, Santander and SHUSA, and through securitizations in the ABS market and third party flow agreements. SC seeks to issue debt that appropriately matches the cash flows of the assets that it originates. SC has more than $7.0 billion of stockholders’ equity that supports its access to the securitization markets, credit facilities, and flow agreements. SC uses liquidity for debt service and repayment of borrowings, as well as for funding loan commitments.
During the quarter ended March 31, 2022, SC completed on-balance sheet funding transactions totaling approximately $3.3 billion, including:
•securitizations on its SDART platform for approximately $2.5 billion; and
•lease securitization on its SRT platform for approximately $0.9 billion.
SC did not complete any asset sales to third parties during the quarter ended March 31, 2022.
For information regarding SC's debt, see Note 9 to the Condensed Consolidated Financial Statements.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
IHC
SIS has entered into a revolving subordinated loan agreement with SHUSA to provide additional capital to the entity for its expanding capital markets program. Given additional liquidity needs from the program that now includes billing and delivery services for debt and equity issuances, the subordinated line with SIS was renegotiated in July 2021 to $750.0 million with an additional liquidity line of $750.0 million to support the new activity. In November 2021, the liquidity line was increased to $4.0 billion.
At March 31, 2022, there were no outstanding balances on the subordinated loan or the liquidity line.
BSI's primary sources of liquidity are from customer deposits and deposits from affiliated banks.
Institutional borrowings
The Company regularly projects its funding needs under various stress scenarios, and maintains contingency plans consistent with the Company’s access to diversified sources of contingent funding. The Company maintains a substantial level of total available liquidity in the form of on-balance sheet and off-balance sheet funding sources. These include cash, unencumbered liquid assets, and capacity to borrow at the FHLB and the FRB’s discount window.
Available Liquidity
As of March 31, 2022, SBNA had approximately $14.0 billion in committed liquidity from the FHLB and the FRB. Of this amount, $13.7 billion was unused and therefore provides additional borrowing capacity and liquidity for the Company. At March 31, 2022 and December 31, 2021, liquid assets (cash and cash equivalents and LHFS) and securities AFS exclusive of securities pledged as collateral) totaled approximately $23.7 billion and $29.4 billion, respectively. These amounts represented 31.5% and 36.4% of total deposits at March 31, 2022 and December 31, 2021, respectively. As of March 31, 2022, SBNA and BSI had $2.3 billion and $1.5 billion, respectively, in cash held at the FRB. Management believes that the Company has ample liquidity to fund its operations.
Cash, cash equivalents, and restricted cash
| | | | | | | | | | | | | | | | |
| | Year-to-Date Ended March 31 |
| (in thousands) | | 2022 | | 2021 | | |
| Net cash flows from operating activities | | $ | 2,149,646 | | | $ | 3,503,913 | | | |
| Net cash flows from investing activities | | (844,435) | | | (342,716) | | | |
| Net cash flows from financing activities | | (6,858,401) | | | (3,785,310) | | | |
Cash flows from operating activities
Net cash flow from operating activities decreased by $1.4 billion from the quarter ended March 31, 2021 to the quarter ended March 31, 2022, primarily due to a decrease in proceeds from sales of and collections on LHFS which included the sale of the Bluestem personal lending portfolio during the quarter ended March 31, 2021.
Cash flows from investing activities
Net cash flow from investing activities decreased by $501.7 million from the quarter ended March 31, 2021 to the quarter ended March 31, 2022, primarily due to a decrease in proceeds from sales of LHFI, offset by an increase in securities purchased under resale agreements which began in the second quarter of 2021.
Cash flows from financing activities
Net cash flow from financing activities decreased by $3.1 billion from the quarter ended March 31, 2021 to the quarter ended March 31, 2022, primarily due to stock repurchase activity related to the acquisition of SC shares and a decrease in deposits, offset by a net increase in borrowings activity.
See the SCF for further details on the Company's sources and uses of cash.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Credit Facilities
Third-Party Revolving Credit Facilities
Warehouse Lines
SC has one credit facility with seven banks providing an aggregate commitment of $3.5 billion for the exclusive use of providing short-term liquidity needs to support Chrysler Capital lease financing. The facility requires reduced advance rates in the event of delinquency, credit loss, or residual loss ratios, as well as other metrics exceeding specified thresholds.
SC has eight credit facilities with eleven banks providing an aggregate commitment of $7.0 billion for the exclusive use of providing short-term liquidity needs to support core and CCAP loan financing. As of March 31, 2022, there was no outstanding balance on these facilities in the aggregate. These facilities reduced advance rates in the event of delinquency, credit loss, as well as various other metrics exceeding specific thresholds.
Repurchase Agreements
SC also obtains financing through investment management or repurchase agreements under which it pledges retained subordinate bonds on its own securitizations as collateral for repurchase agreements with various borrowers and at renewable terms ranging up to 365 days. As of March 31, 2022, there was no outstanding balance under any repurchase agreements.
Related Party Credit Facilities
The Company provides SC with $0.5 billion of committed revolving credit and $2.5 billion of contingent liquidity that can be drawn on an unsecured basis. The Company also provides SC with $4.7 billion of term financing with maturities ranging from June 2022 to May 2025. These loans eliminate in the consolidation of SHUSA. Santander provides SC with $4.0 billion of unsecured financing with maturities ranging from June 2022 and September 2022.
Secured Structured Financings
SC's secured structured financings primarily consist of both public, SEC-registered securitizations, as well as private securitizations under Rule 144A of the Securities Act, and privately issues amortizing notes. SC has on-balance sheet securitizations outstanding in the market with a cumulative ABS balance of approximately $26.0 billion.
Deficiency and Debt Forward Flow Agreement
In addition to SC's credit facilities and secured structured financings, SC has a flow agreement in place with a third party for charged-off assets. Loans and leases sold under these flow agreements are not on SC's balance sheet, but provide a stable stream of servicing fee income and may also provide a gain or loss on sale.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Off-Balance Sheet Financing
Beginning in 2018, SC has agreed to provide SBNA with origination support services in connection with the processing, underwriting, and purchasing of retail loans, all of which are serviced by SC. The loans are on the balance sheet of SBNA.
SC also continues to periodically execute securitizations under Rule 144A of the Securities Act. After retaining the required credit risk retention via a 5% vertical interest, SC transfers all remaining notes and residual interests in these securitizations to third parties. SC subsequently records these transactions as true sales of the RICs securitized, and removes the sold assets from its Consolidated Balance Sheets if it qualifies as a transfer of financial assets under the accounting guidance.
Uses of Liquidity
The Company uses liquidity for debt service and repayment of borrowings, as well as for funding loan commitments and satisfying deposit withdrawal requests. SIS uses liquidity primarily to support underwriting transactions, as well as billing and delivery services. The primary use of liquidity for BSI is to meet customer liquidity requirements, such as maturing deposits, investment activities, funds transfers, and payment of operating expenses.
At March 31, 2022, the Company's liquidity to meet debt payments, debt service and debt maturities was in excess of 12 months.
Contractual Obligations and Other Commitments
The Company enters into contractual obligations in the normal course of business as a source of funds for its asset growth and asset/liability management and to meet required capital needs. These obligations require the Company to make cash payments over time.
As of March 31, 2022, the Company had total contractual cash obligations of $57.0 billion which included FHLB advances, notes payable, other debt obligations, CDs, repurchase agreements, non-qualified pension and post-retirement benefits, and operating leases. Of this amount, $15.0 billion of the total contractual cash obligations is due within one year. In addition, the Company had other commitments of $28.9 billion which consisted of commitments to extend credit and letters of credit. Of this amount, $8.3 billion of the other commitments is due within one year.
The Company is a party to financial instruments and other arrangements with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and manage its exposure to fluctuations in interest rates. See further discussion on these risks in Note 12 and Note 16 to the Condensed Consolidated Financial Statements.
Dividends, Contributions and Stock Issuances
As of March 31, 2022, the Company had 530,391,043 shares of common stock outstanding. During the quarters ended March 31, 2022 and 2021, the Company did not pay any cash dividends to its common stock shareholder. During the second quarter of 2022, the Company declared and paid dividends of $1.25 billion to its sole shareholder, Santander.
During the quarter ended March 31, 2022, there was no capital activity related to SHUSA's subsidiaries.
During the second quarter of 2022, SHUSA's subsidiaries had the following capital activity which eliminates in consolidation:
•BSI declared and paid $20.0 million in dividends to SHUSA.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
ASSET AND LIABILITY MANAGEMENT
Interest Rate Risk
Interest rate risk arises primarily through the Company’s traditional business activities of extending loans and accepting deposits. Many factors, including economic and financial conditions, movements in market interest rates, and consumer preferences, affect the spread between interest earned on assets and interest paid on liabilities. Interest rate risk is managed by the Company's Treasury group and measured by its Market Risk Department, with oversight by the Asset/Liability Committee. In managing interest rate risk, the Company seeks to minimize the variability of net interest income across various likely scenarios, while at the same time maximizing net interest income and the net interest margin. To achieve these objectives, the Treasury group works closely with each business line in the Company. The Treasury group also uses various other tools to manage interest rate risk, including wholesale funding maturity targeting, investment portfolio purchase strategies, asset securitizations/sales, and financial derivatives.
Interest rate risk focuses on managing four elements of risk associated with interest rates: basis risk, repricing risk, yield curve risk and option risk. Basis risk stems from rate index timing differences with rate changes, such as differences in the extent of changes in Federal funds rates compared with the three-month LIBOR. Repricing risk stems from the different timing of contractual repricing, such as one-month versus three-month reset dates, as well as the related maturities. Yield curve risk stems from the impact on earnings and market value resulting from different shapes and levels of yield curves. Option risk stems from prepayment or early withdrawal risk embedded in various products. These four elements of risk are analyzed through a combination of net interest income and balance sheet valuation simulations, shocks to those simulations, and scenario and market value analyses, and the subsequent results are reviewed by management. Numerous assumptions are made to produce these analyses, including assumptions about new business volumes, loan and investment prepayment rates, deposit flows, interest rate curves, economic conditions and competitor pricing.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Net Interest Income Simulation Analysis
The Company utilizes a variety of measurement techniques to evaluate the impact of interest rate risk, including simulating the impact of changing interest rates on expected future interest income and interest expense, to estimate the Company's net interest income sensitivity. This simulation is run monthly and includes various scenarios that help management understand the potential risks in the Company's net interest income sensitivity. These scenarios include both parallel and non-parallel rate shocks as well as other scenarios that are consistent with quantifying the four elements of risk described above. This information is used to develop proactive strategies to ensure that the Company’s risk position remains within SHUSA Board of Directors-approved limits so that future earnings are not significantly adversely affected by future interest rates.
The table below reflects the estimated sensitivity to the Company’s net interest income based on interest rate changes at March 31, 2022 and December 31, 2021:
| | | | | | | | | | | | | | |
| | The following estimated percentage increase/(decrease) to
net interest income would result |
| If interest rates changed in parallel by the amounts below | | March 31, 2022 | | December 31, 2021 |
| Down 100 basis points | | (3.53) | % | | (2.63) | % |
| Up 100 basis points | | 3.57 | % | | 4.33 | % |
| Up 200 basis points | | 6.92 | % | | 8.17 | % |
MVE Analysis
The Company also evaluates the impact of interest rate risk by utilizing MVE modeling. This analysis measures the present value of all estimated future cash flows of the Company over the estimated remaining life of the balance sheet. MVE is calculated as the difference between the market value of assets and liabilities. The MVE calculation utilizes only the current balance sheet, and therefore does not factor in any future changes in balance sheet size, balance sheet mix, yield curve relationships or product spreads, which may mitigate the impact of any interest rate changes.
Management examines the effect of interest rate changes on MVE. The sensitivity of MVE to changes in interest rates is a measure of longer-term interest rate risk, and highlights the potential capital at risk due to adverse changes in market interest rates. The following table discloses the estimated sensitivity to the Company’s MVE at March 31, 2022 and December 31, 2021.
| | | | | | | | | | | | | | |
| | The following estimated percentage
increase/(decrease) to MVE would result |
| If interest rates changed in parallel by the amounts below | | March 31, 2022 | | December 31, 2021 |
| Down 100 basis points | | 0.43 | % | | (3.18) | % |
| Up 100 basis points | | (3.07) | % | | (0.91) | % |
| Up 200 basis points | | (7.54) | % | | (3.71) | % |
As of March 31, 2022, the Company’s profile reflected a decrease of MVE of 0.43% for downward parallel interest rate shocks of 100 basis points and a decrease of 3.07% for upward parallel interest rate shocks of 100 basis points. The asymmetrical sensitivity between a 100 basis point increase and a 100 basis point decrease is due to the negative convexity as a result of the prepayment option embedded in mortgage-related products, the impact of which is not fully offset by the behavior of the funding base (largely NMDs).
In downward parallel interest rate shocks, mortgage-related products’ prepayments increase, their duration decreases and their market value appreciation is therefore limited. At the same time, with deposit rates remaining at comparatively low levels, the Company cannot effectively transfer interest rate declines to its NMD customers. For upward parallel interest rate shocks, extension risk weighs on a sizable portion of the Company’s mortgage-related products, which are predominantly long-term and fixed-rate; and for larger shocks, the loss in market value is not offset by the change in NMDs.
Limitations of Interest Rate Risk Analyses
Since the assumptions used are inherently uncertain, the Company cannot predict precisely the effect of higher or lower interest rates on net interest income or MVE. Actual results will differ from simulated results due to the timing, magnitude and frequency of interest rate changes, the difference between actual experience and the assumed volume, characteristics of new business, behavior of existing positions, and changes in market conditions and management strategies, among other factors.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Uses of Derivatives to Manage Interest Rate and Other Risks
To mitigate interest rate risk and, to a lesser extent, foreign exchange, equity and credit risks, the Company uses derivative financial instruments to reduce the effects that changes in interest rates may have on net income, the fair value of assets and liabilities, and cash flows.
Through the Company’s capital markets and mortgage banking activities, it is subject to price risk. The Company employs various tools to measure and manage price risk in its portfolios. In addition, SHUSA's Board of Directors has established certain limits relative to positions and activities. The level of price risk exposure at any point in time depends on the market environment and expectations of future price and market movements, and will vary from period to period.
Management uses derivative instruments to mitigate the impact of interest rate movements on the fair value of certain liabilities, assets and highly probable forecasted cash flows. These instruments primarily include interest rate swaps that have underlying interest rates based on key benchmark indices and forward sale or purchase commitments. The nature and volume of the derivative instruments used to manage interest rate risk depend on the level and type of assets and liabilities on the balance sheet and the risk management strategies for the current and anticipated interest rate environments.
The Company's derivatives portfolio includes mortgage banking interest rate lock commitments, forward sale commitments and interest rate swaps. As part of its overall business strategy, SBNA originates residential mortgages. It sells a portion of this production to the FHLMC, the FNMA, and private investors. The Company uses forward sales as a means of hedging against the economic impact of changes in interest rates on the mortgages that are originated for sale and on interest rate lock commitments.
The Company typically retains the servicing rights related to residential mortgage loans that are sold. The majority of the Company's residential MSRs are accounted for at fair value. As deemed appropriate, the Company economically hedges MSRs, using interest rate swaps and forward contracts to purchase MBS. For additional information on MSRs, see Note 13 to the Condensed Consolidated Financial Statements.
The Company uses foreign exchange contracts to manage the foreign exchange risk associated with certain foreign currency-denominated assets and liabilities. Foreign exchange contracts, which include spot and forward contracts, represent agreements to exchange the currency of one country for the currency of another country at an agreed-upon price on an agreed-upon settlement date. Exposure to gains and losses on these contracts increase or decrease over their respective lives as currency exchange and interest rates fluctuate. The Company also utilizes forward contracts to manage market risk associated with certain expected investment securities sales.
For additional information on foreign exchange contracts, derivatives and hedging activities, see Note 12 to the Condensed Consolidated Financial Statements.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The Company’s AFS investment strategy is to purchase liquid fixed-rate and floating-rate investments to manage the Company's liquidity position and interest rate risk adequately. The Company's AFS investment portfolioconsisted of the following at the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2021 | | December 31, 2020 | | Change | | Percent |
| (in thousands) | | Fair Value | | Fair Value | | | | |
| U.S. Treasury securities | | $ | 90,688 | | | $ | 170,653 | | | $ | (79,965) | | | (46.86) | % |
| Corporate debt securities | | 239,805 | | | 155,715 | | | 84,090 | | | 54.00 | % |
| ABS | | 544,525 | | | 109,338 | | | 435,187 | | | 398.02 | % |
| | | | | | | | |
| MBS: | | | | | | | | |
| GNMA - Residential | | 4,252,130 | | | 3,536,125 | | | 716,005 | | | 20.25 | % |
| GNMA - Commercial | | 1,987,254 | | | 1,733,362 | | | 253,892 | | | 14.65 | % |
| FHLMC and FNMA - Residential | | 4,197,042 | | | 5,538,283 | | | (1,341,241) | | | (24.22) | % |
| FHLMC and FNMA - Commercial | | 65,408 | | | 70,013 | | | (4,605) | | | (6.58) | % |
| Total investments in debt securities AFS | | $ | 11,376,852 | | | $ | 11,313,489 | | | $ | 63,363 | | | 0.56 | % |
The Company’s MBS are either guaranteed as to principal and interest by the issuer or have ratings of “AAA” by S&P and Moody’s at the date of issuance.
The average life of the AFS investment portfolio (excluding certain ABS) at September 30, 2021 was approximately 5.25 years. The average effective duration of the investment portfolio (excluding certain ABS) at September 30, 2021 was approximately 3.11 years. The actual maturities of MBS AFS will differ from contractual maturities because borrowers have the right to prepay obligations without prepayment penalties.
HTM securities are reported at cost and adjusted for amortization of premium and accretion of discount. The Company had 175 investment securities classified as HTM as of September 30, 2021.
| | | | | | | | | | | | | | | | | | | | |
| (in thousands) | | September 30, 2021 | | December 31, 2020 | | Change in unrealized gain/(loss) |
| Total unrealized loss | | $ | (88,103) | | | $ | (7,183) | | | $ | (80,920) | |
| Total unrealized gain | | 72,164 | | | 184,287 | | | (112,123) | |
| Total unrealized gain/(loss) position | | $ | (15,939) | | | $ | 177,104 | | | $ | (193,043) | |
The following table presents the securities of single issuers (other than obligations of the United States and its political subdivisions, agencies, and corporations) having an aggregate book value in excess of 10% of the Company's stockholder's equity that were held by the Company at September 30, 2021:
| | | | | | | | | | | | | | |
| | September 30, 2021 |
| (in thousands) | | Amortized Cost | | Fair Value |
| FNMA | | $ | 2,116,664 | | | $ | 2,113,528 | |
| FHLMC | | 2,158,198 | | | 2,148,922 | |
GNMA (1) | | 12,736,646 | | | 12,746,422 | |
| | | | |
| Total | | $ | 17,011,508 | | | $ | 17,008,872 | |
(1) Includes U.S. government agency MBS.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
GOODWILL
The Company records the excess of the cost of acquired entities over the fair value of identifiable tangible and intangible assets acquired less the fair value of liabilities assumed as goodwill. Consistent with ASC 350, the Company does not amortize goodwill, and reviews the goodwill recorded for impairment on an annual basis or more frequently when events or changes in circumstances indicate the potential for goodwill impairment. At September 30, 2021, goodwill totaled $2.6 billion and represented 1.7% of total assets and 10.9% of total stockholder's equity. The following table shows goodwill by reporting units at September 30, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | | CBB | | C&I | | CRE & VF | | CIB | | SC | | | | | | Total |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Goodwill at September 30, 2021 | | $ | 297,802 | | | $ | 52,198 | | | $ | 1,095,071 | | | $ | 131,130 | | | $ | 1,019,960 | | | | | | | $ | 2,596,161 | |
The Company evaluates goodwill for impairment at the reporting unit level. The Company completes its annual goodwill impairment test as of October 1 each year. The Company conducted its most recent annual goodwill impairment tests as of October 1, 2020 using generally accepted valuation methods.
The Company completes a quarterly review for impairment indicators over each of its reporting units, which includes consideration of economic and organizational factors that could impact the fair value of the Company's reporting units. As of the most recent review completed at the end of the third quarter of 2021, the Company did not identify any indicators which resulted in the Company's conclusion that an interim impairment test would be required to be completed.
DEFERRED TAXES AND OTHER TAX ACTIVITY
The Company had a net deferred tax liability balance of $602.8 million at September 30, 2021 (consisting of a deferred tax asset balance of $45.6 million and a deferred tax liability balance of $648.4 million with respect to jurisdictional netting), compared to a net deferred tax liability balance of $171.2 million at December 31, 2020 (consisting of a deferred tax asset balance of $11.1 million and a deferred tax liability balance of $182.4 million). The $431.6 million increase in net deferred liability for the nine-month period ended September 30, 2021 was primarily due to a decrease in net operating loss carryforwards.
BANK REGULATORY CAPITAL
The Company's capital priorities are to support client growth and business investment while maintaining appropriate capital in light of economic uncertainty and the Basel III framework.
The Company is subject to the regulations of certain federal, state, and foreign agencies and undergoes periodic examinations by those regulatory authorities. At September 30, 2021 and December 31, 2020, based on SBNA’s capital calculations, SBNA was considered well-capitalized under the applicable capital framework. In addition, the Company's capital levels as of September 30, 2021 and December 31, 2020, based on the Company’s capital calculations, exceeded the required capital ratios for BHCs.
For a discussion of Basel III, including the standardized approach and related future changes to the minimum U.S. regulatory capital ratios, see the section captioned "Regulatory Matters" in this MD&A.
Federal banking laws, regulations and policies also limit SBNA's ability to pay dividends and make other distributions to the Company. SBNA must obtain prior OCC approval to declare a dividend or make any other capital distribution if, after such dividend or distribution: (1) the bank's total distributions to SHUSA within that calendar year would exceed 100% of its net income during the year plus retained net income for the prior two years, (2) the bank would not meet capital levels imposed by the OCC in connection with any order, or (3) the bank is not adequately capitalized at the time. The OCC's prior approval would also be required if SBNA were notified by the OCC that it is a problem institution or in troubled condition.
Any dividend declared and paid or return of capital has the effect of reducing capital ratios. During the nine-month periods ended September 30, 2021 and 2020, the Company paid cash dividends of zero and $125.0 million, respectively, to its common stock shareholder.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following schedule summarizes the actual capital balances of SHUSA and SBNA at September 30, 2021:
| | | | | | | | | | | | | | | | | | | | |
| | SHUSA |
| | | | | | |
| | September 30, 2021 | | Well-capitalized Requirement(1) | | Minimum Requirement(1) |
| CET1 capital ratio | | 18.36 | % | | 6.50 | % | | 4.50 | % |
| Tier 1 capital ratio | | 20.19 | % | | 8.00 | % | | 6.00 | % |
| Total capital ratio | | 21.59 | % | | 10.00 | % | | 8.00 | % |
| Leverage ratio | | 14.88 | % | | 5.00 | % | | 4.00 | % |
| | | | | | | | | | | | | | | | | | | | |
| | SBNA |
| | | | | | |
| | September 30, 2021 | | Well-capitalized Requirement(1) | | Minimum Requirement(1) |
| CET1 capital ratio | | 16.55 | % | | 6.50 | % | | 4.50 | % |
| Tier 1 capital ratio | | 16.55 | % | | 8.00 | % | | 6.00 | % |
| Total capital ratio | | 17.70 | % | | 10.00 | % | | 8.00 | % |
| Leverage ratio | | 11.67 | % | | 5.00 | % | | 4.00 | % |
(1) Capital ratios starting in the first quarter of 2020 calculated under CECL transition provisions permitted by the CARES Act
LIQUIDITY AND CAPITAL RESOURCES
Overall
The Company continues to maintain strong liquidity. Liquidity represents the ability of the Company to obtain cost-effective funding to meet the needs of customers as well as the Company's financial obligations. Factors that impact the liquidity position of the Company include loan origination volumes, loan prepayment rates, the maturity structure of existing loans, core deposit growth levels, CD maturity structure and retention, the Company's credit ratings, investment portfolio cash flows, the maturity structure of the Company's wholesale funding, and other factors. These risks are monitored and managed centrally. The Company's Asset/Liability Committee reviews and approves the Company's liquidity policy and guidelines on a regular basis. This process includes reviewing all available wholesale liquidity sources. The Company also forecasts future liquidity needs and develops strategies to ensure adequate liquidity is available at all times. SHUSA conducts monthly liquidity stress test analyses to manage its liquidity under a variety of scenarios, all of which demonstrate that the Company has ample liquidity to meet its short-term and long-term cash requirements.
Further changes to the credit ratings of SHUSA, Santander and its affiliates or the Kingdom of Spain could have a material adverse effect on SHUSA's business, including its liquidity and capital resources. The credit ratings of SHUSA have changed in the past and may change in the future, which could impact its cost of and access to sources of financing and liquidity. Any reductions in the long-term or short-term credit ratings of SHUSA would increase its borrowing costs and require it to replace funding lost due to the downgrade, which may include the loss of customer deposits, limit its access to capital and money markets and trigger additional collateral requirements in derivatives contracts and other secured funding arrangements. See further discussion on the impacts of credit ratings actions in the "Economic and Business Environment" section of this MD&A.
Sources of Liquidity
Company and Bank
The Company and SBNA have several sources of funding to meet liquidity requirements, including SBNA's core deposit base, liquid investment securities portfolio, ability to acquire large deposits, FHLB borrowings, wholesale deposit purchases, and federal funds purchased, as well as through securitizations in the ABS market and committed credit lines from third-party banks and Santander. In addition, the Company has other sources of funding to meet its liquidity requirements such as dividends and returns of investments from its subsidiaries, short-term investments held by non-bank affiliates, and access to the capital markets.
As of September 30, 2021, SBNA has borrowed $1.0 billion from SHUSA. This transaction eliminates in consolidation.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
SC
SC requires a significant amount of liquidity to originate and acquire loans and leases and to service debt. SC funds its operations through its lending relationships with 13 third-party banks, Santander and SHUSA, and through securitizations in the ABS market and third party flow agreements. SC seeks to issue debt that appropriately matches the cash flows of the assets that it originates. SC has more than $7.9 billion of stockholders’ equity that supports its access to the securitization markets, credit facilities, and flow agreements.
During the quarter ended September 30, 2021, SC completed on-balance sheet funding transactions totaling approximately $6.2 billion, including:
•securitization on its SDART platform for approximately $2.5 billion;
•securitizations on its DRIVE, deeper subprime platform, for approximately $1.8 billion; and
•lease securitization on its SRT platform for approximately $1.9 billion.
SC also completed approximately $0.3 billion in asset sales to third parties.
For information regarding SC's debt, see Note 9 to the Condensed Consolidated Financial Statements.
IHC
In 2017, SIS entered into a revolving subordinated loan agreement with SHUSA, not to exceed $290.0 million. This was subsequently increased to $895.0 million in 2018 to provide additional capital to the entity for its expanding capital markets program. Given additional liquidity needs from the program that now includes billing and delivery services for debt and equity issuances, the subordinated line with SIS was renegotiated in July 2021 to $750.0 million with an additional liquidity line of $750.0 million to support the new activity.
At September 30, 2021, there were no outstanding balances on the subordinated loan or the liquidity line.
BSI's primary sources of liquidity are from customer deposits and deposits from affiliated banks.
Institutional borrowings
The Company regularly projects its funding needs under various stress scenarios, and maintains contingency plans consistent with the Company’s access to diversified sources of contingent funding. The Company maintains a substantial level of total available liquidity in the form of on-balance sheet and off-balance sheet funding sources. These include cash, unencumbered liquid assets, and capacity to borrow at the FHLB and the FRB’s discount window.
Available Liquidity
As of September 30, 2021, SBNA had approximately $16.2 billion in committed liquidity from the FHLB and the FRB. Of this amount, $15.3 billion was unused and therefore provides additional borrowing capacity and liquidity for the Company. At September 30, 2021 and December 31, 2020, liquid assets (cash and cash equivalents and LHFS) and securities AFS exclusive of securities pledged as collateral) totaled approximately $29.1 billion and $23.5 billion, respectively. These amounts represented 36.8% and 31.8% of total deposits at September 30, 2021 and December 31, 2020, respectively. As of September 30, 2021, SBNA and BSI had $2.3 billion and $1.1 billion, respectively, in cash held at the FRB. Management believes that the Company has ample liquidity to fund its operations.
Cash, cash equivalents, and restricted cash
| | | | | | | | | | | | | | | | |
| | Nine-Month Period Ended September 30, |
| (in thousands) | | 2021 | | 2020 | | |
| Net cash flows from operating activities | | $ | 5,961,580 | | | $ | 4,894,072 | | | |
| Net cash flows from investing activities | | (2,692,526) | | | (161,803) | | | |
| Net cash flows from financing activities | | 3,024,746 | | | (1,559,594) | | | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cash flows from operating activities
Net cash flow from operating activities increased by $1.1 billion from the nine-month period ended September 30, 2020 to the nine-month period ended September 30, 2021, primarily due to an increase in proceeds from sales of and collections on LHFS which includes the SC sale of its Bluestem personal lending portfolio.
Cash flows from investing activities
Net cash flow from investing activities decreased by $2.5 billion from the nine-month period ended September 30, 2020 to the nine-month period ended September 30, 2021, primarily due to an increase in purchases of LHFI and an increase in securities purchased under resale agreements which began in the second quarter of 2021.
Cash flows from financing activities
Net cash flow from financing activities increased by $4.6 billion from the nine-month period ended September 30, 2020 to the nine-month period ended September 30, 2021, primarily due to an increase in deposits and an increase in securities sold under repurchase agreements, offset by decreases in cash due to net borrowing activity.
See the SCF for further details on the Company's sources and uses of cash.
Credit Facilities
Third-Party Revolving Credit Facilities
Warehouse Lines
SC has one credit facility with eight banks providing an aggregate commitment of $3.5 billion for the exclusive use of providing short-term liquidity needs to support Chrysler Capital lease financing. The facility requires reduced advance rates in the event of delinquency, credit loss, or residual loss ratios, as well as other metrics exceeding specified thresholds.
SC has eight credit facilities with eleven banks providing an aggregate commitment of $8.3 billion for the exclusive use of providing short-term liquidity needs to support core and CCAP loan financing. As of September 30, 2021, there was an outstanding balance of approximately zero on these facilities in the aggregate. These facilities reduced advance rates in the event of delinquency, credit loss, as well as various other metrics exceeding specific thresholds.
Repurchase Agreements
SC also obtains financing through investment management or repurchase agreements under which it pledges retained subordinate bonds on its own securitizations as collateral for repurchase agreements with various borrowers and at renewable terms ranging up to 365 days. As of September 30, 2021, there was no outstanding balance under any repurchase agreements.
Related Party Credit Facilities
The Company provides SC with $0.5 billion of committed revolving credit and $2.5 billion of contingent liquidity that can be drawn on an unsecured basis. The Company also provides SC with $5.6 billion of term financing with maturities ranging from December 2021 to May 2025. These loans eliminate in the consolidation of SHUSA. Santander provides SC with $4.0 billion of unsecured financing with maturities ranging from June 2022 and September 2022.
Secured Structured Financings
SC's secured structured financings primarily consist of both public, SEC-registered securitizations, as well as private securitizations under Rule 144A of the Securities Act, and privately issues amortizing notes. SC has on-balance sheet securitizations outstanding in the market with a cumulative ABS balance of approximately $29.0 billion.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Deficiency and Debt Forward Flow Agreement
In addition to SC's credit facilities and secured structured financings, SC has a flow agreement in place with a third party for charged-off assets. Loans and leases sold under these flow agreements are not on SC's balance sheet, but provide a stable stream of servicing fee income and may also provide a gain or loss on sale.
Off-Balance Sheet Financing
Beginning in 2017, SC had the option to sell a contractually determined amount of eligible prime loans to Santander through securitization platforms. As all of the notes and residual interests in the securitizations are acquired by Santander, SC recorded these transactions as true sales of the RICs securitized, and removed the sold assets from its Consolidated Balance Sheets. Beginning in 2018, this program was replaced with a new program with SBNA, whereby SC has agreed to provide SBNA with origination support services in connection with the processing, underwriting, and purchasing of retail loans, primarily from Stellantis dealers, all of which are serviced by SC.
SC also continues to periodically execute securitizations under Rule 144A of the Securities Act. After retaining the required credit risk retention via a 5% vertical interest, SC transfers all remaining notes and residual interests in these securitizations to third parties. SC subsequently records these transactions as true sales of the RICs securitized, and removes the sold assets from its Consolidated Balance Sheets.
Uses of Liquidity
The Company uses liquidity for debt service and repayment of borrowings, as well as for funding loan commitments and satisfying deposit withdrawal requests. SIS uses liquidity primarily to support underwriting transactions, as well as billing and delivery services. The primary use of liquidity for BSI is to meet customer liquidity requirements, such as maturing deposits, investment activities, funds transfers, and payment of operating expenses.
At September 30, 2021, the Company's liquidity to meet debt payments, debt service and debt maturities was in excess of 12 months.
Dividends, Contributions and Stock Issuances
As of September 30, 2021, the Company had 530,391,043 shares of common stock outstanding.
On March 31, 2021, SC paid a cash dividend of $0.22 per share and a special dividend of $0.22 per share of common stock for a total of $0.44 per share to shareholders of record as of the close of business on March 29, 2021. SC also paid a dividend of $0.22 per share in May 2021 and August 2021. SHUSA has requested regulatory approval to authorize SC's Board of Directors to declare a dividend in the fourth quarter. To date, approval has not been received.
SC has paid a total of $269.3 million in dividends through September 30, 2021, of which $53.2 million has been paid to NCI and $216.1 million has been paid to the Company, which eliminates in the consolidated results of the Company.
In August 2021, SHUSA entered into a definitive agreement whereby SHUSA agreed to acquire all of the outstanding shares of SC Common Stock not already owned by SHUSA via an all-cash tender offer. Under the terms of the definitive agreement, a wholly-owned subsidiary of SHUSA commenced a tender offer to acquire all outstanding shares of SC Common Stock that SHUSA does not already own at a price of $41.50 per share in cash. SHUSA agreed to acquire all remaining shares not tendered in the tender offer through a second-step merger at the same price as in the tender offer. Consummation of the tender offer is subject to various conditions, including regulatory approval by the Federal Reserve and other customary closing conditions. Upon completion of the transaction, SC will become a wholly-owned subsidiary of SHUSA.
Share Repurchases
In June 2019, SC announced that the SC Board of Directors had authorized purchases by SC of up to $1.1 billion, excluding commissions, of its outstanding common stock effective from the third quarter of 2019 through the end of the second quarter of 2020. During the three months ended March 31, 2020, SC purchased shares of SC Common Stock through a modified Dutch auction tender offer, and extended the share repurchase program through the end of the third quarter of 2020.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
On July 31, 2020, SC announced that the Company’s request for certain exceptions to the Interim Policy prohibiting share repurchases (other than repurchases relating to issuances of common stock under employee stock ownership plans) and limiting dividends paid by certain CCAR institutions to the average trailing four quarters' of net income, had been approved. Such exception approval permitted SC to continue its share repurchase program through the end of the third quarter of 2020. On August 10, 2020, SC announced that it had substantially exhausted the amount of shares SC was permitted to repurchase under the exception approval, and that SC expected to repurchase an immaterial number of shares remaining under the exception approval.
After substantially exhausting its share repurchase authorization on August 10, 2020 and through the end of the second quarter of 2021, SC was only permitted to repurchase a number of shares of SC Common Stock equal to the amount of share issuances related to SC’s expensed employee compensation. SC does not presently have permission to repurchase any shares of SC Common Stock.
Please find below the details of SC's tender offer and other share repurchase programs for the three-month and nine-month periods ended September 30, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three-Month Period Ended September 30, | | Nine-Month Period Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Tender offer:(1) | | | | | | | | |
| Number of shares purchased | | — | | — | | — | | 17,514,707 |
| Average price per share | | $ | — | | | $ | — | | | $ | — | | | $ | 26.00 | |
Cost of shares purchased(2) | | $ | — | | | $ | — | | | $ | — | | | $ | 455,382 | |
| | | | | | | | |
| Other share repurchases: | | | | | | | | |
| Number of shares purchased | | — | | 10,198,800 | | 357,747 | | 15,956,561 |
| Average price per share | | $ | — | | | $ | 21.91 | | | $ | 26.46 | | | $ | 20.00 | |
Cost of shares purchased(2) | | $ | — | | | $ | 223,485 | | | $ | 9,468 | | | $ | 319,075 | |
| | | | | | | | |
| Total number of shares purchased | | — | | 10,198,800 | | 357,747 | | 33,471,268 |
| Average price per share | | $ | — | | | $ | 21.91 | | | $ | 26.46 | | | $ | 23.14 | |
Total cost of shares purchased(2) | | $ | — | | | $ | 223,485 | | | $ | 9,468 | | | $ | 774,457 | |
(1) During the three months ended March 31, 2020, SC purchased shares of SC Common Stock through a modified Dutch auction tender offer.
(2) Cost of shares exclude commissions
During the nine-month period ended September 30, 2021, SHUSA's subsidiaries had the following capital activity which eliminated in consolidation:
•BSI declared and paid $20.0 million in dividends to SHUSA.
•SIS declared and paid $8.0 million in dividends to SHUSA.
•SFS contributed $250.0 million to SHUSA.
OFF-BALANCE SHEET ARRANGEMENTS
See further discussion of the Company's off-balance sheet arrangements in Note 7 and Note 16 to the Condensed Consolidated Financial Statements, and the "Liquidity and Capital Resources" section of this MD&A.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
The Company enters into contractual obligations in the normal course of business as a source of funds for its asset growth and asset/liability management and to meet required capital needs. These obligations require the Company to make cash payments over time as detailed in the table below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Payments Due by Period |
| (in thousands) | | Total | | Less than
1 year | | Over 1 year
to 3 years | | Over 3 years
to 5 years | | Over
5 years |
| Payments due for contractual obligations: | | | | | | | | | | |
FHLB advances (1) | | $ | 751,938 | | | $ | 751,938 | | | $ | — | | | $ | — | | | $ | — | |
| Notes payable - revolving facilities | | — | | | — | | | — | | | — | | | — | |
| Notes payable - secured structured financings | | 28,919,270 | | | 978,330 | | | 11,918,520 | | | 11,008,316 | | | 5,014,104 | |
Other debt obligations (1) (2) | | 17,273,912 | | | 6,300,353 | | | 6,389,666 | | | 2,478,257 | | | 2,105,636 | |
CDs (1) | | 2,772,012 | | | 2,107,282 | | | 541,103 | | | 120,211 | | | 3,416 | |
Repurchase agreements(1) | | 1,589,515 | | | 1,589,515 | | | — | | | — | | | — | |
| Non-qualified pension and post-retirement benefits | | 68,988 | | | 7,235 | | | 14,336 | | | 13,958 | | | 33,459 | |
Operating leases(3) | | 646,951 | | | 141,164 | | | 234,351 | | | 145,784 | | | 125,652 | |
| Total contractual cash obligations | | $ | 52,022,586 | | | $ | 11,875,817 | | | $ | 19,097,976 | | | $ | 13,766,526 | | | $ | 7,282,267 | |
| Other commitments: | | | | | | | | | | |
| Commitments to extend credit | | $ | 28,118,571 | | | $ | 7,576,342 | | | $ | 7,463,098 | | | $ | 4,984,166 | | | $ | 8,094,965 | |
| Letters of credit | | 1,324,186 | | | 1,024,599 | | | 169,009 | | | 81,891 | | | 48,687 | |
| Total Contractual Obligations and Other Commitments | | $ | 81,465,343 | | | $ | 20,476,758 | | | $ | 26,730,083 | | | $ | 18,832,583 | | | $ | 15,425,919 | |
(1)Includes interest on both fixed and variable rate obligations. The interest associated with variable rate obligations is based on interest rates in effect at September 30, 2021. The contractual amounts to be paid on variable rate obligations are affected by changes in market interest rates. Future changes in market interest rates could materially affect the contractual amounts to be paid.
(2)Includes all carrying value adjustments, such as unamortized premiums and discounts and hedge basis adjustments.
(3)Does not include future expected sublease income or interest of $52.0 million.
Excluded from the above table are deposits of $76.7 billion that are due on demand by customers.
The Company is a party to financial instruments and other arrangements with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and manage its exposure to fluctuations in interest rates. See further discussion on these risks in Note 12 and Note 16 to the Condensed Consolidated Financial Statements.
ASSET AND LIABILITY MANAGEMENT
Interest Rate Risk
Interest rate risk arises primarily through the Company’s traditional business activities of extending loans and accepting deposits. Many factors, including economic and financial conditions, movements in market interest rates, and consumer preferences, affect the spread between interest earned on assets and interest paid on liabilities. Interest rate risk is managed by the Company's Treasury group and measured by its Market Risk Department, with oversight by the Asset/Liability Committee. In managing interest rate risk, the Company seeks to minimize the variability of net interest income across various likely scenarios, while at the same time maximizing net interest income and the net interest margin. To achieve these objectives, the Treasury group works closely with each business line in the Company. The Treasury group also uses various other tools to manage interest rate risk, including wholesale funding maturity targeting, investment portfolio purchase strategies, asset securitizations/sales, and financial derivatives.
Interest rate risk focuses on managing four elements of risk associated with interest rates: basis risk, repricing risk, yield curve risk and option risk. Basis risk stems from rate index timing differences with rate changes, such as differences in the extent of changes in Federal funds rates compared with the three-month LIBOR. Repricing risk stems from the different timing of contractual repricing, such as one-month versus three-month reset dates, as well as the related maturities. Yield curve risk stems from the impact on earnings and market value resulting from different shapes and levels of yield curves. Option risk stems from prepayment or early withdrawal risk embedded in various products. These four elements of risk are analyzed through a combination of net interest income and balance sheet valuation simulations, shocks to those simulations, and scenario and market value analyses, and the subsequent results are reviewed by management. Numerous assumptions are made to produce these analyses, including assumptions about new business volumes, loan and investment prepayment rates, deposit flows, interest rate curves, economic conditions and competitor pricing.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Net Interest Income Simulation Analysis
The Company utilizes a variety of measurement techniques to evaluate the impact of interest rate risk, including simulating the impact of changing interest rates on expected future interest income and interest expense, to estimate the Company's net interest income sensitivity. This simulation is run monthly and includes various scenarios that help management understand the potential risks in the Company's net interest income sensitivity. These scenarios include both parallel and non-parallel rate shocks as well as other scenarios that are consistent with quantifying the four elements of risk described above. This information is used to develop proactive strategies to ensure that the Company’s risk position remains within SHUSA Board of Directors-approved limits so that future earnings are not significantly adversely affected by future interest rates.
The table below reflects the estimated sensitivity to the Company’s net interest income based on interest rate changes at September 30, 2021 and December 31, 2020:
| | | | | | | | | | | | | | |
| | The following estimated percentage increase/(decrease) to
net interest income would result |
| If interest rates changed in parallel by the amounts below | | September 30, 2021 | | December 31, 2020 |
| Down 100 basis points | | (1.69) | % | | (1.12) | % |
| Up 100 basis points | | 4.68 % | | 3.18 % |
| Up 200 basis points | | 8.86 % | | 6.25 % |
MVE Analysis
The Company also evaluates the impact of interest rate risk by utilizing MVE modeling. This analysis measures the present value of all estimated future cash flows of the Company over the estimated remaining life of the balance sheet. MVE is calculated as the difference between the market value of assets and liabilities. The MVE calculation utilizes only the current balance sheet, and therefore does not factor in any future changes in balance sheet size, balance sheet mix, yield curve relationships or product spreads, which may mitigate the impact of any interest rate changes.
Management examines the effect of interest rate changes on MVE. The sensitivity of MVE to changes in interest rates is a measure of longer-term interest rate risk, and highlights the potential capital at risk due to adverse changes in market interest rates. The following table discloses the estimated sensitivity to the Company’s MVE at September 30, 2021 and December 31, 2020.
| | | | | | | | | | | | | | |
| | The following estimated percentage
increase/(decrease) to MVE would result |
| If interest rates changed in parallel by the amounts below | | September 30, 2021 | | December 31, 2020 |
| Down 100 basis points | | (4.42) | % | | (6.18) | % |
| Up 100 basis points | | (0.45) | % | | 1.62 % |
| Up 200 basis points | | (3.00) | % | | 0.51 % |
As of September 30, 2021, the Company’s profile reflected a decrease of MVE of 4.42% for downward parallel interest rate shocks of 100 basis points and a decrease of 0.45% for upward parallel interest rate shocks of 100 basis points. The asymmetrical sensitivity between up 100 and down 100 shock is due to the negative convexity as a result of the prepayment option embedded in mortgage-related products, the impact of which is not fully offset by the behavior of the funding base (largely NMDs).
In downward parallel interest rate shocks, mortgage-related products’ prepayments increase, their duration decreases and their market value appreciation is therefore limited. At the same time, with deposit rates remaining at comparatively low levels, the Company cannot effectively transfer interest rate declines to its NMD customers. For upward parallel interest rate shocks, extension risk weighs on a sizable portion of the Company’s mortgage-related products, which are predominantly long-term and fixed-rate; and for larger shocks, the loss in market value is not offset by the change in NMDs.
Limitations of Interest Rate Risk Analyses
Since the assumptions used are inherently uncertain, the Company cannot predict precisely the effect of higher or lower interest rates on net interest income or MVE. Actual results will differ from simulated results due to the timing, magnitude and frequency of interest rate changes, the difference between actual experience and the assumed volume, characteristics of new business, behavior of existing positions, and changes in market conditions and management strategies, among other factors.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Uses of Derivatives to Manage Interest Rate and Other Risks
To mitigate interest rate risk and, to a lesser extent, foreign exchange, equity and credit risks, the Company uses derivative financial instruments to reduce the effects that changes in interest rates may have on net income, the fair value of assets and liabilities, and cash flows.
Through the Company’s capital markets and mortgage banking activities, it is subject to price risk. The Company employs various tools to measure and manage price risk in its portfolios. In addition, SHUSA's Board of Directors has established certain limits relative to positions and activities. The level of price risk exposure at any point in time depends on the market environment and expectations of future price and market movements, and will vary from period to period.
Management uses derivative instruments to mitigate the impact of interest rate movements on the fair value of certain liabilities, assets and highly probable forecasted cash flows. These instruments primarily include interest rate swaps that have underlying interest rates based on key benchmark indices and forward sale or purchase commitments. The nature and volume of the derivative instruments used to manage interest rate risk depend on the level and type of assets and liabilities on the balance sheet and the risk management strategies for the current and anticipated interest rate environments.
The Company's derivatives portfolio includes mortgage banking interest rate lock commitments, forward sale commitments and interest rate swaps. As part of its overall business strategy, SBNA originates residential mortgages. It sells a portion of this production to the FHLMC, the FNMA, and private investors. The Company uses forward sales as a means of hedging against the economic impact of changes in interest rates on the mortgages that are originated for sale and on interest rate lock commitments.
The Company typically retains the servicing rights related to residential mortgage loans that are sold. The majority of the Company's residential MSRs are accounted for at fair value. As deemed appropriate, the Company economically hedges MSRs, using interest rate swaps and forward contracts to purchase MBS. For additional information on MSRs, see Note 13 to the Condensed Consolidated Financial Statements.
The Company uses foreign exchange contracts to manage the foreign exchange risk associated with certain foreign currency-denominated assets and liabilities. Foreign exchange contracts, which include spot and forward contracts, represent agreements to exchange the currency of one country for the currency of another country at an agreed-upon price on an agreed-upon settlement date. Exposure to gains and losses on these contracts increase or decrease over their respective lives as currency exchange and interest rates fluctuate.
The Company also utilizes forward contracts to manage market risk associated with certain expected investment securities sales and equity options, which manage its market risk associated with certain customer deposit products.
For additional information on foreign exchange contracts, derivatives and hedging activities, see Note 12 to the Condensed Consolidated Financial Statements.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Incorporated by reference from Part I, Item 2, MD&A — "Asset and Liability Management" above.
ITEM 4 - CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our CEO and CFO, has evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a- 15(e) and 15d- 15(e) under the Exchange Act, as of as of the Evaluation Date.March 31, 2022, (the "Evaluation Date"). Based on thatthis evaluation, our CEO and CFO have concluded that as of the Evaluation Date, ourdue to the material weakness in internal control over financial reporting described below, the Company’s disclosure controls and procedures; (a) areprocedures were not effective to ensure that the information required to be disclosed by the Company in the reports filedthat it files or submittedsubmits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC'sSEC’s rules and forms;forms, and (b) include controls and procedures designed to ensure that information required to be disclosed by the Company in such reportsinformation is accumulated and communicated to the Company'sour management, including theour CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.In light of this material weakness, management completed additional procedures and analysis to validate the accuracy and completeness of the reported financial results within the Condensed Consolidated Statement of Cash Flows (“SCF”).In addition, management engaged the Audit Committee directly, in detail, to discuss the procedures and analysis performed to ensure the reliability of the Company’s financial reporting. Based on the additional analysis and other procedures performed, management concluded that the Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q present fairly, in all material respects our financial position, results of operations, capital position, and cash flows for the periods presented, in conformity with generally accepted accounting principles (“GAAP”).
ChangesA material weakness 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.
Management identified a material weakness in our internal control over financial reporting related to the lack of designing and maintaining effective controls to verify the proper classification of loan activities related to loans held for sale (“LHFS”) and loans held for investment (“LHFI”) within the SCF. This material weakness resulted in material misstatements to the classification of cash flows associated with LHFS and LHFI within the SCF. Additionally, this material weakness could result in further misstatements of the classification of cash flows for LHFS and LHFI that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.
Remediation Status of Reported Material Weakness
The Company is currently working to remediate the material weakness described above, including enhancing the process around identification and tracking of the classification of loans at origination; and enhancing the review controls, and supporting documentation related to the nature and classification of LHFS and LHFI cash flows between operating activities and investing activities in the SCF.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended September 30, 2021March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Although a substantial portion of the Company’s workforce continues to work remotely due to the COVID-19 pandemic, this has not materially affected our internal controls over financial reporting. We continue to monitor and assess the COVID-19 situation to minimize potential impacts, if any, it may have on the design and operating effectiveness of our internal controls.
PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Refer to Note 16 to the Condensed Consolidated Financial Statements for SHUSA’s litigation disclosures, which are incorporated herein by reference.
ITEM 1A - RISK FACTORS
The Company is subject to a number of risks potentially impacting its business, financial condition, results of operations, and cash flows. There have been no material changes from the risk factors set forth under Part I, Item 1A, Risk Factors, in the Company's Annual Report on Form 10-K for the year ended December 31, 2020.2021.
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4 - MINE SAFETY DISCLOSURES
None.
ITEM 5 - OTHER INFORMATION
Disclosure Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act
(Amounts presented as actuals)
Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, which added Section 13(r) to the Exchange Act of 1934, an issuer is required to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with individuals or entities designated pursuant to certain Executive Orders. Disclosure is generally required even where the activities, transactions or dealings were conducted in compliance with applicable law.
The following activities are disclosed in response to Section 13(r) with respect to Santander and its affiliates. During the period covered by this report:
•Santander UK holds seven blocked accounts for five customers with the first customer holding one GBP savings account and one GBP current account, the second customer holding one GBP savings account, and the third customer holding two GBP current accounts. All three of the customers, who are resident in the UK,that are currently designated by the U.S. under the SDGT sanctions program. Revenues and profits generated by Santander UK on these accounts in the nine monthsthree-month period ended September 30, 2021March 31, 2022 were negligible relative to the overall profits of Santander.
•Santander Consumer Finance, S.A. holds through its Belgian branch seven blocked correspondent accounts for an Iranian bank that is currently designated by the US under the SDGT sanctions program. The accounts have been blocked since 2008. No revenues or profits were generated by Santander Consumer Bank, S.A. on these accounts in the nine monthsthree-month period ended September 30, 2021.March 31, 2022.
•Santander Brasil also heldholds a Brazilian Realblocked account for a customer that was owned by an individualwith domicile in Brazil designated by the U.S. under the SDGT sanctions program. There has been no transactional activity in this account. Santander Brasil closed the account and exitedThe relationship with the customer relationship. No revenues orpreceded its designation under the sanctions program. Revenues and profits were generated by Santander Brasil on this account in the nine monthsthree-month period ended September 30, 2021.
•Santander, also has certain legacy performance guarantees for the benefit of an Iranian bank that is currently designated by the US under the SDGT sanctions program (standby letters of credit to guarantee the obligations, either under tender documents or under contracting agreements, of contractors who participated in public bids in Iran) that were in place prior to April 27, 2007.
In the aggregate, all of the transactions described above resulted in gross revenues and net profits in the nine monthsthree-month period ended September 30, 2021March 31, 2022 which were negligible relative to the overall revenues and profits of Santander. SantanderSantander has undertaken significant steps to withdraw from the Iranian market, such as closing its representative office in Iran and ceasing all banking activities therein, including correspondent relationships, deposit-taking from Iranian entities and issuing export letters of credit, except for the legacy transactions described above. Santander is not contractually permitted to cancel these arrangements without either (i) paying the guaranteed amount (in the case of the performance guarantees), or (ii) forfeiting the outstanding amounts due to it (in the case of the export credits). As such, Santander intends to continue to provide the guarantees and hold these assets in accordance with company policy and applicable laws.
ITEM 6 - EXHIBITS
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| (4.1) | | Santander Holdings USA, Inc. has certain debt obligations outstanding. None of the instruments evidencing such debt authorizes an amount of securities in excess of 10% of the total assets of Santander Holdings USA, Inc. and its subsidiaries on a consolidated basis; therefore, copies of such instruments are not included as exhibits to this Quarterly Report on Form 10-Q. Santander Holdings USA, Inc. agrees to furnish copies to the SEC on request. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | | SANTANDER HOLDINGS USA, INC.
(Registrant) |
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| Date: | November 2, 2021May 6, 2022 | | /s/ Juan Carlos Alvarez de Soto |
| | | Juan Carlos Alvarez de Soto |
| | | Chief Financial Officer and Senior Executive Vice President |
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| Date: | November 2, 2021May 6, 2022 | | /s/ David L. Cornish |
| | | David L. Cornish |
| | | Chief Accounting Officer, Corporate Controller and Executive Vice President |