Banco Santander S A : 3Q2019 financial report

FINANCIAL REPORT

January-September 2019

Simple Personal Fair

Financial report

January-September

2019

KEY CONSOLIDATED DATA	3
SANTANDER AIM AND CORPORATE CULTURE	4
GROUP FINANCIAL INFORMATION	6
Group performance	6
Income statement and balance sheet	8
Solvency ratios	17
Risk management	18
FINANCIAL INFORMATION BY SEGMENTS	22
Primary segments	26
Secondary segments	43
RESPONSIBLE BANKING	46
CORPORATE GOVERNANCE	48
THE SANTANDER SHARE	49
APPENDIX	51
Financial information	52
Alternative Performance Measures	73
Interim condensed consolidated financial statements	80
Glossary	83
Important information	84

All customers, shareholders and the general public can use Santander's communication channels in all the countries in which the Bank operates.

This report was approved by the Board of Directors on 29 October 2019, following a favourable report from the Audit Committee.

Important information regarding this report can be found on pages 84 and 85.

Santander vision and		Group financial	Financial information	Responsible banking
	Corporate governance		Appendix
corporate culture		information	by segments	Santander share

Key consolidated data

BALANCE SHEET (EUR million)	Sep-19	Jun-19	%	Sep-19	Sep-18	%	Dec-18
Total assets	1,517,885	1,512,096	0.4	1,517,885	1,444,687	5.1	1,459,271
Loans and advances to customers	916,003	908,235	0.9	916,003	866,226	5.7	882,921
Customer deposits	814,285	814,751	(0.1)	814,285	778,751	4.6	780,496
Total funds	1,035,651	1,032,769	0.3	1,035,651	986,199	5.0	980,562
Total equity	108,526	109,985	(1.3)	108,526	105,668	2.7	107,361
Note: Total funds includes customer deposits, mutual funds, pension funds and managed portfolios.
INCOME STATEMENT (EUR million)	Q3'19	Q2'19	%	9M'19	9M'18	%	2018
Net interest income	8,806	8,954	(1.7)	26,442	25,280	4.6	34,341
Total income	12,466	12,351	0.9	36,902	35,882	2.8	48,424
Net operating income	6,744	6,522	3.4	19,593	19,039	2.9	25,645
Profit before tax	2,181	2,929	(25.5)	8,712	10,586	(17.7)	14,201
Attributable profit to the parent	501	1,391	(64.0)	3,732	5,742	(35.0)	7,810
Changes in constant euros: Q3'19 / Q2'19: NII: +0.8%; Total income: +3.3%; Net operating income: +5.3%; Attributable profit: -59.0%
9M'19 / 9M'18: NII: +4.6%; Total income: +3.0%; Net operating income: +3.0%; Attributable profit: -34.7%
UNDERLYING INCOME
STATEMENT (1) (EUR million)	Q3'19	Q2'19	%	9M'19	9M'18	%	2018
Net interest income	8,806	8,954	(1.7)	26,442	25,280	4.6	34,341
Total income	12,466	12,351	0.9	36,902	35,882	2.8	48,424
Net operating income	6,744	6,522	3.4	19,593	19,039	2.9	25,645
Profit before tax	3,844	3,895	(1.3)	11,423	11,230	1.7	14,776
Attributable profit to the parent	2,135	2,097	1.8	6,180	6,042	2.3	8,064
Variations in constant euros: Q3'19 / Q2'19: NII: +0.8%; Total income: +3.3%; Net operating income: +5.3%; Attributable profit: +4.0%
9M'19 / 9M'18: NII: +4.6%; Total income: +3.0%; Net operating income: +3.0%; Attributable profit: +2.7%
EPS, PROFITABILITY AND EFFICIENCY (%)	Q3'19	Q2'19	%	9M'19	9M'18	%	2018
EPS (euro)	0.021	0.076	(72.7)	0.202	0.331	(39.0)	0.449
Underlying EPS (euros) (1)	0.121	0.120	1.0	0.352	0.349	0.8	0.465
RoE	7.02	7.79		5.90	8.20		8.21
RoTE	9.86	11.02		8.33	11.69		11.70
Underlying RoTE (1)	12.19	12.03		11.86	12.14		12.08
RoA	0.56	0.63		0.50	0.65		0.64
RoRWA	1.39	1.56		1.22	1.55		1.55
Underlying RoRWA (1)	1.65	1.67		1.63	1.60		1.59
Efficiency ratio	45.9	47.2		46.9	46.9		47.0
SOLVENCY AND NPL RATIOS (%)	Sep-19	Jun-19	%	Sep-19	Sep-18	%	Dec-18
CET1 (2)	11.30	11.30		11.30	11.11		11.30
Fully loaded Total ratio (2)	14.68	14.80		14.68	14.58		14.77
NPL ratio	3.47	3.51		3.47	3.87		3.73
Coverage ratio	67	68		67	68		67
MARKET CAPITALISATION AND SHARES	Sep-19	Jun-19	%	Sep-19	Sep-18	%	Dec-18
Shares (millions)	16,618	16,237	2.3	16,618	16,136	3.0	16,237
Share price (euros)	3.737	4.081	(8.4)	3.737	4.336	(13.8)	3.973
Market capitalisation (EUR million)	62,094	66,253	(6.3)	62,094	69,958	(11.2)	64,508
Tangible book value per share (euros)	4.25	4.30		4.25	4.16		4.19
Price / Tangible book value per share (X)	0.88	0.95		0.88	1.04		0.95
P/E ratio (X)	13.90	11.29		13.90	9.83		8.84
OTHER DATA	Sep-19	Jun-19	%	Sep-19	Sep-18	%	Dec-18
Number of shareholders	4,025,074	4,054,208	(0.7)	4,025,074	4,190,808	(4.0)	4,131,489
Number of employees	201,017	201,804	(0.4)	201,017	201,101	(0.0)	202,713
Number of branches	12,691	13,081	(3.0)	12,691	13,414	(5.4)	13,217

1. In addition to financial information prepared in accordance with International Financial Reporting Standards (IFRS) and derived from our consolidated financial statements, this report contains certain financial measures that constitute alternative performance measures (APMs) as defined in the Guidelines on Alternative Performance Measures issued by the European Securities and Markets Authority (ESMA) on 5 October 2015 and other non-IFRS measures, including the figures related to "underlying" results, as they are recorded in the separate line of "net capital gains and provisions", above the line of attributable profit to the parent. Further details are provided on page 12 of this report.
   For further details of the APMs and non-IFRS measures used, including its definition or a reconciliation between any applicable management indicators and the financial data presented in the consolidated financial statements prepared under IFRS, please see 2018 Annual Financial Report, published in the CNMV on 28 February 2019, our 20-F report for the year ending 31 December 2018 registered with the SEC in the United States as well as the "Alternative performance measures" section of the appendix to this report.
2. 2018 and 2019 data applying the IFRS 9 transitional arrangements. As indicated by the consolidating supervisor a pay-out of 50%, the maximum within the target range (40%- 50%), was applied for the calculation of the capital ratios in 2019. Previously, the average cash pay-out for the last three years was considered.

January - September 2019

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Santander vision and		Group financial	Financial information	Responsible banking
	Corporate governance		Appendix
corporate culture		information	by segments	Santander share

SANTANDER VISION AND CORPORATE CULTURE

Oursuccess is based on a clearpurpose, aim and approach to business.

We are building a more responsible bank

Our		Our aim		Our
purpose		as a bank		how
To help		To be the best open
people and		financial services		Everything
businesses		platform, by acting		we do should
prosper.		responsibly and earning		be Simple,
		the lasting loyalty of		Personal
		our people, customers,		and Fair.
		shareholders and
		communities.

A digital Santander.

To continue growing in a sustainable and profitable way and to accelerate execution, we will remain focused on our digital transformation.

Santander expects to accelerate its digital transformation and the launch of global platforms, which will enable the Group to offer new solutions, products and services to our customers, and compete in the open market for new ones.

International	Payment	Trading
transfers	platform	platform

Strong corporate culture.

The Santander Way is our global culture, fully aligned to our corporate strategy. It includes our purpose, our aim, and how we do business.

Our corporate culture includes eight corporate behaviours...

Show	Truly listen	Talk	Keep	Support	Embrace	Actively	Bring
respect		straight	promises	people	change	collaborate	passion

…and a strong risk culture where everyone is personally responsible for managing

their risks in their day to day work

...Everyone´s business

4	January - September 2019

Santander vision and		Group financial	Financial information	Responsible banking
	Corporate governance		Appendix
corporate culture		information	by segments	Santander share

Generating confidence and operating responsibly, we contribute value to all our stakeholders

People

Customers

Santander was one of the 25 best companies to work for at the global level, according to the annual ranking by Great Place to Work based on a survey involving more than 8,000 organisations representing 12 million employees from 90 countries.

This ranking reflects the effort and progress made on various initiatives across the Group within our human resources strategy, which aims to be a benchmark employer.

To this end, we continued to work on strategic levers such as a common culture (The Santander Way), dynamic management of current talent (Workday and global central employee platform) and talent for the future (Strategic Workforce Planning).

We continued to focus on improving customer loyalty and experience. Progress was reflected in the increase of

1.8 million loyal customers, greater penetration as a percentage of active customers and 6.1 million more digital customers in the last 12 months.

Santander Global Platform continues to advance in rolling out its businesses as scheduled, including:

• Openbank will begin to operate in Germany with a fully digital lending proposal (platform and latest generation mobile phones) that will come on stream in the country by the end of the year.
• We issued the first bond using end-to-end blockchain technology, positioning us at the forefront of innovation in capital markets and helping our customers in their digital transformation.

We also continued to strengthen our traditional branches and develop new models (SMART, Súper Ágil and Work Café), while investing in new generation ATMs and in contact centres.

Shareholders The extraordinary general meeting of shareholders on 23 July approved the capital increase to acquire shares of Santander Mexico from minority interests. The acquisition offer was subscribed by 67% of the targeted shares. As a result, Santander's stake in Santander México increased from 74.96% to 91.65%.

The first interim dividend of EUR 0.10 per share charged to 2019's earnings will be paid from 1 November. The board also confirmed its intention to maintain a percentage of the underlying attributable profit in 2019 assigned to the dividend (pay-out) of between 40% and 50%, and the proportion of the dividend in cash is at least the same as last year.

Santander Shareholder Relations and the Universia Foundation completed the XI edition of scholarships for university students with disabilities who are Santander shareholders or relatives of shareholders, in order to help these university students prosper and to promote their social, academic and work-place inclusion.

Community

The 2019 Dow Jones Sustainability Index (DJSI) recognised Santander as the world's most sustainable bank. This is the first time the bank has led the global index and it was the leader in Europe for the second year running. The magazine Fortune also recognised Santander Brasil as the bank that is most changing the world.

Santander joined the Collective Commitment to Climate Action together with 30 other banks in order to speed up the financial sector's transition to a low carbon economy.

Banco Santander successfully issued a EUR 1 billion green bond as a starting point for a global plan for sustainable issuances. This issuance falls within the commitment of Responsible Banking to provide more than EUR 120 billion euros in green finance by 2025.

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