Santander Holdings USA, Inc.

Previous wording

In addition to specialized consumer finance, the Company also attracts deposits and provides other retail banking services through its network of retail branches with locations in Connecticut, Delaware, Florida, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, and Rhode Island and originates small business, middle market, large and global commercial loans, multifamily loans, and other consumer loans and leases throughout the Mid-Atlantic and Northeastern areas of the United States. For large institutional investors, the Company provides structured products, emerging markets credit and U.S. investment grade credit, U.S. rates, short-term fixed-income, debt and equity capital markets, investment banking, exchange-traded derivatives, and cash equities, benefiting from a combination of Santander’s global reach and access to financial hubs together with extensive local market knowledge and regional expertise.

Current wording

In addition to specialized consumer finance, the Company also attracts deposits and provides other retail banking services through its network of retail branches with locations in Connecticut, Delaware, Florida, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, and Rhode Island and originates small business, middle market, large and global commercial loans, multifamily loans, and other consumer loans and leases throughout the Mid-Atlantic and Northeastern areas of the United States. The Company also acquires deposits nationally through SBNA's online Openbank platform. For large institutional investors, the Company provides structured products, emerging markets credit and U.S. investment grade credit, U.S. rates, short-term fixed-income, debt and equity capital markets, investment banking, exchange-traded derivatives, and cash equities, benefiting from a combination of Santander’s global reach and access to financial hubs together with extensive local market knowledge and regional expertise.

Previous wording

The unemployment rate at December 31, 2023 was 3.7% compared to 3.5% one year ago. According to the U.S. Bureau of Labor Statistics, employment continued to trend up in government, health care, social assistance, and construction.

Current wording

The unemployment rate at December 31, 2024 was 4.1% compared to 3.7% one year ago. According to the U.S. Bureau of Labor Statistics, employment trended up in government, health care, and social assistance.

Previous wording

At its December 2023 meeting, the FOMC maintained the federal funds rate target range of 5.25% - 5.50%. The FOMC continues to focus its policy making on maximum employment and achieving a 2.0% inflation target rate.

Current wording

At its December 2024 meeting, the FOMC lowered the federal funds rate target range to 4.25% - 4.50%. The FOMC continues to focus its policy making on maximum employment and achieving a 2.0% inflation target rate.

Previous wording

The ten-year Treasury bond rate at December 31, 2023 was 3.87%, down from 3.88% at December 31, 2022.

Current wording

The ten-year Treasury bond rate at December 31, 2024 was 4.57%, up from 3.87% at December 31, 2023.

Previous wording

One of the primary metrics used by the market to monitor the strength of the used car market is the Manheim Used Vehicle Index. The Manheim Used Vehicle Value Index, based on the 1997 Manheim based index, decreased from 219 at December 31, 2022 to 204 at December 31, 2023.

Current wording

One of the primary metrics used by the market to monitor the strength of the used car market is the Manheim Used Vehicle Index. The Manheim Used Vehicle Value Index, based on the 1997 Manheim based index, increased from 204.0 at December 31, 2023 to 204.8 at December 31, 2024.

Previous wording

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 New York Department of Financial Services.

Current wording

The activities of the Company and its subsidiaries are subject to regulation under various U.S. federal laws and regulatory agencies which impose regulations, supervise and conduct examinations, and may affect the operations and management of the Company and its ability to take certain actions, including making distributions to our parent, Santander. The Company is regulated on a consolidated basis by the Federal Reserve, including the FRB of Boston, and the CFPB. The Company's subsidiaries are further supervised by the OCC, the FRB of Atlanta, and the New York Department of Financial Services.

Previous wording

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

Current wording

On January 1, 2020 we adopted the FASB ASC Topic 326 - Financial Instruments - Credit Losses, which upon adoption resulted in a reduction to our opening retained earnings balance, net of income tax, and an increase to the allowance for loan losses of approximately $2.5 billion. The U.S. banking agencies in December 2018 approved a final rule to address the impact of CECL on regulatory capital by allowing banking organizations, including the Company, the option to phase in the day-one impact of CECL until the first quarter of 2023. On March 26, 2020, the U.S. banking agencies issued an interim final rule that provides banking organizations with an alternative option to delay for two years an estimate of CECL’s effect on regulatory capital relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period. SHUSA remains in the three-year transition period. This interim rule was subsequently updated with technical amendments in a final rule dated September 30, 2020, which was elected by the Company.

Previous wording

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. The SCB is calculated as the maximum decline in CET1 in the severely adverse scenario (subject to a 2.5% floor) plus four quarters of dividends. The rule results in new firm-specific regulatory capital expectations which are equal to 4.5% of CET1 plus the SCB, any GSIB surcharge, and any countercyclical capital buffer. The GSIB buffer is applicable only to the largest and most complex firms and does not apply to SHUSA. In the event a firm falls below its new minimums, the rule imposes restrictions on capital distributions and discretionary bonuses. Firms continue to submit a capital plan annually. Supervisory expectations for capital planning processes do not change under the final rule. As of December 31, 2023, SHUSA's SCB CET1 minimum requirement was 7.0%.

Current wording

The Federal Reserve has adopted a final rule to simplify capital rules for large banks. Under the final rule, firms' supervisory stress test results are now used to establish the size of the SCB requirement. The SCB is calculated as the maximum decline in CET1 in the severely adverse scenario (subject to a 2.5% floor) plus four quarters of dividends. The rule results in new firm-specific regulatory capital expectations which are equal to 4.5% of CET1 plus the SCB, any GSIB surcharge, and any countercyclical capital buffer. The GSIB buffer is applicable only to the largest and most complex firms and does not apply to SHUSA. In the event a firm falls below its new minimums, the rule imposes restrictions on capital distributions and discretionary bonuses. Firms continue to submit a capital plan annually. Supervisory expectations for capital planning processes do not change under the final rule. As of December 31, 2024, SHUSA's SCB CET1 minimum requirement was 8.0%.

Previous wording

On July 27, 2023, the federal banking agencies issued a capital proposal that would make significant changes to the regulatory capital rules applicable to large banking organizations (including SHUSA and SBNA) and banking organizations with significant trading activity. This proposal would implement the final elements of the Basel III capital framework and make other changes to the regulatory capital rules in response to recent bank failures. The capital proposal would establish the expanded risk-based approach for calculating RWA that would apply to large banking organizations. The expanded risk-based approach would include a new more risk-sensitive standardized approach for measuring credit risk and operational risk. It would also include new standardized approaches for measuring market risk and credit valuation adjustment risk but would allow the use of internal models for market risk in certain circumstances with regulatory approval. Under the capital proposal, a large banking organization would be required to calculate its risk-based capital ratios under both the expanded risk-based approach and the current standardized approach and would use the lower of the two. All capital buffer requirements, including the SCB requirement, would apply regardless of whether the expanded risk-based approach or the existing standardized approach produces the lower ratio.

Current wording

On July 27, 2023, the federal banking agencies issued a capital proposal that would make significant changes to the regulatory capital rules applicable to large banking organizations (including SHUSA and SBNA) and banking organizations with significant trading activity. This proposal would implement the final elements of the Basel III capital framework and make other changes to the regulatory capital rules in response to recent bank failures. The capital proposal would establish the expanded risk-based approach for calculating RWAs that would apply to large banking organizations. The expanded risk-based approach would include a new more risk-sensitive standardized approach for measuring credit risk and operational risk. It would also include new standardized approaches for measuring market risk and credit valuation adjustment risk but would allow the use of internal models for market risk in certain circumstances with regulatory approval. Under the capital proposal, a large banking organization would be required to calculate its risk-based capital ratios under both the expanded risk-based approach and the current standardized approach and would use the lower of the two. All capital buffer requirements, including the SCB requirement, would apply regardless of whether the expanded risk-based approach or the existing standardized approach produces the lower ratio.

Previous wording

The expanded total RWA calculation used in the expanded risk-based approach would be phased in over a three-year period starting on July 1, 2025. The requirement to reflect AOCI in regulatory capital would also be phased in over a three-year period starting on July 1, 2025. All other elements of the calculation of regulatory capital would apply on the effective date of the final rule, which is expected to be on or about July 1, 2025. On October 20, 2023, the federal banking agencies announced that they extended the comment period on the capital proposal from November 30, 2023 until January 16, 2024. In addition to pushing back the comment deadline, the Federal Reserve indicated it would begin collecting data to gather more information from the banks affected by the proposal. That data collection also ended on January 16, 2024. The proposed rules and their impact on SHUSA are under review.

Current wording

The total RWA calculation used in the expanded risk-based approach would be phased in over a three-year period. The requirement to reflect AOCI in regulatory capital would also be phased in over a three-year period. All other elements of the calculation of regulatory capital would apply on the effective date of the final rule. On October 20, 2023, the federal banking agencies announced that they extended the comment period on the capital proposal from November 30, 2023 until January 16, 2024. In addition to pushing back the comment deadline, the Federal Reserve indicated it would begin collecting data to gather more information from the banks affected by the proposal. That data collection also ended on January 16, 2024. The proposed rules and their impact on SHUSA are under review.

Previous wording

On July 28, 2023, the Federal Reserve and FDIC issued an NPR that would require banks with total assets of $100 billion or more to maintain a layer of long-term debt from the holding company to improve financial stability by increasing the resolvability and resiliency of such institutions. By requiring each such large bank to maintain a minimum amount of long-term debt to absorb losses, the proposal would increase the options available to resolve such banks in case of failure. Additionally, by reducing the risk that uninsured depositors would face losses, long-term debt can reduce the speed and severity of bank runs and limit the risk of contagion when a bank is under stress. The proposal would provide a three-year phase-in period and would also allow certain outstanding long-term debt to count toward the minimum requirements to provide banks with a reasonable period to transition to the required characteristics of eligible long-term debt instruments. Comments on the proposal were due on November 30, 2023. SHUSA remains subject to the TLAC requirements outlined below.

Current wording

On July 28, 2023, the Federal Reserve and FDIC issued an NPR that would require banks with total assets of $100 billion or more to maintain a layer of long-term debt from the holding company to improve financial stability by increasing the resolvability and resiliency of such institutions. By requiring each such large bank to maintain a minimum amount of long-term debt to absorb losses, the proposal would increase the options available to resolve such banks in case of failure. Additionally, by reducing the risk that uninsured depositors would face losses, long-term debt can reduce the speed and severity of bank runs and limit the risk of contagion when a bank is under stress. The proposal would provide a three-year phase-in period and would also allow certain outstanding long-term debt to count toward the minimum requirements to provide banks with a reasonable period to transition to the required characteristics of eligible long-term debt instruments. Comments on the proposal were due on November 30, 2023. SHUSA remains subject to the TLAC requirements discussed below.

Previous wording

The recent failure of several large U.S. banking institutions has led to increased market uncertainty. Under the FDIA, the loss to the DIF arising from the use of the systemic risk exception must be recovered through one or more special assessments on IDIs, depository institution holding companies, or both, as the FDIC determines to be appropriate. On May 11, 2023, the FDIC issued for public comment a proposed rule to impose a special assessment on IDIs to recover the loss to the DIF resulting from the use of the systemic risk exception to protect the uninsured depositors of the failed U.S. banking institutions. The final rule was issued on November 16, 2023. Under the final rule, the FDIC would collect a special assessment from IDIs at a quarterly rate of approximately 3.36 basis points over eight quarterly assessment periods, starting with the first quarterly assessment period of 2024. The assessment base for the special assessment is equal to an IDI’s estimated uninsured deposits reported as of December 31, 2022, adjusted to exclude the first $5 billion in estimated uninsured deposits held by the IDI. The special assessment is a tax-deductible operating expense for IDIs, and the effect on income of the entire amount of the special assessment will occur in one quarter for the IDIs subject to the assessment.

Current wording

The recent failure of several large U.S. banking institutions has led to increased market uncertainty. Under the FDIA, the loss to the DIF arising from the use of the systemic risk exception must be recovered through one or more special assessments on IDIs, depository institution holding companies, or both, as the FDIC determines to be appropriate. On May 11, 2023, the FDIC issued for public comment a proposed rule to impose a special assessment on IDIs to recover the loss to the DIF resulting from the use of the systemic risk exception to protect the uninsured depositors of the failed U.S. banking institutions. The final rule was issued on November 16, 2023. Under the final rule, the FDIC would collect a special assessment from IDIs at a quarterly rate of approximately 3.36 basis points over eight quarterly assessment periods, starting with the first quarterly assessment period of 2024. In June 2024, the FDIC added an additional assessment to be collected at a quarterly rate of approximately 2.34 basis points over an additional two quarters, resulting in an additional accrual of $10.7 million that was recorded during the second quarter of 2024. The assessment base for the special assessment is equal to an IDI’s estimated uninsured deposits reported as of December 31, 2022, adjusted to exclude the first $5 billion in estimated uninsured deposits held by the IDI. The special assessment is a tax-deductible operating expense for IDIs, and the effect on income of the entire amount of the special assessment will occur in one quarter for the IDIs subject to the assessment. The total impact of the special assessment is $72.1 million.

Previous wording

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.

Current wording

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

Previous wording

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.

Current wording

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

Previous wording

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.

Current wording

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

Previous wording

In October 2023, the supervisory agencies jointly adopted a CRA final rule to modernize the regulation. The rule intends to adapt to industry changes, such as the growth of online, mobile, and branchless banking and hybrid models, while continuing a focus on low and moderate communities.

Current wording

In October 2023, the supervisory agencies jointly adopted a final CRA rule to modernize the regulation. The rule intends to adapt to industry changes, such as the growth of online, mobile, and branchless banking and hybrid models, while continuing a focus on low and moderate communities.

Previous wording

SBNA remains committed to the goals of the CRA and supports efforts to modernize the rule through greater transparency regarding evaluation ratings, promoting consistent interpretations of CRA, and encouraging increased economic development in low and moderate-income communities. Management continues to assess the impact of the rule and will make adjustments to its CRA plan as needed prior to the new framework going into effect on January 1, 2026.

Current wording

SBNA remains committed to the goals of the CRA and supports efforts to modernize the rule through greater transparency regarding evaluation ratings, promoting consistent interpretations of CRA, and encouraging increased economic development in low and moderate-income communities. Management continues to monitor court proceedings and will adjust SBNA's CRA plans once the status of the new rule becomes known.

Previous wording

As described in Note 1 and Note 3 to the Consolidated Financial Statements, the ACL is measured using the current expected credit loss model, which is based on information derived from historical experience, current conditions, and prospective information that requires the use of significant judgment by management. The model includes both quantitative and qualitative factors with key inputs from unemployment data, the HPI, GDP growth rates, and used vehicle index growth rates, along with certain loan level characteristics all used to predict the likelihood of borrower default. Management applies qualitative factors to capture risks not addressed by the key inputs such as temporary or recent unique market disruptions impacting trends in delinquencies and used vehicle prices. While management uses the best information available to make such evaluations, future adjustments to the ACL may be necessary if conditions differ substantially from these assumptions used in making the evaluations.

Current wording

As described in Note 1 and Note 3 to the Consolidated Financial Statements, the ACL is measured using the CECL model, which is based on information derived from historical experience, current conditions, and prospective information that requires the use of significant judgment by management. The model includes both quantitative and qualitative factors with key inputs from unemployment data, the HPI, GDP growth rates, and used vehicle index growth rates, along with certain loan level characteristics all used to predict the likelihood of borrower default. Management applies qualitative factors to capture risks not addressed by the key inputs such as temporary or recent unique market disruptions impacting trends in delinquencies and used vehicle prices. While management uses the best information available to make such evaluations, future adjustments to the ACL may be necessary if conditions differ substantially from these assumptions used in making the evaluations.

Previous wording

The Company generally uses a third-party vendor's consensus baseline macroeconomic scenario for the quantitative estimate and additional positive and negative macroeconomic scenarios to make qualitative adjustments for macroeconomic uncertainty and considers adjustments to macroeconomic inputs and outputs based on market volatility. The baseline scenario was based on the latest consensus forecasts available which showed an improvement in key variables in the current quarter, including an expected improvement in unemployment rates (which is a key driver to losses) and the GDP growth rate, offset by expected worsening of the commercial real estate outlook, indicating that there may be challenges ahead. Using the weighted-average of a range of economic forecast scenarios, we estimated at December 31, 2023 that the unemployment rate is expected to be approximately 5.0% at the end of 2024. In comparison, at December 31, 2022, management previously estimated the unemployment rate using the weighted-average of our economic forecast scenarios to be 5.1% at the end of 2023. Additionally, the weighted used vehicle index, where a higher number corresponds to a higher used car price at auction, was estimated at December 31, 2023 to be approximately 201 at the end of 2024, compared to our estimate at December 31, 2022 to be approximately 183 at the end of 2023. While the economy saw significant recovery in 2022 and into 2023, there is still considerable uncertainty regarding overall lifetime loss estimates due to persistent inflation and high interest rates. The scenarios used by the Company are periodically updated over a reasonable and supportable time horizon with weightings assigned by management and approved through the established governance process.

Current wording

The Company generally uses a third-party vendor's consensus baseline macroeconomic scenario for the quantitative estimate and additional positive and negative macroeconomic scenarios to make qualitative adjustments for macroeconomic uncertainty and considers adjustments to macroeconomic inputs and outputs based on market volatility. The baseline scenario was based on the latest consensus forecasts available, which reflects growth in the U.S. economy and a stable employment rate (which is a key driver to losses). Downside risks continue to exist due to uncertainties related to increasing consumer indebtedness, and restricted job growth undermining consumer spending and growth. Using the weighted-average of a range of economic forecast scenarios, we estimated at December 31, 2024 that the unemployment rate is expected to be approximately 5.2% at the end of 2025. In comparison, at December 31, 2023, management previously estimated the unemployment rate using the weighted-average of our economic forecast scenarios to be 5.0% at the end of 2024. Additionally, the weighted used vehicle index, where a higher number corresponds to a higher used car price at auction, was estimated at December 31, 2024 to be approximately 194 at the end of 2025, compared to our estimate at December 31, 2023 to be approximately 201 at the end of 2024. While the economy saw significant recovery in 2023 and into 2024, there is still considerable uncertainty regarding overall lifetime loss estimates due to persistent inflation and high interest rates. The scenarios used by the Company are periodically updated over a reasonable and supportable time horizon with weightings assigned by management and approved through the established governance process.

Previous wording

Under the range of economic forecast scenarios considered, based on applying a 100% weighting to the most negative scenario used, and without considering the impact of corresponding or offsetting qualitative factors that could have a significant impact on the overall ACL, the ACL would have been higher by approximately $1.2 billion. This range reflects the sensitivity of the allowance for credit losses specifically related to the scenarios and weights considered as of December 31, 2023 and does not consider other potential adjustments that could increase or decrease loss estimates calculated using alternative economic scenarios.

Current wording

Under the range of economic forecast scenarios considered, based on applying a 100% weighting to the most negative scenario used, and without considering the impact of corresponding or offsetting qualitative factors that could have a significant impact on the overall ACL, the ACL would have been higher by approximately $1.1 billion. This range reflects the sensitivity of the ACL specifically related to the scenarios and weights considered as of December 31, 2024 and does not consider other potential adjustments that could increase or decrease loss estimates calculated using alternative economic scenarios.

Previous wording

The Company has significant investments in vehicles in its operating lease portfolio. In accounting for operating leases, management must make a determination at the beginning of the lease contract of the estimated realizable value (i.e., residual value) of the vehicle at the end of the lease. Residual value represents an estimate of the market value of the vehicle at the end of the lease term, which typically ranges from two to four years. At contract inception, the Company determines the projected residual value based on an internal evaluation of the expected future value. This evaluation is based on a proprietary model using internally-generated data that is compared against third-party, independent data for reasonableness. The customer is obligated to make payments during the term of the lease for the difference between the purchase price and the contract residual value plus a finance charge. However, since the customer is not obligated to purchase the vehicle at the end of the contract, the Company is exposed to a risk of loss to the extent the value of the vehicle is below the residual value estimated at contract inception. Management periodically performs a detailed review of the estimated realizable value of leased vehicles to assess the appropriateness of the carrying value of leased assets.

Current wording

The Company has significant investments in vehicles in its operating lease portfolio. In accounting for operating leases, management must make a determination at the beginning of the lease contract of the estimated realizable value (i.e., residual value) of the vehicle at the end of the lease. Residual value represents an estimate of the market value of the vehicle at the end of the lease term, which typically ranges from two to four years. At contract inception, the Company determines the projected residual value based on an internal evaluation of the expected future value. This evaluation is based on third-party and internally-generated data. The customer is obligated to make payments during the term of the lease for the difference between the purchase price and the contract residual value plus a finance charge. However, since the customer is not obligated to purchase the vehicle at the end of the contract, the Company is exposed to a risk of loss to the extent the value of the vehicle is below the residual value estimated at contract inception. Management periodically performs a detailed review of the estimated realizable value of leased vehicles to assess the appropriateness of the carrying value of leased assets.

Previous wording

The Company periodically evaluates its investment in operating leases for impairment if circumstances, such as a systemic and material decline in used vehicle values occurs. These circumstances could include, for example, a decline in the residual value of our lease portfolio due to an event caused by shocks to oil and gas prices (which may have a pronounced impact on certain models of vehicles) or pervasive manufacturer defects (which may systemically affect the value of a particular brand or model). Impairment is determined to exist if the fair value of the leased asset is less than its carrying value and it is determined that the net carrying value is not recoverable. If a material decline in the used vehicle price were to occur rapidly near the end of the lease term, there may not be adequate time for the remaining adjusted depreciation to account for such decline, and an impairment charge could be necessary. The net carrying value of a leased asset is not recoverable if it exceeds the sum of the undiscounted expected future cash flows expected to result from the lease payments and the estimated residual value upon eventual disposition. If our operating lease assets are considered to be impaired, the impairment is measured as the amount by which the carrying amount of the assets exceeds the fair value as estimated by DCF. No such impairment was recognized in 2023, 2022, or 2021.

Current wording

The Company periodically evaluates its investment in operating leases for impairment if circumstances, such as a systemic and material decline in used vehicle values, occurs. These circumstances could include, for example, a decline in the residual value of our lease portfolio due to an event caused by shocks to oil and gas prices (which may have a pronounced impact on certain models of vehicles) or pervasive manufacturer defects (which may systemically affect the value of a particular brand or model). Impairment is determined to exist if the fair value of the leased asset is less than its carrying value and it is determined that the net carrying value is not recoverable. If a material decline in the used vehicle price were to occur rapidly near the end of the lease term, there may not be adequate time for the remaining adjusted depreciation to account for such decline, and an impairment charge could be necessary. The net carrying value of a leased asset is not recoverable if it exceeds the sum of the undiscounted expected future cash flows expected to result from the lease payments and the estimated residual value upon eventual disposition. The expected future cash flows include residual guarantee amounts from OEMs, if applicable. If our operating lease assets are considered to be impaired, the impairment is measured as the amount by which the carrying amount of the assets exceeds the fair value as estimated by DCF. No such impairment was recognized in 2024, 2023, or 2022.

Previous wording

The Company's depreciation methodology for operating lease assets considers management's expectation of the value of the vehicles upon lease termination, which is based on numerous assumptions and factors influencing used vehicle values. The critical assumptions underlying the estimated carrying value of automobile lease assets include: (1) estimated market value information obtained and used by management in estimating residual values, (2) proper identification and estimation of business conditions, (3) our remarketing abilities, and (4) automobile manufacturer vehicle and marketing programs. Changes in these assumptions could have a significant impact on the value of the lease residuals. Expected residual values include estimates of payments from automobile manufacturers related to residual support and risk-sharing agreements, if any. To the extent an automotive manufacturer is not able to fully honor its obligation relative to these agreements, the Company's depreciation expense would be negatively impacted.

Current wording

The Company's depreciation methodology for operating lease assets considers management's expectation of the value of the vehicles upon lease termination, which is based on numerous assumptions and factors influencing used vehicle values. The critical assumptions underlying the estimated carrying value of automobile lease assets include: (1) estimated market value information obtained and used by management in estimating residual values, (2) proper identification and estimation of business conditions, (3) our remarketing abilities, and (4) automobile manufacturer vehicle and marketing programs. Changes in these assumptions could have a significant impact on the value of the lease residuals.

Previous wording

If the estimated realizable values of our leased vehicles were to decline 1% below contractual residual values, depreciation expense would increase by approximately $111 million over the remaining life of the current lease portfolio.

Current wording

As of December 31, 2024, if the estimated realizable values of our leased vehicles were to decline 1% below the current estimated residual values, depreciation expense would increase by approximately $91.0 million over the remaining life of the current lease portfolio.

Previous wording

(5)Includes allowance for loan losses and Other assets including 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 7 to the Consolidated Financial Statements for further discussion.

Current wording

(5)Includes allowance for loan losses and Other assets including leases, goodwill and intangibles, premises and equipment, net deferred tax assets, equity method investments, BOLI, accrued interest receivable, derivative assets, miscellaneous receivables, prepaid expenses and MSRs. Refer to Note 7 to the Consolidated Financial Statements for further discussion.

Previous wording

Net interest income decreased $299.1 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. The most significant factors contributing to this change were as follows:

Current wording

Net interest income decreased $297.8 million for the year ended December 31, 2024 compared to the year ended December 31, 2023. The most significant factors contributing to this change were as follows:

Previous wording

•Interest income on loans increased $1.2 billion for the year ended December 31, 2023 compared to the corresponding period in 2022. This change is attributed to an increase in average loan volume of $301.8 million and an increase in average rates of $940.8 million.

Current wording

•Interest income on loans increased $309.7 million for the year ended December 31, 2024 compared to the corresponding period in 2023. This change is attributable to a decrease in average loan volume of $376.3 million and an increase in average rates of $686.0 million.

Previous wording

•Interest income on interest-earning deposits increased $550.2 million for the year ended December 31, 2023 compared to the corresponding period in 2022. This change is attributed to a decrease in average interest-bearing deposits volume of $3.8 million and an increase in average rates of $554.0 million. This change is primarily driven by the changing interest rate environment.

Current wording

•Interest income on interest-earning deposits increased $135.9 million for the year ended December 31, 2024 compared to the corresponding period in 2023. This change is attributable to an increase in average interest-bearing deposits volume of $194.9 million and a decrease in average rates of $59.0 million. This change is primarily driven by the changing interest rate environment.

Previous wording

•Interest and fees on federal funds sold and securities purchased under resale agreements or similar arrangements increased $1.7 billion for the year ended December 31, 2023, compared to the corresponding period in 2022. This change is attributed to an increase in average rates of $1.8 billion.

Current wording

•Interest and fees on federal funds sold and securities purchased under resale agreements or similar arrangements increased $371.6 million for the year ended December 31, 2024 compared to the corresponding period in 2023. This change is attributable to an increase in average investment securities volume of $122.3 million and an increase in average rates of $249.3 million.

Previous wording

•Interest income on investment securities increased $407.7 million for the year ended December 31, 2023 compared to the corresponding period in 2022. This change is attributed to an increase in average investment securities volume of $118.4 million and an increase in average rates of $289.3 million. The change is primarily driven by an increase in interest rates during the year.

Current wording

•Interest income on investment securities increased $293.8 million for the year ended December 31, 2024 compared to the corresponding period in 2023. This change is attributable to an increase in average investment securities volume of $175.1 million and an increase in average rates of $118.8 million. This change is primarily driven by an increase in interest rates during the year.

Previous wording

•Interest expense on deposits and related customer accounts increased $1.2 billion for the year ended December 31, 2023, compared to the corresponding period in 2022. This change is attributed to an increase in average interest-bearing deposit volume of $432.5 million and an increase in average rates of $807.2 million. The increase in average rates is primarily attributed to money market and CD products.

Current wording

•Interest expense on deposits and related customer accounts increased $515.3 million for the year ended December 31, 2024, compared to the corresponding period in 2023. This change is attributable to an increase in average interest-bearing deposits volume of $142.5 million and an increase in average rates of $372.8 million. The increase in average rates is primarily attributable to money market and CD products.

Previous wording

•Interest expense on Securities Financing Activities and borrowed funds increased $3.0 billion for the year ended December 31, 2023 compared to the corresponding period in 2022. This change is attributed to an increase in average Securities Financing Activities and borrowed funds volume of $214.0 million and an increase in average rates of $2.8 billion.

Current wording

•Interest expense on Securities Financing Activities and borrowed funds increased $893.6 million for the year ended December 31, 2024 compared to the corresponding period in 2023. This change is attributable to an increase in average Securities Financing Activities and borrowed funds volume of $372.5 million and an increase in average rates of $521.1 million.

Previous wording

The Company had credit loss expense of $2.2 billion for the year ended December 31, 2023, compared to a credit loss expense of $2.0 billion for the corresponding period in 2022. The credit loss expense during the year ended December 31, 2023 was mainly due to RICs and personal unsecured loans charge-offs which continue to normalize and an increase in the ACL driven by the deterioration in the personal unsecured lending portfolio and the CRE portfolio, mainly office.

Current wording

The Company had credit loss expense of $1.9 billion for the year ended December 31, 2024, compared to a credit loss expense of $2.2 billion for the corresponding period in 2023. The credit loss expense during the year ended December 31, 2024 was mainly due to growth in RICs and auto loans, partially offset by the decrease in ACL driven by improvement in the macroeconomic outlook for certain macro variables, sale of certain personal unsecured loans and off-balance sheet securitizations of RICs and auto loans.

Previous wording

Credit loss expense on commercial loans increased $70.1 million for the year ended December 31, 2023, compared to the corresponding period in 2022, primarily driven by deterioration in the CRE portfolio and other factors such as high interest rates and persistent inflation.

Current wording

Credit loss expense on commercial loans decreased $146.1 million for the year ended December 31, 2024 compared to the corresponding period in 2023, primarily driven by CRE loans, an improved macroeconomic outlook for certain macro variables and lower exposure, partially offset by higher reserves in the Multifamily portfolio.

Previous wording

The credit loss expense on unfunded credit losses for the year ended December 31, 2023 increased $6.3 million compared to the corresponding period in 2022.

Current wording

The credit loss expense on unfunded credit losses for the year ended December 31, 2024 increased $12.0 million compared to the corresponding period in 2023.

Previous wording

•a decrease in Lease income of 187.7 million for the year ended December 31, 2023 compared to the corresponding period in 2022, primarily due to less active leased vehicle units;

Current wording

•Lease income decreased $284.4 million for the year ended December 31, 2024 compared to the corresponding period in 2023, primarily due to fewer active leased vehicle units.

Previous wording

•a decrease in Miscellaneous income, net of $169.1 million for the year ended December 31, 2023 compared to the corresponding period in 2022, discussed further below.

Current wording

•Miscellaneous income, net increased $65.1 million for the year ended December 31, 2024 compared to the corresponding period in 2023, discussed further below.

Previous wording

•an increase in Net gains recognized in earnings of $126.5 million for year ended December 31, 2023 compared to the corresponding period in 2022, primarily due to an increase from trading securities gains and gains on the sale of AFS securities during 2023.

Current wording

•Net gains recognized in earnings increased $79.4 million for the year ended December 31, 2024 compared to the corresponding period in 2023, primarily due to an increase from trading securities gains during 2024.

Previous wording

Total non-interest income decreased $264.4 million for the year ended December 31, 2023 compared to the corresponding periods in 2022. This change was primarily due to:

Current wording

Miscellaneous income increased $65.1 million for the year ended December 31, 2024 compared to the corresponding period in 2023. This change was primarily comprised of:

Previous wording

Income tax benefit of $146.1 million was recorded for theyear ended December 31, 2023 compared to an income tax expense of $343.1 million for the corresponding period in 2022. This resulted in an ETR of (18.6)% for theyear ended December 31, 2023 compared to 19.6% for the corresponding period in 2022.

Current wording

An Income tax benefit of $106.8 million was recorded for the year ended December 31, 2024 compared to a benefit of $146.1 million for the corresponding period in 2023. This resulted in an ETR of (11.0)% for the year ended December 31, 2024 compared to (18.6)% for the corresponding period in 2023.