Third Quarter 2021 results: press release

Banco Santander reports attributable profit of €5,849 million for the first nine months of 2021

Underlying profit before tax was €11.4 billion (+74% in constant euros)1 The group's fully loaded CET1 increased by 15 basis points in the quarter to 11.85%

Madrid, 27 October 2021 - PRESS RELEASE

• The group earned €34.6 billion in total income in the first nine months of 2021, up 8% year-on-year in constant euros (excluding currency movements), driven by strong volume growth and customer activity across our regions and businesses, with 94% of income coming from net-interest income and fees.
• Net operating income increased by 11% year-on-year in constant euros to €18.8 billion, as lending and deposits grew by 4% and 6%, respectively.
• Tax on profit in the first nine months of the year was €3.9 billion, resulting in an effective tax rate of 34%.
• Underlying profit in Europe and North America was double that of same period last year, increasing by 98% and 122% respectively, while in South America underlying profit increased by 31% in constant euros. In Santander CIB and Wealth Management & Insurance, underlying profit increased by 26% and 24%, respectively.
• The total number of customers increased to 152 million, with 54% of group sales made through digital channels compared to 44% in the same period last 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 45.6%, and seven of the group's core markets achieving a top-threenet-promoter score (NPS).
• Provisions are down 34% in constant euros. The cost of credit improved further to 0.9%.
• 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 €3.99, a 6.5% increase over the last 12 months, including dividends.
• Fully loaded CET1 capital was 11.85%, up 15 basis points (bps) in the quarter and at the top end of the group's 11-12% target range, having accounted for almost all regulatory impacts expected this year.
• In September, the bank announced plans to make an interim distribution from 2021 earning of c.€1.7 billion, split between a cash dividend of €4.85 cents per share and a €841 million share buyback. A further final dividend from 2021 earnings will be announced during the first quarter of 2022.

Ana Botín, Banco Santander executive chairman, said:

"We delivered solid top line growth across all of our regions and businesses again this quarter. Our performance in the US and the UK were particularly strong, underscoring the effectiveness of our strategy in these important markets.

1 Reconciliation of underlying results to statutory results, available on page 74 of the Q3 financial report, available at santander.com.

Corporate Communications
Ciudad Grupo Santander, edificio Arrecife, planta 2	1
28660 Boadilla del Monte (Madrid). Tel. [phone]
[e-mail]
www.santander.com - Twitter: @bancosantander

Our teams' relentless focus on improving the way we serve customers helped attract over a million new customers in the last quarter, while increasing loans and deposits by 4% and 6% year-on-year, respectively.

Our investment in digital is critical to achieving profitable and efficient growth. This is reflected in our cost-to-income ratio which remains among the best in our peer group at 45.6%.

Looking ahead, we are well on track to significantly outperform our profitability target for 2021, while maintaining a fully loaded CET1 at the top end of our 11-12% range. This allows us to offer attractive returns to our shareholders and continue to invest in future growth.

We remain confident of reaching our 13-15%medium-term profitability target thanks to the progress we have made to date, an improved outlook, as well as our team's excellent delivery across all businesses. I am proud that Santander has again been recognized among the top-25 'great places to work' globally, and of our support for renewable energy and financial inclusion."

Underlying income statement(*)

	9M21	9M21 v		9M21 v 9M20	Q321 (€m)	Q321 v	Q321 v Q320
	(€m)	9M20		(ex FX)	Q320	(ex FX)
Total income	34,626	+3%	+8%	11,931	+8%	+6%
Operating expenses	-15,778	+0%	+4%	-5,401	+6%	+5%
Net operating income	18,848	+5%	+11%	6,530	+9%	+7%
Net loan-loss provisions	-5,973	-38%	-34%	-2,220	-12%	-15%
Profit before tax	11,432	+63%	+74%	3,804	+20%	+20%
Underlying profit	6,379	+74%	+87%	2,174	+24%	+23%
Net capital gains and provisions	-530	-96%	-96%	0	-	-
Attributable profit	5,849	-	-	2,174	+24%	+25%

1. Reconciliation of underlying results to statutory results, available on page 74 of the Q3 financial report, available at santander.com.

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 €5,849 million in the first nine months of 2021. This compares to a loss of €9 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 nine months was €6,379 million, up 87% versus the same period of last year. This is Santander's highest underlying profit in the first nine months since 2009. In the third quarter alone, the bank achieved an attributable profit of €2,174 million, an increase of 25% versus the same period of last year.

The bank's strong performance was driven by good volume growth, with loans increasing 4% and deposits 6% year- on-year. Across the group, businesses continued to focus on supporting customers, driving revenue growth, effective net interest income management and cost control.

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

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 nine months nearly doubled in Europe to €2,293 million (+98%) and more than doubled in North America to €2,288 million (+122%), while it grew 31% in South America to €2,471 million. The Digital Consumer Bank also grew strongly (+17%) to €935 million.

Underlying profit before tax was €11.4 billion in the first nine months of the year, up 74%, while tax on profit in the period was €3.9 billion, resulting in an effective tax rate of 34%.

Net interest income grew 7% in the first nine months, mainly due to higher average lending and deposit volumes and lower deposit costs. Net interest income growth was particularly strong in the UK (+27%), Chile (+12%) and Brazil (+12%).

Net fee income is above pre-covid levels (+8%), showing a recovery path from the lows in the second quarter of 2020, thanks to a wider offer of value-added products. Fees from card turnover and points of sale increased +25% and +40%, respectively. Asset management and insurance businesses, as well as Santander Corporate & Investment Banking (Santander CIB), also recorded double-digit growth.

Consequently, total revenues grew 8% to €34.6 billion, which, combined with disciplined cost control, led to a 11% increase in pre-provision profit (net operating income) to €18.8 billion.

Expenses in real terms decreased 1% due to ongoing cost management, particularly in Europe (-3% in real terms). The bank's cost-to-income ratio improved to 45.6%, 123 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 global 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 September 2021, 99% of moratoria had expired, and only 6% were in stage 3 (credit impaired). Outstanding moratoria totalled €1.3 billion (mainly in Spain), the majority of which will expire by the next quarter, following the expiration of a significant volume of operations in Portugal in Q3.

Customer funds reached a new record (€1.05 trillion, +7%). Demand deposits climbed 10% to €697 billion, with rises in all countries, and mutual funds 17% to €185 billion, underpinned by net inflows and markets recovery.

Digital adoption continued to gain momentum in the quarter. Santander reached 47 million digital customers (+13%) after growing one million in the third quarter alone. 54% of sales were made through digital channels during the first nine months of the year, up from 44% in the same period last year. In the third quarter, digital sales were 57%.

Overall, the group now serves 152 million customers worldwide, more than any other bank in Europe and the Americas.

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, according to net-promoter score (NPS) rankings, while also improving operational efficiency.

These results led to a return on tangible equity (RoTE) of 11.8% (underlying RoTE, 12.6%), above cost of capital, and an underlying earnings per share (EPS) of €34.4 cents. The tangible net asset value (TNAV) per share of €3.99 after growing 6.5% year-on-year (including dividends).

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

The bank's balance sheet remains robust. Its non-performing loan ratio fell four basis points quarter-on-quarter to 3.18%, and its coverage ratio was 74%. Cost of credit (the ratio of provisions to expected loan losses) was better than expected, improving by 37 bps year-on-year to 0.90% due to lower loan-loss provisions. Those provisions in the first nine months totalled €5,973 million, down 34%, and total loan-loss reserves amounted to €24.5 billion.

Santander's fully loaded CET1 capital ratio rose 15 bps in the last quarter to 11.85%, in the upper part of its target range of 11-12%. In the quarter, the bank generated 48 bps organically, with regulatory and other impacts of -33 bps. The bank has now accounted for almost all regulatory impacts expected this year.

In late July, the European Banking Authority (EBA) published the results of its 2021 EU-wide stress test, which involved the main banks from the European Union. According to these results, under the adverse scenario Santander would destroy 240 bps of phased-in CET1 capital compared to the peer average of almost 480 bps and to the average of European banking system of nearly 500 bps. In addition, in the adverse scenario, the cumulative projections of Grupo Santander's income statement show a profit of almost €1 billion. This makes Santander the only bank among its peers capable of recording a positive accumulated result under this scenario.

Regarding shareholder remuneration, in view of the lifting of the European Central Bank's (ECB) recommendation that had limited it until 30 September 2021, the board of directors approved last September the remuneration policy to be applied to 2021 results, with the following objectives:

• Total remuneration of 40% of the Group's underlying profit.
• Split in equal parts between cash dividends and share buybacks.
• Two payment cycles: interim distributions in November and, subject to the appropriate corporate and regulatory approvals, final distributions around May 2022.

In line with this policy, the board decided to make an interim distribution from 2021 earnings amounting to a total value of c.€1.7 billion, equivalent to 40% of underlying profit for the first half of 2021, which will be made in two parts:

• A cash dividend of €4.85 cents per share, to be paid from 2 November 2021.
• A buy-back programme that will have a maximum amount of €841 million, equivalent to 20% of the group's underlying profit in the first half of 2021, already approved by the European Central Bank (ECB) and which started on 6 October 2021.

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 has been the leading provider of renewable energy project finance globally for several years, according to Dealogic, and in the first nine months of the year raised or facilitated the mobilization of €17 billion in green finance, bring the total to €51 billion since 2019, making progress towards Santander's commitment to reach €120 billion by 2025.

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 nine months of 2021, with South America contributing 30% of the group's underlying profits, North America and Europe

Corporate Communications
Ciudad Grupo Santander, edificio Arrecife, planta 2	4
28660 Boadilla del Monte (Madrid). Tel. [phone]
[e-mail]
www.santander.com - Twitter: @bancosantander

both contributing 29%, and the Digital Consumer Bank 12%. The group's global businesses, Santander CIB and Wealth Management & Insurance, also continued to perform well.

Europe. Underlying profit in Europe jumped 98% to €2,293 million thanks to higher revenues (+12%) and the positive impact of the ongoing cost optimization plans in all countries. Costs were down 3% in real terms, while loan-loss provisions dropped 23% compared to the same period of 2020, which was strongly affected by covid-19 related provisions. The number of digital customers increased by 6% to 15.9 million. The group is accelerating its 'One Santander' business transformation to achieve superior growth and a more efficient operating model that will allow the bank to progress towards its medium-term underlying RoTE target for the region of 10-12%.

In Spain, underlying profit in the first nine months of the year was €730 million, 47% higher. This good performance was backed by positive income growth and lower costs (-7%). The pick-up in activity seen in the first half of the year among individual customers was consolidated in the third quarter. Of note was new residential mortgage lending, where the bank once again exceeded the highest monthly new business volumes of the past three years, and consumer lending, which recovered to pre-covid levels. Loans remained stable both quarter-on-quarter and year- on-year, with growth in individuals, institutions and private banking. Deposits increased 3% compared to the same period of 2020, while mutual funds were 18% higher.

In the UK, underlying profit was €1,145 million, a five-fold increase on the €220 million earned in the same period last year, driven by volume growth and lower loan-loss provisions. Costs reduced 2%, reflecting efficiencies from the bank's transformation programme, partly offset by technology investments. Total income was up 21%, with increased net interest income driven by the repricing of deposits, higher mortgage volumes and SMEs. Digital customers increased by 5% and digital transactions by 17%, while digital sales accounted for nearly 85% of all sales. As a result, the efficiency ratio improved significantly (-12.7 percentage points), reaching 53.4%, and underlying RoTE rose sharply to 11.5%.

North America. Underlying profit in North America, which comprises Mexico and the US more than doubled (+122%) to €2,288 million, backed by a total income increase of 3% and lower provisions. Costs rose 8%, primarily due to

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