Banco Santander S A : First half 2021 results press release

Banco Santander reports attributable

profit of €3,675 million for the first half of 2021

Underlying profit for the first half was €4,205 million (+153% in constant euros),

excluding restructuring costs from the first quarter

Revenues increased 8% and net operating income grew 13% on a constant currency basis

Madrid, 28 July 2021 - PRESS RELEASE

• The group earned €22.7 billion in total income in the first half of 2021, up 8% year-on-year in constant euros (excluding currency movements), driven by growth in volumes and good performance across all regions.
• Net operating income grew by 13% year-on-year in constant euros to €12.3 billion, as lending and deposits increased by 2% and 4%, respectively, also in constant euros.
• Underlying profit in the first half nearly tripled in Europe to €1,426 million (+172%) and North America to €1,628 million (+178%), while it grew 41% in South America to €1,645 million, reflecting the strength of the bank's geographic diversification, as well as the impact of the higher provisions in 2020 due to the pandemic.
• During the first half, 52% of sales were made through digital channels compared to 44% in same period last year, with the number of customers using digital and mobile channels increasing more than five million year-on-year.
• The strong growth in digital adoption helped drive improvements in efficiency and customer satisfaction, with the group's cost-to-income ratio among the best of its peer group at 45.7%, and seven of the group's core markets achieving a top-threenet-promoter score (NPS).
• Credit quality continued to improve, with non-performing loan provisions down 42% in constant euros to €3.8 billion. The cost of credit stood at 0.94%, better than expected.
• These results led to a return on tangible equity (RoTE) of 11.8% (underlying RoTE, 12.6%), above cost of capital, and a tangible net asset value (TNAV) per share of €3.98 after growing 4% in the quarter.
• CET1 capital was 12.11%, up 27 basis points (bps) in the last 12 months and above the group's 11-12% target range. In the quarter, the bank generated 7 bps organically, accruing 18 bps of capital for potential shareholder remuneration. The bank will continue to accrue at this level throughout the year, with the aim to restore a pay- out ratio of 40-50% of underlying profit1.
• In July, Santander announced an agreement to acquire the market-leading independent fixed income broker Amherst Pierpont, which will enhance Santander CIB's infrastructure and capabilities, and a proposal to buy the outstanding minority shareholdings (20%) in Santander Consumer USA.
• The bank also announced changes to its leadership team within the South America region (see page 7).

Ana Botín, Banco Santander executive chairman, said:

"Our team has delivered another very strong quarter, with net operating income increasing by 13%, driven by solid performance across the board in all our regions and businesses, and especially strong growth in the US and UK.

1 Shareholder remuneration subject to future decisions of the board and, if applicable, the general shareholders' meeting.

Corporate Communications
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www.santander.com - Twitter: @bancosantander

We continue to play a vital role in supporting the economic recovery, and have seen lending and deposit volumes grow again this quarter as we maintain a relentless customer focus.

Our commitment to building a more responsible bank, combined with the bank's ongoing investment in digital innovation, continues to improve the quality and sustainability of our earnings. Our efficiency improved further, with our cost-to-income ratio now 45.7%, and we also made further progress in increasing customer satisfaction.

In line with our strategy, we continue to deploy capital to high growth, high return businesses and the proposal to acquire the outstanding minorities in our US consumer franchise, and the leading broker Amherst Pierpont is consistent with that approach.

We are on track to outperform our profitability target for the year and continue to target a shareholder remuneration pay-out of 40-50% of underlying profit2.

I want to thank each of our teams across all our businesses. They have gone the extra mile for our customers and continue to deliver despite highly challenging circumstances. "

Underlying income statement(*)

	H121 (€m)	H121 v		H121 v H120	Q221 (€m)	Q221 v	Q221 v Q220
	H120		(ex FX)	Q220	(ex FX)
Total income	22,695	+1%	+8%	11,305	+6%	+9%
Operating expenses	-10,377	-3%	+3%	-5,259	+4%	+6%
Net operating income	12,318	+4%	+13%	6,046	+7%	+12%
Net loan-loss provisions	-3,753	-47%	-42%	1,761	-44%	-41%
Profit before tax	7,628	+99%	+123%	3,815	+102%	+114%
Underlying profit	4,205	+120%	+153%	2,067	-35%	+40%
Net capital gains and provisions	-530	-96%	-96%	0	-100%	-100%
Attributable profit	3,675	-	-	2,067	-	-

1. Reconciliation of underlying results to statutory results, available on page 73 of the financial report.

Underlying business performance

(For a like-for-like comparison of underlying business performance, all variations are year-on-year and in constant euros unless otherwise stated.)

Banco Santander achieved an attributable profit of €3,675 million in the first half of 2021. This compares to a loss of €10.8 billion in the same period last year, when the bank made a non-cash adjustment to the valuation of goodwill and deferred tax assets (DTAs). Excluding net charges of €530 million for restructuring costs already announced in Q1 2021, underlying profit for the first half was €4,205 million, up 153% versus the same period of last year. This is Santander's highest underlying profit in the first half since 2010.

2 See footnote 1.
Corporate Communications
Ciudad Grupo Santander, edificio Arrecife, planta 2	2
28660 Boadilla del Monte (Madrid). Tel. [phone]
[e-mail]
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The bank's strong performance was driven by good volume growth, with loans increasing 2% and deposits 4%. Across the group, businesses continued to focus on supporting customers, revenue growth, effective net interest income management and cost control.

The results illustrate the benefits of Santander's geographic and business diversification, with its three regions (Europe, North America and South America), making similar contributions to the group's overall profit. Underlying profit in the first half nearly tripled in Europe to €1,426 million (+172%) and North America to €1,628 million (+178%), while it grew 41% in South America to €1,645 million.

The group saw record earnings in the US in the first half of the year (€1,291 million), reflecting the success of the bank's strategy in the country, where Santander has recently announced two new transactions: an agreement to acquire the market-leading independent fixed-income broker Amherst Pierpont; and a proposal to buy the outstanding minority shareholdings (20%) in Santander Consumer USA.

Santander's earnings also grew across regions and global businesses, particularly in Brazil, the UK, Spain and Chile, while Santander Corporate & Investment Banking (Santander CIB) increased underlying profit by 45% to €1,197 million. Santander CIB achieved leading ranking in Structured Finance (#1 in Latin America and Europe by number of transactions), debt capital markets and equity capital markets in Europe and Latin America. Wealth Management

• Insurance contributed €1,084 million (+9%) to the group's profit after double-digit growth in assets under management and written premiums.

Net interest income grew 8% in the first half,the best quarter since the pandemic started, mainly due to higher lending and deposit volumes and lower deposit costs. Net interest income growth was particularly strong in the UK (+29%), Spain (+10%) and Brazil (+10%).

Net fee income reached pre-pandemic levels (+8%), growing in higher value-added services and products, particularly within Santander CIB and Wealth Management & Insurance. The growth in card turnover (+26%) and points of sale (+54%) reflected the economic recovery, and this was also reflected in mutual funds (+18%).

Consequently, total revenues grew 8% to €22.7 billion, which, combined with disciplined cost control, led to a 13% increase in pre-provision profit (net operating income) to €12.3 billion.

Expenses in real terms stayed flat due to ongoing cost management, particularly in Europe. Excluding the exchange rate impact, costs rose 3% given the general upturn in inflation in 2021 and the investments in technology and digital developments. The bank's cost-to-income ratio improved to 45.7%, 159 basis points (bps) better than last year. As a result, the bank remained among the most efficient global banks. Santander continues to further leverage the collective strength of the group to accelerate its transformation and further increase productivity and efficiency.

The group has provided significant support for customers throughout the pandemic through moratoria, government supported lending and other support measures. In June 2021, 92% of moratoria had expired, and only 5% were in stage 3 (credit impaired). Outstanding moratoria totalled €8.7 billion (mainly in Spain and Portugal), including c.€7.5 billion due to expire by the end of the third quarter.

Customer funds reached a new record (€1.04 trillion, +7%) after surpassing one trillion euros for the first time last quarter. Demand deposits climbed 9% to €685 billion, and mutual funds 18% to €183 billion.

Digital adoption continued to gain momentum in the quarter. Santander reached more than 45 million digital customers (+14%). 52% of sales were made through digital channels during the first half of the year, up from 44%

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Ciudad Grupo Santander, edificio Arrecife, planta 2	3
28660 Boadilla del Monte (Madrid). Tel. [phone]
[e-mail]
www.santander.com - Twitter: @bancosantander

in the same period last year. Overall, Santander now serves 150 million customers worldwide, more than any other bank in Europe and the Americas.

In line with Santander's strategic focus on digital, the bank's payment fintech, PagoNxt, announced recently its merchant payments business, Getnet, is launching in Europe. Foreign and domestic merchants of all sizes in some 30 countries can now use Getnet's wide range of secure, reliable and straightforward payment solutions for easier collections and quicker sales.

Santander's ongoing focus on customer loyalty and digital innovation enabled the bank to achieve a top-three position in customer satisfaction in seven markets thanks to the addition of Poland in the last quarter, while also improving operational efficiency.

The bank's balance sheet remains robust. Its non-performing loan ratio fell four basis points year-on-year to 3.22%, and its coverage ratio was 73%. Cost of credit (the ratio of provisions to expected loan losses) was better than expected, improving by 38 bps to 0.94%due to lower loan-loss provisions. Those provisions in the first half totalled €3,753 million, down 42%, and total loan-loss reserves amounted to €24.2 billion.

Santander's CET1 capital ratio rose 27 bps in the last 12 months to 12.11%, above its target range of 11-12%. In the quarter, the bank generated 7 bps organically after growing loans and accruing 18 bps of capital, the equivalent of 50% of this quarter's underlying profit, for potential shareholder remuneration. The bank will continue to accrue at this level throughout the year, as the board aims to restore a payout ratio of 40-50% of underlying profit 3 . Santander's CET1 management buffer over minimum required capital is now 325 bps, compared to its pre-covid buffer of 189 bps.

Santander is committed to supporting the transition to a green economy and recently announced its ambition to be net zero by 2050, and to align its power generation portfolio to the Paris Agreement by 2030. The bank is working on improving its products to support both individuals and companies to become more green, and in the first half raised or facilitated the mobilization of €8 billion in green finance, bring the total to €42 billion since 2019.

Market summary (H1 2021 vs H1 2020)

(To better reflect the local performance of each market, all variations are year-on-year and in constant euros unless otherwise stated. Variations in current euros are available in the financial report.)

The group's geographic and business diversification further enhanced the quality of the bank's results in the first half of 2021, with South and North America franchises contributing 31%, Europe 27% and the Digital Consumer Bank 11%. The group's global businesses, Santander Corporate & Investment Banking (Santander CIB) and Wealth Management & Insurance, also continued to perform well.

Europe. Underliying profit in Europe jumped 172% to €1,426 million thanks to an increase in total income and the positive impact of the ongoing cost optimitation plans in all countries. Costs were down 1% while loan-loss provisions dropped 28% compared to the first half of 2020, which was strongly affected by covid-19 related provisions. The number of digital customers increased by 6% to 15.7 million. The group is accelerating its 'One Santander' business transformation to achieve superior growth and a more efficient operating model that should allow the bank to progress towards its medium-term underlying RoTE target for the region of 10-12%.

3 See footnote 1.
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In Spain, underlying profit in the first half was €390 million, 56% higher. This good performance was backed by positive income growth and lower costs (-7%). Fee income grew 2% to reach pre-pandemic levels and the second quarter showed positive commercial dynamism, notably in residential mortgages, exceeding the highest level reached in the past three years. Consumer lending performed well, recovering close to pre-covid levels.

In the UK, underlying profit was €693 million, compared to €71 million in the same period last year, driven by better margins, volume growth and lower loan-loss provisions. Costs dropped 2%, reflecting savings from the transformation programme. As a result, efficiency ratio improved significantly (-13.5 percentage points), reaching 56%, and underlying RoTE rose sharply to 10.6%. Digital customers increased 5% and digital transactions rose 19%.

Note: YoY changes in constant euros. Loans and advances to customers excluding reverse repos. Customer deposits excluding repos.

1. Excluding Puerto Rico and Bluestem disposal impact. Otherwise, loans -3% and deposits +1%.
2. RoTE adjusted for excess capital in the US: 23%.

North America. Underlying profit in North America, which comprises Mexico and the US, amounted to €1,628 million, up 178%. It was backed by a total income increase of 4% and lower provisions. Costs rose 7%, primarily due to inflation and investments in digitalization. The USachieved a record underlying profit of €1,291 million, due to lower provisions thanks to the improved macroeconomic outlook and the strength of the used car prices. In Mexico, underlying attributable profit in the first half of 2021 was €387 million, down 2%.

The ongoing collaboration between both countries led to higher revenues in Santander CIB (+21%) and commercial banking (+8%) within the US-Mexico trade corridor. Both countries shared best practices to improve the customer and employee experience, including a commission-free remittance service from Santander US branches to any bank in Mexico, while reducing duplication in the operating model.

Santander Holdings USA (SHUSA) announced in mid-July an agreement to acquire Amherst Pierpont Securities for a total consideration of approximately $600 million (c.€500 million). This acquisition is expected to be c.1% accretive to group EPS and generate a return on invested capital of c.11% by year three (post synergies). SHUSA also announced a proposal to acquire the outstanding shares of common stock of Santander Consumer USA that it does not already own. SHUSA currently owns c.80% of SCUSA's outstanding shares.

Corporate Communications
Ciudad Grupo Santander, edificio Arrecife, planta 2	5
28660 Boadilla del Monte (Madrid). Tel. [phone]
[e-mail]
www.santander.com - Twitter: @bancosantander