Table of Contents

 

 

FORM 6-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Report of Foreign Issuer

Pursuant to Rule 13a-16 or 15d-16 of

the Securities Exchange Act of 1934

For the month of November, 2018

Commission File Number: 001-12518

Banco Santander, S.A.

(Exact name of registrant as specified in its charter)

Ciudad Grupo Santander

28660 Boadilla del Monte (Madrid) Spain

(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F  ☒            Form 40-F  ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Yes  ☐             No  ☒

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Yes  ☐             No  ☒

 

 

 


Table of Contents

Banco Santander, S.A.

TABLE OF CONTENTS

 

Item

    
1    Press Release regarding January – September 2018 Results
2    January – September 2018 Financial Report
3    January – September 2018 Earnings Presentation


Table of Contents

Item 1

 

LOGO

 

Santander attributable profit for the first nine months of 2018 reached €5,742 million - up 13%

Profit before tax for the period was €11,230 million – up 10% (+23% in constant euros)

Madrid, 31 October 2018 - PRESS RELEASE

 

The bank has earned the loyalty of a further 3.1 million customers in the last twelve months, with lending and customer funds increasing by 3% and 4% respectively Year-on-Year (YoY) in constant euros (i.e. excluding movement in exchange rates).

 

The number of customers using digital services increased to 29.9 million, up 24% YoY, as the Group digital transformation continued to deliver new and improved services for customers.

 

Credit quality improved further during the quarter with the Group non-performing loan (NPL) ratio now at 3.87%, 37 basis points lower than 30 September 2017, while the cost of credit fell by 14 basis points in the same period to 0.98%.

 

In the third quarter alone, attributable profit was €1,990 million, 36% higher than Q3 2017. Profit before tax for the third quarter was up 17% year-on-year (YoY) in constant euros.

 

The Group remains one of the most profitable and efficient banks among its peers, with a return on tangible equity (RoTE) of 11.7%, and a cost-to-income ratio of 46.9%.

 

The Group’s fully loaded CET1 ratio reached 11.11% at 30 September 2018, up 31 basis points in the quarter driven by strong organic capital generation.    

 

The Group remains on track to grow earnings per share by double digits in 2018 with EPS increasing to €0.331, up 5% compared with the first nine months of 2017. Compared to the second quarter of 2018, Tangible Net Asset Value per share increased by 1.5% to €4.16.

Banco Santander Group Executive Chairman, Ana Botín, said:

“We have again delivered a strong set of results, with attributable profit 13% higher in the first nine months of the year. Importantly, this has been achieved in a responsible and sustainable way, growing loyal and digital customers by investing in our digital transformation, and achieving a top three ranking in customer satisfaction in the majority of our markets.

“Santander’s profitability (RoTE of 11.7%) and efficiency (cost/income ratio of 46.9%) remain among the best in our peer group, and highlight the strength and predictability of our business model.

“Throughout the Group we continue to improve profitability, as well as the quality and recurrence of our earnings, with eight of our markets, representing 85% of our profit, delivering growth in underlying profit, and credit quality continuing to improve across the business.

 

Corporate Communications    1    LOGO
Ciudad Grupo Santander, edificio Arrecife, planta 2
28660 Boadilla del Monte (Madrid). Tel. +34 91 2895211
[email protected]   
www.santander.com - Twitter: @bancosantander      


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LOGO

 

“In Brazil, Mexico and Spain we are building on the strong momentum we have generated in recent quarters, while in the UK performance is improving quarter-on-quarter, despite the ongoing uncertainties and headwinds.

“I am very proud of the performance of our teams. We have made clear progress against all objectives for our people, customers, shareholders and communities, and I am confident we will achieve all the goals set out in our three year plan, including double digit EPS growth this year.

“Looking ahead, our leading market position in Europe and the Americas, with a total of 142 million customers, means we have significant potential for many years of further profitable and responsible organic growth. We look forward to setting out our new medium term plans aligned with our current strategy in the New Year.”

Results Summary

 

          

9M’18

(m)

 

  

9M’18 v

9M’17

 

  

9M’18 v 9M’17

(EX FX)

 

  

Q3’18

(m)

 

  

Q3’18 v

Q3’17

 

  

Q3’18 v Q3’17
(EX FX)

 

 
       GROSS INCOME    €35,882    -1%    +9%    €11,720    -4%    +7%
 
  OPERATING EXPENSES    -€16,843    -1%    +8%    -€5,361    -7%    +3%
 
  NET LOAN-LOSS PROVISIONS    -€6,418    -7%    +4%    -€2,121    -6%    +6%
 
  PROFIT BEFORE TAX    €11,230    +10%    +23%    €3,750    +4%    +17%
 
  TAX    -€4,053    +16%    +28%    -€1,394    +12%    +26%
 
  UNDERLYING PROFIT    €6,042    +8%    +21%    €1,990    +1%    +14%
 
  NET CAPITAL GAINS AND PROVISIONS    -€300    -42%    -42%    €0      
 
  ATTRIBUTABLE PROFIT    €5,742    +13%    +28%    €1,990    +36%    +58%

Banco Santander increased attributable profit during the first nine months of 2018 by 13% to €5,742 million (+28% in constant euros), as strong growth in revenues in several markets, including Brazil, Spain, Mexico and Portugal, combined with improvements in credit quality, more than offset the impact of exchange rate depreciation against the euro in certain currencies, including the Argentine peso.

Profit before tax increased by 23% Year-on-Year (YoY) in constant euros to €11,230 million, with underlying profit increasing in eight of the Group’s ten markets.

In the third quarter alone attributable profit was €1,990 million, 36% higher than Q3 2017, which was impacted by €515 million in one-off charges, including 300 million restructuring charge for Banco Popular. Profit before tax for the third quarter was up 17% YoY in constant euros.

Gross income in the first nine months of 2018 increased by 9% in constant euros to €35,882 million, with the Group increasing lending and customer funds by 3% and 4% respectively in constant euros, while increasing the number of loyal customers (people who see Santander as their main bank) by 19% to 19.6 million.

 

Corporate Communications    2    LOGO
Ciudad Grupo Santander, edificio Arrecife, planta 2
28660 Boadilla del Monte (Madrid). Tel. +34 91 2895211
[email protected]   
www.santander.com - Twitter: @bancosantander      


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LOGO

 

Ongoing investment in commercial transformation and digitalisation led to a 8% increase in operating expenses in constant euros, however, the Group’s cost/income ratio, a key measure of efficiency, remained among the lowest of our peer group at 46.9% (compared to a peer average of over 65%).

In the first nine months of 2018, the number of customers using digital services increased by 24% YoY to 29.9 million, with the ongoing investment in technology driving an increase in digital service adoption.

In September, Openbank, the Group’s 100% digital bank, launched an automated investment service as well as new developments and functionalities, including, among others, a secure password manager feature, and an account aggregator to connect accounts and products from other banks. Also during the quarter, Santander UK launched the Digital Investment Advisor, a new investment advisory tool for retail customers, available on mobile.

Credit quality improved during the quarter with the Group non-performing loan (NPL) ratio now 3.87%, down 37 basis points since 30 September 2017. Cost of credit, a good indicator of credit quality, fell to 0.98%, down 14 basis points since 30 September 2017, the lowest level since 2008.

A balanced presence across both mature and emerging markets remains one of Banco Santander’s key strengths. During the first nine month of 2018, the Americas contributed 48% of Group profit and Europe, 52%. Brazil was the largest contributor to Group earnings, with 26% of total underlying profit, followed by Spain with 17%, and the UK with 14%. The lending book also remains well diversified across business segments and geographies.

 

LOGO

1. Excluding corporate centre, and Spain Real Estate Activity. 2. Loans excluding repos.

Overall the economic outlook remains positive in all our largest markets and we expect the Group to benefit in the medium term from an improving interest rate environment, and ongoing recovery in Latin America.

In the third quarter, Santander generated 31 basis points in capital, bringing the Group’s fully loaded CET1 ratio to 11.11% at 30 September 2018 (applying the transitional arrangement of IFRS 9), in line with its target for the end of the year. This ratio does not include the sale of WiZink, which is expected to close in the coming weeks and add an estimated nine basis points to the Group CET1 ratio, or the impact of the full application of IFRS 9 (-27 basis points), which is subject to a five-year transitional period before full implementation is required in 2022.

 

Corporate Communications    3    LOGO
Ciudad Grupo Santander, edificio Arrecife, planta 2
28660 Boadilla del Monte (Madrid). Tel. +34 91 2895211
[email protected]   
www.santander.com - Twitter: @bancosantander      


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LOGO

 

Over the last 12 months, Return on Tangible Equity (RoTE), a key measure of profitability, has increased by 70 basis points to 11.7%, while underlying RoTE increased by 34 basis points to 12.1%, making Santander one of the most profitable banks among its peers.

Tangible net asset value per share was 1.5% higher than the second quarter of 2018 and 1% lower than September 2017 at €4.16 (+5% excluding the FX and IFRS implementation impact). Earnings per share (EPS) increased to €0.331, up 5% compared with the first nine months of 2017, while underlying EPS remained broadly flat at €0.349. The Group maintains its target of achieving double digit EPS growth in 2018.

At the AGM on 23 March 2018, the bank announced its intention to increase the dividend paid from 2018 profits by 4.5% to 23 cents per share, subject to approval by the board and general shareholder meeting.

Country Summary (9M’18)

In Brazil, attributable profit increased by 2% to €1,942 million (+24% in constant euros) as a focus on customer experience and satisfaction allowed the business to attract an additional one million loyal customers over the past 12 months, with lending and funds increasing by 13% and 17% respectively during the same period in constant euros. Asset quality remained under control with the non-performing loan ratio falling six basis points in 12 months to 5.26% and cost of credit reducing by 38 basis points to 4.17%. Strong business performance was reflected in improved profitability, with RoTE increasing to 20%, from 16.8% at 30 September 2017.    

In Spain, attributable profit increased by 27%, to €1,026 million, as the integration of Popular was supported by ongoing growth in customer revenues (+19% YoY) across all main lines and improvements in efficiency. New lending increased 11% YoY driven by strong growth in lending to SMEs (+18% and consumer credit (+21%). The NPL ratio continued to improve, falling 59 basis points since 30 September 2017 to 6.23%. During the quarter, Santander opened the first Work Café in Spain, as an alternative to conventional branches first developed in Santander Chile. The Group also completed the legal integration of Banco Popular in September.

In the UK, attributable profit was 10% lower than the first nine months of 2017 at €1,077 million (-9% in constant euros), as the business continued to invest in strategic, digital transformation and regulatory projects. Trends were favourable compared to Q2’18, with underlying profit increasing by 5% in constant euros quarter-on-quarter driven by growth in net interest income, good cost control and lower loan loss provision. Uncertainty regarding Brexit continued, however, credit quality remained stable, with the NPL ratio at a very low 1.10%.

Santander Consumer Finance increased attributable profit by 17% in the first nine months of 2018, to €1,000 million (+18% in constant euros), with new lending increasing in most geographies. SCF maintained best-in-class profitability with a RoTE of 16.6% while the NPL ratio (2.45%) remained at a historic low.

 

Corporate Communications    4    LOGO
Ciudad Grupo Santander, edificio Arrecife, planta 2
28660 Boadilla del Monte (Madrid). Tel. +34 91 2895211
[email protected]   
www.santander.com - Twitter: @bancosantander      


Table of Contents

LOGO

 

In Mexico, attributable profit increased by 4% to €554 million (+13% in constant euros) as the bank’s commercial transformation and investment in cutting edge technology helped drive a 10% increase in loans and 6% increase in customer funds in constant euros. As a result, total income increased by 8% YoY in constant euros, while credit quality remained solid, with the NPL ratio falling 15 basis points in the year to 2.41% and cost of credit falling by 42 basis points over the same period to 2.72%. Mexico also launched a new branch model during the quarter called Sucursal Ágil which is designed to cut waiting time and provide a quicker service.

In Chile, attributable profit increased by 5% to €461 million (+8% in constant euros) as a focus on customer satisfaction, loyalty and digital initiatives, helped increase volumes in both lending (+9% YoY in constant euros) and demand deposits (+9% YoY in constant euros). Customer revenues increased to €1,795 million, up 8% in constant euros YoY, while the NPL ratio fell by 17 basis points to 4.78% over the same period.    

In the US, attributable profit increased by 36% to €460 million (+47% in constant euros), with loans growing for the second consecutive quarter (+3% YoY in constant euros). Further improvements in efficiency helped reduce the cost/income ratio to 44.6%, down 66 basis points since September 2017. In August the Federal Reserve terminated the 2015 Written Agreement, demonstrating progress the business has made in strengthening its controls and governance.

In Portugal, attributable profit increased by 15% to €364 million, driven by further improvements in efficiency and lower cost of credit. The full integration of Popular was concluded in October 2018.

In Poland attributable profit increased by 8% to €236 million (+8% in constant euros) as loan growth continued across all key products and segments and credit quality remained strong. In September, Bank Zachodni WBK successfully completed a rebrand to Santander, allowing the business to take advantage of from the benefits that come from being part of a common, internationally recognised brand.    

As Argentina, which represents c.1% of the Group’s attributable profit, is considered a high-inflation economy, from September, based on international accounting standards, the results and balance sheet for the country must be adjusted. This has a negative P&L impact of €169 million for first nine months of 2018, as well as an initial positive impact on the Group’s capital of two basis points due to the revaluation of assets. As a result, attributable profit in Argentina for the first nine months fell by 75% to €67 million (-38% in constant euros). The agreement with the IMF allows Argentina to meet its financial obligations for 2018 and 2019, while the adjustment in currency should create greater FX stability going forward.

About Banco Santander    

Banco Santander is the largest bank in the Eurozone with a market capitalisation of €69,958 million at 28 September 2018. It has a strong and focused presence in 10 core markets across Europe and the Americas with more than four million shareholders and 200,000 employees serving 142 million customers.

 

Corporate Communications    5    LOGO
Ciudad Grupo Santander, edificio Arrecife, planta 2
28660 Boadilla del Monte (Madrid). Tel. +34 91 2895211
[email protected]   
www.santander.com - Twitter: @bancosantander      


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LOGO

 

Key Consolidated Data (from Financial Report)

 

BALANCE SHEET (EUR million)    Sep-18      Jun-18      %     Sep-18      Sep-17      %     Dec-17  

Total assets

     1,444,687        1,433,833        0.8       1,444,687        1,468,030        (1.6 )      1,444,305  

Loans and advances to customers

     866,226        862,092        0.5       866,226        854,686        1.4       848,914  

Customer deposits

     778,751        774,425        0.6       778,751        778,852        (0.0 )      777,730  

Total customer funds

     986,199        981,363        0.5       986,199        988,386        (0.2 )      985,703  

Total equity

     105,668        104,445        1.2       105,668        108,723        (2,8 )      106,832  

Note: Total customer funds includes customer deposits, mutual funds, pension funds and managed portfolios

 

 

INCOME STATEMENT (EUR million)    Q3’18      Q2’18      %     9M’18      9M’17      %     2017  

Net interest income

     8,349        8,477        (1.5 )      25,280        25,689        (1.6 )      34,296  

Gross income

     11,720        12,011        (2.4 )      35,882        36,330        (1.2 )      48,392  

Net operating income

     6,359        6,293        1.0       19,039        19,373        0.7 )      25,473  

Underlying profit before tax (1)

     3,750        3,791        (1.1 )      11,230        10,175        10.4       13,550  

Underlying attributable profit to the Group(1)

     1,990        1,998        (0.4 )      6,042        5,592        8.0       7,516  

Attributable profit to the Group

     1,990        1,698        17.2       5,742        5,077        13.1       6,619  

Variations in constant euros: Q3’18 vs. Q2’18: Nil: +3.4%; Gross Income: +3.4%; Net operating Income: +7.1%; Underlying attributable profit: +6.1%; Attributable profit: +25.1%.

9M’18 vs. 9M’17: Nil: +8.3%; Gross Income: +9.0%; Net operating Income: +9.5%; Underlying attributable profit: +21.1%; Attributable profit: +28.4%.

 

 

 

EPS, PROFITABILITY AND EFFICIENCY (%)    Q3’18      Q2’18      %     9M’18      9M’17      %     2017  

Underlying EPS (euro)(1)

     0.115        0.115        (0.5 )      0.349        0.350        (0.2 )      0.463  

EPS (euro)

     0.115        0.096        18.7       0.331        0.316        4.7       0.404  

RoE

     8.43        8.13                8.20        7.54                7.14  

Underlying RoTE(1)

     11.95        12.06                12.14        11.80                11.82  

RoTE

     11.95        11.61                11.69        10.99                10.41  

RoA

     0.66        0.65                0.65        0.59                0.58  

Underlying RoRWA(1)

     1.59        1.60                1.60        1.47                1.48  

RoRWA

     1.59        1.55                1.55        1.39                1.35  

Efficiency ratio (with amortisatons)

     45.7        47.6                46.9        46.7                47.4  
SOLVENCY AND NPL RATIOS (%)    Sep-18      Jun-18      %     Sep-18      Sep-17      %     Dec-17  

Fully loaded CETl(2)

     11.11        10.80                11.11        10.80                10.84  

Phased-in CETl(2)

     11.29        10.98                11.29        12.18                12.26  

NPL ratio

     3.87        3.92                3.87        4.24                4.08  

Coverage Ratio

     67.9        68.6                67.9        65.8                65.2  
MARKET CAPITALISATION AND SHARES    Sep-18      Jun-18      %     Sep-18      Sep-17      %     Dec-17  

Shares (millions)

     16,136        16,136              16,136        16,041        0.6       16,136  

Share price (euros)

     4,336        4,592        (5.6 )      4,336        5,907        (26.6 )      5,479  

Market capitalisation (EUR million)

     69,958        74,097        (5.6 )      69,958        94,752        (262 )      88,410  

Tangible book value per share (euro)

     4.16        4.10                4.16        4.20                4.15  

Price / Tangible book value per share (X)

     1.04        1.12                1.04        1.41                1.32  

P/E ratio (X)

     9.83        10.62                9.83        14.02                13.56  
OTHER DATA    Sep-18      Jun-18      %     Sep-18      Sep-17      %     Dec-17  

Number of shareholders

     4,190,808        4,152,125        0.9       4,190,808        4,070,187        3.0       4,029,630  

Number of employees

     201,101        200,961        0.1       201,101        200,949        0.1       202,251  

Number of branches

     13,414        13,482        (0.5 )      13,414        13,704        (2.1 )      13,697  

 

(1)

 In this document we present the figures related to “underlying” results, which exclude non-recurring Items, as they are recorded in the separate line of “net capital gains and provisions”, above the line of “attributable profit to the Group”. Further details on that line are provided in pages 10 and 11 as well as in the Alternative Performance Measures section as Follows below.

(2)

 2018 data applying the IFRS 9 transitional arrangements.

Note: The financial information in this report was approved by the Board of Directors, following a favourable report from the Audit Committee.

In accordance with the Guidelines on Alternative Performance Measures published by the European Securities and Markets Authority on 5 October 2015 (Guidelines on Alternative Performance Measures. ESMA/2015/1415en), we are attaching herewith a glossary with the definitions and the conciliation with the items presented in the income statement of certain alternative performance measures used in this document. Please refer to “Alternative Performance Measures Glossary” on page 58.

 

Corporate Communications    6    LOGO
Ciudad Grupo Santander, edificio Arrecife, planta 2
28660 Boadilla del Monte (Madrid). Tel. +34 91 2895211
[email protected]   
www.santander.com - Twitter: @bancosantander      


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Important Information

In addition to the financial information prepared under International Financial Reporting Standards (“IFRS”), this press release includes certain alternative performance measures (“APMs”) as defined in the Guidelines on Alternative Performance Measures issued by the European Securities and Markets Authority on 5 October 2015 (ESMA/2015/1415es) as well as non-IFRS measures (“Non-IFRS Measures”). The APMs and Non-IFRS Measures are performance measures that have been calculated using the financial information from the Santander Group but that are not defined or detailed in the applicable financial information framework and therefore have neither been audited nor are capable of being completely audited. These APMs and Non-IFRS Measures are been used to allow for a better understanding of the financial performance of the Santander Group but should be considered only as additional information and in no case as a replacement of the financial information prepared under IFRS. Moreover, the way the Santander Group defines and calculates these APMs and Non-IFRS Measures may differ to the way these are calculated by other companies that use similar measures, and therefore they may not be comparable. 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 2Q Financial Report, published as Relevant Fact on 31 October 2018,    Section 26 of the Documento de Registro de Acciones for Banco Santander, S.A. (“Santander”) filed with the Spanish Securities Exchange Commission (the “CNMV”) on 28 June 2018 (the “Share Registration Document”) and Item 3A of the Annual Report on Form 20-F filed with the U.S. Securities and Exchange Commission of the United States of America (the “SEC”) on 28 March 2018 (the “Form 20-F”). These documents are available on Santander website (www.bancosantander.com).

The businesses included in each of our geographic segments and the accounting principles under which their results are presented here may differ from the included businesses and local applicable accounting principles of our public subsidiaries in such geographies. Accordingly, the results of operations and trends shown for our geographic segments may differ materially from those of such subsidiaries.

Santander cautions that this press release contains statements that constitute “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by words such as “expect”, “project”, “anticipate”, “should”, “intend”, “probability”, “risk”, “VaR”, “RORAC”, “RoRWA”, “TNAV”, “target”, “goal”, “objective”, “estimate”, “future” and similar expressions. These forward-looking statements are found in various places throughout this press release and include, without limitation, statements concerning our future business development and economic performance and our shareholder remuneration policy. While these forward-looking statements represent our judgment and future expectations concerning the development of our business, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from our expectations. These factors include, but are not limited to: (1) general market, macro-economic, industry, governmental and regulatory trends; (2) movements in local and international securities markets, currency exchange rates and interest rates; (3) competitive pressures; (4) technological developments; and (5) changes in the financial position or credit worthiness of our customers, obligors and counterparties. Numerous factors, including those reflected in the Form 20-F—under “Key Information-Risk Factors”- and in the Share Registration Document –under “Factores de Riesgo”- could affect the future results of Santander and could result in other results deviating materially from those anticipated in the forward-looking statements. Other unknown or unpredictable factors could cause actual results to differ materially from those in the forward-looking statements.

Forward-looking statements speak only as of the date of this press release and are based on the knowledge, information available and views taken on such date; such knowledge, information and views may change at any time. Santander does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise

The information contained in this press release is subject to, and must be read in conjunction with, all other publicly available information, including, where relevant any fuller disclosure document published by Santander. Any person at any time acquiring securities must do so only on the basis of such person’s own judgment as to the merits or the suitability of the securities for its purpose and only on such information as is contained in such public information having taken all such professional or other advice as it considers necessary or appropriate in the circumstances and not in reliance on the information contained in the press release. No investment activity should be undertaken only on the basis of the information contained in this press release. In making this press release available, Santander gives no advice and makes no recommendation to buy, sell or otherwise deal in shares in Santander or in any other securities or investments whatsoever.

Neither this press release nor any of the information contained therein constitutes an offer to sell or the solicitation of an offer to buy any securities. No offering of securities shall be made in the United States except pursuant to registration under the U.S. Securities Act of 1933, as amended, or an exemption therefrom. Nothing contained in this press release is intended to constitute an invitation or inducement to engage in investment activity for the purposes of the prohibition on financial promotion in the U.K. Financial Services and Markets Act 2000.

Statements as to historical performance or financial accretion are not intended to mean that future performance, share price or future earnings (including earnings per share) for any period will necessarily match or exceed those of any prior year. Nothing in this press release should be construed as a profit forecast.

 

Corporate Communications    7    LOGO
Ciudad Grupo Santander, edificio Arrecife, planta 2
28660 Boadilla del Monte (Madrid). Tel. +34 91 2895211
[email protected]   
www.santander.com - Twitter: @bancosantander      


Table of Contents

Item 2

 

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Financial Report 2018
JANUARY—SEPTEMBER


Table of Contents

LOGO

January—September 2018 FINANCIAL REPORT 3 Key consolidated data 4 Santander aim 6 Group performance 9 General background 10 Income statement and balance sheet 17 Solvency ratios 18 Risk management 20 Business information 37 Corporate Governance 38 Sustainability 39 The Santander share 40 Financial information. Appendix 58 Alternative Performance Measures All customers. shareholders and the general public can use Santander’s official social network channels in all the countries in which the Bank operates,


Table of Contents

JANUARY - SEPTEMBER  

Key consolidated data  

 

GRUPO SANTANDER. KEY CONSOLIDATED DATA

 

BALANCE SHEET (EUR million)            Sep-18              Jun-18              %              Sep-18              Sep-17              %              Dec-17  

Total assets

     1,444,687        1,433,833        0.8        1,444,687        1,468,030        (1.6)        1,444,305  

Loans and advances to customers

     866,226        862,092        0.5        866,226        854,686        1.4        848,914  

Customer deposits

     778,751        774,425        0.6        778,751        778,852        (0.0)        777,730  

Total customer funds

     986,199        981,363        0.5        986,199        988,386        (0.2)        985,703  

Total equity

     105,668        104,445        1.2        105,668        108,723        (2.8)        106,832  
Note: Total customer funds includes customer deposits, mutual funds, pension funds and managed portfolios

 

     
INCOME STATEMENT (EUR million)    Q3’18      Q2’18      %      9M’18      9M’17      %      2017  

Net interest income

     8,349        8,477        (1.5)        25,280        25,689        (1.6)        34,296  

Gross income

     11,720        12,011        (2.4)        35,882        36,330        (1.2)        48,392  

Net operating income

     6,359        6,293        1.0        19,039        19,373        (1.7)        25,473  

Underlying profit before tax (1)

     3,750        3,791        (1.1)        11,230        10,175        10.4        13,550  

Underlying attributable profit to the Group (1)

     1,990        1,998        (0.4)        6,042        5,592        8.0        7,516  

Attributable profit to the Group

     1,990        1,698        17.2        5,742        5,077        13.1        6,619  
Variations in constant euros: Q3’18 vs. Q2’18: NII: +3.4%; Gross income: +3.4%; Net operating income: +7.1%; Underlying attributable profit: +6.1%; Attributable profit: +25.1%.

 

                                               9M’18 vs. 9M’17: NII: +8.3%; Gross income: +9.0%; Net operating income: +9.5%; Underlying attributable profit: +21.1%; Attributable profit: +28.4%.

 

EPS, PROFITABILITY AND EFFICIENCY (%)    Q3’18      Q2’18      %      9M’18      9M’17      %      2017  

Underlying EPS (euro) (1)

     0.115        0.115        (0.5)        0.349        0.350        (0.2)        0.463  

EPS (euro)

     0.115        0.096        18.7        0.331        0.316        4.7        0.404  

RoE

     8.43        8.13                 8.20        7.54                 7.14  

Underlying RoTE (1)

     11.95        12.06                 12.14        11.80                 11.82  

RoTE

     11.95        11.61                 11.69        10.99                 10.41  

RoA

     0.66        0.65                 0.65        0.59                 0.58  

Underlying RoRWA (1)

     1.59        1.60                 1.60        1.47                 1.48  

RoRWA

     1.59        1.55                 1.55        1.39                 1.35  

Efficiency ratio (with amortisations)

     45.7        47.6                 46.9        46.7                 47.4  
SOLVENCY AND NPL RATIOS (%)    Sep-18      Jun-18      %      Sep-18      Sep-17      %      Dec-17  

Fully loaded CET1 (2)

     11.11        10.80                 11.11        10.80                 10.84  

Phased-in CET1 (2)

     11.29        10.98                 11.29        12.18                 12.26  

NPL ratio

     3.87        3.92                 3.87        4.24                 4.08  

Coverage ratio

     67.9        68.6                 67.9        65.8                 65.2  
MARKET CAPITALISATION AND SHARES    Sep-18      Jun-18      %      Sep-18      Sep-17      %      Dec-17  

Shares (millions)

     16,136        16,136               16,136        16,041        0.6        16,136  

Share price (euros)

     4.336        4.592        (5.6)        4.336        5.907        (26.6)        5.479  

Market capitalisation (EUR million)

     69,958        74,097        (5.6)        69,958        94,752        (26.2)        88,410  

Tangible book value per share (euro)

     4.16        4.10                 4.16        4.20                 4.15  

Price / Tangible book value per share (X)

     1.04        1.12                 1.04        1.41                 1.32  

P/E ratio (X)

     9.83        10.62                 9.83        14.02                 13.56  
OTHER DATA    Sep-18      Jun-18      %      Sep-18      Sep-17      %      Dec-17  

Number of shareholders

     4,190,808        4,152,125        0.9        4,190,808        4,070,187        3.0        4,029,630  

Number of employees

     201,101        200,961        0.1        201,101        200,949        0.1        202,251  

Number of branches

     13,414        13,482        (0.5)        13,414        13,704        (2.1)        13,697  

(1) In this document we present the figures related to “underlying” results, which exclude non-recurring items, as they are recorded in the separate line of “net capital gains and provisions”, above the line of “attributable profit to the Group”. Further details on that line are provided in pages 10 and 11 as well as in the Alternative Performance Measures section as follows below.

(2) 2018 data applying the IFRS 9 transitional arrangements.

Note: The financial information in this report was approved by the Board of Directors, following a favourable report from the Audit Committee.

 

In accordance with the Guidelines on Alternative Performance Measures published by the European Securities and Markets Authority on 5 October 2015 (Guidelines on Alternative Performance Measures, ESMA/2015/1415en), we are attaching herewith a glossary with the definitions and the conciliation with the items presented in the income statement of certain alternative performance measures used in this document. Please refer to “Alternative Performance Measures Glossary” on page 58.

 

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Santander aim

 

SANTANDER AIM

 

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SANTANDER AIM “Helping people and businesses prosper” 81%* 77%* 19.6 (+19%**) 29.9 (+24%**) of employees engaged million loyal million digital perceive that employees customers customers their colleagues behave in a more Simple, Personal and Fair way ...ma o s ke a d d o a i v n ur o d t . . . sati c m e e s … s s u t o e st s a d y ed o i á v l t o i a m t p e n m People o d e Customers m s m l r oe o o s d r e p d y o a r e a l m e g m o l … r 142 201,101 M p g c a o e million E m n y e a d . . . d r l i … e i n s a e u a bb l l y t t i i n i n i l n i n e e v i g ib r t … e n r n t a a h s l t s t i h a o Communities* h ó e i g r l s o w s Shareholders n h p u r o c e er g p t o nl in i m n n g ma ve r e i v l e msu st . q d u a i b m 2.1 on ci men . . l o . . i e n c 4.2 t eyd.a t . s l t c a r million people d. s y u e millones helped in 2017 44,862* 1,295* 11.11%*** +5% scholarships agreements with Fully loaded dividend per granted universities CET1 ratio share growth in 2017 and academic institutions expected for in 21 countries 2018 (*) 2017 data (**) Year-on-year % change (***) Calculated using the IFRS 9 transitional arrangements

 

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Santander aim

 

SANTANDER AIM

 

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People The global engagement survey was launched for the fifth time in order to know the level of employees’ engagement, as well as identify areas of improvement and opportunities so as to make Santander a better place to work. Under MyContribution, the 360 assessment process, in which executives are evaluated by their peers, line managers and their manager, was put into effect. Progress was made in installing the Workday platform (One Team Programme), which will provide us with a talent pool at the global level. Harmonisation of the processes in the countries involved in the first phase was completed. Once the pilot phase of the Strategic Workforce Planning in the UK, Mexico and the corporate centre was concluded, action plans were launched in the rest of countries. This project aims to identify the talent needed by the Group, quantifying the skills required for the future. Young Leaders, the programme to train professionals with leadership potential, was started in order to speed up Santander’s transformation. Customers Various strategies continued to be developed under the commercial transformation programme in order to improve customer loyalty and the customer experience. The number of loyal customers rose by 3.1 million and digital ones by 5.7 million year-on-year. Of note among the commercial actions implemented in the third quarter were the opening of the first Work Café in Spain, as an alternative to conventional branches. In Mexico, a new branch model (Sucursal Ágil) was launched in order to cut waiting time and provide a quicker service, Súper Auto (auto and motorcycle finance) and Solicitud Contrato Agro to encourage agro-credits in the SME segment. As regards digitalisation, the strategy was strengthened with Openbank, which launched an automated financial advisor (robo-advisor) and offered new developments and functionalities. The new services include, among others, private and safe storage of all types of passwords and an account aggregator to connect accounts and products from other banks. In the UK, we launched the Digital Investment Advisor, a new investment advisory service, and in Poland the Dzia³alnosc.pl platform for entrepreneurs. In mobile banking, Poland launched mSignature, an app that authorises operations and replaces SMS codes. Shareholders The first interim dividend charged to 2018’s earnings was paid in August. In November, on the date on which the second dividend is traditionally paid, the Santander Dividendo Elección programme will be applied, enabling shareholders to choose whether to receive their remuneration in cash and/or in shares. Shareholder Relations and Universia Foundation concluded the 10th edition of scholarships for students with a disability. These funds contribute to the academic progress of shareholders with disabilities who are university students and foster their socio-labour inclusion. Community Banco Santander is ranked the world’s third best bank and the first in Europe in the Dow Jones Sustainability Index (DJSI), the reference index in the environmental sphere which measures companies’ performance in sustainability matters, in three dimensions (economic, social and environmental). Fortune magazine included Santander in its 2018 Change the World ranking, which includes a small group of companies that “combine success with their contribution to society” by generating a positive social impact with initiatives that form part of their business strategy. Banco Santander signed an agreement with Spain’s Ministry of Science, Innovation and Universities and the chairman of Conference of Rectors of Spanish Universities (CRUE) to launch the Santander Erasmus Scholarship programme, which recognises the excellence of Erasmus+ students and favours inclusive education and equality of opportunity. The Bank, via Santander Responsabilidad Solidario managed by Santander Asset Management Spain, provided EUR 2.6 million for various socio-labour insertion projects of collectives at risk of social exclusion.

 

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Consolidated financial report

 

GROUP PERFORMANCE

 

 

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We have again delivered a strong set of results, with attributable profit 13 % higher in the first nine months of the year. Importantly, this has been achieved in a responsible and sustainable way, growing loyal and digital customers by investing in our digital transformation, and achieving a top three ranking in customer satisfaction in the majority of our markets

 

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In a quarter with strong market volatility, we made progress in achieving our goals, increasing attributable profit and improving our capital, efficiency and credit quality ratios

 

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The commercial transformation is driving growth in loyal and digital customers, reflected in greater business in almost all markets

Santander’s strategy remained focus on customer loyalty. The number of loyal customers continued to rise in the third quarter and was 3.1 million higher than in September 2017 (+19%), with individuals as well as companies rising.

The number of digital customers rose by 5.7 million (+24% in the last 12 months), underscoring the strength of our multichannel strategy. Penetration of digital clients and the use of mobile devices is growing notably.

Growth benefited from the incorporation of Banco Popular’s customers in March 2018.

 

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Slight growth in volumes in the quarter in both loans and customer funds.

Loans grew year-on-year in eight of the ten core units and funds in seven (falls of less than 1% in the other three). Demand deposits and mutual funds increased.

Solid funding and liquidity structure. Net loan-to-deposit ratio of 111% (110% in September 2017).

 

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Consolidated financial report

 

GROUP PERFORMANCE

 

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Santander is a predictable, profitable and efficient bank, with a business model that enables us to obtain higher profits in a recurring way

Third quarter attributable profit of EUR 1,990 million, affected by the high inflation adjustment in Argentina (EUR -169 million). It was 17% higher than the second quarter (+25% in constant euros), due to the recording in that quarter of non-recurring items mainly linked to integrations. Excluding these charges, the quarter’s profit was very similar to the second quarter’s underlying attributable profit (+6% in constant euros).

The first nine months attributable profit stood at EUR 5,742 million, up 13% (+28% in constant euros), and earnings per share (EPS) 5%.

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Santander remains among the leading banks in profitability, while strengthening capital ratios and improving credit quality

The Group’s profitability continues to be one of the best among European banks. RoTE was 11.7% (underlying RoTE 12.1%). Both RoTE and RoRWA improved year-on-year.

Santander was able to grow profitability, while strengthening the capital ratios. The fully loaded CET1, applying the IFRS 9 transitional arrangement, was 11.11%, after generating 31 bps in the quarter from profits and the reduction of risk weighted assets, partly benefiting from securitisations and the review of parameters.    

 

 

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Excluding non-recurring results, underlying attributable profit was EUR 6,042 million, 8% higher (+21% in constant euros), and rose in eight of the ten core markets. Underlying EPS was EUR 0.349.

The efficiency ratio was 46.9%. Customer revenue growth in constant euros for the sixth straight quarter, together with operational excellence is enabling us to combine one of the sector’s best efficiency ratios and be among the top 3 banks in customer satisfaction in six of our core countries.

Tangible capital per share was EUR 4.16. The comparison with September 2017 is affected by exchange rates and a negative impact of EUR 0.08 from the IFRS 9 implementation (+5% excluding both impacts). Additionally, in terms of value creation for shareholders, a cash remuneration of EUR 0.19 was paid in that period.

Improved credit quality. Cost of credit was 0.98% at the end of September (1.12% in September 2017). The NPL ratio improved for the fifth quarter running (-5 bps) and fell 37 bps year-on-year. Coverage increased 2 pp, in the same period.

 

 

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Consolidated financial report

 

MAIN BUSINESS AREAS PERFORMANCE

(Greater detail on pages 20 to 36 and in the appendix)

(Changes in constant euros)

 

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Continental Europe: generated an attributable profit of EUR 2,436 million in the first nine months, 22% more year-on-year including the costs associated with integrations (mainly restructuring costs)this year (in the second quarter) and last year (in the third quarter).

Excluding these impacts, underlying attributable profit was EUR 2,696 million (+13% year-on-year), largely due to the increase in customer revenue and also benefiting from Banco Popular’s integration.

Underlying attributable profit was 28% higher in the third quarter than in the second, due to the good evolution of net interest income and costs. The contribution to the Single Resolution Fund (SRF) was recorded in the second quarter.

 

United Kingdom: in a highly competitive environment with some remaining uncertainties over Brexit, attributable profit was 9% lower year-on-year in the first nine months at EUR 1,077 million. This was due to pressure on spreads and investments in regulatory and strategic projects. The cost of credit was only 8 bps.

The third quarter underlying attributable profit was 5% higher quarter-on-quarter, due to the moderate rise in net interest income, lower costs for the second straight quarter and reduced loan-loss provisions.

 

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  Latin Ameria: attributable profit of EUR 3,160 million in the first nine months, 21% higher year-on-year. Growth in volumes, spreads management and increased loyalty underpinned the good evolution, both in net interest income as well as fee income, in addition to an improved cost of credit.

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Operating expenses grew mainly due to plans relating to the expansion, commercial transformation and increased digitalisation of our retail networks.

Profit was 4% lower in the third quarter than in the second, affected by the inflation adjustments in Argentina and higher taxes. Good performance of customer revenue and moderate rise in costs and provisions.

 

United States: first nine months attributable profit of EUR 460 million, 47% more year-on-year, due to a fall in costs and, above all, reduced provisions, which comfortably offset the decline in customer revenue associated with lower spreads, higher funding costs, reduced fee income from servicing and tougher competition.

Compared to the second quarter, the third quarter underlying attributable profit was down 43%, due to higher loan-loss provisions for SC USA which seasonally are much lower in the second quarter. On the other hand, good evolution of net interest income and costs. Both improved for the second quarter running.

 

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General background

 

GENERAL BACKGROUND

Grupo Santander developed its business in the first nine months in a generally dynamic and solid economic environment. However, the maximum point of the current expansive cycle could have been reached. The countries where the Group conducts its business are performing at a less even pace, although they are growing.

As happened in the first months of the year, trade tensions, despite the agreement reached in the renegotiation of NAFTA, and the tightening of US monetary policy are the main causes of greater uncertainty, which has triggered tensions of varying intensity, particularly in developing markets such as Argentina and Turkey and, to a lesser extent, in Brazil, also affected by general elections.

Other factors such as the Brexit negotiations and the shape of Italy’s fiscal policy have also weighted on the tone of the markets.

 

Country    GDP*
Change
     Economic performance

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Eurozone

  

+2.3%

    

 

Growth continued to slowdown as the year advanced. GDP grew 2.2% year-on-year in the second quarter and could be lower in the third. The unemployment rate fell further (8.1% in August) and inflation was 2.1% in September, although the underlying rate was lower.

 

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Spain

  

+2.7%

    

 

The economy showed signs of growing less in the third quarter, although growth remained strong at around 2.5% (above the Eurozone average). The jobless rate fell again in the second quarter to 15.3% and inflation was 2.3% in September (underlying rate of 0.8%).

 

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Poland

  

+5.2%

    

 

Growth remained strong in the second quarter. The unemployment rate was still at an historic low (3.6% in the second quarter). Inflation fell in September to 1.8% after staying at 2% for three months. The central bank has held its key rate at 1.5% throughout the year.

 

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Portugal

  

+2.3%

    

 

Growth accelerated in the second quarter, driven by exports and investment. The labour market continued to improve: the unemployment rate fell to 6.7% in June and the participation rate increased. Inflation reached 1.4% in September.

 

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United Kingdom

  

+1.1%

    

 

The economy picked up in the second quarter after a first quarter affected by bad weather. Inflation remained high (2.4% in September) and sterling fluctuated because of Brexit negotiations. The jobless rate of 4.0% in June is one of full employment. The Bank of England’s key rate rose 25 bps in August to 0.75%.

 

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Brazil

  

+1.1%

    

 

GDP slowed in the second quarter because of the transport strike and began to pick up gradually in the third. The central bank held the Selic rate at 6.5% but showed it was ready to raise it if the real’s depreciation put the inflation target at risk.

 

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Mexico

  

+2.0%

    

 

The economy decelerated in the second quarter and gathered pace in the third. Inflation rose to 5.0% in September and the central bank held its key rate at 7.75%, following two rises of 25 bps, until June. The trade agreement with the US and Canada restored some calm and caused the peso to appreciate.

 

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Chile

  

+4.8%

    

 

The economy was strong in the second quarter, spurred by private consumption, investment and exports. Inflation rose to 3.1% in September (2.5% in June) and although the key rate remained at 2.5% in the third quarter, there was a rise of 25 bps in October.

 

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Argentina

  

-0.5%

    

 

The government renegotiated its agreement with the IMF in order to cover the financing needs for 2018- 2019. The economic programme will focus on correcting the fiscal deficit and inflation in order to stabilise the economy. The economy shrank in the second quarter and inflation rose due to the peso’s depreciation.

 

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United States

  

+2.7%

    

 

GDP grew strongly in the second quarter (4.1% annualised) and the jobless rate dropped to 3.9%. Inflation is close to the target of the Fed, which continues to normalise its monetary policy. It increased the federal funds rate in September by 25 bps to 2.0-2.25%.

 

(*) Year-on-year change H1’18

 

EXCHANGE RATES: 1 EURO / CURRENCY PARITY

 

         Average (income statement)                   Period-end (balance sheet)         
      9M’18      9M’17              Sep-18      Jun-18      Sep-17  

US dollar

     1.194        1.112                   1.158        1.166        1.181    

Pound sterling

     0.884        0.873                   0.887        0.886        0.882    

Brazilian real

     4.278        3.525                   4.654        4.488        3.764    

Mexican peso

     22.720        20.974                   21.780        22.882        21.461    

Chilean peso

     750.447        726.965                   765.301        757.828        754.533    

Argentine peso

     28.609        17.970                   47.635        33.517        20.729    

Polish zloty

     4.248        4.264                   4.277        4.373        4.304    

 

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Consolidated financial report

 

 

 

GRUPO SANTANDER RESULTS

 

 

Third quarter attributable profit of EUR 1,990 million, affected by the high inflation adjustment in Argentina (EUR -169 million). Profit was 17% higher than the second quarter (+25% in constant euros), which recorded charges related to integrations

 

 

The first nine months attributable profit stood at EUR 5,742 million, 13% more (+28% in constant euros) and earnings per share 5%

 

 

Underlying attributable profit was EUR 6,042 million, 8% higher year-on-year and 21% in constant euros. This profit does not include the non-recurring charges in the second quarter of 2018 and the third of 2017.

 

 

The results reflect solid customer revenue, an efficiency ratio of 46.9%, among the best of our peers and the cost of credit improving to 0.98%

 

 

The underlying RoTE was 12.1%, higher than in 2017, and the underlying RoRWA rose to 1.60%

 

 

GRUPO SANTANDER. INCOME STATEMENT

 

  

    EUR million

                                                                       
                  

Change

                  

Change

 
      Q3’18      Q2’18      %      % excl. FX      9M’18      9M’17      %      % excl. FX  

Net interest income

     8,349        8,477        (1.5)        3.4        25,280        25,689        (1.6)        8.3  

Net fee income

     2,640        2,934        (10.0)        (2.8)        8,529        8,648        (1.4)        9.7  

Gains (losses) on financial transactions

     505        361        39.9        61.0        1,359        1,282        6.0        21.6  

Other operating income

     226        239        (5.4)        (4.7)        714        712        0.3        5.6  

Dividends

     28        229        (87.8)        (87.2)        292        309        (5.6)        (1.8)  

Income from equity-accounted method

     178        176        1.1        8.8        532        480        10.7        20.8  

Other operating income/expenses

     20        (166)                      (110)        (78)        40.8        78.9  

Gross income

     11,720        12,011        (2.4)        3.4        35,882        36,330        (1.2)        9.0  

Operating expenses

     (5,361)        (5,718)        (6.2)        (0.7)        (16,843)        (16,957)        (0.7)        8.4  

General administrative expenses

     (4,804)        (5,114)        (6.1)        (0.4)        (15,069)        (15,058)        0.1        9.5  

Personnel

     (2,837)        (2,960)        (4.2)        0.8        (8,797)        (8,856)        (0.7)        7.9  

Other general administrative expenses

     (1,967)        (2,154)        (8.7)        (2.2)        (6,272)        (6,203)        1.1        11.8  

Depreciation and amortisation

     (557)        (604)        (7.8)        (3.1)        (1,774)        (1,899)        (6.6)        0.2  

Net operating income

     6,359        6,293        1.0        7.1        19,039        19,373        (1.7)        9.5  

Net loan-loss provisions

     (2,121)        (2,015)        5.3        11.2        (6,418)        (6,930)        (7.4)        3.8  

Impairment losses on other assets

     (49)        (34)        44.1        46.6        (107)        (185)        (42.1)        (38.8)  

Other income

     (439)        (453)        (3.1)        8.0        (1,284)        (2,083)        (38.4)        (31.4)  

Underlying profit before tax

     3,750        3,791        (1.1)        4.5        11,230        10,175        10.4        22.7  

Tax on profit

     (1,394)        (1,379)        1.1        6.7        (4,053)        (3,497)        15.9        28.4  

Underlying profit from continuing operations

     2,356        2,412        (2.3)        3.2        7,177        6,678        7.5        19.7  

Net profit from discontinued operations

                                                       

Underlying consolidated profit

     2,356        2,412        (2.3)        3.2        7,177        6,678        7.5        19.7  

Minority interests

     366        414        (11.6)        (10.4)        1,135        1,085        4.6        12.3  

Underlying attributable profit to the Group

     1,990        1,998        (0.4)        6.1        6,042        5,592        8.0        21.1  

Net capital gains and provisions*

            (300)        (100.0)        (100.0)        (300)        (515)        (41.7)        (41.7)  

Attributable profit to the Group

     1,990        1,698        17.2        25.1        5,742        5,077        13.1        28.4  

Underlying EPS (euros)

     0.115        0.115        (0.5)                 0.349        0.350        (0.2)           

Underlying diluted EPS (euros)

     0.114        0.115        (0.5)                 0.348        0.350        (0.4)           

EPS (euros)

     0.115        0.096        18.7                 0.331        0.316        4.7           

Diluted EPS (euros)

     0.114        0.096        18.7                 0.330        0.316        4.4           

Pro memoria:

                                                                       

Average total assets

     1,431,897        1,437,163        (0.4)                 1,436,286        1,392,398        3.2           

Average stockholders’ equity

     94,391        94,607        (0.2)                 94,615        93,178        1.5           

 

(*)

In Q2’18, integration costs (mainly restructuring costs) net of tax impacts, in Spain: EUR -280 million, Corporate Centre: EUR -40 million and Portugal: EUR 20 million. In 2017, integration costs (Popular: EUR -300 million and Germany: EUR -85 million) and charges for equity stakes and intangible assets (EUR -130 million)

 

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QUARTERLY INCOME STATEMENT

                    

    EUR million

                                                              
      Q1’17      Q2’17      Q3’17      Q4’17      Q1’18      Q2’18      Q3’18  

Net interest income

     8,402        8,606        8,681        8,607        8,454        8,477        8,349  

Net fee income

     2,844        2,916        2,888        2,949        2,955        2,934        2,640  

Gains (losses) on financial transactions

     573        286        422        421        493        361        505  

Other operating income

     211        240        260        85        249        239        226  

Dividends

     41        238        31        75        35        229        28  

Income from equity-accounted method

     133        160        188        223        178        176        178  

Other operating income/expenses

     37        (157)        42        (213)        36        (166)        20  

Gross income

     12,029        12,049        12,252        12,062        12,151        12,011        11,720  

Operating expenses

     (5,543)        (5,648)        (5,766)        (5,961)        (5,764)        (5,718)        (5,361)  

General administrative expenses

     (4,915)        (4,983)        (5,161)        (5,267)        (5,151)        (5,114)        (4,804)  

Personnel

     (2,912)        (2,943)        (3,000)        (3,116)        (3,000)        (2,960)        (2,837)  

Other general administrative expenses

     (2,002)        (2,039)        (2,161)        (2,151)        (2,151)        (2,154)        (1,967)  

Depreciation and amortisation

     (629)        (665)        (605)        (694)        (613)        (604)        (557)  

Net operating income

     6,486        6,401        6,486        6,101        6,387        6,293        6,359  

Net loan-loss provisions

     (2,400)        (2,280)        (2,250)        (2,181)        (2,282)        (2,015)        (2,121)  

Impairment losses on other assets

     (68)        (63)        (54)        (230)        (24)        (34)        (49)  

Other income

     (707)        (785)        (591)        (315)        (392)        (453)        (439)  

Underlying profit before tax

     3,311        3,273        3,591        3,375        3,689        3,791        3,750  

Tax on profit

     (1,125)        (1,129)        (1,243)        (1,090)        (1,280)        (1,379)        (1,394)  

Underlying profit from continuing operations

     2,186        2,144        2,347        2,285        2,409        2,412        2,356  

Net profit from discontinued operations

                                                

Underlying consolidated profit

     2,186        2,144        2,347        2,285        2,409        2,412        2,356  

Minority interests

     319        395        371        362        355        414        366  

Underlying attributable profit to the Group

     1,867        1,749        1,976        1,924        2,054        1,998        1,990  

Net capital gains and provisions*

                   (515)        (382)               (300)         

Attributable profit to the Group

     1,867        1,749        1,461        1,542        2,054        1,698        1,990  

Underlying EPS (euros) **

     0.120        0.112        0.118        0.113        0.120        0.115        0.115  

Underlying diluted EPS (euros) **

     0.120        0.111        0.119        0.111        0.119        0.115        0.114  

EPS (euros) **

     0.120        0.112        0.084        0.088        0.120        0.096        0.115  

Diluted EPS (euros) **

     0.120        0.111        0.085        0.087        0.119        0.096        0.114  

(*) Including the following figures net of tax:

 

In Q3’17, integration costs (Banco Popular EUR -300 million, Germany EUR -85 million) and charge for equity stakes and intangible assets (EUR -130 million).

 

In Q4’17, capital gains from the disposal of the stake in All funds Bank (EUR 297 million), USA tax reform (EUR 73 million), goodwill charges (EUR -603 million) and in the US provisions for hurricanes, repurchase of a minority stake in Santander Consumer USA and other (EUR -149 million).

 

In Q2’18, integration costs (mainly restructuring costs) net of tax, in Spain: EUR -280 million, Corporate Centre: EUR -40 million and Portugal: EUR 20 millions.

 

(**)

Q1’18 and Q2’18 data adjusted to the capital increase of July 2017 for like-for-like comparisons with other quarters.

 

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Third quarter results compared to the second quarter of 2018

The third quarter attributable profit was EUR 1,990 million, affected by the inflation adjustment in Argentina (EUR -169 million). Profit was 17% higher than the second quarter (+25% in constant euros), due to the recording in that quarter of EUR -300 million of non-recurring items net of tax associated with integrations (mainly restructuring charges).

Excluding these charges, profit was almost the same as the underlying attributable profit in the second quarter. In constant euros it rose 6%, with the following detail:

 

Positive evolution of net interest income, which rose for the sixth straight quarter, and of gains on financial transactions, while fee income was lower because of reduced income from wholesale businesses impacted by the market’s environment. The rest of revenue was affected, on the one hand, by the charge in the third quarter for the assessment of monetary assets in Argentina derived from the high inflation and, on the other, by the contribution to the Single Resolution Fund recorded in the second quarter.

 

Operating expenses were slightly lower (-1%) because of those for mature markets (-3%), with all countries recording falls. Costs in developing countries increased 2% because of investments, the automatic salary adjustment to inflation in Argentina and the peso’s depreciation againts the dollar.

 

Loan-loss provisions were 11% higher, largely due to SC USA, which seasonally has lower provisions in the second quarter.

Evolution of results compared to the first nine months of 2017

The first nine months attributable profit of EUR 5,742 million was 13% higher year-on-year in euros and 28% in constant euros. Underlying attributable profit (excluding net capital gains and provisions) was EUR 6,042 million (+8% in euros and +21% in constant euros). The P&L performance by line was as follows. To facilitate analysis and comparisons of management actions, all changes exclude exchange rate impacts.

LOGO Gross income

 

The structure of our gross income, where net interest income and fee income accounted for 94% of total revenue in the first nine months, well above the average of our competitors, continues to enable us to grow in a consistent and recurring way, limiting the impact that periods of high volatility can have on gains on financial transactions. Gross income increased 9%, as follows:

 

 

Net interest income rose 8%, due to greater lending and deposit volumes, mainly in developing countries, which overall grew at double-digit rates, and management of spreads.

All units increased except for the United Kingdom, affected by pressure on spreads on new mortgages and standard variable rate (SVR) balances, and the United States, hit by competitive pressure, reduced spreads and the higher cost of funding. The decline in revenue in the US was offset by a 16% fall in loan-loss provisions.

 

 

Fee income was up 10%, reflecting greater activity and customer loyalty, as well as the strategy of growth in services and higher value-added products and in areas of low capital consumption. Growth in fee income from Retail Banking (+7%) and Wealth Management (+66%), while that from Corporate & Investment Banking was stable.

 

 

Gains on financial transactions, which account for less than 4% of gross income, increased 22%, while the sum of dividends, equity-accounted income and other income rose 6%, partly due to the higher income from leasing in the United States.

 

 

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LOGO Operating expenses

 

Operating expenses rose 8% as a result of higher inflation in some countries, investments in transformation and digitalisation, and the perimeter effect. In real terms (excluding inflation and perimeter effect), costs were almost stable. Of note by units was the fall in costs in the United States, Spain, where they fell for the third quarter running, and Portugal, the latter two reflecting the optimisation plans implemented.

The main rises were in Mexico, due to investments in infrastructure; in Argentina, due to investments in digitalisation and the automatic review of salary agreements from the rise in inflation and in Poland, because of transformation projects and pressure on salaries.

The measures to optimise costs, as part of the ongoing integration processes, will be reflected in greater synergies in the future. This evolution is enabling us to combine the investments made to enhance the customer experience with an operational efficiency that continues to be the sector’s reference.

LOGO Loan-loss provisions

 

Good evolution of credit quality ratios. The NPL ratio, as well as the coverage ratio and the cost of credit, improved in the last 12 months.

 

By countries, provisions fell in the US, Mexico and Portugal and rose in Brazil, although at a slower pace than lending, while the UK maintained a cost of credit of only 8 bps. The main rises were in Spain, due to the greater perimeter, in SCF, because of higher releases and portfolio sales in 2017, but it maintained a cost of credit below the standards for its business, and Argentina due to higher provisions for individual borrowers and the impact of the peso’s depreciation on dollar balances.

 

The cost of credit dropped from 1.12% in September 2017 to 0.98% a year later.

LOGO Other results and provisions

 

Other results and provisions were EUR -1,391 million, 32% higher than in the first nine months of 2017. This item records different kinds of provisions, as well as capital gains, capital losses and asset impairment.

 

The improvement over 2017 was largely due to lower provisions for legal and labour claims (trabalhistas) in Brazil, lower charges in the UK stemming from potential customer complaints, and some releases from various items made at SCF in 2018 (in 2017 provisions for legal claims and customer complaints were made and restructurings in some of the countries where we operate).

LOGO Profit and profitability

 

Underlying pre-tax profit rose 23% year-on-year and underlying attributable profit 21%. Underlying earnings per share were EUR 0.349, in line with that in the first nine months of 2017. Underlying RoTE rose to 12.1% and underlying RoRWA was 1.60%, also higher year-on-year and over the whole of 2017.

 

Including non-recurring items, attributable profit increased 28% (+13% in constant euros), and earnings per share were EUR 0.331 (+5% year-on-year in euros). RoTE was 11.7% and RoRWA 1.55%, in both cases higher than in 2017.

 

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LOGO GRUPO SANTANDER. BALANCE SHEET    

              

    EUR million    

                                            
Assets    Sep-18      Sep-17      Absolute
change
     %      Dec-17  

Cash, cash balances at central banks and other demand deposits

     111,704        122,055        (10,351)        (8.5)        110,995  

Financial assets held for trading

     98,448        126,650        (28,202)        (22.3)        125,458  

Debt securities

     28,230        37,977        (9,747)        (25.7)        36,351  

Equity instruments

     17,239        18,419        (1,180)        (6.4)        21,353  

Loans and advances to customers

     239        12,148        (11,909)        (98.0)        8,815  

Loans and advances to central banks and credit institutions

     63        1,192        (1,129)        (94.7)        1,696  

Derivatives

     52,677        56,913        (4,236)        (7.4)        57,243  

Financial assets designated at fair value through profit or loss

     70,573        38,160        32,413        84.9        34,781  

Loans and advances to customers

     24,318        20,595        3,723        18.1        20,475  

Loans and advances to central banks and credit institutions

     37,401        13,142        24,259        184.6        9,889  

Other (debt securities an equity instruments)

     8,854        4,423        4,431        100.2        4,417  

Financial assets at fair value through other comprehensive income

     116,356        139,461        (23,105)        (16.6)        133,271  

Debt securities

     112,288        134,568        (22,280)        (16.6)        128,481  

Equity instruments

     2,771        4,893        (2,122)        (43.4)        4,790  

Loans and advances to customers

     1,297               1,297                

Loans and advances to central banks and credit institutions

                                  

Financial assets measured at amortised cost

     931,411        917,404        14,007        1.5        916,504  

Debt securities

     40,089        28,787        11,302        39.3        31,034  

Loans and advances to customers

     840,373        821,943        18,430        2.2        819,625  

Loans and advances to central banks and credit institutions

     50,949        66,674        (15,725)        (23.6)        65,845  

Investments in subsidaries, joint ventures and associates

     9,371        6,832        2,539        37.2        6,184  

Tangible assets

     24,727        22,708        2,019        8.9        22,975  

Intangible assets

     27,855        28,538        (683)        (2.4)        28,683  

Goodwill

     24,956        25,855        (899)        (3.5)        25,769  

Other intangible assets

     2,899        2,683        216        8.0        2,914  

Other assets

     54,242        66,222        (11,980)        (18.1)        65,454  

Total assets

     1,444,687        1,468,030        (23,343)        (1.6)        1,444,305  
Liabilities and shareholders’ equity                                        

Financial liabilities held for trading

     66,805        110,024        (43,219)        (39.3)        107,624  

Customer deposits

            27,218        (27,218)        (100.0)        28,179  

Debt securities issued

                                  

Deposits by central banks and credit institutions

            1,629        (1,629)        (100.0)        574  

Derivatives

     51,775        57,766        (5,991)        (10.4)        57,892  

Other

     15,030        23,411        (8,381)        (35.8)        20,979  

Financial liabilities designated at fair value through profit or loss

     92,182        55,049        37,133        67.5        59,617  

Customer deposits

     55,154        25,721        29,433        114.4        28,945  

Debt securities issued

     2,323        2,733        (410)        (15.0)        3,056  

Deposits by central banks and credit institutions

     34,293        26,595        7,698        28.9        27,027  

Other

     412        0        412               589  

Financial liabilities measured at amortized cost

     1,139,066        1,147,403        (8,337)        (0.7)        1,126,069  

Customer deposits

     723,597        725,913        (2,316)        (0.3)        720,606  

Debt securities issued

     231,708        215,907        15,801        7.3        214,910  

Deposits by central banks and credit institutions

     155,446        176,890        (21,444)        (12.1)        162,714  

Other

     28,315        28,693        (378)        (1.3)        27,839  

Liabilities under insurance contracts

     810        1,673        (863)        (51.6)        1,117  

Provisions

     13,269        15,838        (2,569)        (16.2)        14,490  

Other liabilities

     26,887        29,321        (2,434)        (8.3)        28,556  

Total liabilities

     1,339,019        1,359,307        (20,288)        (1.5)        1,337,472  

Shareholders’ equity

     119,793        115,723        4,070        3.5        116,265  

Capital stock

     8,068        8,020        48        0.6        8,068  

Reserves

     107,032        103,587        3,445        3.3        103,608  

Attributable profit to the Group

     5,742        5,077        665        13.1        6,619  

Less: dividends

     (1,049)        (962)        (87)        9.0        (2,029)  

Other comprehensive income

     (24,816)        (19,823)        (4,993)        25.2        (21,777)  

Minority interests

     10,691        12,824        (2,133)        (16.6)        12,344  

Total equity

     105,668        108,723        (3,055)        (2.8)        106,832  

Total liabilities and equity

     1,444,687            1,468,030            (23,343)        (1.6)            1,444,305  

NOTE: Due to the application of IFRS 9 from 1 January 2018 and the decision to not restate the accounts, as permitted in the regulation, the balance sheet from September 2018 is not comparable with previous reporting periods. As such, for comparative purposes, and given the portfolio reclassification and the corresponding nomenclature changes were not significant, the 2017 accounts have been reorganised in accordance with the new aims and valuation methods. The initial impact as of 1 January 2018 was a 1.8% increase in fair value portfolios and a 0.8% decrease in portfolios valued at amortised cost, including a EUR 2.0 billion increase in impairment losses. The resulting decrease in equity was just under EUR 1.5 billion.

 

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GRUPO SANTANDER BALANCE SHEET

 

The evolution of exchange rates had virtually no impact in the third quarter. On a year-on-year basis, negative impact of exchange rates of 2.5 pp on loans and 3.5 pp on funds

 

 

Lending increased 3% year-on-year (excluding the forex impact) in eight of the ten core units, particularly in developing countries (+11%)

 

 

Customer funds rose 4% year-on-year (excluding the forex impact), with growth in seven of the ten core units (falls of less than 1% in the other three). Rises in demand deposits and mutual funds and fall in time deposits

 

LOGO Gross customer loans and advances (excluding reverse repos)

Gross customer loans and advances excluding reverse repos remained evenly balanced: individuals (45%), consumer credit (16%), SME and companies (28%) and CIB (11%).

 

Quarter-on-quarter, and excluding the exchange rate impact, loans were virtually unchanged (+0.2%) with the following performance by country:

 

  -

Increase of 4% in balances of developing countries, with growth of between 2% and 4% in all countries except for Argentina (+11%), due in part to the impact of the peso’s depreciation on dollar balances.

 

  -

Balances in mature countries declined 1%, very conditioned by Spain (-2%), due to wholesale balances and institutions.

 

Compared to September 2017, there was a 3% increase (eliminating the exchange rate impacts), with the following performance by country:

 

  -

There were rises in eight of the ten core countries. Of note were all the developing markets which grew 11%: Argentina (+62%), both for balances in pesos as well as the impact of the peso’s depreciation on dollar balances, Brazil (+13%), Mexico (+10%), Poland and Chile (+9%).

 

  -

More moderate growth in the US and UK (+3% and +1%, respectively).

 

  -

The only declines were in Portugal and Spain (-2%), the first one because of the sale of non-productive portfolios and the second because it was affected by the already commented evolution in the quarter.

 

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LOGO Customer funds

Customer funds are well diversified by products: 61% are demand deposits, 21% time deposits and 18% mutual funds.

 

In the third quarter, total deposits excluding repos and mutual funds increased 1% excluding exchange rate impacts. By countries:

 

 

There was a 2% rise in developing markets, notably Argentina and Brazil (+16% and +4%, respectively). Chile, on the other hand, dropped 4% because of the strategy of optimising the cost of funds.

 

 

In mature markets, the US dropped 1% because of lower public sector balances and the rest of countries hardly changed. Spain continued the strategy of reducing the expensive balances incorporated from Popular (the cost of deposits was 6 bps lower than in the second quarter and 20 bps less than at the end of 2017) and increasing balances of demand deposits and mutual funds. Time deposits declined notably.

 

Compared to September 2017, year-on-year growth was 4% excluding the exchange rate impact.

 

 

The strategy continued to focus on boosting loyalty and this helped produce rises of 5% in demand deposits and 7% in mutual funds, in both cases with growth in almost all countries. Time deposits fell 2%, due to declines in Spain, the UK and Chile, which offset the significant rises in Brazil (+25%), as part of the strategy of replacing letras financeiras with customer deposits in order to optimise the cost of funds, the US (+22%) and Poland (+20%).

 

 

By units, total funds rose in seven of the ten core units. The largest increases were in Argentina (+67%), Brazil (+17%) and Poland (+11%).

Slight falls in Chile, the UK and the US, all of them below 1%. In Chile, due to lower time deposits and mutual funds, while demand deposits rose 9%; in the UK, because of reduced time deposits and savings, as current account deposits grew 5%; and in the US, due to lower demand deposits because of the outflow of public sector balances and the rise in interest rates, partially offset by the increase in time deposits.

As well as capturing customer deposits, Grupo Santander, for strategic reasons, maintains a selective policy of issuing securities in the international fixed income markets and strives to adapt the frequency and volume of its market operations to the structural liquidity needs of each unit, as well as to the receptiveness of each market.

 

In the first nine months of 2018, the Group issued:

 

 

Medium- and long-term senior debt amounting to EUR 14,507 million and covered bonds placed in the market of EUR 5,178 million. Additionally, there were EUR 14,564 million of securitisations placed in the market.

 

 

Issuances to meet the TLAC (Total Loss-Absorbing Capacity) requirement amounting to EUR 11,246 million, in order to strengthen the Group’s situation, consisting of senior non-preferred: EUR 8,261 million; subordinated debt: EUR 1,485 million and preferred: EUR 1,500 million.

 

 

Maturities of medium- and long-term debt of EUR 19,960 million.

 

The net loan-to-deposit ratio was 111% (110% in September 2017). The ratio of deposits plus medium- and long-term funding to the Group’s loans was 114%, underscoring the comfortable funding structure.

 

LOGO

LOGO

 

 

16     LOGO     Financial Report 2018


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JANUARY - SEPTEMBER

Consolidated financial report

 

SOLVENCY RATIOS

 

 

The fully loaded CET1 ratio reached 11.11% following an excellent generation of capital in the quarter (+31 bps)

 

 

Tangible equity per share was EUR 4.16, an increase of 1.5% in the quarter

 

 

The fully loaded leverage ratio was 5.0%, the same as in September 2017

At the end of September, the total phased-in capital ratio stood at 14.81% and the phased-in CET1 ratio at 11.29%, comfortably meeting the minimum levels required by the European Central Bank on a consolidated basis (12.249% for the total capital ratio and 8.749% for the CET1 ratio).

On 1 January 2018 the IFRS 9 came into force, which implied several accounting changes affecting the capital ratios. Santander chose to apply the phase-in under a dynamic approach, which means a five-year transition period. Applying this criteria, the fully loaded CET1 was 11.11% at the end of September. This ratio does not include the estimated 9 bps positive impact from WiZink (expected to be registered in the coming months).

Had the IFRS 9 transitional arrangement not been applied, the total impact on the fully loaded CET1 at end September would have been -27 bps.

Of note in the third quarter was the strong generation of 31 bps of capital from profit and the reduction in risk weighted assets, partly benefiting from securitisations and the review of parameters.

Lastly, and in accordance with the issuance plan to meet the TLAC requirement, there were three issuances in the first nine months, with impact on the capital ratios. In February we issued EUR 1.25 billion of subordinated (Tier 2) debt maturing in 2028. In March we completed a EUR 1.5 billion issuance of contingent convertible capital securities (CoCos), which contribute towards additional tier 1 (AT1) capital levels, and in April in Poland a 10-year PLN 1 billion of subordinated debt (Tier 2) was issued.

 

ELIGIBLE CAPITAL. SEPTEMBER 2018

     EUR million

 

 

      Phased-in      Fully loaded  

CET1

     66,412        65,337  

Basic capital

     76,233        74,248  

Eligible capital

     87,083        85,748  

Risk-weighted assets

     588,074        588,074  
                   

CET1 capital ratio

     11.29        11.11  

T1 capital ratio

     12.96        12.63  

Total capital ratio

     14.81        14.58  

LOGO

 

 

 

LOGO

NOTE: All 2018 data calculated using the IFRS 9 transitional arrangements, unless otherwise indicated.

 

Financial Report 2018     LOGO     17


Table of Contents

JANUARY - SEPTEMBER

Consolidated financial report

 

 

RISK MANAGEMENT

 

 

The Group’s NPL ratio continued its favourable trend (-5 bps in the quarter) to 3.87%

 

 

The cost of credit (0.98%) continued to decline and was 14 bps lower year-on-year

 

 

Loan-loss provisions at the end of September amounted to EUR 6,418 million and coverage was 68%

 

LOGO Credit risk management

 

Non-performing loans fell 1% in the third quarter to EUR 36,332 million (-8% year-on-year). The NPL ratio stood at 3.87% (-5 bps in the quarter and -37 bps in 12 months).

 

The cost of credit improved to 0.98%.

 

Loan-loss provisions amounted to EUR 24,685 million and coverage was 68% at the end of September, bearing in mind that the UK and Spain’s coverage ratios are affected by the weight of mortgage balances, which require fewer provisions as they are collateralised.

 

The Group’s coverage by stages in IFRS 9 terms is as follows: Stage 1: 0.5%, Stage 2: 8.9% and Stage 3: 42.7%.

The following table sets out the NPL and coverage ratios of the main countries where the Group operates:

 

Spain’s NPL ratio was unchanged in the quarter. The portfolio’s better performance and the fall in NPLs offset the denominator impact from the fall in wholesale lending.

 

Santander Consumer Finance’s NPL ratio remained virtually unchanged thanks to the good performance of new lending.

 

Poland’s NPL ratio improved, due to growth in lending in line with the market and disposal of non-performing loans.

 

Portugal’s ratio continued to decline following the integration of Popular’s portfolios into Santander Totta’s usual management.

 

The UK’s NPL ratio continued to improve, due to the good performance of retail portfolios, particularly mortgages, and pro-active management of the non-performing portfolio.

 

Brazil’s NPL ratio remained unchanged in the quarter, thanks to preventative management of the non-performing entries and growth in lending, focused on individuals and consumer finance.

 

Mexico’s NPL ratio continued to fall due to the better performance of the portfolio of individuals (mainly cards and consumer credit), and increased lending.

 

Chile’s NPL ratio decreased because of the good general performance of the portfolio.

 

Argentina’s NPL ratio rose due to the performance of retail portfolios, particularly individuals, conditioned by the macroeconomic situation.

 

In the US, the NPL ratio evolution throughout the year continues to be explained by the expiry of special measures taken in 2017, including support to customers affected by hurricane season.

LOGO CREDIT RISK MANAGEMENT

 

        

    EUR million

                                   
      Sep-18      Sep-17      Chg.%      Dec-17  

Non-performing loans

     36,332        39,442        (7.9)        37,596  

NPL ratio (%)

     3.87        4.24                 4.08  

Loan-loss allowances

     24,685        25,944        (4.8)        24,529  

For impaired assets

     15,513        16,884        (8.1)        16,459  

For other assets

     9,172        9,060        1.2        8,070  

Coverage ratio (%)

     67.9        65.8                 65.2  

Cost of credit (%)

     0.98        1.12                 1.07  

LOGO CREDIT RISK MANAGEMENT. SEPTEMBER 2018

 

  

    %

                                   
     NPL      Change (bps)      Coverage  
      ratio      QoQ      YoY      ratio  

Spain

     6.23        (1)        (59)        47.7  

Spain’s real estate activity

     95.58        (91)        393        36.7  

Consumer Finance

     2.45        1        (15)        106.4  

Poland

     4.23        (35)        (47)        71.6  

Portugal

     7.43        (12)        (96)        53.4  

United Kingdom

     1.10        (2)        (22)        33.1  

Brazil

     5.26               (6)        109.1  

Mexico

     2.41        (17)        (15)        120.5  

Chile

     4.78        (8)        (17)        59.6  

Argentina

     2.47        7        13        124.0  

USA

     3.00        9        44        145.5  

 

LOGO

 

 

18     LOGO     Financial Report 2018


Table of Contents

JANUARY - SEPTEMBER

Consolidated financial report

 

 

 

LOGO NON-PERFORMING LOANS BY QUARTER

                    

    EUR million

                                                              
     

 

Q1’17

    

 

Q2’17

     Q3’17      Q4’17      Q1’18      Q2’18      Q3’18  

Balance at beginning of period

     33,643        32,158        50,714        39,442        37,596        37,407        36,654  

Net additions

     1,583        2,255        2,499        1,933        2,340        2,906        2,528  

Increase in scope of consolidation

     18        20,969        (10,954)                              

Exchange rate differences and other

     536        (854)        (150)        (358)        361        (409)        (140)  

Write-offs

     (3,623)        (3,813)        (2,667)        (3,420)        (2,890)        (3,250)        (2,710)  

Balance at period-end

     32,158                50,714                39,442                37,596                    37,407                36,654                36,332  

LOGO Foreign exchange structural rate risk

Santander maintains a CET1 ratio coverage level of around 100% in order to protect itself from exchange rate movements.

LOGO Market risk

 

In the quarter, the risk of trading activity of global corporate banking, measured in daily VaR terms at 99%, fluctuated between EUR 6.4 million and EUR 10.2 million. These figures are low compared to the size of the Group’s balance sheet and activity. The average VaR was slightly higher in the first part of the quarter due to market volatility, temporarily increasing the exposure to interest rate and FX risk, although always within the established limits.

 

In addition, there are other positions classified for accounting purposes as trading. The total VaR of these trading positions at the end of September was EUR 8.1 million.

 

There was increased market volatility as a result of trade disputes and political instability in various countries, which generated a negative impact during August in structural debt portfolios.

 

LOGO TRADING PORTFOLIOS*. VaR by geographic region

 

    EUR million

                                   
     2018             2017  
Third quarter    Average      Latest              Average  
           
           

Total

     7.9        8.3                 22.9  

Europe

     5.0        5.2                 6.3  

USA and Asia

     1.5        1.1                 1.8  

Latin America

     7.2        5.4                 21.9  

Global activities

     1.2        1.3                 0.2  

(*) Activity performance in Corporate & Investment Banking financial markets.

 

LOGO Real estate exposure (1)

 

At the end of the first nine months, the Spain Real Estate Activity unit’s gross exposure stood at EUR 9.7 billion and provisions of EUR 4.8 billion (coverage of 50%).

 

The net exposure was EUR 4.9 billion, equivalent to just 1% of our business in Spain.

 

Management continued to be aimed at reducing these assets, particularly loans and foreclosed assets. During the third quarter, the Group reached agreement with a subsidiary of Cerberus Capital Management to sell 35,700 properties for EUR 1,535 million, with no material impact on profit and capital expected. This transaction is expected to be finalised by the end of 2018 or the beginning of 2019.

 

This unit recorded a loss of EUR 187 million in the first nine months of the year, compared to a loss of EUR 223 million in the same period of 2017, due to the reduced need for provisions.

LOGO TRADING PORTFOLIOS*. VaR by market factor

 

  

    EUR million

 

        
Third quarter    Min.          Avg.          Max.          Last  

VaR total

     6.4        7.9        10.2        8.3  

Diversification effect

     (3.3)        (7.2)        (11.2)        (6.3)  

Interest rate VaR

     5.9        7.9        10.6        7.3  

Equity VaR

     0.9        1.3        2.0        1.8  

FX VaR

     2.2        3.9        6.0        3.5  

Credit spreads VaR

     1.0        2.1        5.8        2.1  

Commodities VaR

                           

(*) Activity performance in Corporate & Investment Banking financial markets.

NOTE: In the portfolios of Latin America, United States and Asia, the VaR corresponding to the credit spreads factor which is not sovereign risk, is not relevant and it is included in the interest rate factor.

 

 

 

LOGO REAL ESTATE EXPOSURE NET VALUE (1)

    EUR billion

 

 

      30 September  

Real estate assets

     3.9  

- Foreclosed

     2.7  

- Rentals

     1.2  

Non-performing real estate loans

     1.0  

Assets + non-performing real estate

     4.9  

(1) Spain Real Estate Activity

 

 

Financial Report 2018     LOGO     19


Table of Contents

JANUARY - SEPTEMBER

Business information

 

 

DESCRIPTION OF BUSINESS

In 2018 Grupo Santander maintained the same general criteria applied in 2017, as well as the business segments, with the following exceptions:

 

 

Banco Popular’s financial results and balance sheet have been allocated to the corresponding geographic areas. In 2017, starting from the integration date, Banco Popular was reported separately. The main affected areas are: Spain, Portugal and Spain Real Estate Activity.

 

 

The Wealth Management unit, created at the end of 2017, will be reported independently as a global business. This unit was previously included in Retail Banking. This change has no impact on the geographic segments.

 

 

Annual adjustment of the Global Customer Relationship Model’s perimeter, between Retail Banking and Corporate and Investment Banking, with no impact on the geographic businesses.

These changes have no impact on the Group’s figures. However, for comparative purposes, the figures of previous periods have been restated including changes in the affected geographic and global businesses.

Moreover, the balance sheets have been adjusted to the new IFRS 9 regulation. Since retroactive application of this rule is not mandatory, certain lines of the 2018 balance sheet are not comparable with previously reported periods. For comparative purposes, and given the scant significance of portfolio reclassifications and their nomenclature changes, the 2017 accounts have been reorganised in accordance with their purpose and valuation method.

The financial statements of each business unit have been drawn up by aggregating the Group’s basic operating units. The information relates to both the accounting data of the units integrated in each segment, as well as that provided by the management information systems. In all cases, the same general principles as those used in the Group are applied.

The operating business areas are structured into two levels:

 

LOGO

Geographic businesses. The operating units are segmented by geographical areas. This coincides with the Group’s first level of management and reflects Santander’s positioning in the world’s three main currency areas (euro, sterling and dollar). The segments reported on are:

 

 

Continental Europe. This covers all businesses in the area. Detailed financial information is provided on Spain, Portugal, Poland and Santander Consumer Finance (which incorporates all the region’s business, including the three countries mentioned herewith).

 

 

United Kingdom. This includes the businesses developed by the Group’s various units and branches in the country.

 

 

Latin America. This embraces all the Group’s financial activities conducted via its banks and subsidiaries in the region. The financial statements of Brazil, Mexico, Chile and Argentina are set out.

 

 

United States. Includes the holding Santander Holdings USA (SHUSA) and its subsidiaries Santander Bank, Banco Santander Puerto Rico, Santander Consumer USA, Banco Santander International, Santander Investment Securities and the New York branch.

 

LOGO

Global businesses. The activity of the operating units is distributed by the type of business: Retail Banking, Santander Corporate and Invesment Banking, Wealth Management and Spain Real Estate Activity.

 

 

Retail Banking. This covers all customer banking businesses, including consumer finance, except those of corporate banking, which are managed through the CIB, and asset management and private banking, which are managed by Wealth Management. The results of the hedging positions in each country are also included, conducted within the sphere of each one’s Assets and Liabilities Committee.

 

 

Corporate and Investment Banking (CIB). This business reflects the revenues from global corporate banking, investment banking and markets worldwide including treasuries managed globally (always after the appropriate distribution with Retail Banking customers), as well as equities business.

 

 

Wealth Management. Includes the asset management business (Santander Asset Management), the new corporate unit of Private Banking and International Private Banking in Miami and Switzerland.

In addition to these operating units, which report by geographic area and by businesses, the Group continues to maintain the area of Corporate Centre. This area incorporates the centralised activities relating to equity stakes in financial companies, financial management of the structural exchange rate position, assumed within the sphere of the Group’s Assets and Liabilities Committee, as well as management of liquidity and of shareholders’ equity via issuances.

As the Group’s holding entity, this area manages all capital and reserves and allocations of capital and liquidity with the rest of businesses. It also incorporates amortisation of goodwill but not the costs related to the Group’s central services (charged to the areas), except for corporate and institutional expenses related to the Group’s functioning.

 

The figures of the Group’s various units have been drawn up in accordance with these criteria, and so do not coincide individually with those published by each unit.

 

20     LOGO     Financial Report 2018


Table of Contents

JANUARY - SEPTEMBER

Business information

 

LOGO NET OPERATING INCOME                  QoQ                    YoY  
     EUR million    Q3’18              %      % excl. FX              9M’18      %      % excl. FX  

  Continental Europe

     2,032                        18.5        18.7                        5,663        10.8        11.1  

  o/w: Spain

     1,012                 41.7        41.7                 2,644        21.7        21.7  

Santander Consumer Finance

     682                 10.1        10.3                 1,932        2.8        3.4  

Poland

     211                 (10.8)        (9.7)                 626        5.1        4.6  

Portugal

     166                 (8.9)        (8.9)                 530        13.4        13.4  

  United Kingdom

     637                 4.5        6.4                 1,832        (17.9)        (16.8)  

  Latin America

     3,083                 (9.5)        1.8                 9,881        (5.3)        13.8  

  o/w: Brazil

     2,149                 (3.5)        3.1                 6,658        (4.5)        15.9  

Mexico

     547                 8.3        3.4                 1,543        (3.1)        4.9  

Chile

     375                 1.3        5.4                 1,127        1.0        4.3  

Argentina

     (70)                        (36.9)                 311        (45.6)        32.8  

  USA

     987                 5.9        3.4                 2,762        (6.0)        1.0  

  Operating areas

     6,739                 1.1        6.8                 20,139        (2.8)        7.6  

  Corporate Centre

     (380)           2.2        2.2           (1,100)        (17.8)        (17.8)  

  Total Group

     6,359                 1.0        7.1                 19,039        (1.7)        9.5  
LOGO ATTRIBUTABLE PROFIT TO THE GROUP                  QoQ                    YoY  
    EUR million    Q3’18              %      % excl. FX              9M’18      %      % excl. FX  

  Continental Europe*

     989                 27.6        27.8                 2,696        12.9        13.3  

  o/w: Spain*

     526                 61.8        61.8                 1,306        17.9        17.9  

Santander Consumer Finance*

     332                 (4.1)        (4.0)                 1,000        6.1        7.0  

Poland

     80                 (13.2)        (12.1)                 236        8.0        7.6  

Portugal*

     114                 10.9        10.9                 344        8.9        8.9  

  United Kingdom

     385                 3.3        5.1                 1,077        (10.4)        (9.2)  

  Latin America

     947                 (15.1)        (4.0)                 3,160        (0.5)        20.6  

  o/w: Brazil

     619                 (4.3)        2.3                 1,942        2.1        23.9  

Mexico

     195                 5.9        1.1                 554        4.1        12.8  

Chile

     153                 (3.3)        0.5                 461        4.9        8.3  

Argentina

     (71)                                        67        (74.6)        (38.0)  

  USA

     125                 (40.5)        (42.9)                 460        36.5        46.5  

  Operating areas*

     2,446                 (1.1)        4.1                 7,393        4.1        13.8  

  Corporate Centre*

     (456)                 (4.0)        (4.0)                 (1,351)        (10.6)        (10.6)  

  Total Group*

     1,990                 (0.4)        6.1                 6,042        8.0        21.1  

  Net capital gains and provisions

               (100.0)        (100.0)           (300)        (41.7)        (41.7)  

  Total Group

     1,990                 17.2        25.1                 5,742        13.1        28.4  

(*) In the units, underlying attributable profit (excluding net capital gains and provisions). Details on pages 10 and 11.

 

           
LOGO GROSS LOANS AND ADVANCES TO CUSTOMERS EX. REV. REPOS             QoQ                    YoY  
    EUR million    Q3’18              %      % excl. FX              9M’18      %      % excl. FX  

  Continental Europe

     385,133                 (0.4)        (0.6)                 385,133        0.9        0.8  

  o/w: Spain

     214,346                 (1.8)        (1.8)                 214,346        (2.4)        (2.4)  

Santander Consumer Finance

     94,488                 0.2        0.0                 94,488        6.2        6.2  

Poland

     24,356                 4.1        1.9                 24,356        9.6        8.9  

Portugal

     37,093                 0.1        0.1                 37,093        (2.1)        (2.1)  

  United Kingdom

     237,116                 (1.0)        (0.9)                 237,116        0.6        1.2  

  Latin America

     151,947                 1.3        3.9                 151,947        (3.0)        11.5  

  o/w: Brazil

     69,190                 (0.4)        3.3                 69,190        (8.5)        13.1  

Mexico

     31,853                 9.0        3.8                 31,853        8.5        10.1  

Chile

     40,123                 1.8        2.9                 40,123        7.6        9.2  

Argentina

     5,799                 (21.8)        11.1                 5,799        (29.3)        62.4  

  USA

     80,686                 1.4        0.7                 80,686        5.2        3.1  

  Operating areas

     854,882                 (0.1)        0.2                 854,882        0.5        2.9  

  Total Group

     861,884                 (0.1)        0.2                 861,884        0.5        3.0  
LOGO CUSTOMER FUNDS (CUSTOMER DEP. EX. REPOS + MUTUAL FUNDS)      QoQ                    YoY  
    EUR million    Q3’18              %      % excl. FX                    9M’18      %      % excl. FX  

  Continental Europe

     434,192                 0.5        0.3                 434,192        3.6        3.6  

  o/w: Spain

     318,859                 0.1        0.1                 318,859        2.7        2.7  

Santander Consumer Finance

     36,635                 (0.3)        (0.4)                 36,635        2.4        2.4  

Poland

     30,011                 4.4        2.1                 30,011        11.9        11.2  

Portugal

     39,185                 (0.0)        (0.0)                 39,185        7.9        7.9  

  United Kingdom

     205,178                 0.3        0.4                 205,178        (1.3)        (0.7)  

  Latin America

     194,040                 (0.9)        2.1                 194,040        (5.1)        11.4  

  o/w: Brazil

     106,612                 0.5        4.2                 106,612        (5.7)        16.6  

Mexico

     40,407                 3.5        (1.5)                 40,407        4.6        6.1  

Chile

     32,479                 (4.8)        (3.9)                 32,479        (2.2)        (0.8)  

Argentina

     9,271                 (18.1)        16.3                 9,271        (27.5)        66.6  

  USA

     62,000                 (0.3)        (1.0)                 62,000        1.8        (0.2)  

  Operating areas

     895,410                 0.1        0.6                 895,410        0.4        3.9  

  Total Group

     895,632                 0.1        0.6                 895,632        0.4        3.9  

 

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JANUARY - SEPTEMBER

Business information

 

 

 

SPAIN

   EUR 1,026 Mn

Highlights

 

   Attributable profit

 

Good business dynamics in the first nine months, with a record July in new loans driven by SME and consumer credit

 

 

Lending to SME, companies and in private banking increased. We maintained the strategy in funds of reducing the cost of deposits, which dropped from 41 bps in the fourth quarter of 2017 to 21 bps in the third of 2018

 

 

Our contact centre was recognised as the best in Spain. We are further developing the branch model with SMART branches and the opening of the first Work Café in Spain, an alternative channel to conventional branches, in order to better adapt to customers’ needs

 

 

We completed the legal integration of Banco Popular

 

 

Underlying attributable profit was 18% higher year-on-year in the first nine months at EUR 1,306 million

 

Commercial activity

 

 

Growth in new lending of 11% year-on-year, driven by SME (+18%) and consumer credit (+21%).

 

 

The main transactional indicators increased at double-digit rates on a like-for-like basis: turnover of cards grew 16%, that of points-of-sale 11% and new insurance premiums increased 27% year-on-year.

 

 

Santander Private Banking continued to be the leader (EUR +500 million in new lending and stock). We are the first bank to obtain AENOR certification for personal wealth advice.

 

 

Our contact centre was awarded the gold CRC for excellence in customer attention in Spain. We also strengthened our leadership in mobile payments.

 

 

Changes to the branch model, with SMART branches and the new Work Café, which integrates banking, co-working space and a coffee shop, focusing on the customer experience and digital capacities.

Business performance

 

 

Growth in retail banking loans in the first nine months due to the growth in private banking and SME loans. On the other hand, large companies and institutions declined.

 

 

Customer funds rose in the first nine months, also due to companies. Demand deposits increased 8% year-on-year, absorbing the fall in time deposits.

Results

Attributable profit of EUR 1,026 million in the first nine months, 27% higher year-on-year. Excluding extraordinaries, underlying attributable profit increased 18%, with the following detail:

 

 

Revenue was up 20%, with improvement in all the main lines.

 

 

Net interest income rose 18%, with sustained improvement of spreads due to the lower cost of funding.

 

 

Fee income was 21% higher thanks to increased transactions. The recurrence rate reached 59%.

 

 

Continued fall in the stock of non-performing loans and a cost of credit of 35 bps.

The third quarter underlying attributable profit rose 62% q-o-q, due to:

 

 

The sharp rise in gross income, greater net interest income from the improvement in the cost of deposits and increased gains on financial transactions, in addition to the recording in the second quarter of the contribution to the Single Resolution Fund.

 

 

Lower costs for the third straight quarter, reflecting operational synergies.

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JANUARY - SEPTEMBER

Business information

 

 

SANTANDER CONSUMER FINANCE

   EUR 1,000 Mn

 

Highlights (changes in constant euros)

   Attributable profit

 

 

In a better economic scenario, loans rose 6%, with new lending up in almost all countries

 

 

Revenue growth and the cost of credit continue to be at low levels

 

 

High profitability (RoTE more than 16%) and underlying attributable profit 7% higher year-on-year

 

Comercial activity

 

 

The auto finance market continued to grow on a sustained basis, with new car sales up 2.5% in the first nine months.

 

 

SCF continued its growth based on its business model: diversification by country, efficiency and risk and recovery systems that maintain high credit quality.

 

 

Management continued to focus on boosting auto finance (growth in new business was significantly higher than Europe’s new auto market) and growing consumer credit by strengthening digital channels.

 

 

In consumer credit, we launched two of the core projects to transform the business model (e-commerce and digital interaction with customers), with a roll-out of more than 30 customer journeys in 10 units during the year.

 

 

SC Germany’s integration of retail networks is progressing according to plan.

Business performance

 

 

New lending increased 8% year-on-year, driven by commercial agreements in various countries. Of note, France (+17%), Poland (+15%), Austria (+15%) and Spain (+11%).

 

 

Customer deposits, a product that sets Santander apart from its competitors, remained stable at around EUR 36,600 million.

 

 

Recourse to wholesale funding in the first nine months amounted to EUR 10,501 million. Customer deposits and medium- and long-term issuances and securitisations covered around 70% of net loans.

Results

Underlying attributable profit of EUR 1,000 million in the first nine months, 7% higher than in the same period of 2017:

 

 

Net interest income grew 5% due to higher volumes and lower funding costs, and fee income was lower because of regulatory impacts.

 

 

The efficiency ratio was below 44%.

 

 

The cost of credit remained at low levels (0.40%), confirming the good performance of portfolios. The NPL ratio was 2.45%, 15 bps lower year-on-year, and coverage was 106%.

 

 

The largest profits were generated by Germany (EUR 233 million), the Nordic countries (EUR 220 million) and Spain (EUR 184 million).

Compared to the second quarter, net interest income and fee income were higher and costs lower, a positive evolution that did not feed through to the bottom line because of the reduced sale of portfolios (reflected in provisions).

 

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JANUARY - SEPTEMBER

Business information

 

 

POLAND

   EUR 236 Mn

Highlights (changes in constant euros)

 

   Attributable profit

 

Bank Zachodni WBK SA was renamed Santander Bank Polska SA

 

 

Deutsche Bank’s transaction is expected to be completed by year-end, as scheduled

 

 

Volumes rose 9%, with focus on loans to individuals, SME and corporates. Customer funds grew 11%, partly due to actions to attract funds ahead of Deutsche Bank Polska adquisition

 

 

 

Underlying attributable profit up 8%, backed by revenue management in an environment of low interest rates

 

 

 

Commercial activity

 

 

The Bank continued its strategy to become the bank of first choice, responding to and predicting customer expectations.

 

 

The As I Want It account was recognised as the best account for young people in the financial portal money.pl ranking, one year after it was launched.

 

 

Launch of Działalnosc.pl, a website designed to support entrepreneurs; mSignature, a mobile app authorisation tool as an alternative for SMS codes; and the Split Payment mechanism for SME customers.

 

 

Santander Corporate and Investment Banking acted as Sole Arranger and Sole Bookrunner of Santander Bank Polska SA in its first ever issuance of EUR 500 million of Eurobonds.

Business performance

 

 

Loans rose 9% year-on-year, backed by the target segments: SME (+11%), individuals (+8%): mortgages (+8%) and cash loans (+12%); corporate loans (+16%) and CIB ( +11%).

 

 

Deposits increased 13% year-on-year: SME (+17%), corporates (+13%) and individuals (+13%), partly in order to increase the liquidity buffer ahead of the acquisition of Deutsche Bank Polska.

Results

Underlying attributable profit for the first nine months stood at EUR 236 million, 8% more year-on-year, backed by higher customer revenue and controlled costs, despite ongoing investments:

 

 

Net interest income rose 6% and net fee income 3% year-on-year, while gains on financial transactions were 11% lower.

 

 

Operating expenses grew 5% driven by higher transformation project costs and certain pressure on salaries.

 

 

Higher loan-loss provisions, partly due to the sale of a non-performing loan portfolio in the first half of 2017.

 

 

The NPL ratio improved to 4.23% (4.70% in September 2017), and the cost of credit was 0.69% (0.61% at the end of September 2017).

Compared to the second quarter of 2018, underlying attributable profit was 12% lower, mainly due to the seasonal collection of dividends in this period. On the other hand, customer revenue increased, and costs and loan-loss provisions were lower.

 

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Business information  

 

  

PORTUGAL

  

EUR 364 Mn

Attributable profit

 

Highlights

 

 

Santander Totta is the country’s largest private sector bank by assets and domestic loans and continued to strengthen its position in the corporate market

 

 

Underlying attributable profit rose 9% in the first nine months, with better efficiency and lower provisions

 

 

In April, DBRS upgraded its long-term debt rating for the Bank to A, with stable outlook, and in September S&P improved the stable outlook to positive

 

 

  

Commercial activity

 

 

The Bank completed the operational and technological integration of Banco Popular Portugal in October. At the same time, increased loyalty continued to be the Bank’s main drivers.

 

 

Of note, in addition to the Mundo 1|2|3 programme, was the launch of the Conta SIM, a simple and more digital account, with a basic offer of products and services for customers at the start of their working life or with lower income.

 

 

The strategy to transform the business model spurred growth in loyal and digital customers.

Business performance

 

 

Growth in loans remained strong. Our market share of new loans to companies increased to 19% (+2.3 pp compared to the same period of 2017). In financing lines to SME (PME Investe, Crescimento and Capitalizar), the Bank remains the market leader with a share of 23%. New mortgage lending also remained dynamic (market share of 22% and gain of 1.4 pp year-on-year).

 

 

Total lending, however, fell 2% year-on-year, hit by the sale of non-profitable portfolios.

 

 

Customer funds increased 8% year-on-year, mainly due to growth in deposits, both demand (+7%) and time (+9%), and mutual funds rose 3%. The campaign to attract funds produced growth in deposits higher than the market’s, particularly those from companies.

Results

The first nine months attributable profit increased 15% year-on-year. Excluding the non-recurring impacts associated with the second quarter’s inorganic operations, underlying attributable profit was 9% higher, due to:

 

 

Gross income increased 10% largely driven by net interest income (+14%).

 

 

Costs rose to a lesser extent, enabling net operating income to rise 13% and the efficiency ratio to improve to 47.5% (-1.4 pp year-on-year).

 

 

Provisions were lower and the cost of credit at just 0.03%. The NPL ratio dropped to 7.43% (8.39% a year before). Coverage was 53%.

 

 

In addition, the tax rate was higher.

Compared to the second quarter, underlying profit was 11% higher, as the lower revenue from to the sale of bonds in the second quarter was more than offset by reduced costs and provisions.

 

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JANUARY - SEPTEMBER

Business information

 

 

UNITED KINGDOM

   EUR 1,077 Mn

Highlights (changes in constant euros)

  

Attributable profit

 

 

We continued to invest in business transformation initiatives which will improve our customer experience and deliver operational efficiencies

 

 

We have delivered growth in mortgages with a focus on customer service and retention

 

 

2018 results have been impacted by ongoing competitive market conditions, higher regulatory, risk and control costs and strategic investment in business transformation, digital enhancement and growth initiatives. Better performance in the third quarter, with underlying attributable profit up 5%

 

 

Commercial activity

 

 

We continued to gain loyal SME and corporate customers. Moreover, our enhanced digital capability attracted around 455,000 digital customers in the last twelve months.

 

 

We continue to focus on expanding our multi-channel investment proposition, with the launch of Digital Investment Advisor, a new affordable and high quality investment advice service. We are also implementing a new digital clearing system to provide customers with faster clearance of cheques.

 

 

We retained 55% of refinanced mortgage loans and 61% of credit card openings were made through digital channels in the first nine months of the year.

 

 

Our ring-fence structure is now close to completion ahead of the 1 January 2019 legislative deadline.

Business performance

 

 

Lending was slightly lower in the quarter largely due to managed reductions in Commercial Real Estate (CRE) and non-core loans. Deposits grew EUR 542 million.

 

 

Customer lending increased, slightly driven by management focus on customer service and retention, partially offset by active management of CRE exposures and non-core loans.

 

 

Customer funds decreased 1%, with continued growth in current accounts (+5%) offset by savings and time deposits due to management pricing actions. Mutual funds rose 1%.

Results

Underlying attributable profit for the first nine months was EUR 1,077 million, down 9% year-on-year, due to:

 

 

Lower revenue driven by competitive pressure on mortgage spreads, continued SVR attrition and lower gains on financial transactions.

 

 

Increased regulatory, risk and control costs and ongoing investment in strategic and digital transformation projects.

 

 

Moderate rise in provisions, with the cost of credit remaining at just 8 bps. The NPL ratio improved to 1.10%, supported by our medium-low risk profile, proactive management actions and the ongoing resilience of the UK economy.

Compared to the second quarter, underlying attributable profit rose 5%, driven by higher net interest income and lower costs and loan-loss provisions.

 

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JANUARY - SEPTEMBER  

Business information  

 

 

BRAZIL

   EUR 1,942 Mn

Highlights (changes in constant euros)

  

Attributable profit

 

 

Our strategic focus on enhancing the customer experience and satisfaction was reflected in the growth of our customerbase and the improvement in the Net Promoter Score

 

 

Efficiency reached its best level in five years, due to the operational leverage and the continued positive trend in revenue

 

 

Prudent risk management underscored by the growth in lending, with gains of profitable market share, compatible with improvements in the NPL ratio and the cost of credit

 

 

Higher profitability (RoTE of 20.0%) and profit up 24% YoY to EUR 1,942 million in the first nine months

 

Commercial activity

We continued to progress in our commercial and digital initiatives. Of note:

 

 

In acquiring, the PoS digital, Superget and the app for management of sales continued to support revenue growth higher than the market’s. Moreover, we launched a platform for electronic trade.

 

 

In credit cards, our market share reached 12.8% (+130 bps year-on-year).

 

 

In consumer finance, we remained the leader (market share in auto of 23.8% in August, up 132 bps year-on-year), and we launched the +Fidelidade incentive model for car dealers.

In addition, we were recognised for the third year running as one of the best companies to work for by the Great Place to Work (GPTW) ranking (up 14 places year-on-year).

Business performance

 

 

Loans grew 13% year-on-year. Almost all segments rose, notably individuals (+24%), consumer finance (+22%) and SME (+14%).

 

 

Customer funds increased and gained market share, due to the sharp rise in time deposits (+25%), savings (+15%) and demand deposits (+13%), which offset the fall in letras financeiras.

 

 

This evolution was reflected in profitable market share gains on the liabilities side (+137 bps year-on-year), mainly in time deposits and agribusiness letters of credit.

Results

First nine months underlying attributable profit of EUR 1,942 million, 24% more year-on-year. Of note:

 

 

Net interest income rose 17% driven by larger volumes.

 

 

Fee income grew 15%, with rises in almost all lines: cards (+16%), current accounts (+13%), mutual funds (+53%) and insurance (+11%).

 

 

Operating expenses increased 5%, accompanying the business growth. The efficiency ratio reached its best level of the last five years (33.1%).

 

 

Improved credit quality ratios: the cost of credit fell to 4.17% from 4.55% in September 2017, the NPL ratio dropped to 5.26% from 5.32% and coverage rose from 98% to 109%.

Compared to the second quarter, underlying attributable profit rose 2% (PBT up 7%), driven by growth in revenue and absorbing the impact of the signing of the salary agreement in September.

 

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JANUARY - SEPTEMBER

Business information

 

 

MEXICO

   EUR 554 Mn

Highlights (changes in constant euros)

  

Attributable profit

 

 

The strategy continued to focus on the transformation of the branch network and digitalisation, reflected in greater customer attraction and increased loyalty, and in the launch of new businesses such as auto finance

 

 

In volume terms, there was faster growth in lending. Of note were companies (+17%) and SME (+11%). In customer funds, growth was driven by deposits from individuals, SME and mutual funds

 

 

Good trend in profit. The first nine months attributable profit rose 13% year-on-year, driven by the strong performance of net interest income, fee income and loan-loss provisions

 

Commercial activity

The commercial strategy remains focused on boosting use of digital channels, loyalty and attracting new customers, with new products and services such as:

 

 

We continued to develop the new branch distribution model (203 branches already transformed).

 

 

We launched the new Sucursal Ágil model in order to cut waiting time and improve the customer experience.

 

 

We continued to develop our digital proposition via Súper Móvil, with new functionalities. Super Wallet now incorporates the payment of purchases carried out with puntos recompensa (a reward system).

 

 

Launch of Súper Auto for auto and motorbike finance through a fully digital credit origination. We have over 300 auto selling agencies affiliated. Loans already amount to more than MXN 480 million.

 

 

Alliance with Peugeot Mexico to consolidate us as the preferred financial partner in loans for customers of the brand.

 

 

Launch of Solicitud Contrato Agro for marketers, thereby fostering agricultural loans to SME.

 

 

The Santander Plus programme already has 4.2 million clients, 54% of whom are new.

Business performance

 

 

Lending grew 10% year-on-year, with the focus on profitability. Loans to individuals rose 6% with notable growth in payroll loans (+12%), mortgages (+7%) and cards (+4%). Total corporate loans increased 14%, driven by SME (+11%), companies (+17%) and large companies (+6%).

 

 

Customer funds increased 6% year-on-year, driven by time deposits and mutual funds. Those of individuals were up 16%.

Results

The first nine months underlying attributable profit of EUR 554 million was 13% higher than in the same period of 2017, as follows:

 

 

Net interest income rose 12%, driven by increased volumes and higher interest rates. Fee income grew 9%, mainly from credit cards, mutual funds and insurance.

 

 

Operating expenses increased in line with the ongoing investment plans.

 

 

Loan-loss provisions declined, which produced a cost of credit notably lower than a year ago and also a better NPL ratio.

Compared to the second quarter, underlying attributable profit was slightly up, backed by the strong evolution of customer revenue, partially offset by higher loan-loss provisions (a one-off case).

 

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Business information  

 

 

CHILE

   EUR 461 Mn

Highlights (changes in constant euros)

  

Attributable profit

 

 

Continued focus on commercial and branch network transformation. Santander Life, launched at the end of 2017, well received and attracting new customers

 

 

Growth in business volumes, at a faster pace in some segments. Of note the rise in activity with companies

 

 

Underlying attributable profit increased 8% year-on-year, mainly due to net interest income and fee income. The efficiency ratio remained at around 41%

 

Commercial activity

Santander is the leading private sector bank in Chile in terms of assets and customers, with a marked retail focus (individuals and SME) and on transaction banking.

The Group’s strategy continued to focus on offering an attractive return in a stable and low risk country where economic growth is increasing:

 

 

We continued to transform the traditional network into a new branch model launched in October. We also continued to open Work Café branches in the third quarter.

 

 

We launched Santander Life at the end of 2017. This is a new way of relating to the community and customers via products aimed at the mass consumer market. We will launch Life 2.0 before the end of the year, which will provide better benefits to customers who already form part of the programme.

 

 

New initiative for Wealth Management and Private Banking will be launched in the fourth quarter and throughout 2019, as well as installing Superdigital in Chile.

Business performance

 

 

Lending rose 9% year-on-year, mainly spurred by the companies segments (+10%) and individuals (+9%).

 

 

Customer funds reflected the strategy to improve the mix of funds, notably demand deposits (+9%).

Results

Underlying attributable profit in the first nine months was 8% higher than in the same period of 2017 at EUR 461 million. Of note were:

 

 

Gross income rose underpinned by a 7% rise in net interest income (growth in volumes and a better mix of funds). Fee income rose 13%, driven by income from transactional banking, mutual funds and greater use of cards.

 

 

Operating expenses were almost in line with gross income. The efficiency ratio remained at around 41%.

 

 

The cost of credit continued to improve, and the NPL ratio dropped to below 5%. Coverage was 60%.

Compared to the second quarter, underlying attributable profit was 1% higher because the growth in net interest income, gains on financial transactions and lower costs, offset by reduced fee income (very high in the second quarter) and higher loan-loss provisions.

 

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JANUARY - SEPTEMBER

Business information

 

 

ARGENTINA

   EUR 67 Mn

Highlights (changes in constant euros)

  

Attributable profit

 

 

Santander Río continued to be the leading private sector bank in Argentina by loans and deposits

 

 

The business focus was on digital transformation, customer experience and key segments: Select and Pymes Advance

 

 

he first nine months underlying attributable profit was affected by the high inflation adjustment of EUR -169 million (EUR -81 million for monetary adjustment and EUR -88 million for the exchange rate)

 

 

The first half attributable profit of EUR 137 million was 8% higher year-on-year    

 

Commercial activity

Santander Río consolidated its position as Argentina’s largest private sector bank in terms of loans, deposits and branches. We focused on loyalty and profitability.

We continued to make progress in digitalisation and operational efficiency:

 

 

We began the process of obtaining the licence for Openbank Argentina, the Group’s fully digital bank.

 

 

We continued to improve the customer experience with priority in digitalisation projects for products and services.

 

 

The penetration of internet users reached 60% of active customers and that of mobile clients 38%.

 

 

All these measures led to a 9% rise in loyal and digital customers year-on-year (digital customers account for 71% of active customers).

Business performance

 

 

Strong year-on-year growth of peso balances. Loans rose 32% (mainly mortgages, auto finance and companies) and deposits 44%.

 

 

Moreover, volumes were positively impacted by dollar balances (impact of the peso’s depreciation).

Results

The first nine months underlying attributable profit was EUR 67 million, 38% less than in the same period of 2017 because of the inflation adjustment. As regards business performance:

 

 

Net interest income grew 49%, driven by management of spreads in a scenario of higher interest rates and lower volumes.

 

 

Fee income rose 37%, spurred by greater foreign currency activity in a volatile exchange rate environment and income from cash deposits.

 

 

The growth in costs reflected investments in digitalisation projects and the automatic revision of salary agreements because of the rise in inflation and peso’s depreciation against the dollar.

 

 

Credit quality remained high with a cost of credit which increased to 2.92%, due to loan-loss provisions for the individuals’ portfolio, particularly in medium and low income segments. The NPL ratio remained at around 2.5%.

The third quarter recorded a loss of EUR 71 million because of the inflation adjustment corresponding to the results of the first nine months.

 

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Business information

 

 

URUGUAY

Highlights (changes in constant euros)

 

 

The Group continued to be the leading private sector bank in the country, focused on growing in retail banking and improving efficiency and the quality of service

 

 

Underlying attributable profit rose 45%, spurred by the good performance of net interest income and fee income, as well as cost control. RoTE of 29%

 

Commercial activity

 

 

Santander continued to focus on improving customer satisfaction and increasing loyalty.

 

 

We continued to advance in our digital transformation strategy and in modernising channels. The number of digital customers increased 32% to over 210,000 (penetration of 56%, up from 46% in September 2017). Transactions via digital channels rose 35% year-on-year. Consumer finance companies also increased placements via digital channels. At Creditel they already account for 39% of new loans.

 

 

Loans grew in target segments, products and currencies: +20% in consumer credit and cards and +22% in the national currency portfolio. Peso deposits grew 10% and foreign currency ones fell 1% year-on-year.

Results

The first nine months underlying attributable profit was 45% higher year-on-year at EUR 103 million:

 

 

Gross income rose 17%, driven by net interest income and in general, by the main revenue lines. The efficiency ratio was 43.6%, 4 pp better than in the first nine months of 2017.

 

 

Despite the rise in provisions because of the entry into force of IFRS 9 regulation and other impacts, the NPL ratio remained at a low level (3.05%), coverage was high (120%) and the cost of credit was 2.76%.

The third quarter underlying attributable profit was 1% higher than the second’s, due to the good performance of net interest income (+10%), which offset the lower gains on financial transactions and the rise in costs and provisions

PERU

Highlights (changes in constant euros)

 

 

The strategy remained focused on the corporate segment, the country’s large companies and the Group’s global clients.

 

 

The specialised auto finance company continued to increase its revenue at double-digit rates.

 

 

Lending rose 5% compared to September 2017 and deposits rose 13%.

 

 

Underlying attributable profit in the first nine months was 10% higher at EUR 28 million. The good performance of fee income and gains on financial transactions more than offset the rise in costs from corporate projects. The efficiency ratio was 34.9% and NPL coverage remained high (204%). The third quarter profit was 35% higher quarter-on-quarter due to higher fee income.

COLOMBIA

Highlights (changes in constant euros)

 

 

Activity in Colombia remained focused on CIB clients, large companies and corporates, contributing solutions in treasury, risk hedging, foreign trade and confirming, developing investment banking products and supporting the country’s infrastructure plan. This offer is in the process of being expanded with a licence for Santander Securities Services Colombia, enabling custody services to be offered.

 

 

We continued the strategy to consolidate the auto financing business. This will enable us to have the critical mass needed to consolidate ourselves in this market.

 

 

Lending increased 67% year-on-year, with good evolution of peso loans, while deposits rose 55% thanks to demand and time deposits.

 

 

The third quarter profit was EUR 3 million and EUR 5 million for the first nine months (+28% year-on-year). Of note was gross income (+49%), spurred by net interest income, fee income and gains on financial transactions.

 

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Business information

 

 

UNITED STATES

   EUR 460 Mn

Highlights (changes in constant euros)

 

   Attributable profit
 

The Federal Reserve terminated the 2015 Written Agreement signed with Santander Holdings USA on 2 July 2015, demonstrating continued improvement on regulatory issues

 

 

Volume trend improvement, with quarterly and yearly loan growth. Lending rose for the second straight quarter, increasing USD 2.8 billion in the last twelve months

 

 
Underlying attributable profit of EUR 460 million in the first nine months, 47% higher year-on-year, driven by lower costs and provisions and higher income from leasing

 

 

Commercial activity

 

 

Santander Bank:

 

 

Focus on enhancing customer experience and product offerings across digital and physical channels has increased customer satisfaction in retail banking.

 

 

Rebalanced balance sheet utilization away from securities to position the bank for continued loan growth.

 

 

Santander Bank Auto Initiative went live at the beginning of July. By the end of September USD 685 million were already funded.

 

 

Santander Consumer USA:

 

 

Santander Consumer USA is focusing on improving profitability across prime, non-prime and leasing products and enhancing customer satisfaction to drive origination growth.

 

 

Executed a portion of an initial USD 200 million share repurchase programme at Santander Consumer USA.

Business performance

 

 

Commercial and CIB are driving loan growth at SBNA. Originations growth across all channels at SC USA.

 

 

Demand deposits fell year-on-year due to outflow of public sector deposits and higher interest rates, partially offset by growth in time deposits.

Results

Underlying attributable profit in the first nine months of 2018 was EUR 460 million, 47% higher year-on-year, with strong growth at both Santander Bank and SC USA.

 

 

Net interest income fell due to lower spreads on loans at SC USA and higher cost of funding at SBNA due to rising interest rates and aggressive competitor pricing. Fee income was also down, driven by lower servicing fees at SC USA.

 

 

These reductions were partially mitigated by higher income from leasing, improved performance in costs, which declined for the third quarter running, and lower provisions both at SC USA and Santander Bank.

Compared to the second quarter of 2018, the increase in customer revenue and lower costs were not reflected in underlying attributable profit due to higher loan-loss provisions, which are seasonally lower in SC USA in the second quarter.

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Business information

 

 

CORPORATE CENTRE

   EUR -1,391 Mn

Highlights

 

  

Attributable profit

 

 

The Corporate Centre’s objective is to aid the operating units by contributing value-added and carrying out the corporate function of oversight and control. It also develops functions related to financial and capital management

 

 

The underlying attributable loss was 11% less year-on-year, due to reduced hedging costs of exchange rates

 

Strategy and functions

The Corporate Centre contributes value to the Group in various ways:

 

 

It makes the Group’s governance more solid, through global control frameworks and supervision.

 

 

Fostering the exchange of best practices in management of costs and economies of scale. This enables us to be one of the most efficient banks in the sector.

 

 

The Corporate Centre contributes to the Group’s revenue growth, by sharing the best commercial practices, launching global commercial initiatives and accelerating the digital transformation simultaneously in all countries.

It also develops functions related to financial and capital management, as follows:

 

 

Financial Management functions:

 

Structural management of liquidity risk associated with funding the Group’s recurring activity, stakes of a financial nature and management of net liquidity related to the needs of some business units.

 

This activity is carried out by diversifying the different funding sources (issuances and other), maintaining an adequate profile at each moment in volumes, maturities and costs. The price at which these operations are made with other Group units is the market rate (euribor or swap) plus the premium, which in the concept of liquidity, the Group supports by immobilising funds during the term of the operation.

 

Interest rate risk is also actively managed in order to soften the impact of interest rate changes on net interest income, conducted via high credit quality, very liquid and low capital consumption derivatives.

 

Strategic management of the exposure to exchange rates on equity and dynamic on the countervalue of the units’ results in euros for the next 12 months. Net investments in equity are currently covered by EUR 21,399 million (mainly Brazil, UK, Mexico, Chile, US, Poland and Norway) with different instruments (spot, fx, forwards).

 

 

Management of total capital and reserves: capital allocated to each of the units

Results

First nine months loss of EUR 1,391 million, including restructuring charges of EUR 40 million (net of tax), down from a loss of EUR 1,641 million in the first nine months of 2017, which included a charge of EUR 130 million for equity stakes and intangible assets.

Excluding these impacts, loss of EUR 1,351 in 2018 compared to EUR 1,511 million in 2017. The improvement was mainly due to lower costs related to hedging of exchange rates.

In addition, net interest income was hit by the volume of issuances made under the funding plan, largely focused on eligible TLAC instruments, and greater liquidity.

Operating expenses, on the other hand, remained virtually unchanged as a result of the streamlining and simplification measures that enable the investment in global projects related to the Group’s digital transformation to be offset.

 

CORPORATE CENTRE

                 
     EUR million    Q3’18              Q2’18              Chg.%              9M’18              9M’17              Chg.%  

  Gross income

     (257)        (250)        3.0        (733)        (981)        (25.3)  

  Net operating income

     (380)        (372)        2.2        (1,100)        (1,337)        (17.8)  

  Underlying attributable profit to the Group

     (456)        (475)        (4.0)        (1,351)        (1,511)        (10.6)  

  Attributable profit to the Group

     (456)        (515)        (11.5)        (1,391)        (1,641)        (15.2)  
Detailed financial information on page 55                              

 

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Business information

 

 

RETAIL BANKING

   EUR 5,671 Mn

Highlights (changes in constant euros)

 

   Attributable profit

 

Continued focus on three main priorities: customer loyalty, digital transformation and operational excellence

 

 

As at end September, the Group had more than 19.6 million loyal customers and almost 30 million digital customers

 

 

Underlying attributable profit of EUR 5,931 million, partly driven by the perimeter effect following Popular’s incorporation and the good dynamics in customer revenue

 

 

Commercial activity

Santander is immersed in a commercial transformation process that rests on three main pillars:

 

1.

Continuous improvement in the loyalty of our customers. For example:

 

 

In Mexico, Santander Plus already has more than 4.2 million customers, 54% of whom are new clients. In Portugal, as well as maintaining the focus on Mundo 1|2|3, we launched Conta SIM, a simple and more digital account.

 

 

We continued to differentiate Santander from its competitors with new innovative products: Chile is going to launch Life 2.0, with new advantages for customers of Santander Life; in Brazil, we launched the incentives model +Fidelidade for auto dealers; SCF is developing e-commerce projects and digital integration in consumer finance.

 

 

Thanks to these measures, loyal customers increased 19% year-on-year.

 

2.

Promote the digital transformation of channels, products and services:

 

 

In apps and digital platforms, Poland launched Działalnosc.pl, designed to support business people and mSignature, a new mobile app for authorisation as an alternative to SMS. Brazil continued to develop its app for managing sales within its acquiring business.

 

 

As regards the multi-channel proposal, we installed in UK a digital compensation system for clearing cheques more quickly. In Mexico, we incorporated to Súper Wallet payment of purchases carried out with Puntos Recompensa (a reward system).

 

 

All these measures led to a 24% rise in digital customers.

3. Improve customer satisfaction and experience:

 

 

In order to achieve this, we continued to transform the traditional network, with, for example, the first opening in Spain of a Work Café branch and the new distribution model of branches in Mexico (203 branches have already been reformed).

 

 

We remained focused on becoming the best bank for our customers, as recognised by the market. In Poland, for example, money.pl chose the As I Want It account as the best one for young people and in Brazil we were recognised for the third year running as one of the best companies to work for.

Results (in constant euros)

The first nine months underlying attributable profit was EUR 5,931 million, 17% more than in the same period of 2017, partly driven by Popular’s incorporation and the good dynamics in customer revenue.

Compared to the second quarter, third quarter underlying attributable profit was 3% higher, thanks to the good performance of net interest income and costs.

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Business information

 

 

CORPORATE & INVESTMENT BANKING

   EUR 1,258 Mn

Highlights (changes in constant euros)

 

   Attributable profit

 

Santander is among the leaders in Latin America and Europe, particularly in export & agency finance, debt capital markets and structured financing

 

 

We continued to advance in our mission to help our global customers in their capital issuances, providing them with financing solutions and transaction services. We also continued to adapt our offer of products to the Bank’s digital transformation

 

 

Underlying attributable profit was 3% lower in the first nine months at EUR 1,258 million than in the same period of 2017 whose first quarter was exceptional in gains on financial transactions. The third quarter profit was 14% higher than the second quarter’s

 

 

Commercial activity and Business performance

Main actions performed by business lines:

 

 

Cash management: strong growth in transactional business, particularly in Mexico, the UK, Argentina and Europe. We also continued to digitalise our product range in our core markets.

 

 

Export & agency finance: Santander maintained its leadership position, helping and supporting clients in their international sales, both in the Group’s target markets as well as in developing ones.

 

 

Trade & working capital solutions: favourable evolution of business, particularly in receivables finance products and confirming in the UK, Europe, Asia and Poland, as well as letters of credit in Brazil and Mexico.

 

 

Debt capital markets: we participated in the dollar issuances of Toyota Motor Credit Corp, the exchange of bonds of Verizon Communications, as well as in the euro issuances of Michelin, Unilever, Commerzbank, Credit Agricole, Telefónica and the covered bonds of Mediobanca, Intesa Sanpaolo, Banco BPM and CFF.

 

 

Syndicated corporate loans: of note were the advisory services and financing for Ardina’s purchase of 40% of Nueva Argo Finanziaria, as well as the syndicated loans for Grupo Lar and Dinosol in Spain, Vita Oil & Gas in Argentina and PGE in Poland.

 

 

Structured financing: among the main transactions was the financing provided to Open Fiber in Italy, the EdgeConnex platform of data centres in Europe, Mitikah in Mexico, Guadalmedina motorway in Spain and the Rutas del Loa motorway in Chile, among others.

 

 

Global Markets: on a linear comparison, growth in sales. Revenue held up in sales activity, with good performance of the corporate segment, particularly in Spain, the US and Argentina. Greater contribution from management of books, notably business in the US, Brazil, Argentina and Asia.

Results (in constant euros)

Underlying attributable profit of EUR 1,258 million in the first nine months, slightly lower year-on-year:

 

 

Net interest income and fee income were virtually unchanged affected by the strategy of selective growth, reduced demand for loans and a market environment with less corporate transactions.

 

 

Lower gains on financial transactions than in 2017 whose first quarter was excellent.

 

 

Higher costs associated with transformation projects.

 

 

Provisions were significantly lower in Spain, UK, Brazil and the US.

 

 

Better results from global transactional banking. Lower income from global markets and, to a lesser extent, global debt financing.

The third quarter profit was 14% higher than the second quarter, driven by the recovery in gross income growth and reduced needs for provisions.

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Business information

 

 

WEALTH MANAGEMENT

  

Asset Management and Private Banking

   EUR 392 Mn

Highlights (changes in constant euros)

 

   Attributable profit

 

Total contribution (net profit + fee income) amounted to EUR 757 million, 10% more than in the first nine months of 2017

 

 

Mutual funds rose 5% in Private Banking and 3% in SAM, despite markets’ performance

 

 

Lending increased 10% driven by the development of the Private Wealth segment, which offers a differential service to the Group’s largest clients

 

Comercial activity

 

 

We continued to develop measures in the third quarter in order to keep on offering the best products and services. Of note:

 

 

In Private Banking: Santander became the first bank in Spain to obtain the AENOR certificate for advisory services, which underscores our business model, increases transparency and helps to consolidate us as the country’s best private bank. Santander is also now the reference bank recommended to all players who take part in UEFA competitions, subject to our internal policies, with an adapted value proposal.

 

 

Santander Asset Management (SAM) focused on improving its range of products and is consolidating itself as the leading entity in equities in the countries where we operate. Citywire recognised SAM as the best manager of equities in Spain.

 

 

Private banking as a global segment is a priority: collaboration volumes among countries rose 19% to EUR 4,152 million since December 2017.

 

 

Digital transformation is also a priority, underscored by installing in all private banking offices in Mexico the global private banker tool SPiRIT, which continues to be installed in Brazil and Chile.

Business performance

 

 

Total assets under management amounted to EUR 333 billion, in line with September 2017, with custody business affected by the performance of markets in Spain and rises in funds in private banking as well as in SAM.

 

 

Of note in Private Banking was growth in funds and investments in Brazil (+10%) and Mexico (+11%). Customer loans grew 10%.

 

 

At SAM, there was noteworthy growth in funds in Mexico (+10%) and in Brazil (+5%).

Results

The first nine months underlying attributable profit was EUR 392 million, 15% more year-on-year:

 

 

Higher revenue, with a 12% rise in net interest income and 66% in fee income, mainly due to an increase in managed and higher value-added volumes.

 

 

Increase in operating expenses, partly affected by investments in the Private Wealth (UHNW) project.

 

 

The increase in revenue and costs was affected by the greater stake in Santander Asset Management.

 

 

By units, of note in profit growth were Brazil (+13%), Mexico (+18%) and International Private Banking (+14%).

When the total fee income generated by this business is added to net profit, the total contribution to the Group is EUR 757 million, 10% more year-on-year.

 

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Corporate Governance

 

CORPORATE GOVERNANCE

A responsible bank has a solid governance model with well-defined functions, it manages risks and opportunities prudently and defines its long-term strategy watching out for the interests of all its stakeholders and society in general.

 

LOGO    LOGO    LOGO    LOGO
Balanced    Respect for    Maximum    At the forefront of best
composition of    shareholders’    transparency    corporate governance
the Board    rights    in remuneration    practices

Below are the changes to the board and the board committees agreed in the third quarter:

 

 

Changes in the board’s composition

 

  }

Although there were no changes in the board in the third quarter, the following changes were agreed and announced on 25 September 2018:

 

   

To appoint Mr Andrea Orcel as a new member of the board and chief executive officer of Banco Santander in place of Mr José Antonio Álvarez Álvarez and filling the vacancy on the board produced by Mr Juan Miguel Villar Mir, who resigned his position in view of the end of his term.

 

   

To appoint Mr José Antonio Álvarez Álvarez vice chairman of Banco Santander’s board and executive chairman of Santander Spain, replacing Mr Rodrigo Echenique Gordillo in both posts. Mr Echenique Gordillo informed the board on 25 June 2018 of his decision to relinquish his functions as an executive director of Banco Santander as of 1 January 2019, without detriment to continuing after this date as a non-executive director.

 

  }

These appointments will become effective once the relevant authorisations are obtained (including those resulting from Mr Andrea Orcel’s current employment) and in no event earlier than 1 January 2019.

 

  }

Once the appointment of Mr José Antonio Álvarez Álvarez is firm, Mr Rodrigo Echenique Gordillo and Mr Guillermo de la Dehesa Romero will continue to be directors of the Bank, but will no longer be vice chairmen. As of then, Mr Bruce Carnegie-Brown and Mr José Antonio Álvarez Álvarez will be the only vice chairmen of Banco Santander’s board.

 

 

Changes in the composition of the board’s committees

 

  }

On 24 July 2018, the board appointed Mr Álvaro Antonio Cardoso de Sousa chairman of the risk supervision, regulation and compliance committee, effective as of 1 October 2018, in place of Mr Bruce Carnegie-Brown, who remains a member of that committee.

 

  }

Mr Álvaro Antonio Cardoso de Sousa was also appointed on the same date a member of the responsable banking, sustainability and culture committee.

 

  }

Mr Rodrigo Echenique Gordillo will join the appointments committee, effective as of 1 January 2019, once he ceases his executive functions on Banco Santander’s board, as announced on 25 June 2018.

 

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Sustainability

 

SUSTAINABILITY

We develop our activity in a responsible way, contributing to the economic and social progress of the communities in which we operate, taking into account our impact on the environment and fostering stable relationships with our main stakeholders.

 

LOGO    LOGO    LOGO    LOGO
Presence in the socially    2.1 million people    183 million    ... of which EUR 129 million
responsible investment    helped in 2017    social investment    were invested in
indices       in communities    higher education

Grupo Santander continued to develop new measures within its corporate social responsibility commitment. The main ones in the third quarter were:

 

 

Sustainable governance

 

}

In order to adjust Banco Santander’s corporate governance and progress toward becoming a more responsible bank, the board created a new committee. The Responsible Banking, Sustainability and Culture Committee advises the board on the Bank’s values and corporate culture, the sustainability strategy, ethical, social and environmental matters regarding the main stakeholders (employees, customers, shareholders and society) and supervises the correct reporting of non-financial information. This committee meets quarterly and held its first meeting on 4 September.

 

 

Indexes and analysts

 

}

Banco Santander is ranked the third bank in the world and the first in Europe in the Dow Jones Sustainability Index (DJSI), the reference international index that measures companies’ performance in the sphere of sustainability (in the economic, social and environmental dimensions).

 

}

The DJSI accorded Santander the maximum score (100) in aspects such as financial inclusion and energy efficiency, among other sustainability management elements. The bank has formed part of the index for 18 consecutive years, and for the eighth year running Santander is first among Spanish banks.

 

 

Investment in communities

 

}

Banco Santander, via the Santander Responsabilidad Solidario fund managed by Santander Asset Management Spain, delivered EUR 2.6 million which will go to various socio-labour insertion programmes of collectives at risk of social exclusion, as well as to social and international cooperation projects. Santander Corporate & Investment Banking (SCIB) held the event to award the prizes to the winning projects of the second edition of the Social Projects programme, maintaining the commitment to finance and support different foundations and projects proposed by the division’s professionals.

 

}

Santander Chile launched a new initiative, Work Café Solidario, in order to support the country’s disadvantaged people. With the sale of craft mugs in the Work Cafés, the bank is supporting the TECHO-Chile Foundation, which helps the most vulnerable communities.

 

}

Thanks to the Explorer programme promoted by the bank via Santander Universities, with the coordination of CISE, some 50 young entrepreneurs will display their business ideas in Silicon Valley.

 

 

Environment and climate change

 

}

Banco Santander, the leader in financing the first wind-power project in Spain free of premiums and government subsidies, is structuring and ensuring via SCIB the financing and development of 300 MW awarded in Spain’s first renewable energy auction. It is the first greenfield project in Spain financed without the need for subsidies, thereby establishing a new business paradigm in the renewable energy sector.

 

}

Moreover, in order to promote care of the environment, Santander in Chile will hand out free and gradually re-usable bags that can be recycled, stamped with illustrations of animals at risk of extinction and created by two local entrepreneurs. Once these bags can no longer be used, they can be deposited at any clean point or taken to one of the bank’s branches and given a new use.

 

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The Santander share

 

THE SHARE

 

 

Shareholder remuneration

 

}

The first dividend of EUR 0.065 per share charged to 2018’s earnings was paid in cash in August.

 

}

As regards the second remuneration to shareholders, the Santander Scrip Dividend programme will be applied. Each shareholder received a free allocation of new shares for each share owned. There are then three options: sell the rights to the Bank at a set price (EUR 0.035 per right), sell them to the market between 18 October and 1 November at the share price, or receive new shares(*) (one for every 123 rights). In order to tend to the third option, a capital increase for a maximum amount of EUR 565 million (131,188,240 shares) fully charged to reserves will be made. The number of shares to be issued will depend on the number of rights sold to the Bank. On 5 November, shareholders are due to receive the amount in cash if they opted to sell the rights to the Bank, and on 13 November the new shares if they chose this option.

 

 

(*) The options, time periods and procedures indicated can present particularities for holders of Santander shares on foreign stock markets where the Bank is listed.

 

 

Share price performance

 

}

Markets ended the first nine months lower, following a start to the year with rises driven by the positive impact of the US’s tax reform. This positive environment, however, dissipated in the following months because of greater volatility in stock markets mainly due to: (i) the political uncertainty in Italy and Brazil; (ii) the lack of agreement over Brexit, (iii) the escalation of trade tensions caused by the US protectionist measures and the possible impact on confidence and the global economy; and (iv) the rise in financial tensions in developing economies as a result of the dollar’s strengthening, which followed the decision of the Fed and the ECB to continue their policy of monetary normalisation. The Fed raised its interest rates and the ECB announced the end of quantitative easing (its first interest rate rise is expected after the summer of 2019).

 

}

In this context, the main indices and the Santander share ended September lower. The Santander share was down 20.9% at EUR 4.336 at the end of September, the Euro Stoxx Banks and Stoxx Banks fell 18.3% and 14.8%, respectively. The Ibex 35 benchmark index of the Madrid Stock Exchange declined 6.5%, the DJ Stoxx 50 3.5% and the MSCI World Banks 8.3%.

 

 

Market capitalisation and trading

 

}

As of 28 September, Santander was the largest bank in the eurozone by market capitalisation (EUR 69,958 million) and the 18th in the world. A total of 15,856 million Santander shares were traded in the first nine months for an effective value of EUR 82,229 million, the largest figure among the shares that comprise the EuroStoxx (liquidity ratio of 98%).

 

}

The share’s weighting in the DJ Stoxx 50 was 1.9%, 7.3% in the DJ Stoxx Banks and 14.5% in the Ibex 35 at the end of September.

 

 

Shareholder base

 

}

The total number of Santander shareholders at 28 September was 4,190,808 of which 3,920,898 were European (78.1% of the capital stock) and 252,016 from the Americas (20.8%). Excluding the board of Grupo Santander, which represents 1.1% of the Bank’s capital stock, individuals hold 39.6% and institutional shareholders 59.2%.

 

THE SANTANDER SHARE. September 2018

 

  Shareholders and trading data        

  Shareholders (number)

     4,190,808  

  Shares (number)

     16,136,153,582  

  Average daily turnover (number of shares)

     83,013,872  

  Share liquidity (%)

     98  

  (Number of shares traded during the year over number of shares)

  
  Price movements during the year        

  Highest

     6.093  

  Lowest

     4.140  

  Last (28.09.18)

     4.336  

  Market capitalisation (millions) (28.09.18)

     69,958  
  Stock market indicators        

  Price / Tangible book value (X)

     1.04  

  P/E ratio (X)

     9.83  

  Yield* (%)

     4.34  
  (*) Last three dividends paid and one announced over 9M’18 average share price         

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Appendix

 

 

NET FEE INCOME. CONSOLIDATED

                 

    EUR million

                                                     
      Q3’18      Q2’18      Chg.%      9M’18      9M’17      Chg.%  

Fees from services

     1,605        1,796        (10.6)        5,208        5,465        (4.7)  

Wealth management and marketing of customer funds

     874        896        (2.4)        2,714        2,550        6.4  

Securities and custody

     161        243        (33.6)        607        633        (4.1)  

Net fee income

     2,640        2,934        (10.0)        8,529        8,648        (1.4)  

OPERATING EXPENSES. CONSOLIDATED

                 

    EUR million

                                                     
      Q3’18      Q2’18      Chg.%      9M’18      9M’17      Chg.%  

Personnel expenses

     2,837        2,960        (4.2)        8,797        8,856        (0.7)  

General expenses

     1,967        2,154        (8.7)        6,272        6,203        1.1  

Information technology

     347        396        (12.5)        1,109        904        22.7  

Communications

     120        129        (6.9)        382        402        (5.0)  

Advertising

     143        160        (10.9)        453        545        (16.9)  

Buildings and premises

     427        450        (5.0)        1,354        1,364        (0.7)  

Printed and office material

     28        31        (10.9)        89        100        (10.4)  

Taxes (other than tax on profits)

     118        144        (17.8)        405        394        2.7  

Other expenses

     784        843        (7.0)        2,479        2,494        (0.6)  

Personnel and general expenses

     4,804        5,114        (6.1)        15,069        15,058        0.1  

Depreciation and amortisation

     557        604        (7.8)        1,774        1,899        (6.6)  

Operating expenses

     5,361        5,718        (6.2)        16,843        16,957        (0.7)  

 

OPERATING MEANS

                                                              
     Employees                    Branches  
      Sep-18          Sep-17          Chg.              Sep-18      Sep-17      Chg.  

Continental Europe

     66,603        68,090        (1,487)                 6,035        6,355        (320)  

o/w: Spain

     32,425        33,347        (922)                 4,398        4,499        (101)  

Santander Consumer Finance

     14,861        15,045        (184)                 441        549        (108)  

Poland

     11,283        11,691        (408)                 519        592        (73)  

Portugal

     6,910        6,967        (57)                 667        705        (38)  

United Kingdom

     25,803        25,722        81                 767        820        (53)  

Latin America

     89,587        87,862        1,725                 5,948        5,835        113  

o/w: Brazil

     46,663        46,261        402                 3,552        3,422        130  

Mexico

     19,483        18,217        1,266                 1,410        1,401        9  

Chile

     12,003        11,673        330                 408        406        2  

Argentina

     9,362        9,346        16                 481        482        (1)  

USA

     17,303        17,566        (263)                 664        694        (30)  

Operating areas

     199,296        199,240        56                 13,414        13,704        (290)  

Corporate Centre

     1,805        1,709        96                                      

Total Group

     201,101        200,949        152                 13,414        13,704        (290)  

 

NET LOAN-LOSS PROVSIONS. CONSOLIDATED

                 

    EUR million

                                                     
      Q3’18      Q2’18      Chg.%      9M’18      9M’17      Chg.%  

Non-performing loans

     2,395        2,496        (4.0)        7,507        8,186        (8.3)  

Country-risk

     1        (2)               10        6        69.9  

Recovery of written-off assets

     (275)        (478)        (42.5)        (1,098)        (1,262)        (13.0)  

Net loan-loss provisions

     2,121        2,015        5.3        6,418        6,930        (7.4)  

 

Financial Report 2018     LOGO     41


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JANUARY - SEPTEMBER

Appendix

 

 

LOANS AND ADVANCES TO CUSTOMERS. CONSOLIDATED

              

    EUR million

                                            
      Sep-18      Sep-17      Absolute
change
     %      Dec-17  

Commercial bills

     29,416        27,101        2,315        8.5        29,287  

Secured loans

     472,298        474,786        (2,488)        (0.5)        473,935  

Other term loans

     265,751        260,005        5,746        2.2        257,441  

Finance leases

     30,386        28,113        2,273        8.1        28,511  

Receivable on demand

     8,515        8,398        117        1.4        6,721  

Credit cards receivable

     20,535        20,846        (311)        (1.5)        21,809  

Impaired assets

     34,983        37,942        (2,959)        (7.8)        36,280  

Gross loans and advances to customers (excl. reverse repos)

         861,884            857,189            4,695            0.5            853,985  

Reverse repos

     28,223        22,877        5,346        23.4        18,864  

Gross loans and advances to customers

     890,107        880,067        10,040        1.1        872,848  

Loan-loss allowances

     23,881        25,381        (1,500)        (5.9)        23,934  

Loans and advances to customers

     866,226        854,686        11,540        1.4        848,914  

CUSTOMER FUNDS. CONSOLIDATED

              

    EUR million

                                            
      Sep-18      Sep-17      Absolute
change
     %      Dec-17  

Demand deposits

     540,098        522,254        17,844        3.4        525,072  

Time deposits

     191,312        203,907        (12,595)        (6.2)        199,650  

Mutual funds

     164,221        166,171        (1,950)        (1.2)        165,413  

Customer deposits excl. repos + Mutual funds

     895,631        892,332        3,299        0.4        890,135  

Pension funds

     15,797        16,045        (248)        (1.5)        16,166  

Managed portfolios

     27,430        27,317        113        0.4        26,393  

Subtotal

     938,858        935,695        3,163        0.3        932,694  

Repos

     47,341        52,691        (5,350)        (10.2)        53,009  

Group customer funds

     986,199        988,386        (2,187)        (0.2)        985,703  

ELIGIBLE CAPITAL (FULLY LOADED)

              

    EUR million

                                            
      Sep-18      Sep-17      Absolute
change
     %      Dec-17  

Capital stock and reserves

     116,238        111,687        4,551        4.1        111,362  

Attributable profit

     5,742        5,077        664        13.1        6,619  

Dividends

     (2,454)        (2,272)        (182)        8.0        (2,998)  

Other retained earnings

     (26,001)        (20,997)        (5,004)        23.8        (23,108)  

Minority interests

     6,752        7,327        (574)        (7.8)        7,228  

Goodwill and intangible assets

     (28,648)        (28,622)        (26)        0.1        (28,537)  

Other deductions

     (6,292)        (4,990)        (1,302)        26.1        (5,004)  

Core CET1

     65,337        67,210        (1,873)        (2.8)        65,563  

Preferred shares and other eligible T1

     8,911        7,753        1,158        14.9        7,730  

Tier 1

     74,248        74,964        (715)        (1.0)        73,293  

Generic funds and eligible T2 instruments

     11,499        14,585        (3,085)        (21.2)        14,295  

Eligible capital

     85,748        89,548        (3,801)        (4.2)        87,588  

Risk-weighted assets

     588,074        622,548        (34,474)        (5.5)        605,064  

    

                                            

CET1 capital ratio

     11.11        10.80        0.31                 10.84  

T1 capital ratio

     12.63        12.04        0.59                 12.11  

Total capital ratio

     14.58        14.38        0.20                 14.48  

 

42     LOGO     Financial Report 2018


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JANUARY - SEPTEMBER

Appendix

 

 

CONTINENTAL EUROPE

                    

    (EUR million)

                                                              
                   QoQ             YoY  
Income statement    Q3’18                        %      % excl. FX      9M’18      %      % excl. FX  

Net interest income

     2,539                 2.4        2.6        7,498        11.2        11.5  

Net fee income

     1,097                 (1.9)        (1.9)        3,346        10.2        10.3  

Gains (losses) on financial transactions

     279                 189.8        189.5        640        34.2        35.0  

Other operating income

     147                 27.8        28.6        396        7.1        7.4  

Gross income

     4,062                 6.6        6.8        11,880        11.8        12.1  

Operating expenses

     (2,030)                 (3.0)        (3.0)        (6,217)        12.7        13.0  

General administrative expenses

     (1,870)                 (3.8)        (3.7)        (5,725)        12.0        12.3  

Personnel

     (1,013)                 (2.3)        (2.3)        (3,084)        16.3        16.6  

Other general administrative expenses

     (857)                 (5.5)        (5.4)        (2,641)        7.5        7.7  

Depreciation and amortisation

     (160)                 6.7        6.8        (492)        21.0        21.3  

Net operating income

     2,032                 18.5        18.7        5,663        10.8        11.1  

Net loan-loss provisions

     (381)                 4.2        4.4        (1,137)        38.7        38.8  

Other income

     (143)                 (2.8)        (2.5)        (423)        (31.7)        (31.6)  

Underlying profit before tax

     1,508                 25.4        25.6        4,103        11.7        12.1  

Tax on profit

     (411)                 28.1        28.2        (1,100)        9.8        10.1  

Underlying profit from continuing operations

     1,097                 24.4        24.7        3,003        12.5        12.9  

Net profit from discontinued operations

                                                  

Underlying consolidated profit

     1,097                 24.4        24.7        3,003        12.5        12.9  

Minority interests

     108                 1.5        2.0        306        8.9        8.8  

Underlying attributable profit to the Group

     989                 27.6        27.8        2,696        12.9        13.3  

Net capital gains and provisions*

               (100.0)        (100.0)        (260)        (32.5)        (32.5)  

Attributable profit to the Group

     989                 91.9        92.3        2,436        21.6        22.2  

 

(*) In Q2’18, charges related to integrations (mainly restructuring costs), net of tax impacts, in Spain (EUR -280 million) and Portugal (EUR 20 million). In 2017, integration costs (Popular: EUR -300 million and Germany: EUR -85 million)

 

 

Balance sheet                                                                  

Loans and advances to customers

     377,655                 (0.8)        (1.0)        377,655        0.1        0.1  

Cash, central banks and credit institutions

     137,471                 6.7        6.6        137,471        6.2        6.1  

Debt securities

     90,349                 (0.1)        (0.3)        90,349        (8.3)        (8.4)  

o/w: designated at fair value through other comprehensive income

     60,144                 (2.8)        (3.1)        60,144        (17.1)        (17.1)  

Other financial assets

     34,304                 (8.9)        (8.9)        34,304        (11.4)        (11.4)  

Other assets

     36,308                 0.8        0.7        36,308        (16.6)        (16.6)  

Total assets

     676,086                 0.4        0.2        676,086        (1.6)        (1.7)  

Customer deposits

     361,120                 0.7        0.5        361,120        3.2        3.1  

Central banks and credit institutions

     162,116                 2.0        1.9        162,116        (4.8)        (4.9)  

Debt securities issued

     57,606                 1.1        1.0        57,606        (3.4)        (3.3)  

Other financial liabilities

     41,294                 (5.8)        (5.8)        41,294        (15.6)        (15.6)  

Other liabilities

     15,362                 (6.3)        (6.4)        15,362        (14.0)        (14.0)  

Total liabilities

     637,497                 0.4        0.3        637,497        (1.4)        (1.5)  

Total equity

     38,590                 (0.3)        (0.6)        38,590        (5.1)        (5.2)  

Other managed and marketed customer funds

     104,034                 0.7        0.6        104,034        5.8        5.7  

Mutual funds

     75,644                 0.9        0.8        75,644        7.1        7.1  

Pension funds

     15,797                 (0.6)        (0.6)        15,797        (1.5)        (1.5)  

Managed portfolios

     12,593                 0.7        0.6        12,593        7.6        7.5  

Pro memoria:

                    

Gross loans and advances to customers excl. reverse repos

     385,133                 (0.4)        (0.6)        385,133        0.9        0.8  

Funds (customer deposits excl. repos + mutual funds)

     434,192                 0.5        0.3        434,192        3.6        3.6  
Ratios (%) and operating means                                                        

Underlying RoTE

     11.47                 2.21                 10.55        0.43           

Efficiency ratio (with amortisations)

     50.0                 (5.0)                 52.3        0.4           

NPL ratio

     5.57                 (0.11)                 5.57        (0.73)           

NPL coverage

     54.4                 (0.8)                 54.4        0.7           

Number of employees

     66,603                 (0.6)                 66,603        (2.2)           

Number of branches

     6,035                 (1.6)                 6,035        (5.0)           

 

Financial Report 2018     LOGO     43


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JANUARY - SEPTEMBER

Appendix

 

SPAIN

           

    (EUR million)

                                   
Income statement    Q3’18          % QoQ          9M’18          % YoY  

Net interest income

     1,116        5.5        3,211        18.2  

Net fee income

     653        (2.7)        1,997        20.9  

Gains (losses) on financial transactions

     227        631.6        465        46.0  

Other operating income

     118        53.8        342        1.2  

Gross income

     2,114        15.1        6,015        19.7  

Operating expenses

     (1,103)        (1.8)        (3,370)        18.2  

General administrative expenses

     (1,028)        (3.0)        (3,130)        17.5  

Personnel

     (572)        (1.7)        (1,742)        24.5  

Other general administrative expenses

     (456)        (4.5)        (1,388)        9.7  

Depreciation and amortisation

     (74)        17.7        (240)        28.2  

Net operating income

     1,012        41.7        2,644        21.7  

Net loan-loss provisions

     (197)        0.6        (599)        40.0  

Other income

     (102)        18.3        (292)        53.7  

Underlying profit before tax

     713        64.9        1,753        12.8  

Tax on profit

     (186)        74.7        (447)        3.4  

Underlying profit from continuing operations

     526        61.7        1,307        16.4  

Net profit from discontinued operations

                           

Underlying consolidated profit

     526        61.7        1,307        16.4  

Minority interests

     0        (65.0)        1        (96.5)  

Underlying attributable profit to the Group

     526        61.8        1,306        17.9  

Net capital gains and provisions*

            (100.0)        (280)        (6.8)  

Attributable profit to the Group

     526               1,026        27.0  

(*)  In Q2’18, restructuring costs (EUR -280 million). In 2017, integration costs (EUR -300 million)

           
Balance sheet                                

Loans and advances to customers

     212,247        (2.5)        212,247        (4.0)  

Cash, central banks and credit institutions

     113,986        8.8        113,986        15.1  

Debt securities

     63,933        (2.6)        63,933        (16.2)  

o/w: designated at fair value through other comprehensive income

     44,618        (4.3)        44,618        (22.5)  

Other financial assets

     31,052        (9.5)        31,052        (12.3)  

Other assets

     21,251        5.2        21,251        (20.4)  

Total assets

     442,469        (0.0)        442,469        (3.5)  

Customer deposits

     253,177        (0.2)        253,177        1.7  

Central banks and credit institutions

     101,307        4.3        101,307        (6.5)  

Debt securities issued

     23,544        (2.7)        23,544        (12.2)  

Other financial liabilities

     39,246        (5.5)        39,246        (16.1)  

Other liabilities

     9,031        (9.7)        9,031        (18.0)  

Total liabilities

     426,305        (0.0)        426,305        (3.5)  

Total equity

     16,164        (0.2)        16,164        (4.2)  

Other managed and marketed customer funds

     92,125        0.9        92,125        5.5  

Mutual funds

     66,392        1.2        66,392        7.1  

Pension funds

     14,652        (0.6)        14,652        (1.8)  

Managed portfolios

     11,081        1.0        11,081        6.7  

Pro memoria:

           

Gross loans and advances to customers excl. reverse repos

     214,346        (1.8)        214,346        (2.4)  

Funds (customer deposits excl. repos + mutual funds)

     318,859        0.1        318,859        2.7  
Ratios (%) and operating means                                

Underlying RoTE

     13.19        5.05        10.81        (0.51)  

Efficiency ratio (with amortisations)

     52.1        (9.0)        56.0        (0.7)  

NPL ratio

     6.23        (0.01)        6.23        (0.59)  

NPL coverage

     47.7        (1.3)        47.7        1.5  

Number of employees

     32,425        0.1        32,425        (2.8)  

Number of branches

     4,398        (1.6)        4,398        (2.2)  

 

44     LOGO     Financial Report 2018


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JANUARY - SEPTEMBER

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SANTANDER CONSUMER FINANCE

                    

    (EUR million)

                                                              
                   QoQ             YoY  
Income statement    Q3’18                        %      % excl. FX      9M’18      %      % excl. FX  

Net interest income

     937                 1.0        1.1        2,780        4.3        5.0  

Net fee income

     206                 9.4        9.5        609        (9.6)        (9.5)  

Gains (losses) on financial transactions

     1                 (94.6)        (94.6)        21                

Other operating income

     13                               13        (1.1)        2.5  

Gross income

     1,157                 2.7        2.8        3,423        2.1        2.7  

Operating expenses

     (475)                 (6.4)        (6.3)        (1,491)        1.3        1.9  

General administrative expenses

     (432)                 (6.4)        (6.3)        (1,362)        1.8        2.4  

Personnel

     (209)                 (4.6)        (4.5)        (649)        3.4        4.0  

Other general administrative expenses

     (223)                 (8.0)        (7.9)        (713)        0.4        0.9  

Depreciation and amortisation

     (43)                 (6.1)        (6.0)        (129)        (3.5)        (2.9)  

Net operating income

     682                 10.1        10.3        1,932        2.8        3.4  

Net loan-loss provisions

     (124)                 80.1        80.8        (313)        51.0        51.9  

Other income

     5                 (63.3)        (63.5)        41                

Underlying profit before tax

     562                 (0.1)        0.0        1,660        5.7        6.3  

Tax on profit

     (157)                 3.7        3.8        (455)        1.2        1.7  

Underlying profit from continuing operations

     405                 (1.5)        (1.3)        1,206        7.5        8.2  

Net profit from discontinued operations

                                                  

Underlying consolidated profit

     405                 (1.5)        (1.3)        1,206        7.5        8.2  

Minority interests

     74                 12.4        12.5        205        14.6        14.5  

Underlying attributable profit to the Group

     332                 (4.1)        (4.0)        1,000        6.1        7.0  

Net capital gains and provisions*

                                    (100.0)        (100.0)  

Attributable profit to the Group

     332                 (4.1)        (4.0)        1,000        16.6        17.7  

(*) In 2017, integration costs (EUR -85 million)

                    
Balance sheet                                                        

Loans and advances to customers

     92,070                 0.2        0.1        92,070        6.3        6.4  

Cash, central banks and credit institutions

     5,784                 11.3        11.1        5,784        8.3        8.4  

Debt securities

     3,446                 6.9        6.4        3,446        (4.3)        (4.3)  

o/w: designated at fair value through other comprehensive income

     1,911                 (1.5)        (2.2)        1,911        (46.0)        (46.0)  

Other financial assets

     20                 (6.0)        (6.2)        20        (15.0)        (15.0)  

Other assets

     3,087                 (13.7)        (13.8)        3,087        (12.5)        (12.4)  

Total assets

     104,406                 0.5        0.3        104,406        5.4        5.4  

Customer deposits

     36,683                 (0.2)        (0.4)        36,683        2.4        2.4  

Central banks and credit institutions

     25,209                 0.1        (0.0)        25,209        15.0        15.1  

Debt securities issued

     27,529                 0.7        0.6        27,529        1.1        1.2  

Other financial liabilities

     874                 (12.1)        (12.3)        874        (2.3)        (2.3)  

Other liabilities

     3,781                 2.5        2.4        3,781        0.0        0.0  

Total liabilities

     94,075                 0.1        (0.1)        94,075        4.9        5.0  

Total equity

     10,331                 4.4        4.1        10,331        9.5        9.6  

Other managed and marketed customer funds

                     (100.0)        (100.0)               (100.0)        (100.0)  

Mutual funds

                     (100.0)        (100.0)               (100.0)        (100.0)  

Pension funds

                     (100.0)        (100.0)               (100.0)        (100.0)  

Managed portfolios

                                                  

Pro memoria:

                    

Gross loans and advances to customers excl. reverse repos

     94,488                 0.2        0.0        94,488        6.2        6.2  

Funds (customer deposits excl. repos + mutual funds)

     36,635                 (0.3)        (0.4)        36,635        2.4        2.4  
Ratios (%) and operating means                                                        

Underlying RoTE

     15.88                 (1.57)                 16.63        (0.06)           

Efficiency ratio (with amortisations)

     41.1                 (4.0)                 43.6        (0.3)           

NPL ratio

     2.45                 0.01                 2.45        (0.15)           

NPL coverage

     106.4                 (1.3)                 106.4        2.1           

Number of employees

     14,861                 (1.5)                 14,861        (1.2)           

Number of branches

     441                 (0.2)                 441        (19.7)           

 

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POLAND

                    

    (EUR million)

                                                              
                   QoQ             YoY  
Income statement    Q3’18                        %      % excl. FX      9M’18      %      % excl. FX  

Net interest income

     243                 1.2        2.2        730        6.7        6.3  

Net fee income

     111                 (3.0)        (1.9)        338        3.4        3.0  

Gains (losses) on financial transactions

     15                 (4.4)        (3.2)        34        (11.1)        (11.5)  

Other operating income

     (2)                               (4)        (46.6)        (46.8)  

Gross income

     367                 (7.9)        (6.8)        1,098        5.4        5.0  

Operating expenses

     (156)                 (3.6)        (2.5)        (472)        5.9        5.5  

General administrative expenses

     (142)                 (3.9)        (2.8)        (428)        6.3        5.9  

Personnel

     (83)                 0.0        1.0        (248)        4.7        4.2  

Other general administrative expenses

     (59)                 (8.9)        (7.8)        (180)        8.7        8.3  

Depreciation and amortisation

     (14)                 (0.3)        0.7        (44)        1.8        1.4  

Net operating income

     211                 (10.8)        (9.7)        626        5.1        4.6  

Net loan-loss provisions

     (33)                 (19.1)        (18.1)        (120)        23.7        23.2  

Other income

     (26)                 (23.6)        (22.5)        (74)        (5.1)        (5.4)  

Underlying profit before tax

     151                 (6.0)        (4.9)        432        2.6        2.2  

Tax on profit

     (37)                 27.1        28.0        (97)        (7.7)        (8.0)  

Underlying profit from continuing operations

     114                 (13.3)        (12.2)        335        6.1        5.7  

Net profit from discontinued operations

                                                  

Underlying consolidated profit

     114                 (13.3)        (12.2)        335        6.1        5.7  

Minority interests

     34                 (13.6)        (12.5)        99        1.6        1.2  

Underlying attributable profit to the Group

     80                 (13.2)        (12.1)        236        8.0        7.6  

Net capital gains and provisions

                                            

Attributable profit to the Group

     80                 (13.2)        (12.1)        236        8.0        7.6  
Balance sheet                                                        

Loans and advances to customers

     23,639                 4.7        2.4        23,639        10.0        9.3  

Cash, central banks and credit institutions

     2,128                 31.6        28.7        2,128        15.3        14.6  

Debt securities

     9,718                 15.6        13.1        9,718        63.2        62.2  

o/w: designated at fair value through other comprehensive income

     7,370                 3.6        1.3        7,370        33.1        32.3  

Other financial assets

     464                 (17.2)        (19.0)        464        (19.3)        (19.8)  

Other assets

     1,083                 5.8        3.5        1,083        17.8        17.1  

Total assets

     37,031                 8.3        5.9        37,031        20.3        19.6  

Customer deposits

     28,026                 9.2        6.8        28,026        21.0        20.2  

Central banks and credit institutions

     1,641                 (4.0)        (6.1)        1,641        67.8        66.8  

Debt securities issued

     1,527                 51.1        47.8        1,527        116.9        115.5  

Other financial liabilities

     457                 6.9        4.6        457        (14.7)        (15.2)  

Other liabilities

     734                 (4.3)        (6.4)        734        2.0        1.4  

Total liabilities

     32,384                 9.5        7.1        32,384        24.1        23.3  

Total equity

     4,648                 0.9        (1.3)        4,648        (0.6)        (1.2)  

Other managed and marketed customer funds

     3,898                 0.8        (1.4)        3,898        2.7        2.1  

Mutual funds

     3,799                 1.1        (1.1)        3,799        2.7        2.1  

Pension funds

                                                  

Managed portfolios

     99                 (10.5)        (12.5)        99        3.3        2.6  

Pro memoria:

                    

Gross loans and advances to customers excl. reverse repos

     24,356                 4.1        1.9        24,356        9.6        8.9  

Funds (customer deposits excl. repos + mutual funds)

     30,011                 4.4        2.1        30,011        11.9        11.2  
Ratios (%) and operating means                                                        

Underlying RoTE

     11.20                 (1.82)                 11.07        (0.36)           

Efficiency ratio (with amortisations)

     42.6                 1.9                 43.0        0.2           

NPL ratio

     4.23                 (0.35)                 4.23        (0.47)           

NPL coverage

     71.6                 (0.5)                 71.6        4.0           

Number of employees

     11,283                 (1.8)                 11,283        (3.5)           

Number of branches

     519                 (3.9)                 519        (12.3)           

 

46     LOGO     Financial Report 2018


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Appendix

 

 

PORTUGAL

           

    (EUR million)

                                   
Income statement    Q3’18              % QoQ              9M’18              % YoY  

Net interest income

     211        (1.1)        646        14.2  

Net fee income

     92        0.2        281        4.8  

Gains (losses) on financial transactions

     6        (84.1)        63        (14.6)  

Other operating income

     14        132.3        20        218.1  

Gross income

     323        (6.9)        1,010        10.5  

Operating expenses

     (157)        (4.7)        (480)        7.4  

General administrative expenses

     (147)        (4.8)        (449)        7.5  

Personnel

     (91)        (4.1)        (278)        7.0  

Other general administrative expenses

     (55)        (6.1)        (171)        8.2  

Depreciation and amortisation

     (10)        (2.9)        (31)        6.2  

Net operating income

     166        (8.9)        530        13.4  

Net loan-loss provisions

     (11)        —          (20)        (10.8)  

Other income

     13        —          (18)        (53.2)  

Underlying profit before tax

     167        4.8        492        21.1  

Tax on profit

     (52)        (6.5)        (146)        64.3  

Underlying profit from continuing operations

     115        10.8        346        9.0  

Net profit from discontinued operations

     —          —          —          —    

Underlying consolidated profit

     115        10.8        346        9.0  

Minority interests

     1        (2.7)        2        20.3  

Underlying attributable profit to the Group

     114        10.9        344        8.9  

Net capital gains and provisions*

     —          (100.0)        20        —    

Attributable profit to the Group

     114        (7.1)        364        15.3  

 

(*) In Q2’18, provisions and restructuring costs associated with inorganic operations, net of tax impacts (EUR 20 million)

 

Balance sheet                                

Loans and advances to customers

     35,612        0.1        35,612        (1.1)  

Cash, central banks and credit institutions

     3,191        (26.8)        3,191        (45.2)  

Debt securities

     11,861        0.6        11,861        2.0  

o/w: designated at fair value through other comprehensive income

     5,172        (0.6)        5,172        0.3  

Other financial assets

     1,941        0.3        1,941        6.0  

Other assets

     2,298        (6.3)        2,298        (19.7)  

Total assets

     54,904        (2.2)        54,904        (5.6)  

Customer deposits

     37,141        0.2        37,141        4.1  

Central banks and credit institutions

     7,816        (13.5)        7,816        (31.2)  

Debt securities issued

     4,309        (0.5)        4,309        (10.4)  

Other financial liabilities

     243        (7.5)        243        (23.2)  

Other liabilities

     1,382        (7.2)        1,382        (25.6)  

Total liabilities

     50,889        (2.5)        50,889        (5.8)  

Total equity

     4,014        2.2        4,014        (3.3)  

Other managed and marketed customer funds

     3,810        (2.3)        3,810        7.0  

Mutual funds

     2,045        (3.9)        2,045        3.2  

Pension funds

     1,145        (0.3)        1,145        2.5  

Managed portfolios

     620        (0.6)        620        34.3  

Pro memoria:

           

Gross loans and advances to customers excl. reverse repos

     37,093        0.1        37,093        (2.1)  

Funds (customer deposits excl. repos + mutual funds)

     39,185        (0.0)        39,185        7.9  
Ratios (%) and operating means                                

Underlying RoTE

     11.60        1.20        11.58        (0.11)  

Efficiency ratio (with amortisations)

     48.7        1.1        47.5        (1.4)  

NPL ratio

     7.43        (0.12)        7.43        (0.96)  

NPL coverage

     53.4        0.7        53.4        (2.7)  

Number of employees

     6,910        (0.4)        6,910        (0.8)  

Number of branches

     667        (0.7)        667        (5.4)  

 

Financial Report 2018     LOGO     47


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JANUARY - SEPTEMBER

Appendix

 

 

UNITED KINGDOM

                    

    (EUR million)

                                                              
                              QoQ             YoY  
Income statement    Q3’18              %      % excl. FX      9M’18      %      % excl. FX  

Net interest income

     1,033                 (0.6)        1.3        3,103        (6.4)        (5.2)  

Net fee income

     258                 (2.6)        (0.8)        766        0.7        2.1  

Gains (losses) on financial transactions

     63                 (1.4)        0.4        184        (27.2)        (26.2)  

Other operating income

     13                 138.4        145.0        37        (18.5)        (17.4)  

Gross income

     1,367                 (0.4)        1.4        4,089        (6.5)        (5.3)  

Operating expenses

     (730)                 (4.4)        (2.6)        (2,256)        5.4        6.8  

General administrative expenses

     (670)                 3.9        5.9        (1,986)        5.2        6.6  

Personnel

     (407)                 (3.0)        (1.2)        (1,225)        20.2        21.8  

Other general administrative expenses

     (263)                 16.8        19.0        (761)        (12.4)        (11.2)  

Depreciation and amortisation

     (60)                 (49.8)        (48.5)        (270)        6.9        8.3  

Net operating income

     637                 4.5        6.4        1,832        (17.9)        (16.8)  

Net loan-loss provisions

     (26)                 (30.9)        (28.7)        (129)        4.6        6.0  

Other income

     (62)                 33.0        35.5        (172)        (53.0)        (52.4)  

Underlying profit before tax

     549                 4.5        6.3        1,532        (12.1)        (11.0)  

Tax on profit

     (159)                 8.6        10.4        (436)        (16.9)        (15.8)  

Underlying profit from continuing operations

     391                 2.9        4.7        1,096        (10.1)        (8.9)  

Net profit from discontinued operations

                                                  

Underlying consolidated profit

     391                 2.9        4.7        1,096        (10.1)        (8.9)  

Minority interests

     6                 (17.5)        (15.9)        19        8.4        9.9  

Underlying attributable profit to the Group

     385                 3.3        5.1        1,077        (10.4)        (9.2)  

Net capital gains and provisions

                                            

Attributable profit to the Group

     385                 3.3        5.1        1,077        (10.4)        (9.2)  
Balance sheet                                                        

Loans and advances to customers

     255,577                 0.5        0.6        255,577        3.5        4.2  

Cash, central banks and credit institutions

     41,298                 (23.8)        (23.7)        41,298        (21.8)        (21.3)  

Debt securities

     26,914                 1.4        1.5        26,914        4.0        4.6  

o/w: designated at fair value through other comprehensive income

     14,898                 (2.3)        (2.1)        14,898        43.5        44.4  

Other financial assets

     20,686                 0.6        0.8        20,686        (10.3)        (9.7)  

Other assets

     9,187                 (11.3)        (11.2)        9,187        (10.2)        (9.6)  

Total assets

     353,661                 (3.4)        (3.3)        353,661        (1.4)        (0.8)  

Customer deposits

     216,426                 (1.4)        (1.3)        216,426        (4.8)        (4.2)  

Central banks and credit institutions

     31,021                 (24.4)        (24.3)        31,021        11.1        11.8  

Debt securities issued

     67,877                 2.0        2.1        67,877        11.7        12.4  

Other financial liabilities

     17,930                 3.8        3.9        17,930        (18.4)        (17.9)  

Other liabilities

     3,935                 (8.9)        (8.7)        3,935        (6.2)        (5.6)  

Total liabilities

     337,188                 (3.3)        (3.2)        337,188        (1.5)        (0.8)  

Total equity

     16,473                 (4.7)        (4.5)        16,473        (1.2)        (0.6)  

Other managed and marketed customer funds

     8,482                 (0.3)        (0.2)        8,482        0.1        0.7  

Mutual funds

     8,372                 (0.3)        (0.1)        8,372        0.1        0.8  

Pension funds

                                                  

Managed portfolios

     110                 (3.1)        (3.0)        110        (4.3)        (3.7)  

Pro memoria:

                    

Gross loans and advances to customers excl. reverse repos

     237,116                 (1.0)        (0.9)        237,116        0.6        1.2  

Funds (customer deposits excl. repos + mutual funds)

     205,178                 0.3        0.4        205,178        (1.3)        (0.7)  
Ratios (%) and operating means                                                        

Underlying RoTE

     10.48                 0.44                 9.90        (1.04)           

Efficiency ratio (with amortisations)

     53.4                 (2.2)                 55.2        6.2           

NPL ratio

     1.10                 (0.02)                 1.10        (0.22)           

NPL coverage

     33.1                 (0.9)                 33.1        1.6           

Number of employees

     25,803                 (0.4)                 25,803        0.3           

Number of branches

     767                 (1.7)                 767        (6.5)           

 

48     LOGO     Financial Report 2018


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LATIN AMERICA

                    

    (EUR million)

                                                              
                              QoQ             YoY  
Income statement    Q3’18              %      % excl. FX      9M’18      %      % excl. FX  

Net interest income

     3,680                 (5.9)        5.0        11,538        (3.5)        15.6  

Net fee income

     1,102                 (17.8)        (2.0)        3,818        (7.4)        15.2  

Gains (losses) on financial transactions

     132                 (29.1)        5.2        460        (43.3)        (29.5)  

Other operating income

     (100)                 264.7        225.2        (152)        —          —    

Gross income

     4,813                 (11.0)        2.0        15,664        (7.6)        12.0  

Operating expenses

     (1,731)                 (13.5)        2.5        (5,783)        (11.3)        9.1  

General administrative expenses

     (1,562)                 (14.2)        1.9        (5,235)        (11.4)        9.1  

Personnel

     (890)                 (11.1)        3.8        (2,928)        (10.5)        9.5  

Other general administrative expenses

     (672)                 (17.9)        (0.4)        (2,308)        (12.5)        8.8  

Depreciation and amortisation

     (169)                 (7.4)        8.3        (547)        (10.7)        8.4  

Net operating income

     3,083                 (9.5)        1.8        9,881        (5.3)        13.8  

Net loan-loss provisions

     (1,037)                 (8.7)        2.4        (3,384)        (11.1)        5.3  

Other income

     (159)                 (17.7)        8.8        (506)        (53.4)        (42.0)  

Underlying profit before tax

     1,887                 (9.2)        0.8        5,990        8.2        30.2  

Tax on profit

     (738)                 (1.9)        8.5        (2,209)        25.5        53.0  

Underlying profit from continuing operations

     1,149                 (13.4)        (3.6)        3,781        0.2        19.8  

Net profit from discontinued operations

                                                  

Underlying consolidated profit

     1,149                 (13.4)        (3.6)        3,781        0.2        19.8  

Minority interests

     202                 (4.5)        (1.4)        621        3.9        16.0  

Underlying attributable profit to the Group

     947                 (15.1)        (4.0)        3,160        (0.5)        20.6  

Net capital gains and provisions

                                            

Attributable profit to the Group

     947                 (15.1)        (4.0)        3,160        (0.5)        20.6  
Balance sheet                                                        

Loans and advances to customers

     146,235                 1.7        4.3        146,235        (3.2)        11.2  

Cash, central banks and credit institutions

     57,381                 (0.7)        2.4        57,381        2.5        23.3  

Debt securities

     55,452                 (1.5)        0.4        55,452        (11.4)        3.2  

o/w: designated at fair value through other comprehensive income

     27,421                 (3.4)        (0.9)        27,421        (24.0)        (11.8)  

Other financial assets

     13,575                 (7.2)        (7.7)        13,575        (4.5)        5.0  

Other assets

     16,683                 (0.9)        1.9        16,683        (6.5)        11.3  

Total assets

     289,325                 (0.0)        2.4        289,325        (4.1)        11.4  

Customer deposits

     142,080                 0.2        3.0        142,080        (4.3)        11.6  

Central banks and credit institutions

     44,931                 (3.5)        (1.3)        44,931        9.2        25.1  

Debt securities issued

     34,888                 1.8        3.6        34,888        (0.4)        13.9  

Other financial liabilities

     31,303                 0.1        1.8        31,303        (12.1)        3.3  

Other liabilities

     9,927                 0.6        2.7        9,927        (13.2)        2.1  

Total liabilities

     263,129                 (0.3)        2.2        263,129        (3.2)        12.5  

Total equity

     26,196                 2.4        4.6        26,196        (12.9)        1.4  

Other managed and marketed customer funds

     78,151                 (0.3)        2.5        78,151        (8.7)        8.7  

Mutual funds

     71,746                 (0.4)        2.4        71,746        (9.0)        8.7  

Pension funds

                                                  

Managed portfolios

     6,405                 0.7        3.3        6,405        (4.4)        8.8  

Pro memoria:

                    

Gross loans and advances to customers excl. reverse repos

     151,947                 1.3        3.9        151,947        (3.0)        11.5  

Funds (customer deposits excl. repos + mutual funds)

     194,040                 (0.9)        2.1        194,040        (5.1)        11.4  
Ratios (%) and operating means                                                        

Underlying RoTE

     17.93                 (2.51)                 19.21        1.51           

Efficiency ratio (with amortisations)

     36.0                 (1.0)                 36.9        (1.5)           

NPL ratio

     4.33                 (0.07)                 4.33        (0.08)           

NPL coverage

     97.1                 0.3                 97.1        7.0           

Number of employees

     89,587                 0.6                 89,587        2.0           

Number of branches

     5,948                 0.8                 5,948        1.9           

 

Financial Report 2018     LOGO     49


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Appendix

 

 

BRAZIL

                    

    (EUR million)

                                                              
                   QoQ             YoY  
Income statement    Q3’18                        %      % excl. FX      9M’18      %      % excl. FX  

Net interest income

     2,377                 (1.9)        4.7        7,283        (3.5)        17.1  

Net fee income

     776                 (11.0)        (4.3)        2,568        (5.3)        14.9  

Gains (losses) on financial transactions

     32                 (2.9)        3.6        114        (73.7)        (68.1)  

Other operating income

     (4)                 (21.0)        (14.1)        (17)                

Gross income

     3,180                 (4.3)        2.4        9,949        (7.6)        12.2  

Operating expenses

     (1,031)                 (5.8)        0.8        (3,291)        (13.2)        5.3  

General administrative expenses

     (935)                 (5.5)        1.1        (2,975)        (12.7)        6.0  

Personnel

     (541)                 (3.1)        3.6        (1,701)        (11.9)        6.9  

Other general administrative expenses

     (395)                 (8.7)        (2.1)        (1,274)        (13.7)        4.7  

Depreciation and amortisation

     (96)                 (8.7)        (2.0)        (316)        (17.9)        (0.4)  

Net operating income

     2,149                 (3.5)        3.1        6,658        (4.5)        15.9  

Net loan-loss provisions

     (665)                 (11.3)        (4.7)        (2,236)        (13.4)        5.1  

Other income

     (174)                 2.3        9.0        (499)        (48.8)        (37.9)  

Underlying profit before tax

     1,310                 0.2        6.9        3,923        14.9        39.4  

Tax on profit

     (612)                 5.9        12.6        (1,734)        37.0        66.3  

Underlying profit from continuing operations

     698                 (4.3)        2.3        2,188        1.8        23.6  

Net profit from discontinued operations

                                                  

Underlying consolidated profit

     698                 (4.3)        2.3        2,188        1.8        23.6  

Minority interests

     79                 (4.5)        2.1        246        (0.0)        21.3  

Underlying attributable profit to the Group

     619                 (4.3)        2.3        1,942        2.1        23.9  

Net capital gains and provisions

                                            

Attributable profit to the Group

     619                 (4.3)        2.3        1,942        2.1        23.9  
Balance sheet                                                        

Loans and advances to customers

     65,006                 (0.4)        3.3        65,006        (8.9)        12.6  

Cash, central banks and credit institutions

     35,914                 3.8        7.6        35,914        (3.9)        18.9  

Debt securities

     35,015                 (8.3)        (4.9)        35,015        (19.4)        (0.3)  

o/w: designated at fair value through other comprehensive income

     16,635                 (13.4)        (10.2)        16,635        (32.1)        (16.1)  

Other financial assets

     5,184                 (5.4)        (1.9)        5,184        (14.1)        6.2  

Other assets

     11,145                 (2.6)        1.1        11,145        (10.2)        11.0  

Total assets

     152,263                 (1.8)        1.9        152,263        (10.7)        10.4  

Customer deposits

     69,052                 2.3        6.1        69,052        (7.0)        15.0  

Central banks and credit institutions

     24,892                 (18.8)        (15.7)        24,892        (0.6)        22.9  

Debt securities issued

     18,164                 1.9        5.7        18,164        (15.0)        5.1  

Other financial liabilities

     19,525                 5.5        9.4        19,525        (19.3)        (0.2)  

Other liabilities

     6,323                 0.0        3.7        6,323        (21.1)        (2.5)  

Total liabilities

     137,956                 (2.0)        1.6        137,956        (9.8)        11.6  

Total equity

     14,308                 0.8        4.6        14,308        (19.2)        (0.0)  

Other managed and marketed customer funds

     56,064                 0.9        4.6        56,064        (9.8)        11.5  

Mutual funds

     52,181                 0.8        4.5        52,181        (10.2)        11.0  

Pension funds

                                                  

Managed portfolios

     3,883                 2.4        6.2        3,883        (4.6)        18.0  

Pro memoria:

                    

Gross loans and advances to customers excl. reverse repos

     69,190                 (0.4)        3.3        69,190        (8.5)        13.1  

Funds (customer deposits excl. repos + mutual funds)

     106,612                 0.5        4.2        106,612        (5.7)        16.6  
Ratios (%) and operating means                                                        

Underlying RoTE

     19.98                 (0.13)                 19.96        3.17           

Efficiency ratio (with amortisations)

     32.4                 (0.5)                 33.1        (2.2)           

NPL ratio

     5.26                                 5.26        (0.06)           

NPL coverage

     109.1                 0.4                 109.1        11.5           

Number of employees

     46,663                 (0.0)                 46,663        0.9           

Number of branches

     3,552                 1.8                 3,552        3.8           

 

50     LOGO     Financial Report 2018


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JANUARY - SEPTEMBER

Appendix

 

 

MEXICO

                    

    (EUR million)

                                                              
                   QoQ             YoY  
Income statement    Q3’18                        %      % excl. FX      9M’18      %      % excl. FX  

Net interest income

     728                 11.6        6.7        2,030        3.0        11.6  

Net fee income

     199                 5.6        0.8        575        1.1        9.5  

Gains (losses) on financial transactions

     27                 (50.2)        (53.0)        99        (10.7)        (3.3)  

Other operating income

     (24)                 (13.9)        (18.1)        (74)        266.1        296.6  

Gross income

     931                 7.2        2.4        2,630        (0.0)        8.3  

Operating expenses

     (384)                 5.8        1.0        (1,086)        4.8        13.5  

General administrative expenses

     (351)                 6.2        1.5        (990)        5.0        13.7  

Personnel

     (180)                 8.3        3.5        (503)        6.0        14.8  

Other general administrative expenses

     (171)                 4.1        (0.6)        (486)        4.0        12.6  

Depreciation and amortisation

     (33)                 1.2        (3.6)        (97)        2.9        11.5  

Net operating income

     547                 8.3        3.4        1,543        (3.1)        4.9  

Net loan-loss provisions

     (227)                 20.4        15.2        (616)        (14.3)        (7.2)  

Other income

     (5)                 (55.0)        (57.7)        (20)        36.7        48.0  

Underlying profit before tax

     315                 3.2        (1.5)        908        5.5        14.3  

Tax on profit

     (65)                 (2.5)        (7.1)        (194)        7.4        16.4  

Underlying profit from continuing operations

     250                 4.8        0.1        713        5.0        13.7  

Net profit from discontinued operations

                                                  

Underlying consolidated profit

     250                 4.8        0.1        713        5.0        13.7  

Minority interests

     55                 1.3        (3.3)        159        8.0        17.0  

Underlying attributable profit to the Group

     195                 5.9        1.1        554        4.1        12.8  

Net capital gains and provisions

                                            

Attributable profit to the Group

     195                 5.9        1.1        554        4.1        12.8  
Balance sheet                                                        

Loans and advances to customers

     31,445                 10.6        5.3        31,445        8.2        9.8  

Cash, central banks and credit institutions

     11,463                 (13.9)        (18.1)        11,463        28.4        30.3  

Debt securities

     15,583                 26.5        20.5        15,583        11.1        12.8  

o/w: designated at fair value through other comprehensive income

     6,628                 60.0        52.3        6,628        (10.4)        (9.0)  

Other financial assets

     5,549                 (10.2)        (14.5)        5,549        (6.0)        (4.6)  

Other assets

     2,907                 5.3        0.2        2,907        12.8        14.5  

Total assets

     66,946                 6.3        1.2        66,946        10.7        12.3  

Customer deposits

     34,303                 3.0        (2.0)        34,303        9.5        11.1  

Central banks and credit institutions

     11,397                 35.1        28.6        11,397        15.8        17.5  

Debt securities issued

     6,244                 5.3        0.2        6,244        26.6        28.5  

Other financial liabilities

     7,323                 (8.6)        (13.0)        7,323        2.2        3.7  

Other liabilities

     2,028                 (6.4)        (10.9)        2,028        11.7        13.4  

Total liabilities

     61,294                 5.9        0.8        61,294        11.3        12.9  

Total equity

     5,652                 9.9        4.6        5,652        4.5        6.0  

Other managed and marketed customer funds

     11,233                 6.1        1.0        11,233        6.6        8.2  

Mutual funds

     11,233                 6.1        1.0        11,233        6.6        8.2  

Pension funds

                                                  

Managed portfolios

                                                  

Pro memoria:

                    

Gross loans and advances to customers excl. reverse repos

     31,853                 9.0        3.8        31,853        8.5        10.1  

Funds (customer deposits excl. repos + mutual funds)

     40,407                 3.5        (1.5)        40,407        4.6        6.1  
Ratios (%) and operating means                                                        

Underlying RoTE

     20.01                 (0.32)                 19.97        0.47           

Efficiency ratio (with amortisations)

     41.2                 (0.6)                 41.3        1.9           

NPL ratio

     2.41                 (0.17)                 2.41        (0.15)           

NPL coverage

     120.5                 4.4                 120.5        10.2           

Number of employees

     19,483                 2.1                 19,483        6.9           

Number of branches

     1,410                 0.6                 1,410        0.6           

 

Financial Report 2018     LOGO     51


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Appendix

 

 

CHILE

                    

    (EUR million)

                                                              
                   QoQ             YoY  
Income statement    Q3’18                        %      % excl. FX      9M’18      %      % excl. FX  

Net interest income

     481                 (2.9)        1.1        1,466        3.6        7.0  

Net fee income

     101                 (13.3)        (9.5)        329        9.6        13.1  

Gains (losses) on financial transactions

     45                 61.8        66.7        103        (39.6)        (37.7)  

Other operating income

     4                 100.0        109.3        16        100.0        106.5  

Gross income

     632                 (1.6)        2.4        1,914        1.1        4.4  

Operating expenses

     (257)                 (5.6)        (1.7)        (787)        1.2        4.5  

General administrative expenses

     (231)                 (5.8)        (1.9)        (708)        1.1        4.4  

Personnel

     (147)                 (3.5)        0.3        (437)        1.5        4.8  

Other general administrative expenses

     (84)                 (9.5)        (5.6)        (271)        0.5        3.8  

Depreciation and amortisation

     (26)                 (4.0)        (0.0)        (79)        1.7        4.9  

Net operating income

     375                 1.3        5.4        1,127        1.0        4.3  

Net loan-loss provisions

     (117)                 2.2        6.3        (353)        0.3        3.5  

Other income

     19                 (41.6)        (38.6)        73        261.9        273.6  

Underlying profit before tax

     276                 (3.8)        0.1        846        8.0        11.5  

Tax on profit

     (56)                 0.0        4.1        (171)        20.2        24.1  

Underlying profit from continuing operations

     221                 (4.7)        (0.8)        675        5.3        8.7  

Net profit from discontinued operations

                                                  

Underlying consolidated profit

     221                 (4.7)        (0.8)        675        5.3        8.7  

Minority interests

     68                 (7.7)        (3.8)        214        6.2        9.7  

Underlying attributable profit to the Group

     153                 (3.3)        0.5        461        4.9        8.3  

Net capital gains and provisions

                                            

Attributable profit to the Group

     153                 (3.3)        0.5        461        4.9        8.3  
Balance sheet                                                        

Loans and advances to customers

     38,971                 1.9        2.9        38,971        7.5        9.0  

Cash, central banks and credit institutions

     3,829                 (1.6)        (0.6)        3,829        (4.0)        (2.7)  

Debt securities

     3,761                 (10.3)        (9.4)        3,761        12.2        13.8  

o/w: designated at fair value through other comprehensive income

     3,256                 (15.1)        (14.2)        3,256        19.8        21.6  

Other financial assets

     2,814                 (4.1)        (3.1)        2,814        25.2        27.0  

Other assets

     1,862                 1.8        2.8        1,862        0.6        2.1  

Total assets

     51,236                 0.3        1.3        51,236        7.4        9.0  

Customer deposits

     25,432                 (4.2)        (3.2)        25,432        (1.5)        (0.1)  

Central banks and credit institutions

     6,184                 18.0        19.2        6,184        45.9        48.0  

Debt securities issued

     10,051                 1.2        2.2        10,051        18.4        20.1  

Other financial liabilities

     3,757                 (3.6)        (2.6)        3,757        13.9        15.5  

Other liabilities

     1,058                 17.4        18.6        1,058        (7.0)        (5.7)  

Total liabilities

     46,481                 (0.0)        0.9        46,481        8.1        9.7  

Total equity

     4,755                 3.8        4.8        4,755        1.0        2.4  

Other managed and marketed customer funds

     9,605                 (5.9)        (5.0)        9,605        (5.8)        (4.5)  

Mutual funds

     7,084                 (7.2)        (6.3)        7,084        (6.4)        (5.0)  

Pension funds

                                                  

Managed portfolios

     2,522                 (1.9)        (0.9)        2,522        (4.3)        (2.9)  

Pro memoria:

                    

Gross loans and advances to customers excl. reverse repos

     40,123                 1.8        2.9        40,123        7.6        9.2  

Funds (customer deposits excl. repos + mutual funds)

     32,479                 (4.8)        (3.9)        32,479        (2.2)        (0.8)  
Ratios (%) and operating means                                                        

Underlying RoTE

     19.04                 (0.06)                 18.46        0.45           

Efficiency ratio (with amortisations)

     40.7                 (1.7)                 41.1        0.0           

NPL ratio

     4.78                 (0.08)                 4.78        (0.17)           

NPL coverage

     59.6                 (0.4)                 59.6        1.1           

Number of employees

     12,003                 (0.2)                 12,003        2.8           

Number of branches

     408                 (2.9)                 408        0.5           

 

52     LOGO     Financial Report 2018


Table of Contents

JANUARY - SEPTEMBER

Appendix

 

 

ARGENTINA

                    

    (EUR million)

                                                              
                   QoQ             YoY  
Income statement    Q3’18                        %      % excl. FX      9M’18      %      % excl. FX  

Net interest income

     (6)                        22.5        442        (39.0)        48.8  

Net fee income

     (6)                        22.2        256        (44.1)        36.5  

Gains (losses) on financial transactions

     17                 (71.2)        55.9        110        (0.7)        142.5  

Other operating income

     (75)                               (71)                

Gross income

     (70)                        (2.0)        737        (43.2)        38.6  

Operating expenses

     (0)                 (99.8)        34.8        (426)        (41.3)        43.2  

General administrative expenses

     10                        26.3        (379)        (43.8)        37.3  

Personnel

     8                        24.3        (184)        (44.4)        35.8  

Other general administrative expenses

     1                        28.2        (195)        (43.2)        38.7  

Depreciation and amortisation

     (10)                 (43.3)        125.1        (47)        (9.6)        120.8  

Net operating income

     (70)                        (36.9)        311        (45.6)        32.8  

Net loan-loss provisions

     (7)                 (90.9)        26.0        (131)        11.4        172.1  

Other income

     4                        (21.2)        (53)        (22.7)        88.8  

Underlying profit before tax

     (73)                        (86.2)        127        (67.1)        (19.8)  

Tax on profit

     2                        5.6        (59)        (51.0)        19.7  

Underlying profit from continuing operations

     (71)                               67        (74.5)        (37.8)  

Net profit from discontinued operations

                                                  

Underlying consolidated profit

     (71)                               67        (74.5)        (37.8)  

Minority interests

     (0)                        (61.7)        1        (58.9)        0.3  

Underlying attributable profit to the Group

     (71)                               67        (74.6)        (38.0)  

Net capital gains and provisions

                                            

Attributable profit to the Group

     (71)                               67        (74.6)        (38.0)  
Balance sheet                                                        

Loans and advances to customers

     5,958                 (21.1)        12.2        5,958        (29.4)        62.2  

Cash, central banks and credit institutions

     4,036                 10.7        57.3        4,036        15.2        164.7  

Debt securities

     478                 (49.1)        (27.7)        478        10.9        154.8  

o/w: designated at fair value through other comprehensive income

     433                 (34.4)        (6.8)        433        87.2        330.2  

Other financial assets

     16                 (33.6)        (5.6)        16        16.4        167.5  

Other assets

     591                 3.0        46.4        591        (17.0)        90.7  

Total assets

     11,079                 (13.0)        23.7        11,079        (15.4)        94.3  

Customer deposits

     8,055                 (13.7)        22.6        8,055        (20.6)        82.5  

Central banks and credit institutions

     1,070                 7.4        52.6        1,070        170.5        521.5  

Debt securities issued

     376                 (29.9)        (0.4)        376        67.4        284.6  

Other financial liabilities

     665                 (18.8)        15.4        665        (29.8)        61.4  

Other liabilities

     264                 11.1        57.9        264        17.6        170.2  

Total liabilities

     10,429                 (12.5)        24.3        10,429        (12.6)        100.8  

Total equity

     650                 (19.6)        14.2        650        (44.3)        28.0  

Other managed and marketed customer funds

     1,217                 (38.8)        (13.0)        1,217        (54.0)        5.8  

Mutual funds

     1,217                 (38.8)        (13.0)        1,217        (54.0)        5.8  

Pension funds

                                                  

Managed portfolios

                                                  

Pro memoria:

                    

Gross loans and advances to customers excl. reverse repos

     5,799                 (21.8)        11.1        5,799        (29.3)        62.4  

Funds (customer deposits excl. repos + mutual funds)

     9,271                 (18.1)        16.3        9,271        (27.5)        66.6  
Ratios (%) and operating means                                                        

Underlying RoTE

     n.s.                 n.s.                 16.47        (14.43)           

Efficiency ratio (with amortisations)

     n.s.                 n.s.                 57.8        1.8           

NPL ratio

     2.47                 0.07                 2.47        0.13           

NPL coverage

     124.0                 2.5                 124.0        21.2           

Number of employees

     9,362                 1.5                 9,362        0.2           

Number of branches

     481                 (0.2)                 481        (0.2)           

 

Financial Report 2018     LOGO     53


Table of Contents

JANUARY - SEPTEMBER

Appendix

 

 

UNITED STATES

                    

    (EUR million)

                                                              
                   QoQ             YoY  
Income statement    Q3’18                        %      % excl. FX      9M’18      %      % excl. FX  

Net interest income

     1,337                 4.4        1.9        3,838        (10.7)        (4.1)  

Net fee income

     208                 (5.3)        (7.9)        641        (14.3)        (8.0)  

Gains (losses) on financial transactions

     22                 (6.4)        (8.9)        61                

Other operating income

     169                 15.0        12.4        442        38.7        48.9  

Gross income

     1,735                 3.9        1.4        4,983        (7.1)        (0.2)  

Operating expenses

     (748)                 1.4        (1.1)        (2,220)        (8.5)        (1.7)  

General administrative expenses

     (688)                 1.3        (1.2)        (2,045)        (6.2)        0.7  

Personnel

     (398)                 4.2        1.7        (1,177)        (7.2)        (0.3)  

Other general administrative expenses

     (290)                 (2.4)        (4.9)        (868)        (4.9)        2.1  

Depreciation and amortisation

     (60)                 2.9        0.4        (175)        (28.2)        (23.0)  

Net operating income

     987                 5.9        3.4        2,762        (6.0)        1.0  

Net loan-loss provisions

     (649)                 45.8        43.6        (1,674)        (21.9)        (16.1)  

Other income

     (69)                 38.2        35.4        (142)        142.7        160.6  

Underlying profit before tax

     269                 (38.5)        (40.9)        946        28.4        37.8  

Tax on profit

     (94)                 (32.5)        (34.9)        (299)        42.1        52.6  

Underlying profit from continuing operations

     175                 (41.3)        (43.7)        647        22.9        31.9  

Net profit from discontinued operations

                                                  

Underlying consolidated profit

     175                 (41.3)        (43.7)        647        22.9        31.9  

Minority interests

     50                 (43.1)        (45.5)        187        (1.3)        6.0  

Underlying attributable profit to the Group

     125                 (40.5)        (42.9)        460        36.5        46.5  

Net capital gains and provisions

                                            

Attributable profit to the Group

     125                 (40.5)        (42.9)        460        36.5        46.5  
Balance sheet                                                        

Loans and advances to customers

     79,897                 4.9        4.1        79,897        9.1        7.0  

Cash, central banks and credit institutions

     14,299                 22.6        21.8        14,299        9.2        7.1  

Debt securities

     13,252                 (7.6)        (8.3)        13,252        (18.9)        (20.4)  

o/w: designated at fair value through other comprehensive income

     9,823                 (10.3)        (10.9)        9,823        (31.5)        (32.8)  

Other financial assets

     5,102                 18.2        17.4        5,102        76.6        73.1  

Other assets

     14,644                 10.1        9.3        14,644        18.3        16.0  

Total assets

     127,194                 6.2        5.4        127,194        7.8        5.7  

Customer deposits

     58,910                 9.1        8.3        58,910        11.4        9.2  

Central banks and credit institutions

     13,153                 (1.5)        (2.2)        13,153        (16.1)        (17.7)  

Debt securities issued

     30,712                 7.7        6.9        30,712        13.8        11.6  

Other financial liabilities

     4,414                 11.5        10.8        4,414        62.3        59.1  

Other liabilities

     3,820                 5.2        4.5        3,820        (10.1)        (11.9)  

Total liabilities

     111,009                 7.3        6.5        111,009        8.3        6.2  

Total equity

     16,186                 (1.0)        (1.7)        16,186        5.0        2.9  

Other managed and marketed customer funds

     16,775                 0.4        (0.3)        16,775        (2.1)        (4.0)  

Mutual funds

     8,453                 0.2        (0.5)        8,453        1.4        (0.6)  

Pension funds

                                                  

Managed portfolios

     8,323                 0.7        (0.0)        8,323        (5.4)        (7.3)  

Pro memoria:

                    

Gross loans and advances to customers excl. reverse repos

     80,686                 1.4        0.7        80,686        5.2        3.1  

Funds (customer deposits excl. repos + mutual funds)

     62,000                 (0.3)        (1.0)        62,000        1.8        (0.2)  
Ratios (%) and operating means                                                        

Underlying RoTE

     3.62                 (2.69)                 4.63        1.21           

Efficiency ratio (with amortisations)

     43.1                 (1.1)                 44.6        (0.7)           

NPL ratio

     3.00                 0.09                 3.00        0.44           

NPL coverage

     145.5                 (11.4)                 145.5        (42.0)           

Number of employees

     17,303                 0.7                 17,303        (1.5)           

Number of branches

     664                 (0.9)                 664        (4.3)           

 

54     LOGO     Financial Report 2018


Table of Contents

JANUARY - SEPTEMBER

Appendix

 

CORPORATE CENTRE

                 

    (EUR million)

                                                     
Income statement    Q3’18      Q2’18      %      9M’18      9M’17      %  

Net interest income

     (241)        (233)        3.4        (698)        (628)        11.1  

Net fee income

     (24)        (9)        182.1        (41)        (21)        101.0  

Gains (losses) on financial transactions

     10        (8)               15        (257)         

Other operating income

     (2)        (1)        252.8        (9)        (76)        (88.2)  

Gross income

     (257)        (250)        3.0        (733)        (981)        (25.3)  

Operating expenses

     (123)        (122)        0.7        (367)        (356)        2.9  

Net operating income

     (380)        (372)        2.2        (1,100)        (1,337)        (17.8)  

Net loan-loss provisions

     (28)        (30)        (8.4)        (95)        (37)        154.7  

Other income

     (55)        (50)        9.1        (148)        (139)        6.4  

Underlying profit before tax

     (463)        (452)        2.3        (1,342)        (1,513)        (11.3)  

Tax on profit

     7        (21)               (9)        1         

Underlying profit from continuing operations

     (456)        (474)        (3.8)        (1,350)        (1,512)        (10.7)  

Net profit from discontinued operations

                                         

Underlying consolidated profit

     (456)        (474)        (3.8)        (1,350)        (1,512)        (10.7)  

Minority interests

     (0)        1               1        (1)         

Underlying attributable profit to the Group

     (456)        (475)        (4.0)        (1,351)        (1,511)        (10.6)  

Net capital gains and provisions*

            (40)        (100.0)        (40)        (130)        (69.2)  

Attributable profit to the Group

     (456)        (515)        (11.5)        (1,391)        (1,641)        (15.2)  

(*) In Q2’18, restructuring costs (EUR -40 million). In 2017, charges for equity stakes and intangible assets (EUR -130 million)

 

Balance sheet                                                

Debt securities

     330        351        (6.1)        330        1,488        (77.9)  

Goodwill

     24,956        25,035        (0.3)        24,956        25,855        (3.5)  

Capital assigned to Group areas

     81,336        83,825        (3.0)        81,336        84,332        (3.6)  

Other financial assets

     20,307        16,722        21.4        20,307        10,249        98.1  

Other assets

     14,417        14,561        (1.0)        14,417        14,485        (0.5)  

Total assets

     141,346        140,494        0.6        141,346        136,408        3.6  

Debt securities issued

     42,948        40,421        6.3        42,948        36,213        18.6  

Other financial liabilities

     916        1,957        (53.2)        916        856        6.9  

Other liabilities

     7,922        7,761        2.1        7,922        9,088        (12.8)  

Total liabilities

     51,786        50,140        3.3        51,786        46,157        12.2  

Total equity

     89,561        90,355        (0.9)        89,561        90,251        (0.8)  

Other managed and marketed customer funds

     7        7        (3.7)        7        3        99.4  

Mutual funds

     7        7        (3.7)        7        3        99.4  

Pension funds

                                         

Managed portfolios

                                         
Resources                                                

Number of employees

     1,805        1,785        1.1        1,805        1,709        5.6  

 

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Appendix

 

 

RETAIL BANKING

                 

    (EUR million)

                                                     
           

QoQ

            YoY  
Income statement    Q3’18      %      % excl. FX      9M’18      %      % excl. FX  

Net interest income

     7,918        (1.9)        2.6        24,023        (0.6)        8.9  

Net fee income

     2,068        (8.4)        (0.3)        6,611        (4.3)        7.3  

Gains (losses) on financial transactions

     219        63.5        82.0        482        0.2        4.8  

Other operating income

     205        14.2        14.4        609        6.6        12.0  

Gross income

     10,411        (2.2)        3.1        31,726        (1.3)        8.5  

Operating expenses

     (4,486)        (7.6)        (1.8)        (14,230)        (2.3)        7.2  

Net operating income

     5,924        2.4        7.2        17,496        (0.5)        9.6  

Net loan-loss provisions

     (2,035)        6.5        12.7        (6,107)        (3.8)        8.1  

Other income

     (382)        1.2        14.4        (1,099)        (44.1)        (37.1)  

Underlying profit before tax

     3,508        0.3        3.5        10,289        11.1        20.2  

Tax on profit

     (1,191)        5.2        9.2        (3,368)        18.3        29.4  

Underlying profit from continuing operations

     2,317        (2.0)        0.7        6,921        7.9        16.1  

Net profit from discontinued operations

                                         

Underlying consolidated profit

     2,317        (2.0)        0.7        6,921        7.9        16.1  

Minority interests

     321        (11.0)        (10.1)        990        6.4        13.4  

Underlying attributable profit to the Group

     1,995        (0.4)        2.7        5,931        8.2        16.6  

Net capital gains and provisions*

            (100.0)        (100.0)        (260)        (32.5)        (32.5)  

Attributable profit to the Group

     1,995        14.5        18.1        5,671        11.3        20.6  

(*) In Q2’18, charges related to integrations (mainly restructuring costs), net of tax impacts, in Spain (EUR -280 million) and Portugal (EUR 20 million). In 2017, integration costs (Popular: EUR -300 million and Germany: EUR -85 million)

 

 

CORPORATE & INVESTMENT BANKING

                 

    (EUR million)

                                                     
           

QoQ

           

YoY

 
Income statement    Q3’18      %      % excl. FX      9M’18      %      % excl. FX  

Net interest income

     573        5.9        16.1        1,665        (10.7)        (0.2)  

Net fee income

     330        (17.4)        (12.3)        1,133        (8.2)        0.2  

Gains (losses) on financial transactions

     263        20.0        42.7        824        (19.9)        (7.1)  

Other operating income

     29        (50.6)        (47.6)        121        (19.1)        (17.0)  

Gross income

     1,194        (1.9)        8.2        3,744        (12.5)        (2.3)  

Operating expenses

     (524)        4.3        10.2        (1,554)        3.8        12.0  

Net operating income

     670        (6.3)        6.8        2,190        (21.2)        (10.4)  

Net loan-loss provisions

     (42)        (14.5)        (10.1)        (161)        (66.6)        (63.4)  

Other income

     (24)        (38.4)        (34.9)        (65)        53.7        68.2  

Underlying profit before tax

     604        (3.6)        10.8        1,964        (12.9)        (0.1)  

Tax on profit

     (183)        (4.9)        9.9        (587)        (5.7)        9.7  

Underlying profit from continuing operations

     421        (3.1)        11.2        1,377        (15.7)        (3.8)  

Net profit from discontinued operations

                                         

Underlying consolidated profit

     421        (3.1)        11.2        1,377        (15.7)        (3.8)  

Minority interests

     37        (16.7)        (13.5)        119        (21.6)        (12.1)  

Underlying attributable profit to the Group

     384        (1.5)        14.2        1,258        (15.1)        (2.9)  

Net capital gains and provisions

                                         

Attributable profit to the Group

     384        (1.5)        14.2        1,258        (15.1)        (2.9)  

 

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Appendix

 

 

WEALTH MANAGEMENT

                       

    (EUR million)

                                                                       
                   QoQ                    YoY  
Income statement    Q3’18                        %      % excl. FX      9M’18                        %      % excl. FX  

Net interest income

     104                 (2.9)        1.2        311                 2.4        12.0  

Net fee income

     266                 (6.3)        (3.7)        826                 58.0        65.9  

Gains (losses) on financial transactions

     13                 (17.0)        (10.6)        38                 30.4        39.4  

Other operating income

     (9)                 2.3        5.6        (25)                         

Gross income

     374                 (6.0)        (2.9)        1,150                 26.9        35.3  

Operating expenses

     (179)                 (4.5)        (3.1)        (549)                 40.4        49.7  

Net operating income

     194                 (7.4)        (2.6)        601                 16.6        24.4  

Net loan-loss provisions

     1                               (4)                         

Other income

     (5)                 44.1        43.5        (10)                 90.0        96.8  

Underlying profit before tax

     190                 (7.9)        (3.0)        587                 14.6        22.3  

Tax on profit

     (54)                 (8.5)        (3.3)        (170)                 30.5        39.5  

Underlying profit from continuing operations

     136                 (7.6)        (2.9)        418                 9.2        16.4  

Net profit from discontinued operations

                                                           

Underlying consolidated profit

     136                 (7.6)        (2.9)        418                 9.2        16.4  

Minority interests

     9                 (3.5)        (0.6)        26                 40.7        53.7  

Underlying attributable profit to the Group

     128                 (7.9)        (3.1)        392                 7.6        14.6  

Net capital gains and provisions

                                               

Attributable profit to the Group

     128                 (7.9)        (3.1)        392                 7.6        14.6  

 

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Alternative performance measures

 

ALTERNATIVE PERFORMANCE MEASURES (APM)

Below we set out information on alternative performance measures in order to comply with the Guidelines on Alternative Performance Measures published by the European Securities and Markets Authority, ESMA, on 5 October 2015 (Guidelines on Alternative Performance Measures, ESMA/2015/1415en).

 

 

The Group uses the following indicators for managing its business. They enable profitability and efficiency, credit portfolio quality, the volume of tangible equity per share and the net loan-to-deposit ratio to be measured, analysing their evolution over time and comparing them with those of our competitors.

 

 

The purpose of the profitability and efficiency ratios is to measure the ratio of profit to capital, to tangible capital, to assets and to risk weighted assets, while the efficiency ratio measures how much general administrative expenses (personnel and other) and amortisation costs are needed to generate revenue.

 

 

The credit risk indicators measure the quality of the credit portfolio and the percentage of non-performing loans covered by provisions.

 

 

The capitalisation indicator provides information on the volume of tangible equity per share.

 

 

Other indicators are also included. The loan-to-deposit ratio (LTD) identifies the relationship between net customer loans and advances and customer deposits, assessing the proportion of loans and advances granted by the Group that are funded by customer deposits. The Group also uses gross customer loan magnitudes excluding reverse repurchase agreements (repos) and customer deposits excluding repos. In order to analyse the evolution of the traditional commercial banking business of granting loans and capturing deposits, repos and reverse repos are excluded, as they are mainly treasury business products and highly volatile.

 

 

Impact of exchange rate movements on profit and loss accounts

The Group presents, at both the Group level as well as the business unit level, the real changes in the income statement as well as the changes excluding the exchange rate effect, as it considers the latter facilitates analysis, since it enables businesses movements to be identified without taking into account the impact of converting each local currency into euros.

Said variations, excluding the impact of exchange rate movements, are calculated by converting P&L lines for the different business units comprising the Group into our presentation currency, the euro, applying the average exchange rate for the first nine months of 2018 to all periods contemplated in the analysis. The average exchange rates for the main currencies in which the Group operates are set out on page 9.

 

 

Impact of exchange rate movements on the balance sheet

The Group presents, at both the Group level as well as the business unit level, the real changes in the balance sheet as well as the changes excluding the exchange rate effect for loans and advances to customers excluding reverse repos and customer funds (which comprise deposits and mutual funds) excluding repos. As with the income statement, the reason is to facilitate analysis by isolating the changes in the balance sheet that are not caused by converting each local currency into euros.

These changes excluding the impact of exchange rate movements are calculated by converting loans and advances to customers excluding reverse repos and customer funds excluding repos, into our presentation currency, the euro, applying the closing exchange rate on the last working day of September 2018 to all periods contemplated in the analysis. The end-of-period exchange rates for the main currencies in which the Group operates are set out on page 9.

 

 

Impact of non-recurring items on the consolidated profit and loss accounts

With regard to the results, a summary of the consolidated profit and loss accounts for the first halves of 2018 and 2017 can be found on page 62. In these accounts, results are included in their corresponding accounting item, even when, in the Group’s opinion, they distort the comparison between periods.

Therefore, summarised profit and loss accounts for the first nine months of 2018 and of 2017 and for the previous two quarters of 2018 on page 10. In these accounts, results, including those of said items, net of tax and minority interests, are included in a separate line which the Group names net capital gains and provisions just above the Group’s attributable profit. The Group believes that this statement explains more clearly the changes in the income statement. Those capital gains and provisions considered as non-recurring are subtracted from each of the income statement lines where they were naturally recorded.

 

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Alternative performance measures

 

Additionally, for informational purposes, the following table reconciles attributable profit by isolating the non-recurring impacts in the given periods. Further information on “net capital gains and provisions” is included on pages 10 and 11.

 

ADJUSTED ATTRIBUTABLE PROFIT TO THE GROUP

                

    EUR Million

                                                    
      Q3’18      Q2’18      Chg. (%)     9M’18      9M’17      Chg. (%)  

Unadjusted attributable profit to the Santander Group

     1,990        1,698        +17     5,742        5,077        +13

(-) Net capital gains and provisions

            (300)        (100 %)      (300)        (515)        (42 %) 

Adjusted attributable profit to the Santander Group

     1,990        1,998        (0 %)      6,042        5,592        +8

The definitions of each of the previously-mentioned indicators and how they are calculated are given below:

 

Profitability and Efficiency

    

Ratio

   Formula    Relevance of the metric

 

  

 

  

 

RoE

(Return on equity)

  

Group’s attributable profit

Average stockholders’ equity* (excl. minority interests)

   This ratio measures the return that shareholders obtain on the funds invested in the entity and as such measures the company’s ability to pay shareholders.

RoTE

(Return on tangible equity)

  

Group’s attributable profit

Average stockholders’ equity* (excl. minority interests) - intangible assets

   This is a very common indicator, used to evaluate the profitability of the company as a percentage of a its tangible equity. It’s measured as the return that shareholders receive as a percentage of the funds invested in the entity less intangible assets.
Underlying RoTE   

Group’s underlying attributable profit

Average stockholders’ equity* (excl. minority interests) - intangible assets

   This indicator measures the profitability of the tangible equity of a company arising from ordinary activities, i.e. excluding net capital gains and provisions.

RoA

(Return on assets)

  

Consolidated profit

Average total assets

   This metric, commonly used by analysts, measures the profitability of a company as a percentage of its total assets. It is an indicator that reflects the efficiency of the company’s total funds in generating profit over a given period.

RoRWA

(Return on risk weighted assets)

  

Consolidated profit

Average risk weighted assets

   The return adjusted for risk is an derivative of the RoA metric. The difference is that RoRWA measures profit in relation to the bank’s risk weighted assets.
Underlying RoRWA   

Underlying consolidated profit

Average risk weighted assets

   This relates the underlying profit (excluding net capital gains and provisions) to the bank’s risk weighted assets.
Efficiency   

Operating expenses**

Gross income

   One of the most commonly used indicators when comparing productivity of different financial entities. It measures the amount of funds used to generate the bank’s operating income.

 

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Alternative performance measures

 

 

Credit risk

    

Ratio

   Formula    Relevance of the metric

 

  

 

  

 

NPL ratio

(Non-performing loans ratio)

  

Non-performing loans and advances to customers, customer guarantees and customer commitments granted

 

Total Risk***

   The NPL ratio is an important variable regarding financial institutions’ activity since it gives an indication of the level of risk the entities are exposed to. It calculates risks that are, in accounting terms, declared to be non-performing as a percentage of the total outstanding amount of customer credit and contingent liabilities.
Coverage ratio   

Provisions to cover impairment losses on loans and advances to customers, customer guarantees and customer commitments granted

Non-performing loans and advances to customers, customer guarantees and customer commitments granted

   The coverage ratio is a fundamental metric in the financial sector. It reflects the level of provisions as a percentage of the non-performing assets (credit risk). Therefore it is a good indicator of the entity’s solvency against client defaults both present and future.
Cost of Credit   

Allowances for loan-loss provisions over the last 12 months

Average loans and advances to customers over the last 12 months

   This ratio quantifies loan-loss provisions arising from credit risk over a defined period of time for a given loan portfolio. As such, it acts as an indicator of credit quality.

Market Capitalisation

    

Ratio

   Formula    Relevance of the metric

 

  

 

  

 

TNAV per share
(Tangible net asset value per share)
  

Tangible book value****

Number of shares excluding treasury stock

   This is a very commonly used ratio used to measure the company’s accounting value per share having deducted the intangible assets. It is useful in evaluating the amount each shareholder would receive if the company were to enter into liquidation and had to sell all the company’s tangible assets.

Other indicators

    

Ratio

   Formula    Relevance of the metric

 

  

 

  

 

LtD

(Loan-to-deposit)

  

Net loans and advances to customers

Customer deposits

   This is an indicator of the bank’s liquidity. It measures the total (net) loans and advances to customers as a percentage of customer funds.
Loans and advances (excl. reverse repos)   

Gross loans and advances to customers excluding

reverse repos

   In order to aid analysis of the commercial banking activity, reverse repos are excluded as they are highly volatile treasury products.
Deposits (excl. repos)    Customer deposits excluding repos    In order to aid analysis of the commercial banking activity, repos are excluded as they are highly volatile treasury products.
PAT + After tax fees paid to SAN (in Wealth Management)    Net profit + Fees paid from Santander Asset Management to Santander, net of taxes, excluding Private Banking customers    Metric to assess Wealth Management’s total contribution to Grupo Santander profits

(*) Stockholders’ equity = Capital and Reserves + Accumulated other comprehensive income + Group attributable profit + Dividends

(**) Operating expenses: General administrative expenses + Depreciation and amortisation

(***) Total risk = Total loans & advances and guarantees to customers (performing and non-performing) + non-performing contingent liabilities

(****) Tangible book value = Stockholders’ equity - intangible assets

 

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Alternative performance measures

 

Finally, below the numerical value of each indicator is given for each period.

 

Profitability and efficiency    Q3’18      Q2’18      9M’18      9M’17  

RoE

     8.43%        8.13%        8.20%        7.54%  

Attributable profit to the Group

     7,957        7,692        7,755        6,941  

Average stockholders’ equity (excluding minority interests)

     94,391        94,607        94,615        93,178  

RoTE

     11.95%        11.61%        11.69%        10.99%  

Attributable profit to the Group

     7,957        7,692        7,755        6,941  

Average stockholders’ equity (excl. minority interests) - intangible assets

     66,578        66,280        66,348        63,919  

Underlying RoTE

     11.95%        12.06%        12.14%        11.80%  

Underlying attributable profit to the Group

     7,957        7,992        8,055        7,456  

Average stockholders’ equity (excl. minority interests) - intangible assets

     66,578        66,280        66,348        63,919  

RoA

     0.66%        0.65%        0.65%        0.59%  

Consolidated profit

     9,424        9,348        9,270        8,389  

Average total assets

     1,431,897        1,437,163        1,436,286        1,392,398  

RoRWA

     1.59%        1.55%        1.55%        1.39%  

Consolidated profit

     9,424        9,348        9,270        8,389  

Average risk weighted assets

     592,061        601,729        599,746        603,751  

Underlying RoRWA

     1.59%        1.60%        1.60%        1.47%  

Underlying consolidated profit

     9,424        9,648        9,569        8,904  

Average risk weighted assets

     592,061        601,729        599,746        603,751  

Efficiency ratio

     45.7%        47.6%        46.9%        46.7%  

Operating expenses

     5,361        5,718        16,843        16,957  

Gross income

     11,720        12,011        35,882        36,330  
Credit risk    Sep-18      Jun-18      Sep-18      Sep-17  

NPL ratio

     3.87%        3.92%        3.87%        4.24%  

Non-performing loans and advances to customers customer guarantees and customer commitments granted

     36,332        36,654        36,332        39,442  

Total risk

     939,685        934,388        939,685        929,193  

Coverage ratio

     67.9%        68.6%        67.9%        65.8%  

Provisions to cover impairment losses on loans and advances to customers, customer guarantees and customer commitments granted

     24,685        25,148        24,685        25,944  

Non-performing loans and advances to customers customer guarantees and customer commitments granted

     36,332        36,654        36,332        39,442  

Cost of credit

     0.98%        0.99%        0.98%        1.12%  

Allowances for loan-loss provisions over the last 12 months

     8,600        8,729        8,600        9,335  

Average loans and advances to customers over the last 12 months

     879,772        880,332        879,772        836,414  
Market capitalization    Sep-18      Jun-18      Sep-18      Sep-17  

TNAV (tangible book value) per share

     4.16        4.10        4.16        4.20  

Tangible book value

     67,122        66,157        67,122        67,361  

Number of shares excl. treasury stock (million)

     16,125        16,125        16,125        16,029  
Other    Sep-18      Jun-18      Sep-18      Sep-17  

Loan-to-deposit ratio

     111%        111%        111%        110%  

Net loans and advances to customers

     866,226        862,092        866,226        854,686  

Customer deposits

     778,751        774,425        778,751        778,852  
      Q3’18      Q2’18      9M’18      9M’17  

PAT + After tax fees paid to SAN (in Wealth Management) (Constant EUR million)

     253        259        757        688  

Profit after taxes

     141        145        418        359  

Net fee income net of tax

     112        114        339        329  

Notes:

(1)

Averages included in the RoE, RoTE, RoA and RoRWA denominators are calculated using 4 months’ worth of data in the case of quarterly figures (from June to September in Q3 and March to June in Q2) and 10 months in the case of annual figures (December to September).

 

(2)

For periods less than one year, and if there are results in the net capital gains and provisions line, the profit used to calculate RoE and RoTE is the annualised underlying attributable profit to which said results are added without annualising.

 

(3)

For periods less than one year, and if there are results in the net capital gains and provisions line, the profit used to calculate RoA and RoRWA is the annualised underlying consolidated profit, to which said results are added without annualising.

 

(4)

The risk weighted assets included in the denominator of the RoRWA metric are calculated in line with the criteria laid out in the CRR (Capital Requirements Regulation).

 

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Condensed consolidated financial statements

 

 

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED INCOME STATEMENT

CONSOLIDATED BALANCE SHEET

 

NOTE:

The financial information for the first nine months of 2018 and 2017 (attached herewith) corresponds to that included in the consolidated summarised financial statements at these dates, drawn up in accordance with the International Accounting Standards (IAS) 34, Interim Financial Information. The accounting policies and methods used are those established by the International Financial Reporting Standards adopted by the European Union (IFRS-EU), Circular 4/2017 of the Bank of Spain, which replaces Circular 4/2004 for those years starting as of 1 January 2018, and the International Financial Reporting Standards issued by the International Accounting Standards Board (IFRS-IASB).

 

CONDENSED CONSOLIDATED INCOME STATEMENT (EUR million)

                 
      9M’18      9M’17  

Interest income

     39,902        42,488  

Interest expense

     (14,622)        (16,799)  

Net interest income

     25,280        25,689  

Dividend income

     292        309  

Share of results of entities accounted for using the equity method

     532        480  

Commission income

     10,834        10,875  

Commission expense

     (2,305)        (2,227)  

Gain or losses on financial assets and liabilities not measured at fair value through profit or loss, net

     576        353  

Gain or losses on financial assets and liabilities held for trading, net

     1,532        1,036  

Gains or losses on non-trading financial assets and liabilities mandatorily at fair value through profit or loss

     109     

Gain or losses on financial assets and liabilities measured at fair value through profit or loss, net

     146        (85)  

Gain or losses from hedge accounting, net

     5        (35)  

Exchange differences, net

     (1,009)        13  

Other operating income

     1,179        1,188  

Other operating expenses

     (1,347)        (1,315)  

Income from assets under insurance and reinsurance contracts

     2,395        1,869  

Expenses from liabilities under insurance and reinsurance contracts

     (2,337)        (1,820)  

Gross income

     35,882        36,330  

Administrative expenses

     (15,069)        (15,059)  

Staff costs

     (8,797)        (8,856)  

Other general administrative expenses

     (6,272)        (6,203)  

Depreciation and amortisation cost

     (1,774)        (1,899)  

Provisions or reversal of provisions, net

     (1,725)        (2,622)  

Impairment or reversal of impairment at financial assets not measured at fair value through profit or loss, net

     (6,473)        (6,973)  

Financial assets at fair value with changes in other comprehensive income

     (4)     

Financial assets at amortized cost

     (6,469)     

Financial assets measured at cost

        (7)  

Financial assets available-for-sale

        (3)  

Loans and receivables

        (6,963)  

Held-to-maturity investments

         

Impairment of investments in subsidiaries, joint ventures and associates, net

             

Impairment on non-financial assets, net

     (121)        (141)  

Tangible assets

     (45)        (44)  

Intangible assets

     (77)        (41)  

Others

     1        (56)  

Gain or losses on non financial assets and investments, net

     24        71  

Negative goodwill recognised in results

             

Gains or losses on non-current assets held for sale not classified as discontinued operations

     (158)        (211)  

Profit or loss before tax from continuing operations

     10,586        9,496  

Tax expense or income from continuing operations

     (3,709)        (3,332)  

Profit for the period from continuing operations

     6,877        6,164  

Profit or loss after tax from discontinued operations

             

Profit for the period

     6,877        6,164  

Profit attributable to non-controlling interests

     1,135        1,087  

Profit attributable to the parent

     5,742        5,077  

Earnings per share

     

Basic

     0.33        0.32  

Diluted

     0.33        0.32  

 

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Condensed consolidated financial statements

 

 

CONDENSED CONSOLIDATED BALANCE SHEET (EUR million)

                          
Assets    Sep-18      Dec-17      Sep-17  

Cash, cash balances at central banks and other deposits on demand

     111,704        110,995        122,055  

Financial assets held for trading

     98,448        125,458        126,649  

Non-trading financial assets mandatorily at fair value through profit or loss

     6,752        

Financial assets designated at fair value through profit or loss

     63,821        34,782        38,159  

Financial assets at fair value through other comprehensive income

     116,356        

Financial assets available-for-sale

        133,271        139,461  

Financial assets at amortised cost

     931,411        

Loans and receivables

        903,013        903,851  

Investments held-to-maturity

        13,491        13,553  

Hedging derivates

     7,912        8,537        8,487  

Changes in the fair value of hedged items in portfolio hedges of interest risk

     929        1,287        1,302  

Investments

     9,371        6,184        6,832  

Joint ventures companies

     2,052        1,987        2,525  

Associated entities

     7,319        4,197        4,307  

Assets under insurance or reinsurance contracts

     342        341        350  

Tangible assets

     24,727        22,974        22,708  

Property, plant and equipment

     23,102        20,650        20,550  

For own-use

     7,777        8,279        8,217  

Leased out under an operating lease

     15,325        12,371        12,333  

Investment property

     1,625        2,324        2,158  

Of which Leased out under an operating lease

     1,237        1,332        1,318  

Intangible assets

     27,855        28,683        28,538  

Goodwill

     24,956        25,769        25,855  

Other intangible assets

     2,899        2,914        2,683  

Tax assets

     29,901        30,243        29,800  

Current tax assets

     6,386        7,033        5,959  

Deferred tax assets

     23,515        23,210        23,841  

Other assets

     9,713        9,766        10,847  

Insurance contracts linked to pensions

     218        239        417  

Inventories

     153        1,964        2,181  

Other

     9,342        7,563        8,249  

Non-current assets held for sale

     5,445        15,280        15,438  

TOTAL ASSETS

     1,444,687        1,444,305        1,468,030  

 

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JANUARY - SEPTEMBER

Condensed consolidated financial statements

 

 

CONDENSED CONSOLIDATED BALANCE SHEET (EUR million)

        
Liabilities and equity    Sep-18      Dec-17      Sep-17  

Financial liabilities held for trading

     66,805        107,624        110,023  

Financial liabilities designated at fair value through profit or loss

     92,182        59,616        55,049  

Financial liabilities at amortised cost

     1,139,066        1,126,069        1,147,403  

Hedging derivates

     6,110        8,044        7,595  

Changes in the fair value of hedged items in portfolio hedges of interest rate risk

     311        330        313  

Liabilities under insurance or reinsurance contracts

     810        1,117        1,673  

Provisions

     13,269        14,489        15,837  

Pensions and other post-retirement obligations

     5,394        6,345        6,767  

Other long term employee benefits

     1,417        1,686        1,396  

Taxes and other legal contingencies

     3,032        3,181        3,782  

Contingent liabilities and commitments

     828        617        583  

Other provisions

     2,598        2,660        3,309  

Tax liabilities

     7,953        7,592        8,948  

Current tax liabilities

     2,655        2,755        2,831  

Deferred tax liabilities

     5,298        4,837        6,117  

Other liabilities

     12,513        12,591        12,461  

Liabilities associated with non-current assets held for sale

                   4  

TOTAL LIABILITIES

     1,339,019        1,337,472        1,359,306  

Equity

                    

Shareholders´ equity

     119,793        116,265        115,723  

Capital

     8,068        8,068        8,020  

Called up paid capital

     8,068        8,068        8,020  

Unpaid capital which has been called up

                    

Share premium

     51,053        51,053        51,110  

Equity instruments issued other than capital

     549        525         

Equity component of the compound financial instrument

                    

Other equity instruments issued

     549        525         

Other equity

     217        216        208  

Accumulated retained earnings

     56,965        53,437        53,549  

Revaluation reserves

                    

Other reserves

     (1,696)        (1,602)        (1,215)  

(-) Own shares

     (56)        (22)        (64)  

Profit attributable to shareholders of the parent

     5,742        6,619        5,077  

(-) Interim dividends

     (1,049)        (2,029)        (962)  

Other comprehensive income

     (24,816)        (21,776)        (19,823)  

Items not reclassified to profit or loss

     (2,668)        (4,034)        (3,843)  

Items that may be reclassified to profit or loss

     (22,148)        (17,742)        (15,980)  

Non-controlling interest

     10,691        12,344        12,824  

Other comprehensive income

     (1,335)        (1,436)        (1,250)  

Other elements

     12,026        13,780        14,074  

TOTAL EQUITY

     105,668        106,833        108,724  

TOTAL LIABILITIES AND EQUITY

     1,444,687                1,444,305                1,468,030  

MEMORANDUM ITEMS

        

Loans commitment granted

     212,115        207,671        208,153  

Financial guarantees granted

     12,634        14,499        15,373  

Other commitments granted

     73,433        64,917        69,636  

 

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NOTE

i. Important information

In addition to the financial information prepared under International Financial Reporting Standards (“IFRS”), this report certain alternative performance measures (“APMs”) as defined in the Guidelines on Alternative Performance Measures issued by the European Securities and Markets Authority on 5 October 2015 (ESMA/2015/1415en) as well as non-IFRS measures (“Non-IFRS Measures”). The APMs and Non-IFRS Measures are performance measures that have been calculated using the financial information from the Santander Group but that are not defined or detailed in the applicable financial information framework and therefore have neither been audited nor are capable of being completely audited. These APMs and Non-IFRS Measures are been used to allow for a better understanding of the financial performance of the Santander Group but should be considered only as additional information and in no case as a replacement of the financial information prepared under IFRS. Moreover, the way the Santander Group defines and calculates these APMs and Non-IFRS Measures may differ to the way these are calculated by other companies that use similar measures, and therefore they may not be comparable. 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 also see Section 26 of the Documento de Registro de Acciones for Banco Santander, S.A. (“Santander”) filed with the Spanish Securities Exchange Commission (the “CNMV”) on 28 June 2018 (the “Share Registration Document”) and Item 3A of the Annual Report on Form 20-F filed with the U.S. Securities and Exchange Commission of the United States of America (the “SEC”) on 28 March 2018 (the “Form 20-F”). These documents are available on Santander’s website (www.santander.com).

The businesses included in each of our geographic segments and the accounting principles under which their results are presented here may differ from the included businesses and local applicable accounting principles of our public subsidiaries in such geographies. Accordingly, the results of operations and trends shown for our geographic segments may differ materially from those of such subsidiaries.

Santander cautions that this financial report contains statements that constitute “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by words such as “expect”, “project”, “anticipate”, “should”, “intend”, “probability”, “risk”, “VaR”, “RoRAC”, “RoRWA”, “TNAV”, “target”, “goal”, “objective”, “estimate”, “future” and similar expressions. These forward-looking statements are found in various places throughout this report and include, without limitation, statements concerning our future business development and economic performance and our shareholder remuneration policy. While these forward-looking statements represent our judgment and future expectations concerning the development of our business, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from our expectations. These factors include, but are not limited to: (1) general market, macro-economic, industry, governmental and regulatory trends; (2) movements in local and international securities markets, currency exchange rates and interest rates; (3) competitive pressures; (4) technological developments; and (5) changes in the financial position or credit worthiness of our customers, obligors and counterparties. Numerous factors, including those reflected in the Form 20-F– under “Key Information-Risk Factors”- and in the Share Registration Document–under “Risk Factors”- could affect the future results of Santander and could result in other results deviating materially from those anticipated in the forward-looking statements. Other unknown or unpredictable factors could cause actual results to differ materially from those in the forward-looking statements.

Forward-looking statements speak only as of the date of this report and are based on the knowledge, information available and views taken on such date; such knowledge, information and views may change at any time. Santander does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

The information contained in this report is subject to, and must be read in conjunction with, all other publicly available information, including, where relevant any fuller disclosure document published by Santander. Any person at any time acquiring securities must do so only on the basis of such person’s own judgment as to the merits or the suitability of the securities for its purpose and only on such information as is contained in such public information having taken all such professional or other advice as it considers necessary or appropriate in the circumstances and not in reliance on the information contained in this report. No investment activity should be undertaken on the basis of the information contained in this report. In making this report available Santander gives no advice and makes no recommendation to buy, sell or otherwise deal in shares in Santander or in any other securities or investments whatsoever.

Neither this report nor any of the information contained therein constitutes an offer to sell or the solicitation of an offer to buy any securities. No offering of securities shall be made in the United States except pursuant to registration under the U.S. Securities Act of 1933, as amended, or an exemption therefrom. Nothing contained in this report is intended to constitute an invitation or inducement to engage in investment activity for the purposes of the prohibition on financial promotion in the U.K. Financial Services and Markets Act 2000.

Note: Statements as to historical performance or financial accretion are not intended to mean that future performance, share price or future earnings (including earnings per share) for any period will necessarily match or exceed those of any prior year. Nothing in this report should be construed as a profit forecast.

 

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66     LOGO     Financial Report 2018


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Investor Relations

 

Ciudad Grupo Santander

Edificio Pereda, 2nd floor

Avda de Cantabria s/n

28660 Boadilla del Monte

Madrid (Spain)

Tel: +34 (91) 259 65 14 / +34 (91) 259 65 20

Fax: +34 (91) 257 02 45

e-mail: [email protected]

 

Legal Head Office:

Paseo Pereda 9-12, Santander (Spain)

Tel: +34 (942) 20 61 00

 

Operational Head Office:

Ciudad Grupo Santander

Avda. de Cantabria s/n

28660 Boadilla del Monte, Madrid (Spain)

 

 
 

    

    

 

 

 

 

LOGO

 

www.santander.com


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Item 3

 

LOGO

31 October 2018 9M’18 Earnings Presentation Here to help you prosper


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LOGO

Important Information In addition to the financial information prepared under International Financial Reporting Standards (“IFRS”), this presentation certain alternative performance measures (“APMs”) as defined in the Guidelines on Alternative Performance Measures issued by the European Securities and Markets Authority on 5 October 2015 (ESMA/2015/1415en) as well as non-IFRS measures (“Non-IFRS Measures”). The APMs and Non-IFRS Measures are performance measures that have been calculated using the financial information from the Santander Group but that are not defined or detailed in the applicable financial information framework and therefore have neither been audited nor are capable of being completely audited. These APMs and Non-IFRS Measures are been used to allow for a better understanding of the financial performance of the Santander Group but should be considered only as additional information and in no case as a replacement of the financial information prepared under IFRS. Moreover, the way the Santander Group defines and calculates these APMs and Non-IFRS Measures may differ to the way these are calculated by other companies that use similar measures, and therefore they may not be comparable. 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 Q3 2018 Financial Report, published as Relevant Fact on 31 October 2018, Section 26 of the Documento de Registro de Acciones for Banco Santander, S.A. (“Santander”) filed with the Spanish Securities Exchange Commission (the “CNMV”) on 28 June 2018 (the “Share Registration Document”) and Item 3A of the Annual Report on Form 20-F filed with the U.S. Securities and Exchange Commission of the United States of America (the “SEC”) on 28 March 2018 (the “Form 20-F”). These documents are available on Santander’s website (www.santander.com). The businesses included in each of our geographic segments and the accounting principles under which their results are presented here may differ from the included businesses and local applicable accounting principles of our public subsidiaries in such geographies. Accordingly, the results of operations and trends shown for our geographic segments may differ materially from those of such subsidiaries. Santander cautions that this presentation contains statements that constitute “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by words such as “expect”, “project”, “anticipate”, “should”, “intend”, “probability”, “risk”, “VaR”, “RoRAC”, “RoRWA”, “TNAV”, “target”, “goal”, “objective”, “estimate”, “future” and similar expressions. These forward-looking statements are found in various places throughout this presentation and include, without limitation, statements concerning our future business development and economic performance and our shareholder remuneration policy. While these forward-looking statements represent our judgment and future expectations concerning the development of our business, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from our expectations. These factors include, but are not limited to: (1) general market, macro-economic, industry, governmental and regulatory trends; (2) movements in local and international securities markets, currency exchange rates and interest rates; (3) competitive pressures; (4) technological developments; and (5) changes in the financial position or credit worthiness of our customers, obligors and counterparties. Numerous factors, including those reflected in the Form 20-F– under “Key Information-Risk Factors”- and in the Share Registration Document–under “Risk Factors”- could affect the future results of Santander and could result in other results deviating materially from those anticipated in the forward-looking statements. Other unknown or unpredictable factors could cause actual results to differ materially from those in the forward-looking statements. 2


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LOGO

Important Information Forward-looking statements speak only as of the date of this presentation and are based on the knowledge, information available and views taken on such date; such knowledge, information and views may change at any time. Santander does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. The information contained in this presentation is subject to, and must be read in conjunction with, all other publicly available information, including, where relevant any fuller disclosure document published by Santander. Any person at any time acquiring securities must do so only on the basis of such person’s own judgment as to the merits or the suitability of the securities for its purpose and only on such information as is contained in such public information having taken all such professional or other advice as it considers necessary or appropriate in the circumstances and not in reliance on the information contained in this presentation. No investment activity should be undertaken on the basis of the information contained in this presentation. In making this presentation available Santander gives no advice and makes no recommendation to buy, sell or otherwise deal in shares in Santander or in any other securities or investments whatsoever. Neither this presentation nor any of the information contained therein constitutes an offer to sell or the solicitation of an offer to buy any securities. No offering of securities shall be made in the United States except pursuant to registration under the U.S. Securities Act of 1933, as amended, or an exemption therefrom. Nothing contained in this presentation is intended to constitute an invitation or inducement to engage in investment activity for the purposes of the prohibition on financial promotion in the U.K. Financial Services and Markets Act 2000. Note: Statements as to historical performance or financial accretion are not intended to mean that future performance, share price or future earnings (including earnings per share) for any period will necessarily match or exceed those of any prior year. Nothing in this presentation should be construed as a profit forecast. 3


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Index 1. Group performance 9M’18 2. Business areas performance 9M’18 3. Concluding remarks 4. Appendix 5. Glossary 4


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Group performance 9M’18 01


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Group performance 9M’18 9M’18 Highlights Our customer base continues to grow: Loyal +19% and Digital +24% YoY Commercial transformation Our digital transformation is increasing the penetration of digital customers and the use of mobile devices Q3’18 attributable profit: EUR 1,990 mn, affected by the inflation adjustment in Argentina (EUR -169 mn) Results 9M’18 attributable profit: EUR 5,742 mn, +13% YoY (+28% in constant euros) 9M’18 underlying attributable profit: EUR 6,042 mn, +8% YoY (+21% in constant euros) High profitability: 12.1% underlying RoTE Profitability We continue to generate capital in Q3: +31 bps and solvency FL CET11 Sep-18: 11.11% Banco Popular’s integration concluded in Portugal and legal integration executed in Spain Outlook On track to meet our 2018 Group targets (1) Data calculated using the IFRS 9 transitional arrangements 6


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Group performance 9M’18 Our commercial and digital transformations are bearing fruit, and are reflected in a larger customer base and business growth More loyal customers driven by commercial initiatives Digital customers rose at a faster pace Loyal customers Digital customers1 mnmn +24% +19% 29.9 24.2 19.6 16.5 Sep-17 Sep-18 Sep-17 Sep-18 (1) Every natural or legal person that, being part of a commercial bank, has logged in their personal area of internet banking or mobile phone (or both) in the last 30 days 7


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Group performance 9M’18 9M’18 performance driven by strong customer revenue and lower provisions 9M’18 9M’17 % vs. 9M’17 EUR mn Constant Euros euros Net interest income 25,280 25,689 -2 8 Higher customer revenue due to rise in loyal Net fees 8,529 8,648 -1 10 customers, increased business volumes and spreads management Customer revenues 33,809 34,337 -2 9 ROF and other 2,073 1,993 4 16 Gross income 35,882 36,330 -1 9 Operating expenses -16,843 -16,957 -1 8 Higher costs due to commercial transformation and digitalisation investments Net operating income 19,039 19,373 -2 10 Good credit quality evolution, with lower Net loan-loss provisions -6,418 -6,930 -7 4 cost of credit and NPL ratios Other provisions -1,391 -2,268 -39 -32 PBT 11,230 10,175 10 23 Underlying attrib. profit 6,042 5,592 8 21 Net capital gains and provisions -3001 -5152 -42 -42 Attributable Profit 5,742 5,077 13 28 (1) In 9M’18 charges related to integrations (mainly restructuring costs), net of tax impacts, in Spain (EUR -280 mn), C.C. (EUR -40 mn) and Portugal (EUR 20 mn). 8 (2) In 9M’17 charges related to integration costs, equity stakes and intangible assets. In Spain (EUR -300 mn), SCF (EUR -85 mn) and C.C. (EUR -130 mn).


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Group performance 9M’18 Positive Q3 performance driven by customer revenue growth and cost control Sustained QoQ evolution in core lines… … reflected in profit growth Constant EUR mn Constant EUR mn +3% 8,672 Net interest 8,222 8,386 8,151 8,153 7,761 income 2,090 7,438 -3% 1,981 1,971 Fee income Underlying profit 1,840 2,764 2,840 2,885 2,804 1,796 2,603 2,682 2,488 1,612 1,536 -1% 4,961 5,128 5,442 5,664 5,607 5,638 5,598 Costs Q1’17 Q2 Q3 Q4 Q1’18 Q2 Q3 +11% 2,221 2,210 Attributable profit 2,073 2,023 2,090 2,060 1,987 LLPs 1,612 1,536 1,325 1,418 1,981 1,671 2,090 Q1’17 Q2 Q3 Q4 Q1’18 Q2 Q3 Note: Contribution to the SRF (net of tax) recorded in Q2’17 (EUR -146 mn) and Q2’18 (EUR -187 mn). Contribution to the DGF (net of tax) in Q4’17 (EUR -186 mn) 9


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Group performance 9M’18 Higher NII due to increased business volumes and spreads management Organic growth Lower rates Mature +7% +8% -8 bps 9M’18 vs. 9M’17 markets +3% Loans Customer funds NIM Net interest income +8% Organic growth Margin improvement Developing markets +10% +15% +32 bps +15% Loans Customer funds NIM Note: YoY change in constant euros. Average volumes. 10


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Group performance 9M’18 Higher fee income YoY driven by Retail Banking and Wealth Management Loyal customers Total fee income growth by market1 Individuals (mn) Companies (k) Developing Mature +19% +19% markets markets 1,726 +6% 17.9 1,446 +14% 15.1 Sep-17 Sep-18 Sep-17 Sep-18 Activity growth1 Total fee income growth by segment1 CIB 0% Wealth Management mutual fund balances card turnover insurance premiums +66% Retail Banking +7% +14% +9% +7% (1) YoY change in constant euros. 11


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Group performance 9M’18 We maintain a best-in-class cost-to-income ratio, with better trend in costs Lower growth rates. Most units decreased QoQ Cost-to-income in line with 2018 target 9M’18 vs. 9M’17, % Nominal1 In real terms2 5.3 1.5 46.7% 47.4% 46.9% 6.8 2.9 1.9 0.3 18.2 -4.0 13.5 7.3 4.5 1.2 7.4 -2.7 9M’17 2017 9M’18 -1.7 -4.2 Top 3 in customer satisfaction3 in 6 countries 43.2 -4.1 5.5 3.6 2.9 1.4 Note: Constant euros. (1) Spain and Portugal include Popular 12 (2) Excluding inflation and perimeter (3) Corporate benchmark of active customers’ experience and satisfaction


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Group performance 9M’18 Continued credit quality improvement Cost of credit NPL and coverage ratios Coverage ratio by stage EUR billion Coverage ratio (%) Exposure1 Coverage 70 69 Sep-18 Sep-18 Jan-18 1.12% 68 66 65 0.98% Stage 1 824 0.5% 0.6% Stage 2 55 8.9% 8.6% NPL ratio (%) Stage 3 36 42.7% 44.2% 4.24 4.08 4.02 3.92 3.87 9M’17 9M’18 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 (1) Exposure subject to impairment expressed in EUR bn. Additionally, there are EUR 25 bn in customer loans not subject to impairment recorded at mark to market 13 with changes through P&L


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Group performance 9M’18 Strong capital generation QoQ. In line to meet our 2018 target Fully loaded CET1 evolution % +0.03 11.11 +0.09 11.20 +0.28 10.84 10.80 Dec-17 Jun-181 Organic Others Sep-181 WiZink Pro forma1 Leverage ratio: 5.0% (1) Data calculated using the IFRS 9 transitional arrangements, otherwise the total impact would have been -27 bps 14


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Group performance 9M’18 Delivering on our commitments: positive performance of the main ratios 12.1 11.8 1.60 1.47 11.7 1.55 11.0 1.39 9M’17 9M’18 9M’17 9M’18 Underlying Total TNAV per share (EUR) 0.350 0.349 4.20 +1.5% 4.10 4.16 vs Jun18 0.331 0.316 9M’17 9M’18 Sep-17 Jun-18 Sep-18 15


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Business areas performance 9M’18 02


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Business areas performance 9M’18 Group profit growth driven by most markets 9M’18 Underlying attributable profit1 9M’18 Underlying attributable profit in core markets Americas Europe EUR mn and % change vs. 9M’17 in constant euros 48% 52% 1,942 +24% 1,306 +18% Other Latam, 2% 1,077 -9% Argentina, 1% Chile, 6% UK, 14% 1,000 +7% 554 +13% Spain; 461 +8% Brazil, 17% 26% 460 +47% 344 +9% Mexico, SCF, 13% 7% 236 +8% USA, Portugal, 5% Poland, 6% 67 -38% 3% (1) Excluding Corporate Centre and Spain Real Estate Activity 17


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Business areas performance 9M’18 Brazil KEY DATA 9M’17 9M’18 P&L* Q3’18 % Q2’18 9M’18 % 9M’17 Loyal customers (millions) 4.0 5.0 NII 2,377 4.7 7,283 17.1 Digital customers (millions) 8.0 10.5 Fee income 776 -4.3 2,568 14.9 Gross income 3,180 2.4 9,949 12.2 NPL ratio (%) 5.32 5.26 Cost of credit (%) 4.55 4.17 Operating expenses -1,031 0.8 -3,291 5.3 LLPs -665 -4.7 -2,236 5.1 Efficiency ratio (%) 35.2 33.1 PBT 1,310 6.9 3,923 39.4 RoTE (%) 16.8 20.0 Attributable profit 619 2.3 1,942 23.9 (*) EUR mn and % change in constant euros ACTIVITY Commercial strategy focused on customer experience and satisfaction, Volumes in EUR bn Yield on loans contributing to profit and RoTE increase 107 15.92% 15.64% 16.08% 15.62% Loans continued to grow, with market share gains in profitable products. 15.41% Asset quality remains under control, with lower NPL and cost of credit ratios 69 +4% +3% QoQ QoQ Cost of deposits Revenue continued to increase backed by growth in loyal customers: YoY +13% +17% NII (underpinned by higher volumes) and fee income (greater customer activity) YoY 6.42% YoY 5.59% 5.02% 4.44% 4.66% Steady improvement of the efficiency ratio, arising from operating leverage Loans Funds Q3’17 Q4 Q1’18 Q2 Q3 Note: % change in constant euros. Loans excluding reverse repos. Funds: deposits excluding repos + marketed mutual funds 18


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Business areas performance 9M’18 Spain KEY DATA 9M’17 9M’18 P&L* Q3’18 % Q2’18 9M’18 % 9M’17 NII 1,116 5.5 3,211 18.2 Loyal customers (millions) 1.6 2.5 Fee income 653 -2.7 1,997 20.9 Digital customers (millions) 3.0 4.3 Gross income¹ 2,114 15.1 6,015 19.7 Operating expenses -1,103 -1.8 -3,370 18.2 NPL ratio (%) 6.82 6.23 LLPs -197 0.6 -599 40.0 Cost of credit (%) 0.28 0.35 PBT 713 64.9 1,753 12.8 Efficiency ratio (%) 56.8 56.0 Underlying att. profit 526 61.8 1,306 17.9 Net capital gains and provisions² 0 -100.0 -280 -6.8 RoTE (%) 11.3 10.8 Attributable profit 526 — 1,026 27.0 (*) EUR mn (1) Q2’18 SRF contribution of EUR 163 mn; (2) Restructuring costs after tax ACTIVITY Volumes in EUR bn Q3 profit boosted by customer revenue, lower costs and SRF contribution in Q2 319 Yield on loans QoQ positive performance in NII due to customer NIM improvement with continued reduction in the cost of deposits and slightly higher yield 214 0% 2.03% 2.03% 1.96% 1.96% 1.97% QoQ Activity: double digit growth in new lending (+11%YoY), boosted by SME (+18%) -2% and UPLs (+21%) QoQ Cost of deposits +3% YTD loan portfolio: growth in SME and Corporates (EUR +1.5 bn) and in private 2% YoY banking (EUR +0.5 bn). QoQ impacted by CIB YoY 0.42% 0.41% 0.35% 0.27% 0.21% ans Funds Q3’17 Q4 Q1’18 Q2 Q3 YTD funds: growth driven by demand deposits (+6%) and mutual funds (+2%) Note: Loans excluding reverse repos. Funds: deposits excluding repos + marketed mutual funds. Underlying RoTE 19


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Business areas performance 9M’18 United Kingdom KEY DATA 9M’17 9M’18 P&L* Q3’18 % Q2’18 9M’18 % 9M’17 Loyal customers (millions) 4.2 4.3 NII 1,033 1.3 3,103 -5.2 Digital customers (millions) 5.0 5.4 Fee income 258 -0.8 766 2.1 Gross income 1,367 1.4 4,089 -5.3 NPL ratio (%) 1.32 1.10 Operating expenses -730 -2.6 -2,256 6.8 Cost of credit (%) 0.03 0.08 LLPs -26 -28.7 -129 6.0 Efficiency ratio (%) 49.0 55.2 PBT 549 6.3 1,532 -11.0 RoTE (%) 10.9 9.9 Attributable profit 385 5.1 1,077 -9.2 (*) EUR mn and % change in constant euros ACTIVITY The UK economy remains relatively stable, however uncertainty remains Volumes in EUR bn Yield on loans 237 Net growth in mortgages (GBP +3.1 bn YoY) with focus on customer service and retention 205 2.83% 2.78% 2.81% 2.75% 2.76% -1% 0% 9M’18 profit impacted by ongoing revenue pressures and higher regulatory, risk QoQ QoQ and digital transformation project costs Cost of deposits +1% -1% Q3’18 profit growth driven by customer revenue, lower costs and LLPs YoY YoY 0.62% 0.63% 0.64% 0.64% 0.64% Credit quality remains strong, maintaining a low cost of credit (8 bps) Q3’17 Q4 Q1’18 Q2 Q3 L ns Funds Note: % change in constant euros. Loans excluding reverse repos. Funds: deposits excluding repos + marketed mutual funds 20


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Business areas performance 9M’18 Santander Consumer Finance P&L* Q3’18 % Q2’18 9M’18 % 9M’17 KEY DATA 9M’17 9M’18 NII 937 1.1 2,780 5.0 Active customers (millions) 19.6 19.3 Fee income 206 9.5 609 -9.5 Gross income 1,157 2.8 3,423 2.7 NPL ratio (%) 2.60 2.45 Operating expenses -475 -6.3 -1,491 1.9 Cost of credit (%) 0.34 0.40 LLPs -124 80.8 -313 51.9 PBT 562 0.0 1,660 6.3 Efficiency ratio (%) 43.9 43.6 Underlying att. profit 332 -4.0 1,000 7.0 Non-recurring¹ 0 — 0 -100.0 RoTE (%) 16.7 16.6 Attributable profit 332 -4.0 1,000 17.7 (*) EUR mn and % change in constant euros ACTIVITY Volumes in EUR bn Leadership in Europe with best-in-class profitability (RoRWA of 2.4%), boosted by higher NII, cost control and historic low NPLs and cost of credit 94 32 Increased new lending across most countries: auto loans (+13%) and credit Yield on loans cards (+12%) 0% -4% Main contribution to profit: Germany (EUR 233 mn), Nordic countries QoQ QoQ 4.66% 4.61% 4.60% 4.55% 4.51% (EUR 220 mn) and Spain (EUR 184 mn) +6% +8% YoY QoQ profit impacted by higher LLPs due to portfolio sales in Q2 YoY Q3’17 Q4 Q1’18 Q2 Q3 Germany commercial network integration on track as scheduled Loans New lending Note: % change in constant euros. Loans excluding reverse repos 21 Excluding Santander Consumer UK profit, which is recorded in Santander UK results. Including it, 9M’18 attributable profit: EUR 1,090 mn (+7% vs. 9M’17) and Q3’18 attributable profit: EUR 363 mn (-3% vs. Q2’18)


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Business areas performance 9M’18 Good performance: larger customer base, higher profits and better credit quality Strategy focused on the commercial network transformation, digitalisation and attracting retail customers EUR 554 Profit driven by good performance in NII, fee income and cost of credit. Double digit mn; +13% growth in loans, maintaining solid credit quality ratios Focus on customer satisfaction, loyalty and digital initiatives. Loans increased at a faster pace. Strategy to improve liabilities mix 461 Profit up driven by customer revenue and lower cost of credit EUR mn; +8% The Federal Reserve terminated the 2015 Written Agreement it signed with SHUSA demonstrating our continued improvement on regulatory issues Strong increase in profit: lower cost of credit, cost savings and increased income from leasing mn; Santander Bank: increasing profitability by improving NIM and efficiency ratio EUR 460 +47% SC USA: higher profitability (RoTE 15%) driven by lower costs and LLPs, which more than offset the lower spreads Note: Attributable profit. % change vs. 9M’17 in constant euros. 22


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Business areas performance 9M’18 Good performance: larger customer base, higher profits and better credit quality Banco Popular integration was concluded in October Largest1 privately owned bank after Banco Popular integration EUR 344 mn2; +9% PBT boosted by improved efficiency and lower cost of credit Strong GDP growth (>4%), above European average Loan growth continued across all key segments and products. Customer funds increased partly due to extra liquidity building ahead of Deutsche Bank Polska acquisition EUR 236 mn; +8% YoY profit increase driven by customer revenue. Positive QoQ evolution of the main P&L lines, however affected by the seasonal collection of dividends in Q2 Monetary adjustment EUR -81 mn 2018 profit affected by high inflation adjustment Use of fixing exchange rates EUR -88 mn EUR 67 mn; -38% instead of average rates Total impact EUR -169 mn Note: Attributable profit. % change vs. 9M’17 in constant euros. 23 (1) By domestic assets and loans (2) Underlying attributable profit


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Business areas performance 9M’18 Corporate Centre P&L* 9M’18 9M’17 NII -698 -628 Higher loss in NII due to increased volume of issuances (TLAC) Gains/Losses on FT 15 -257 Better FX hedging results reflected in gains on financial transactions Operating expenses -367 -356 Operating expenses remained virtually unchanged as a result of streamlining and simplification measures Provisions and other income -242 -176 Tax and minority interests -10 2 Underlying att. profit -1,351 -1,511 Net capital gains and provisions -40 -130 Restructuring costs in 9M’18 and charges for equity stakes and intangible assets in 9M’17 Attributable profit -1,391 -1,641 (*) EUR mn 24


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Concluding remarks 03


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Concluding remarks We are on track to meet our 2018 targets 2017 9M’18 2018 Targets Loyal customers (mn) 17.3 19.6 18.6 Digital customers (mn) 25.4 29.9 30 Fee income1 13% 10% ~10% CAGR 2015-18 Cost of credit 1.07% 0.98% 1.2% 2015-18 average Cost-to-income 47.4% 46.9% 45-47% EPS 2 0.331 Double digit growth (EUR) 0.40 (9M’18) DPS (EUR)3 0.22 0.23 Yearly increase FL CET1 10.84% 11.11%4 >11% RoTE5 10.4% 11.7% >11.5% (1) % change in constant euros (2) Underlying EPS: EUR 0.349 (3) Total dividends charged to 2018 earnings are subject to the Board and AGM approval 26 (4) Data calculated using the IFRS 9 transitional arrangements (5) Underlying RoTE 2017 11.8% and 9M’18 12.1%


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Appendix 04


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Appendix Loans and customer funds by units and by businesses Other countries results Global business results Liquidity NPL and coverage ratios and cost of credit Quarterly income statements 28


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Appendix Overall increase in loans and customer funds, boosted by developing markets Loan portfolio Customer funds MATURE MARKETS DEVELOPING MARKETS MATURE MARKETS DEVELOPING MARKETS Sep-18 EUR bn YoY Chg. Sep-18 EUR bn YoY Chg. Sep-18 EUR bn YoY Chg. Sep-18 EUR bn YoY Chg. Spain 214 -2% Poland 24 9% Spain 319 3% Poland 30 11% UK 237 1% Brazil 69 13% UK 205 -1% Brazil 107 17% USA 81 3% Mexico 32 10% USA 62 0% Mexico 40 6% SCF 94 6% Chile 40 9% SCF 37 2% Chile 32 -1% Portugal 37 -2% Argentina 6 62% Portugal 39 8% Argentina 9 67% Other individuals, 9% Individuals demand deposits, 36% Home mortgages, 36% CIB, 9% CIB, 11% Loan portfolio Corporates, 12% Customer funds Corporates, 17% by businesses by businesses SMEs, 10% Individuals time deposits, 14% SMEs, 11% Consumer, 16% Consumer, 4% Individuals mutual funds, 15% Note: Loans excluding reverse repos. Customer funds: deposits excluding repos + marketed mutual funds. % change in constant euros. 29


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Appendix Loans and customer funds by units and by businesses Other countries results Global business results Liquidity NPL and coverage ratios and cost of credit Quarterly income statements 30


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Appendix Mexico KEY DATA 9M’17 9M’18 P&L* Q3’18 % Q2’18 9M’18 % 9M’17 Loyal customers (thousands) 1,896 2,359 NII 728 6.7 2,030 11.6 Digital customers (thousands) 1,808 2,533 Fee income 199 0.8 575 9.5 Gross income 931 2.4 2,630 8.3 NPL ratio (%) 2.56 2.41 Operating expenses -384 1.0 -1,086 13.5 Cost of credit (%) 3.14 2.72 LLPs -227 15.2 -616 -7.2 Efficiency ratio (%) 39.4 41.3 PBT 315 -1.5 908 14.3 RoTE (%) 19.5 20.0 Attributable profit 195 1.1 554 12.8 (*) EUR mn and % change in constant euros ACTIVITY Strategy focused on the commercial network transformation, digitalisation Volumes in EUR bn and attracting retail customers 40 Yield on loans Strong growth in loans, particularly in commercial and payrolls (+65 bps 32 12.02% 12.02% 12.09% 12.35% 12.49% market share gain YoY), and in deposits, mainly in individuals and SME -1% +4% QoQ Profit up driven by NII (volumes and interest rates), fee income and Cost of deposits QoQ provisions. Higher costs associated with our investment plan +10% +6% 3.37% 3.39% 3.48% 3.57% 3.64% Solid credit quality ratios: lower NPL ratio and cost of credit, and high YoY YoY coverage ratio (120%) Q3’17 Q4 Q1’18 Q2 Q3 Loans Funds Note: % change in constant euros. Loans excluding reverse repos. Funds: deposits excluding repos + marketed mutual funds 31


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Appendix Chile KEY DATA 9M’17 9M’18 P&L* Q3’18 % Q2’18 9M’18 % 9M’17 Loyal customers (thousands) 615 646 NII 481 1.1 1,466 7.0 Digital customers (thousands) 988 1,070 Fee income 101 -9.5 329 13.1 Gross income 632 2.4 1,914 4.4 NPL ratio (%) 4.95 4.78 Operating expenses -257 -1.7 -787 4.5 Cost of credit (%) 1.27 1.18 LLPs -117 6.3 -353 3.5 Efficiency ratio (%) 41.1 41.1 PBT 276 0.1 846 11.5 RoTE (%) 18.0 18.5 Attributable profit 153 0.5 461 8.3 (*) EUR mn and % change in constant euros ACTIVITY Volumes in EUR bn Largest privately owned bank by assets and customers, in a country with strong economic growth 40 Yield on loans Focus on customer satisfaction, loyalty and digital initiatives: in Q4, will 32 7.33% 7.33% 7.52% 7.53% 7.35% launch Santander Life 2.0 and new branch model openings +3% -4% QoQQoQ Faster growth in loans (individuals: +9%; companies: +10%). In funds, change of Cost of deposits mix strategy (demand deposits: +9%) +9% -1% 1.81% 1.87% 1.78% 1.73% 1.75% YoY YoY Profit up driven by customer revenue and lower cost of credit Q3’17 Q4 Q1’18 Q2 Q3 Loans Funds Note: % change in constant euros. Loans excluding reverse repos. Funds: deposits excluding repos + marketed mutual funds 32


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Appendix United States KEY DATA 9M’17 9M’18 P&L* Q3’18 % Q2’18 9M’18 % 9M’17 Loyal customers (thousands) 278 332 NII 1,337 1.9 3,838 -4.1 Digital customers (thousands) 778 869 Fee income 208 -7.9 641 -8.0 Gross income 1,735 1.4 4,983 -0.2 NPL ratio (%) 2.56 3.00 Operating expenses -748 -1.1 -2,220 -1.7 Cost of credit (%) 3.57 3.00 LLPs -649 43.6 -1,674 -16.1 Efficiency ratio (%) 45.2 44.6 PBT 269 -40.9 946 37.8 RoTE (%) 3.4 4.6 Attributable profit 125 -42.9 460 46.5 (*) EUR mn and % change in constant euros ACTIVITY The Federal Reserve terminated the 2015 Written Agreement it signed with Volumes in EUR bn SHUSA demonstrating our continued improvement on regulatory issues Santander Bank Santander Consumer USA Better volume dynamics with loans growing for the second consecutive quarter 46 45 46 and higher YoY 38 +2% -1% +5% Strong increase in profit YoY. QoQ affected by higher LLPs vs. a seasonal +3% QoQQoQQoQ lower Q2 QoQ +2% -1% +11% +10% Santander Bank: increasing profitability by improving NIM and efficiency ratio YoY YoYYoY YoY SC USA: higher profitability (RoTE 15%) driven by lower costs and LLPs, which Loans Funds Loans¹ Managed more than offset the fall in spreads assets Note: % change in constant euros. Loans excluding reverse repos. Funds: deposits excluding repos + marketed mutual funds 33 Santander Bank’s customers (1) Includes leasing


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Appendix Portugal KEY DATA 9M’17 9M’18 P&L* Q3’18 % Q2’18 9M’18 % 9M’17 NII 211 -1.1 646 14.2 Loyal customers (thousands) 681 736 Fee income 92 0.2 281 4.8 Digital customers (thousands) 551 691 Gross income¹ 323 -6.9 1,010 10.5 Operating expenses -157 -4.7 -480 7.4 NPL ratio (%) 8.39 7.43 LLPs -11 n.a. -20 -10.8 Cost of credit (%) 0.10 0.03 PBT 167 4.8 492 21.1 Efficiency ratio (%) 48.9 47.5 Underlying att. profit 114 10.9 344 8.9 Net capital gains and provisions² 0 -100.0 20 — RoTE (%) 11.7 11.6 Attributable profit 114 -7.1 364 15.3 (*) EUR mn (1) Q2’18 SRF contribution of EUR 17 mn; (2) Provisions and restructuring costs associated with inorganic operations, net of tax impacts ACTIVITY Volumes in EUR bn Banco Popular integration was concluded in October 39 Yield on loans 37 Largest3 privately owned bank after Popular integration 0% 0% 1.86% 1.84% 1.86% 1.81% 1.74% New lending market shares remain around 19% in corporates and 22% in QoQQoQ mortgages Cost of deposits -2% +8% 9M’18 PBT boosted by improved efficiency and lower cost of credit YoY YoY 0.22% 0.19% 0.18% 0.18% 0.15% Q3’17 Q4 Q1’18 Q2 Q3 Loans Funds Note: Loans excluding reverse repos. Funds: deposits excluding repos + marketed mutual funds. Underlying RoTE 34 (3) In terms of domestic assets and loans


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Appendix Poland KEY DATA 9M’17 9M’18 P&L* Q3’18 % Q2’18 9M’18 % 9M’17 Loyal customers (thousands) 1,350 1,743 NII 243 2.2 730 6.3 Digital customers (thousands) 2,030 2,175 Fee income 111 -1.9 338 3.0 Gross income 367 -6.8 1,098 5.0 NPL ratio (%) 4.70 4.23 Operating expenses -156 -2.5 -472 5.5 Cost of credit (%) 0.61 0.69 LLPs -33 -18.1 -120 23.2 Efficiency ratio (%) 42.8 43.0 PBT 151 -4.9 432 2.2 RoTE (%) 11.4 11.1 Attributable profit 80 -12.1 236 7.6 (*) EUR mn and % change in constant euros ACTIVITY Strong GDP growth (>4%), above European average Volumes in EUR bn 30 Yield on loans Loan growth continued across all key segments and products. Customer funds increased partly due to extra liquidity building ahead of DBP1 acquisition 24 4.14% 4.15% 4.18% 4.13% 4.10% YoY profit growth driven by customer revenue +2% +2% QoQQoQ Positive Q3’18: higher customer revenue, lower costs and LLPs, however Cost of deposits QoQ evolution affected by the seasonal collection of dividends in Q2 +9% +11% 0.83% Strong credit quality: lower NPL ratio with the cost of credit impacted by 0.78% 0.72% 0.68% 0.78% YoY YoY portfolio sales in 2017 Q3’17 Q4 Q1’18 Q2 Q3 L ns Funds Note: % change in constant euros. Loans excluding reverse repos. Funds: deposits excluding repos + marketed mutual funds 35 (1) DBP: Deutsche Bank Polska


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Appendix Argentina impacts on results and capital • Argentina meets the criteria to be considered as a high inflation economy. International rules indicate that an economy is considered to be high inflationary if, among other factors, it has a 3-year cumulative inflation rate of above or around 100%. • From September Argentina’s results and balance sheet must be adjusted by inflation rates. Impact on results that must be applied since 1 January 2018 Impact on the Group’s capital ratio of the adjustment application In the first application, fixed assets should be revalued: Monetary adjustment EUR -81 mn Positive capital impact of ~ EUR 105 mn (net of tax) Use of fixing exchange rates instead of EUR -88 mn average rates Representing an increase of about 2 bps in capital Total impact EUR -169 mn The reduction in inflation as the situation normalizes would lead to an equivalent reduction in the accounting adjustment 36


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Appendix Argentina KEY DATA 9M’17 9M’18 P&L* Q3’18 1 Q3’182 % Q2’18 9M’18 % 9M’17 Loyal customers (thousands) 1,288 1,397 NII -6 178 22.5 442 48.8 Digital customers (thousands) 1,907 2,084 Fee income -6 102 22.2 256 36.5 Gross income -70 262 -2.0 737 38.6 NPL ratio (%) 2.34 2.47 Operating expenses 0 -175 34.8 -426 43.2 Cost of credit (%) 1.85 2.92 LLPs -7 -58 26.0 -131 172.1 Efficiency ratio (%) 55.9 57.8 PBT -73 9 -86.2 127 -19.8 RoTE (%) 30.9 16.5 Attributable profit -71 -14 — 67 -38.0 (1) EUR mn (2) Constant EUR mn (*) All % changes in constant euros ACTIVITY Agreement with the IMF allows Argentina to bridge the financial gap for 2018 and Volumes in EUR bn 2019. New monetary and fiscal policies should be reflected in more FX stability Yield on loans and lower inflation 9 20.57% 17.76% 18.65% 19.03% 16.27% Leading privately owned bank in Argentina by loans and deposits 6 +16% Profit affected by high inflation adjustment +11% QoQ Cost of deposits QoQ +67% QoQ customer revenue up due to spreads management and fee income from +62% 6.32% 7.79% YoY 5.25% cash deposits and FX. Higher costs and LLPs partially affected by the peso’s YoY 4.36% 4.64% Q3’17 Q4 Q1’18 Q2 Q3 depreciation and the automatic review of the collective salary agreement ns Funds Note: % change in constant euros. Loans excluding reverse repos. Funds: deposits excluding repos + marketed mutual funds 37


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Appendix Other Latin American countries Attributable profit Constant EUR mn URUGUAY PERU +45% +10% 103 28 26 72 9M’17 9M’18 9M’17 9M’18 Focusing on loyalty, transactions and target segments Uruguay’s profit driven by higher NII and fee income, with improved C/I Peru’s higher revenue more than offset the cost increase 38


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Appendix Loans and customer funds by units and by businesses Other countries results Global business results Liquidity NPL and coverage ratios and cost of credit Quarterly income statements 39


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Appendix Retail Banking ACTIVITY P&L* Q3’18 % Q2’18 9M’18 % 9M’17 EUR bn and % change in constant euros NII 7,918 2.6 24,023 8.9 Fee income 2,068 -0.3 6,611 7.3 745 715 Gross income 10,411 3.1 31,726 8.5 Operating expenses -4,486 -1.8 -14,230 7.2 0% +2% LLPs -2,035 12.7 -6,107 8.1 QoQQoQ PBT 3,508 3.5 10,289 20.2 Underlying att. profit 1,995 2.7 5,931 16.6 +4% +2% YoY Net capital gains and provisions¹ 0 -100.0 -260 -32.5 YoY Attributable profit 1,995 18.1 5,671 20.6 Loans Funds (*) EUR mn and % change in constant euros (1) In Q2’18, charges related to integrations (mainly restructuring costs), net of tax impacts, in Spain and Portugal. In 2017, integration costs Focus on three main priorities: customer loyalty, digital transformation and operational excellence New commercial initiatives and launch of several offers across a multi-channel model Progress in achieving our targets. 19.6 million loyal customers (+19% from September 2017) and 29.9 million digital customers (+24% from September 2017) Profit boosted by the perimeter following Banco Popular’s acquisition and the strong performance in customer revenue 40


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Appendix Corporate & Investment Banking REVENUE P&L* Q3’18 % Q2’18 9M’18 % 9M’17 Constant EUR mn NII 573 16.1 1,665 -0.2 Fee income 330 -12.3 1,133 0.2 TOTAL 3,833 -2% 3,744 Gross income 1,194 8.2 3,744 -2.3 Capital & Other 397 -18% 325 Operating expenses -524 10.2 -1,554 12.0 Global Markets 1,250 -3% 1,216 LLPs -42 -10.1 -161 -63.4 Global Debt Customers 994 -1% 983 0% PBT 604 10.8 1,964 -0.1 Financing Attributable profit 384 14.2 1,258 -2.9 Global Transaction 1,191 +2% 1,219 Banking (*) EUR mn and % change in constant euros 9M’17 9M’18 Leading positions in Latam and Europe, particularly in export & agency finance, debt capital markets and structured financing Continued support to global customers in their capital issuances, with financing solutions and transactional services Attributable profit down 3% YoY mainly due to lower gains on financial transactions (extraordinarily high in Q1’17) and higher costs QoQ profit rose 14% driven by the recovery of revenue growth and lower provisions 41


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Appendix Wealth Management ACTIVITY P&L* Q3’18 % Q2’18 9M’18 % 9M’17 Constant EUR bn and % change vs 9M’17 NII 104 1.2 311 12.0 Total Assets Under 0% 333 Management Fee income 266 -3.7 826 65.9 Funds and investments* 207 +3% Gross income 374 -2.9 1,150 35.3—SAM 174 +3% Operating expenses -179 -3.1 -549 49.7—Private Banking 58 +5% LLPs 1 — -4 —Custody of customer PBT 190 -3.0 587 22.3 84 -6% funds Attributable profit 128 -3.1 392 14.6 Customer deposits 42 -1% (*) EUR mn and % change in constant euros Customer loans 14 +10% (*) Total adjusted for funds from private banking customers managed by SAM Note: Total assets marketed and/or managed in 2018 and 2017 Total contribution1 to the Group’s profit of EUR 757 million (+10% YoY) Continues to be a reference in private banking and asset management in Spain and Latin America Key initiatives: development of the Private Wealth (UHNW) proposition, Private Banking digital platform, strengthening of SAM value proposition Private Banking as a global segment is a priority: cross-border collaboration volumes grew 19% since December 2017 to EUR 4,152 million In volumes: growth in funds and investments whereas custody is affected by the markets’ performance; double digit rise in loans driven by the development of Private Wealth Gross income growth driven by increased managed volumes of higher added value (1) Profit after tax + total fee income generated by this business 42


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Appendix Spain Real Estate activity Real estate exposure1 Net value EUR bn EUR bn Sep-18 Real estate assets 3.9 9.7 4.8 Foreclosed assets 2.7 4.9 Rental assets 1.2 RE non-performing loans (NPLs) 1.0 Gross value Provisions Net value RE assets + RE non-performing loans 4.9 Sep-18 Sep-18 Management continued to be aimed at reducing these assets, particularly loans and foreclosed assets During the third quarter, the Group reached agreement with a subsidiary of Cerberus Capital Management to sell properties for EUR 1,535 million2 Loss of EUR 187 million in the first nine months of the year (loss of EUR 223 million in the same period of 2017), due to the reduced need for provisions (1) Spain Real Estate activity 43 (2) This transaction is expected to be finalised by the end of 2018 or the beginning of 2019 Appendix Spain Real Estate activity Real estate exposure1 Net value EUR bn EUR bn Sep-18 Real estate assets 3.9 9.7 4.8 Foreclosed assets 2.7 4.9 Rental assets 1.2 RE non-performing loans (NPLs) 1.0 Gross value Provisions Net value RE assets + RE non-performing loans 4.9 Sep-18 Sep-18 Management continued to be aimed at reducing these assets, particularly loans and foreclosed assets During the third quarter, the Group reached agreement with a subsidiary of Cerberus Capital Management to sell properties for EUR 1,535 million2 Loss of EUR 187 million in the first nine months of the year (loss of EUR 223 million in the same period of 2017), due to the reduced need for provisions (1) Spain Real Estate activity 43 (2) This transaction is expected to be finalised by the end of 2018 or the beginning of 2019


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Appendix Loans and customer funds by units and by businesses Other countries results Global business results Liquidity NPL and coverage ratios and cost of credit Quarterly income statements 44


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Appendix We made good headway YTD in our funding plan to enhance the Group’s TLAC position and optimise the cost of capital Key liquidity ratios Funding plan—issuances Sep-18 Jan-Sep 18 Net loan-to-deposit ratio (LTD): 111% Group issuances2 EUR 19bn (~EUR 11bn TLAC-eligible) Deposits + M/LT funding / net loans: 114% Main issuers Parent bank, SCF and UK Liquidity Coverage Ratio (LCR)1: 154% Main issuance currencies EUR, USD, GBP Comfortable liquidity position Focus on TLAC-eligible instruments, following (Group and subsidiaries) our decentralised liquidity and funding model (1) Provisional data (2) Parent Bank, UK, SCF and USA. 45 Excluding covered bonds and securitisations


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Appendix Loans and customer funds by units and by businesses Other countries results Global business results Liquidity NPL and coverage ratios and cost of credit Quarterly income statements 46


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NPL ratio % Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Continental Europe 5.62 8.70 6.30 5.82 5.81 5.68 5.57 Spain 5.22 10.52 6.82 6.32 6.27 6.24 6.23 Santander Consumer Finance 2.62 2.61 2.60 2.50 2.48 2.44 2.45 Poland 5.20 4.66 4.70 4.57 4.77 4.58 4.23 Portugal 8.47 9.10 8.39 7.51 8.29 7.55 7.43 United Kingdom 1.31 1.23 1.32 1.33 1.17 1.12 1.10 Latin America 4.50 4.40 4.41 4.46 4.43 4.40 4.33 Brazil 5.36 5.36 5.32 5.29 5.26 5.26 5.26 Mexico 2.77 2.58 2.56 2.69 2.68 2.58 2.41 Chile 4.93 5.00 4.95 4.96 5.00 4.86 4.78 Argentina 1.82 2.21 2.34 2.50 2.54 2.40 2.47 USA 2.43 2.64 2.56 2.79 2.86 2.91 3.00 Operating Areas 3.77 5.40 4.27 4.10 4.04 3.94 3.87 Total Group 3.74 5.37 4.24 4.08 4.02 3.92 3.87 47


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Coverage ratio % Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Continental Europe 60.6 59.7 53.7 54.4 56.8 55.2 54.4 Spain 49.1 56.6 46.2 46.8 51.1 49.0 47.7 Santander Consumer Finance 108.9 106.5 104.3 101.4 107.2 107.7 106.4 Poland 61.2 67.5 67.6 68.2 72.0 72.1 71.6 Portugal 61.7 55.6 56.1 62.1 53.9 52.7 53.4 United Kingdom 33.8 32.6 31.5 32.0 34.6 34.0 33.1 Latin America 90.5 89.2 90.1 85.0 98.4 96.8 97.1 Brazil 98.1 95.5 97.6 92.6 110.4 108.7 109.1 Mexico 104.8 113.8 110.3 97.5 113.5 116.1 120.5 Chile 58.9 58.2 58.5 58.2 61.0 60.0 59.6 Argentina 134.1 109.9 102.8 100.1 121.3 121.5 124.0 USA 202.4 183.1 187.5 170.2 169.1 156.9 145.5 Operating Areas 74.6 67.6 65.7 65.1 69.7 68.3 67.6 Total Group 74.6 67.7 65.8 65.2 70.0 68.6 67.9 48


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Non-performing loans and loan-loss allowances. September 2018 Non-performing loans Loan-loss allowances 100%: EUR 36,332 million 100%: EUR 24,685 million Other, 6% Other, 4% USA, 7% USA, 15% Argentina, 1% Spain, 30% Spain, 42% Chile, 6% Mexico, 2% Argentina, 1% Chile, 5% Mexico, 4% Brazil, 11% SCF*, 10% UK, 8% Brazil, 18% Poland, 3% SCF*, 6% Portugal, Portugal, UK, 4% 8% Poland, 3% 6% Percentage over Group’s total 49 (*) Excluding SCF UK


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Cost of credit % Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Continental Europe 0.38 0.36 0.32 0.31 0.32 0.34 0.37 Spain 0.33 0.32 0.28 0.30 0.29 0.31 0.35 Santander Consumer Finance 0.39 0.37 0.34 0.30 0.36 0.37 0.40 Poland 0.66 0.65 0.61 0.62 0.69 0.71 0.69 Portugal 0.07 0.03 0.10 0.04 0.08 0.10 0.03 United Kingdom 0.03 0.02 0.03 0.08 0.10 0.10 0.08 Latin America 3.36 3.36 3.25 3.15 3.12 3.04 2.94 Brazil 4.84 4.79 4.55 4.36 4.35 4.30 4.17 Mexico 2.94 3.01 3.14 3.08 2.95 2.78 2.72 Chile 1.42 1.37 1.27 1.21 1.22 1.18 1.18 Argentina 1.68 1.75 1.85 1.85 2.06 2.47 2.92 USA 3.63 3.65 3.57 3.42 3.29 3.02 3.00 Operating Areas 1.18 1.18 1.12 1.07 1.03 0.99 0.97 Total Group 1.17 1.17 1.12 1.07 1.04 0.99 0.98 50


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Appendix Loans and customer funds by units and by businesses Other countries results Global business results Liquidity NPL and coverage ratios and cost of credit Quarterly income statements 51


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Grupo Santander EUR million Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 9M’17 9M’18 NII + Fee income 11,246 11,522 11,569 11,556 11,409 11,411 10,989 34,337 33,809 Gross income 12,029 12,049 12,252 12,062 12,151 12,011 11,720 36,330 35,882 Operating expenses (5,543) (5,648) (5,766) (5,961) (5,764) (5,718) (5,361) (16,957) (16,843) Net operating income 6,486 6,401 6,486 6,101 6,387 6,293 6,359 19,373 19,039 Net loan-loss provisions (2,400) (2,280) (2,250) (2,181) (2,282) (2,015) (2,121) (6,930) (6,418) Other (775) (848) (645) (544) (416) (487) (488) (2,268) (1,391) Underlying profit before taxes 3,311 3,273 3,591 3,375 3,689 3,791 3,750 10,175 11,230 Underlying consolidated profit 2,186 2,144 2,347 2,285 2,409 2,412 2,356 6,678 7,177 Underlying attributable profit 1,867 1,749 1,976 1,924 2,054 1,998 1,990 5,592 6,042 Net capital gains and provisions* — — (515) (382) — (300) — (515) (300) Attributable profit 1,867 1,749 1,461 1,542 2,054 1,698 1,990 5,077 5,742 (*) Including: in Q3’17 charges for integration costs and equity stakes and intangible assets in Q4’17 Allfunds capital gains, USA fiscal reform, goodwill charges and in the US, provisions for hurricanes, increased stake in 52 Santander Consumer USA and other in Q2’18 costs associated to integrations (mainly restructuring costs), net of tax impacts, in Spain, Corporate Centre and Portugal


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Grupo Santander Constant EUR million Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 9M’17 9M’18 NII + Fee income 9,926 10,364 10,833 10,917 11,062 11,271 11,476 31,123 33,809 Gross income 10,610 10,830 11,477 11,394 11,791 11,845 12,246 32,916 35,882 Operating expenses (4,961) (5,128) (5,442) (5,664) (5,607) (5,638) (5,598) (15,531) (16,843) Net operating income 5,649 5,702 6,035 5,730 6,183 6,207 6,648 17,386 19,039 Net loan-loss provisions (2,073) (2,023) (2,090) (2,060) (2,221) (1,987) (2,210) (6,186) (6,418) Other (692) (758) (596) (512) (399) (471) (522) (2,045) (1,391) Underlying profit before taxes 2,884 2,921 3,349 3,158 3,563 3,750 3,917 9,154 11,230 Underlying consolidated profit 1,902 1,903 2,194 2,145 2,330 2,385 2,461 5,998 7,177 Underlying attributable profit 1,612 1,536 1,840 1,796 1,981 1,971 2,090 4,988 6,042 Net capital gains and provisions* — — (515) (378) — (300) — (515) (300) Attributable profit 1,612 1,536 1,325 1,418 1,981 1,671 2,090 4,473 5,742 (*) Including: in Q3’17 charges for integration costs and equity stakes and intangible assets in Q4’17 Allfunds capital gains, USA fiscal reform, goodwill charges and in the US, provisions for hurricanes, increased stake in 53 Santander Consumer USA and other in Q2’18 costs associated to integrations (mainly restructuring costs), net of tax impacts, in Spain, Corporate Centre and Portugal


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Spain EUR million Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 9M’17 9M’18 NII + Fee income 1,206 1,409 1,753 1,749 1,710 1,729 1,769 4,368 5,208 Gross income 1,539 1,475 2,011 1,835 2,063 1,837 2,114 5,025 6,015 Operating expenses (798) (893) (1,161) (1,188) (1,145) (1,123) (1,103) (2,852) (3,370) Net operating income 741 582 850 647 918 714 1,012 2,173 2,644 Net loan-loss provisions (163) (144) (120) (175) (207) (196) (197) (428) (599) Other (64) (64) (62) (25) (104) (86) (102) (190) (292) Underlying profit before taxes 514 374 667 447 608 432 713 1,555 1,753 Underlying consolidated profit 367 267 489 333 455 326 526 1,123 1,307 Underlying attributable profit 362 262 484 330 455 325 526 1,108 1,306 Net capital gains and provisions* — — (300) — — (280) — (300) (280) Attributable profit 362 262 184 330 455 45 526 808 1,026 (*) Including: in Q3’17 charges for integration costs in Q2’18 restructuring costs 54


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Santander Consumer Finance EUR million Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 9M’17 9M’18 NII + Fee income 1,121 1,096 1,121 1,110 1,130 1,116 1,143 3,339 3,389 Gross income 1,118 1,099 1,135 1,132 1,140 1,126 1,157 3,352 3,423 Operating expenses (502) (485) (484) (506) (509) (507) (475) (1,472) (1,491) Net operating income 616 614 650 625 631 619 682 1,880 1,932 Net loan-loss provisions (61) (57) (90) (58) (120) (69) (124) (207) (313) Other (37) (35) (30) (55) 24 13 5 (102) 41 Underlying profit before taxes 518 522 531 512 535 563 562 1,571 1,660 Underlying consolidated profit 370 382 370 373 388 412 405 1,122 1,206 Underlying attributable profit 314 319 309 311 323 346 332 943 1,000 Net capital gains and provisions* — — (85) — — — — (85) — Attributable profit 314 319 224 311 323 346 332 858 1,000 (*) Including: in Q3’17 charges for integration costs 55


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Santander Consumer Finance Constant EUR million Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 9M’17 9M’18 NII + Fee income 1,111 1,092 1,117 1,109 1,129 1,116 1,144 3,320 3,389 Gross income 1,108 1,094 1,131 1,131 1,139 1,126 1,158 3,332 3,423 Operating expenses (498) (483) (482) (506) (509) (507) (475) (1,463) (1,491) Net operating income 610 611 648 625 631 619 683 1,869 1,932 Net loan-loss provisions (60) (58) (89) (58) (120) (69) (124) (206) (313) Other (37) (35) (30) (56) 24 13 5 (102) 41 Underlying profit before taxes 513 519 529 511 534 563 563 1,561 1,660 Underlying consolidated profit 366 379 369 373 388 412 406 1,114 1,206 Underlying attributable profit 310 317 308 311 322 346 332 935 1,000 Net capital gains and provisions* — — (85) — — — — (85) — Attributable profit 310 317 223 311 322 346 332 850 1,000 (*) Including: in Q3’17 charges for integration costs 56


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Poland EUR million Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 9M’17 9M’18 NII + Fee income 318 343 350 360 359 355 354 1,011 1,068 Gross income 321 363 358 378 333 398 367 1,042 1,098 Operating expenses (146) (150) (149) (160) (154) (162) (156) (446) (472) Net operating income 175 212 209 218 179 236 211 596 626 Net loan-loss provisions (27) (34) (36) (40) (46) (41) (33) (97) (120) Other (23) (27) (28) (19) (13) (34) (26) (78) (74) Underlying profit before taxes 125 152 144 159 120 161 151 421 432 Underlying consolidated profit 86 120 110 116 89 132 114 316 335 Underlying attributable profit 59 83 76 81 63 93 80 219 236 Net capital gains and provisions — — — — — — — — — Attributable profit 59 83 76 81 63 93 80 219 236 57


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Poland PLN million Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 9M’17 9M’18 NII + Fee income 1,374 1,449 1,489 1,522 1,500 1,512 1,525 4,312 4,537 Gross income 1,386 1,532 1,525 1,599 1,390 1,695 1,579 4,442 4,664 Operating expenses (630) (634) (636) (675) (642) (690) (672) (1,900) (2,005) Net operating income 756 898 889 924 748 1,005 907 2,542 2,660 Net loan-loss provisions (116) (142) (155) (171) (191) (175) (143) (413) (509) Other (100) (112) (119) (78) (55) (146) (113) (332) (314) Underlying profit before taxes 539 644 614 674 502 684 651 1,797 1,837 Underlying consolidated profit 372 506 470 492 373 560 491 1,348 1,424 Underlying attributable profit 257 351 324 344 264 393 346 932 1,003 Net capital gains and provisions — — — — — — — — — Attributable profit 257 351 324 344 264 393 346 932 1,003 58


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Portugal EUR million Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 9M’17 9M’18 NII + Fee income 261 262 311 313 320 305 303 834 927 Gross income 294 275 345 330 341 346 323 914 1,010 Operating expenses (139) (142) (166) (167) (158) (165) (157) (447) (480) Net operating income 155 133 179 163 183 182 166 467 530 Net loan-loss provisions 10 5 (37) 10 (8) (0) (11) (22) (20) Other (14) (9) (16) (5) (9) (22) 13 (39) (18) Underlying profit before taxes 151 129 126 168 166 159 167 407 492 Underlying consolidated profit 126 111 81 120 128 104 115 318 346 Underlying attributable profit 125 110 80 119 127 103 114 316 344 Net capital gains and provisions* — — — — — 20 — — 20 Attributable profit 125 110 80 119 127 123 114 316 364 (*) Including: in Q2’18 provisions and restructuring costs associated with inorganic operations, net of tax impacts 59


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United Kingdom EUR million Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 9M’17 9M’18 NII + Fee income 1,349 1,409 1,317 1,291 1,274 1,304 1,291 4,075 3,869 Gross income 1,432 1,544 1,397 1,344 1,349 1,373 1,367 4,372 4,089 Operating expenses (723) (723) (694) (721) (764) (763) (730) (2,140) (2,256) Net operating income 709 821 703 623 586 610 637 2,232 1,832 Net loan-loss provisions (15) (42) (66) (81) (66) (37) (26) (123) (129) Other (105) (171) (89) (101) (62) (47) (62) (365) (172) Underlying profit before taxes 588 608 547 441 457 526 549 1,744 1,532 Underlying consolidated profit 423 414 382 304 326 380 391 1,219 1,096 Underlying attributable profit 416 408 377 297 320 372 385 1,201 1,077 Net capital gains and provisions — — — — — — — — — Attributable profit 416 408 377 297 320 372 385 1,201 1,077 60


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United Kingdom GBP million Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 9M’17 9M’18 NII + Fee income 1,160 1,213 1,183 1,146 1,125 1,142 1,152 3,556 3,420 Gross income 1,231 1,329 1,255 1,193 1,192 1,203 1,220 3,815 3,614 Operating expenses (622) (622) (623) (639) (675) (669) (651) (1,867) (1,995) Net operating income 609 706 632 554 517 534 568 1,947 1,620 Net loan-loss provisions (13) (36) (59) (72) (58) (32) (23) (108) (114) Other (90) (147) (81) (90) (55) (41) (56) (318) (152) Underlying profit before taxes 506 524 492 392 404 461 490 1,521 1,354 Underlying consolidated profit 364 356 344 270 288 333 348 1,064 969 Underlying attributable profit 358 351 339 265 282 326 343 1,048 952 Net capital gains and provisions — — — — — — — — — Attributable profit 358 351 339 265 282 326 343 1,048 952 61


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Brazil EUR million Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 9M’17 9M’18 NII + Fee income 3,455 3,413 3,392 3,458 3,403 3,296 3,153 10,259 9,851 Gross income 3,717 3,502 3,542 3,512 3,445 3,323 3,180 10,761 9,949 Operating expenses (1,314) (1,233) (1,244) (1,289) (1,165) (1,095) (1,031) (3,791) (3,291) Net operating income 2,403 2,269 2,298 2,223 2,280 2,228 2,149 6,970 6,658 Net loan-loss provisions (910) (852) (819) (814) (822) (750) (665) (2,581) (2,236) Other (358) (349) (268) (211) (154) (170) (174) (975) (499) Underlying profit before taxes 1,135 1,068 1,211 1,198 1,304 1,308 1,310 3,414 3,923 Underlying consolidated profit 713 689 747 738 761 730 698 2,149 2,188 Underlying attributable profit 634 610 659 642 677 647 619 1,902 1,942 Net capital gains and provisions — — — — — — — — — Attributable profit 634 610 659 642 677 647 619 1,902 1,942 62


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Brazil BRL million Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 9M’17 9M’18 NII + Fee income 11,561 12,036 12,567 13,139 13,568 14,121 14,451 36,165 42,141 Gross income 12,438 12,367 13,129 13,367 13,737 14,241 14,579 37,934 42,557 Operating expenses (4,397) (4,355) (4,613) (4,895) (4,644) (4,697) (4,736) (13,364) (14,076) Net operating income 8,041 8,013 8,516 8,472 9,093 9,544 9,843 24,570 28,480 Net loan-loss provisions (3,045) (3,008) (3,045) (3,105) (3,276) (3,220) (3,070) (9,098) (9,566) Other (1,198) (1,231) (1,007) (825) (615) (727) (793) (3,437) (2,135) Underlying profit before taxes 3,798 3,773 4,464 4,543 5,202 5,597 5,981 12,035 16,780 Underlying consolidated profit 2,386 2,431 2,757 2,802 3,034 3,127 3,200 7,574 9,361 Underlying attributable profit 2,121 2,152 2,432 2,438 2,699 2,772 2,837 6,706 8,308 Net capital gains and provisions — — — — — — — — — Attributable profit 2,121 2,152 2,432 2,438 2,699 2,772 2,837 6,706 8,308 63


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Mexico EUR million Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 9M’17 9M’18 NII + Fee income 804 856 879 811 836 841 927 2,539 2,604 Gross income 824 914 892 830 831 868 931 2,630 2,630 Operating expenses (319) (361) (356) (345) (340) (363) (384) (1,037) (1,086) Net operating income 505 553 536 485 491 505 547 1,594 1,543 Net loan-loss provisions (233) (246) (240) (187) (200) (189) (227) (718) (616) Other (4) (6) (4) (24) (3) (12) (5) (15) (20) Underlying profit before taxes 267 301 292 274 288 305 315 860 908 Underlying consolidated profit 211 238 231 225 225 238 250 680 713 Underlying attributable profit 163 187 182 178 175 184 195 532 554 Net capital gains and provisions — — — — — — — — — Attributable profit 163 187 182 178 175 184 195 532 554 64


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Mexico MXN million Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 9M’17 9M’18 NII + Fee income 17,348 17,505 18,399 18,076 19,257 19,435 20,475 53,251 59,167 Gross income 17,779 18,706 18,677 18,508 19,143 20,058 20,546 55,163 59,747 Operating expenses (6,894) (7,386) (7,460) (7,683) (7,832) (8,381) (8,467) (21,740) (24,680) Net operating income 10,886 11,320 11,218 10,825 11,310 11,678 12,079 33,423 35,067 Net loan-loss provisions (5,032) (5,019) (5,015) (4,201) (4,610) (4,357) (5,020) (15,066) (13,987) Other (90) (131) (89) (522) (72) (272) (115) (310) (459) Underlying profit before taxes 5,764 6,170 6,113 6,102 6,628 7,049 6,944 18,047 20,621 Underlying consolidated profit 4,548 4,865 4,841 4,996 5,181 5,511 5,516 14,254 16,208 Underlying attributable profit 3,523 3,829 3,808 3,963 4,021 4,259 4,306 11,160 12,587 Net capital gains and provisions — — — — — — — — — Attributable profit 3,523 3,829 3,808 3,963 4,021 4,259 4,306 11,160 12,587 65


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Chile EUR million Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 9M’17 9M’18 NII + Fee income 592 589 534 583 601 612 582 1,715 1,795 Gross income 645 644 604 630 640 642 632 1,893 1,914 Operating expenses (264) (260) (253) (248) (258) (272) (257) (777) (787) Net operating income 381 383 351 382 382 370 375 1,116 1,127 Net loan-loss provisions (122) (122) (108) (110) (121) (115) (117) (352) (353) Other 2 7 11 3 22 32 19 20 73 Underlying profit before taxes 261 267 255 276 282 287 276 783 846 Underlying consolidated profit 214 218 209 218 223 232 221 641 675 Underlying attributable profit 147 149 143 146 151 158 153 440 461 Net capital gains and provisions — — — — — — — — — Attributable profit 147 149 143 146 151 158 153 440 461 66


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Chile CLP million Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 9M’17 9M’18 NII + Fee income 413,110 430,039 403,461 434,470 444,260 453,403 449,145 1,246,609 1,346,808 Gross income 450,136 469,704 456,238 469,635 473,564 475,595 486,844 1,376,079 1,436,003 Operating expenses (184,039) (189,977) (191,129) (184,867) (190,863) (201,511) (198,000) (565,145) (590,374) Net operating income 266,097 279,727 265,110 284,768 282,700 274,084 288,844 810,934 845,629 Net loan-loss provisions (85,110) (89,381) (81,474) (81,875) (89,852) (84,920) (90,252) (255,965) (265,024) Other 1,438 4,750 8,384 2,363 16,034 23,790 14,617 14,572 54,441 Underlying profit before taxes 182,425 195,096 192,020 205,256 208,882 212,954 213,209 569,541 635,045 Underlying consolidated profit 149,458 158,760 157,744 162,572 164,822 171,559 170,114 465,963 506,495 Underlying attributable profit 102,796 108,904 107,839 109,081 111,380 116,945 117,586 319,538 345,911 Net capital gains and provisions — — — — — — — — — Attributable profit 102,796 108,904 107,839 109,081 111,380 116,945 117,586 319,538 345,911 67


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Argentina EUR million Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 9M’17 9M’18 NII + Fee income 374 428 382 398 343 367 (12) 1,183 698 Gross income 405 470 423 449 377 430 (70) 1,298 737 Operating expenses (221) (269) (235) (244) (218) (207) (0) (726) (426) Net operating income 184 201 187 205 159 223 (70) 572 311 Net loan-loss provisions (29) (42) (46) (41) (49) (75) (7) (118) (131) Other 1 (35) (35) (23) (17) (41) 4 (69) (53) Underlying profit before taxes 156 123 106 141 92 107 (73) 386 127 Underlying consolidated profit 108 86 71 97 67 72 (71) 265 67 Underlying attributable profit 108 85 70 96 66 71 (71) 263 67 Net capital gains and provisions — — — — — — — — — Attributable profit 108 85 70 96 66 71 (71) 263 67 68


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Argentina ARS million Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 9M’17 9M’18 NII + Fee income 6,241 7,378 7,644 8,101 8,293 10,046 12,292 21,263 30,630 Gross income 6,764 8,104 8,460 9,103 9,117 11,729 11,492 23,328 32,338 Operating expenses (3,690) (4,640) (4,713) (4,964) (5,278) (5,707) (7,693) (13,043) (18,677) Net operating income 3,074 3,464 3,747 4,139 3,840 6,022 3,800 10,285 13,661 Net loan-loss provisions (486) (730) (903) (828) (1,196) (2,021) (2,546) (2,118) (5,764) Other 17 (596) (659) (466) (411) (1,077) (849) (1,238) (2,337) Underlying profit before taxes 2,606 2,138 2,185 2,845 2,232 2,923 404 6,929 5,560 Underlying consolidated profit 1,807 1,486 1,462 1,960 1,610 1,961 (612) 4,755 2,958 Underlying attributable profit 1,795 1,477 1,453 1,948 1,599 1,946 (618) 4,724 2,927 Net capital gains and provisions — — — — — — — — — Attributable profit 1,795 1,477 1,453 1,948 1,599 1,946 (618) 4,724 2,927 69


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United States EUR million Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 9M’17 9M’18 NII + Fee income 1,763 1,738 1,545 1,495 1,435 1,500 1,545 5,045 4,480 Gross income 1,879 1,880 1,604 1,596 1,578 1,670 1,735 5,363 4,983 Operating expenses (837) (845) (743) (773) (735) (737) (748) (2,425) (2,220) Net operating income 1,042 1,035 861 824 843 932 987 2,938 2,762 Net loan-loss provisions (811) (697) (634) (638) (579) (445) (649) (2,142) (1,674) Other (32) (24) (2) (31) (23) (50) (69) (58) (142) Underlying profit before taxes 199 314 225 155 241 437 269 737 946 Underlying consolidated profit 138 235 154 109 174 298 175 527 647 Underlying attributable profit 95 149 93 71 125 210 125 337 460 Net capital gains and provisions* — — — (76) — — — — — Attributable profit 95 149 93 (5) 125 210 125 337 460 (*) Including: in Q4’17 fiscal reform, provisions for hurricanes, increased stake in Santander Consumer USA and other 70


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United States USD million Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 9M’17 9M’18 NII + Fee income 1,877 1,912 1,820 1,765 1,764 1,787 1,796 5,608 5,346 Gross income 2,001 2,068 1,893 1,884 1,940 1,990 2,018 5,962 5,947 Operating expenses (891) (929) (875) (909) (904) (878) (868) (2,696) (2,650) Net operating income 1,109 1,138 1,018 975 1,036 1,112 1,149 3,266 3,297 Net loan-loss provisions (863) (768) (749) (753) (712) (528) (758) (2,381) (1,998) Other (34) (27) (4) (36) (28) (60) (81) (65) (169) Underlying profit before taxes 212 343 265 186 296 524 310 820 1,130 Underlying consolidated profit 147 257 182 132 214 357 201 585 772 Underlying attributable profit 101 163 111 85 154 252 144 375 549 Net capital gains and provisions* — — — (85) — — — — — Attributable profit 101 163 111 (0) 154 252 144 375 549 (*) Including: in Q4’17 fiscal reform, provisions for hurricanes, increased stake in Santander Consumer USA and other 71


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Corporate Centre EUR million Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 9M’17 9M’18 NII + Fee income (198) (223) (227) (240) (233) (241) (265) (648) (739) Gross income (341) (340) (300) (238) (227) (250) (257) (981) (733) Operating expenses (119) (118) (118) (120) (121) (122) (123) (356) (367) Net operating income (460) (458) (419) (359) (348) (372) (380) (1,337) (1,100) Net loan-loss provisions (5) (11) (22) (8) (37) (30) (28) (37) (95) Other (32) (53) (54) (43) (43) (50) (55) (139) (148) Underlying profit before taxes (497) (522) (495) (410) (427) (452) (463) (1,513) (1,342) Underlying consolidated profit (471) (561) (481) (378) (421) (474) (456) (1,512) (1,350) Underlying attributable profit (468) (563) (480) (378) (421) (475) (456) (1,511) (1,351) Net capital gains and provisions* — — (130) (306) — (40) — (130) (40) Attributable profit (468) (563) (610) (684) (421) (515) (456) (1,641) (1,391) (*) Including: in Q3’17 equity stakes and intangible assets in Q4’17 goodwill charges 72 in Q2’18 restructuring costs


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Glossary 05


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Glossary—Acronyms AFS: Available for sale P&L: Profit and loss bn: Billion QoQ: Quarter on Quarter CET1: Common equity tier 1 Repos: Repurchase agreements C&I: Commercial and Industrial ROF: Gains on financial transactions CIB: Corporate & Investment Bank RoRWA: Return on risk-weighted assets DGF: Deposit guarantee fund RoTE: Return on tangible equity GDP: Gross domestic product RWA: Risk-weighted assets FL: Fully-loaded SCF: Santander Consumer Finance EPS: Earning per share SC USA: Santander Consumer USA LTV: Loan to Value SME: Small and Medium Enterprises LLPs: Loan-loss provisions SRF: Single Resolution Fund M/LT: Medium- long- term ST: Short term mn: million SVR: Standard variable rate MXN: Mexican Pesos TNAV: Tangible net asset value NII: Net interest income UF: Unidad de fomento (Chile) NIM: Net interest margin YoY: Year on Year NPL: Non-performing loans UK: United Kingdom n.m.: Not meaningful US: United States PBT: Profit before tax 74


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Glossary – definitions PROFITABILITY AND EFFICIENCY RoTE: Return on tangible capital: Group attributable profit / average of: net equity (excluding minority interests) – intangible assets (including goodwill) RoRWA: Return on risk-weighted assets: consolidated profit / average risk-weighted assets Efficiency: Operating expenses / gross income. Operating expenses defined as general administrative expenses + amortisations CREDIT RISK NPL ratio: Non-performing loans and customer advances, customer guarantees and contingent liabilities / total risk. Total risk is defined as: normal and non-performing balances of customer loans and advances, customer guarantees and contingent liabilities NPL coverage ratio: Provisions to cover losses due to impairment of customer loans and advances, customer guarantees and contingent liabilities / non-performing balances of customer loans and advances, customer guarantees and contingent liabilities Cost of credit: Provisions to cover losses due to impairment of loans in the last 12 months / average customer loans and advances of the last 12 months CAPITALISATION Tangible net asset value per share – TNAV: Tangible stockholders’ equity / number of shares (excluding treasury shares). Tangible stockholders’ equity calculated as shareholders equity + accumulated other comprehensive income—intangible assets Notes: 1) The averages for the RoTE and RoRWA denominators are calculated on the basis of ten months from December to September. 2) For periods of less than a year, and in the event of non-recurring results existing, the profit used to calculate the RoTE is the annualised underlying attributable profit (excluding non-recurring results), to which are added non-recurring results without annualising them. 3) For periods of less than a year, and in the event of non-recurring results existing, the profit used to calculate the RoRWA is the consolidated annualised result (excluding non-recurring results), to which is added non-recurring results without annualising them. 4) The risk-weighted assets included in the RoRWA denominator are calculated in accordance with the criteria defined by the Capital Requirements Regulation (CRR). 75


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Thank you Our purpose is to help people and business prosper Our culture is based on believing that everything we do should be


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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  Banco Santander, S.A.
Date: November 5, 2018   By:  

/s/ José García Cantera

      Name:   José García Cantera
      Title:   Chief Financial Officer