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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 July, 2017

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  ☒

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Banco Santander, S.A.

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		Item 1

Santander earns € 3,616 million in attributable profit during the first half of 2017 - up 24%

Group profit before tax was € 6,584 million - up 16% in constant euros

Madrid, 28 July 2017—PRESS RELEASE

Banco Santander Group Executive Chairman, Ana Botín, said:

“We have continued to deliver on our commitments, creating strong profitable growth, and further improving the quality of our earnings throughout the Group. The business has seen positive trends across all markets with particularly strong growth in Latin America, further improvements in Spain, and robust performance in the UK despite the ongoing challenges.

Since acquiring Popular less than two months ago we have made significant progress in addressing the immediate priorities: We have raised the capital necessary to meet our requirements and announced a process to reduce Popular’s real estate exposures; we have launched a commercial action to help build loyalty among customers affected by the resolution; we have confirmed the financial estimates made during the acquisition; and we now have a new board and management team are in place. Furthermore, we are pleased to say that the quality and commitment of Popular´s teams is very high. We are, therefore, extremely confident that the acquisition of Popular will deliver a return on investment of 13-14% by 2019.

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

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The banking industry continues to face challenges, but we are well placed to further support our customers and continue to grow profitably. We remain committed to meeting our commercial and financial targets for 2018 and doing so in the right way.”

Summary Income Statement

				H1’17 (m)		H1’17 v H1’16		H1’17 v H1’16 (EX FX)		Q2’17 (m)		Q2’17 v Q2’16		Q2’17 v Q2’16 (EX FX)
		GROSS INCOME		€23,939		11%		7%		€11,910		11%		8%
		OPERATING EXPENSES		€11,095		7%		4%		€5,552		6%		4%
		NET LOAN-LOSS PROVISIONS		€4,672		1%		-6%		€2,272		3%		-2%
		PROFIT BEFORE TAX		€6,569		19%		16%		€3,258		17%		15%
		NON RECURRING ITEMS		€0		-100%		-100%		€0		-100%		-100%
		ATTRIBUTABLE PROFIT		€3,605		24%		20%		€1,738		36%		34%
		BANCO POPULAR		€11						€11
		ATTRIBUTABLE PROFIT		€3,616		24%		21%		€1,749		37%		35%

Banco Popular and its subsidiaries became part of the Group as of the acquisition date of 7 June 2017. The impact of the Group income statement for first half of 2017 is not therefore significant. In order to better explain the Group’s performance in the period, all performance details henceforth exclude the impact of the acquisition, unless otherwise stated.

Results Summary    

Banco Santander earned an attributable profit of € 3,605 million during the first half of 2017, an increase of 24% compared to the same period last year. This was driven by an increase in customer revenues, disciplined cost control, and further improvements in loan loss provisions. Banco Popular, which Santander acquired on 7 June 2017, contributed a further € 11 million to the Group’s attributable profit in the period to 30 June 2017, bringing total Group attributable profit to € 3,616 million during the first half of 2017 and € 1,749 million in the standalone second quarter (+37% compared to second quarter of 2016).

The Group continued to see positive trends across all markets, with revenues increasing in eight of the Group’s ten core markets. Gross income increased by 11% to € 23,939 million (+7% in constant euros) with net interest income and fee income increasing by 11% and 16% respectively (7% and 11% in constant euros). Santander has continued to help people and businesses prosper across all its markets during the period, with the number of loyal customers (people who see Santander as their main bank) growing by 1.9 million since 30 June 2016 to 16.3 million. Lending and customer funds were up by 1% and 8% respectively in constant euros over the same period.

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

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The acquisition of Popular increases customers loans by 10% (€ 82,600 million) to € 861,200 million. Customer deposits increase by 8.5% (€ 64,800 million), to € 764,300 million. While customer deposits in Banco Popular fell by € 20,000 million in Spain in the period from 30 December 2016 and 7 June 2017, following the resolution process and subsequent acquisition deposit levels have begun to recover, increasing by € 5,000 million in the weeks following the acquisition.

The Group continued to deliver on its commercial transformation with digital customers increasing by 4 million over the last 12 months to 23 million. The progression in digital transformation, combined with strong cost discipline, allowed Santander to maintain its position as one of the most efficient banks in the world. The cost/income ratio, a key measure of efficiency, improved two percentage points in the period from 48.3% in the first half of 2016 to 46.3% in the first half of 2017.

A balanced presence across both mature and emerging markets remains one of Santander’s key strengths. In the first half of 2017 Europe contributed 51% of Group profit and the Americas 49%. The lending book is also well diversified across business segments and geographies.

Credit quality continued to improve with non-performing loans (NPL) reducing to 3.55% of total lending, from 3.74% at 31 March 2017 and 4.29% at 30 June 2016. Including Popular the Group NPL ratio at 30 June 2017 was 5.37%. The coverage ratio and cost of credit remained in line with 30 June 2016 at 73% and 1.19% respectively (68% and 1.17% incl. Popular).

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

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The Group delivered strong growth across all key shareholder measures. Over the last 12 months return on tangible equity, a key measure of profitability, has increased by 144 basis points to 11.7% (11.8% incl. Popular), among the best of our peers. Tangible net asset value per share increased by 0.5% to € 4.15, and earnings per share increased by 23% to € 0.235.

Santander continued to grow capital organically during the period with the fully loaded CET 1 ratio increasing by 17 basis points to 10.72% since 31 December 2016. This is significantly higher than the expected minimum regulatory capital requirement for 2019 (9.5%). Santander’s fully loaded leverage ratio remains higher than most European peers at 5%.

The impact of the acquisition of Banco Popular on the Group’s CET 1 was entirely offset by the successful completion of a € 7,072 million rights issue which was finalised on 27 July 2017. The Group remains committed to increasing its CET1 ratio organically by 40 bps during 2017, achieving a fully loaded CET1 ratio of 11% in 2018.

Country Summary (H1’17 v H1’16)

In Brazil attributable profit increased by 58% to € 1,244 million (+32% in constant euros), with strong growth in revenues, disciplined cost control and a reduction in cost of credit in the quarter, supported by a strengthened Brazilian Real. Ongoing improvements to the customer experience helped increase the number of loyal customers by more than 400,000 year on year to 3.8 million, while the number of digital customers increased by nearly 2 million to 7.4 million.

In the UK attributable profit fell by 13% to € 824 million (-4.1% in constant euros) due to extraordinary gains made in the first half of 2016 from the disposal of the stake in Visa Europe. Excluding this impact, profit increased by 8.1% in constant euros with strong growth in revenue driven by improving deposit costs and ongoing cost discipline. The business added a further 180,000 loyal customers since 30 June 2016, with lending to UK companies increasing by £700 million and retail current account balances increasing by £1.5 billion.

Santander Consumer Finance continued to deliver strong growth in attributable profit, up 13% to € 633 million compared to the same period last year, driven by an increase in new lending across all markets and historically low non-performing loans.

The attributable profit of Santander in Spain increased by 102% to € 603 million after H1 2016 was impacted by a net charge of € 216 million relating to capital gains and restructuring costs. Excluding the impact of this charge profit increased by 17.1% as the launch of 123 Smart account and positive trends within the SME business helped increase the number of loyal customers by 380,000 year on year to 1.6 million. Credit quality continued to improve significantly during the period with provisions falling by 17%.

In Mexico attributable profit increased by 21% to € 350 million (+26% in constant euros) driven by strong growth in both net interest income and fee income. The ongoing progress in a number of strategic commercial initiatives (incl. Santander Plus, mortgages and credit cards) helped increase the number of loyal customers by 350,000 during the period.

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

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In Chile growth in lending volumes and reduction in cost of deposits, combined with good cost control and improvements across all credit quality metrics helped drive an increase in attributable profit of 20% to € 297 million (+11% in constant euros).

In the US attributable profit grew by 1.5% to € 244 million (-2% in constant euros) as profit increased for second straight quarter. A reduction in both loan loss provisions and deposit costs helped offset the impact of the change in customer risk profile at Santander Consumer US. Santander Holdings USA reached a significant regulatory milestone during the period after it received no objection from the Federal Reserve to its capital plan, including the payment of dividends for the first time since 2011.

In Portugal attributable profit increased by 16% to € 233 million with focus on commercial transformation helping drive a 24% increase in loyal and 34% increase in digital customers. Improving cost of credit helped offset a reduction in revenues due to portfolio sales made in 2016.

In Argentina attributable profit increased by 28% to € 193 million (+36% in constant euros) due to strong growth in business volumes and ongoing cost control offsetting investment in commercial transformation. The integration of Citibank’s retail business is progressing as scheduled.

In Poland attributable profit fell 15% during the same period to € 142 million (-17% excluding currency impact) due to gains made during the first half of 2016 relating to the sale of the stake in Visa Europe and the negative impact of the banking asset tax (applied from 1 Feb 2016). Profit before tax increased by 13% (+10% in constant euros).

About Banco Santander

Banco Santander is the largest bank in the Eurozone with a market capitalisation of € 84,500 million at 30 June 2017. It has a strong and focused presence in 10 core markets across Europe and the Americas with just under 4 million shareholders and 200,000 employees serving 131 million customers.

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

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KEY CONSOLIDATED DATA

(including Banco Popular)

Balance sheet (€ million)		Jun’17				Mar’17				%				Jun’17				Jun’16				%				Dec’16
Total assets			1,445,260				1,351,956				6.9				1,445,260				1,342,906				7.6				1,339,125
Net customer loans			861,221				795,312				8.3				861,221				783,457				9.9				790,470
Customer deposits			764,336				705,786				8.3				764,336				671,903				13.8				691,111
Total Customer funds			969,778				898,110				8.0				969,778				846,383				14.6				873,618
Total equity			100,955				104,869				(3.7	)			100,955				100,346				0.6				102,699
Note: Total customer funds included customer deposits, mutual funds, pension funds, managed portfolios and insurance premiums.
Income statement (€ million)		2Q’17				1Q’17				%				1H’17				1H’16				%				2016
Net interest income			8,606				8,402				2.4				17,008				15,194				11.9				31,089
Gross income			12,049				12,029				0.2				24,078				21,485				12.1				43,853
Net operating income			6,401				6,486				(1.3	)			12,887				11,100				16.1				22,766
Underlying profit before taxes*			3,273				3,311				(1.1	)			6,585				5,510				19.5				11,288
Underlying attributable profit to the Group*			1,749				1,867				(6.4	)			3,616				3,160				14.4				6,621
Attributable profit to the Group			1,749				1,867				(6.4	)			3,616				2,911				24.2				6,204

Changes w/o FX: Quarterly: NII: +4.6%; Gross income: +2.3%; Net operating income: +1.11%; Underlying attributable profit: -4.2%; Attributable profit: -4.2%

Year-on-year: NII: +7.4%; Gross income: +7.7%: Net operating income: +10.4%; Underlying attributable profit: +11.1%; Attributable profit: +20.7%

EPS, profitability and efficiency (%)		2Q’17				1Q’17				%				1H’17				1H’16				%				2016
Underlying EPS (euro) *			0.114				0.122				(7.2	)			0.236				0.208				13.4				0.436
EPS (euro)			0.114				0.122				(7.2	)			0.236				0.191				23.7				0.407
RoE			7.74				8.19								7.97				6.89								6.99
Underlying RoTE*			11.46				12.13								11.82				10.69								11.08
RoTE			11.46				12.13								11.82				10.27								1038
RoA			0.63				0.65								0.64				0.55								0.56
Underlying RoRWA*			1.43				1.48								1.45				1.31								1.36
RoRWA			1.43				1.48								1.45				1.27								1.29
Efficiency ratio (with amortisations)			46.9				46.1								46.5				48.3								48.1
Solvency and NPL ratios (%)		Jun’17				Mar’l7				%				Jun’17				Jun’16				%				Dec’16
CET1 fully-loaded			9.58				10.66								9.58				10.36								10.55
CET1 phase-in			10.98				12.12								10.98				12.32								12.53
NPL ratio			5.37				3.74								5.37				4.29								3.93
Coverage ratio			67.7				74.6								67.7				72.5								73.8
Note: Including the capital increase in July, the fully loaded CET1 at June’17 was 10.72% and the phase in CET1 12.08%
Market capitalisation and shares		Jun’17				Mar’17				%				Jun’17				Jun’16				%				Dec’16
Shares (millions)			14,582				14,582				-				14,582				14,434				1.0				14,582
Share price (euros)			5.792				5.745				0.8				5,792				3,429				68.9				4.959
Market capitalisation (€ million)			84,461				83,776				0.8				84,461				49,496				70.6				72,314
Tangible book value per share(euro)			4,13				4.26								4.13				4.13								4.22
Price / Tangible book value (X)			1.40				1.35								1.40				0.93								1.17
P/E ratio (X)			12.28				11.74								12.28				8.99								12.18
Note: Including July’s capital increase tanglible book value per share at June’17 was €4.18.
Other data		Jun’17				Mar’17				%				Jun’17				Jun’16				%				Dec’16
Number of shareholders			4,019,706				3,957,838				1.6				4,019,706				3,794,920				5.9				3,928,950
Number of employees			201,596				188,182				7.1				201,596				191,138				5.5				188,492
Number of branches			13,825				12,117				14.1				13,825				12,589				9.8				12,235

(*)  Excluding non-recurring net capital gains and provisions

Note: The financial information in this report has been approved by the Bank’s Board of Directors, following a favourable report from the Audit Committee.

The financial information in this report includes alternative performance measures (APM). Detailed information on these measures is included in the 2Q17 quarterly report.

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

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Banco Santander, S.A. (“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 Annual Report on Form 20-F filed with the Securities and Exchange Commission of the United States of America (the “SEC”) –under “Key Information-Risk Factors”- and in the Documento de Registro de Acciones filed with the Spanish Securities Market Commission (the “CNMV”) –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 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 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 press release should be construed as a profit forecast.

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.

In addition to the financial information prepared under International Financial Reporting Standards (“IFRS”), this press release includes certain alternative performance measures 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. 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. Please refer to the quarterly financial Report for further details of the APMs and Non-IFRS Measures used, including its definition or a reconciliation between any applicable management indicators and the financial data presented in the consolidated financial statements prepared under IFR, see Section 26 of the Documento de Registro de Acciones for Banco Santander filed with the CNMV on July 4, 2017 (available on the Web page of the CNMV -www.cnmv.es- and at Banco Santander -www.santander.com) and Item 3A of the Annual Report on Form 20-F for the year ended December 31, 2016, filed with the U.S. Securities and Exchange Commission on March 31, 2017 (the “Form 20-F”). For a discussion of the accounting principles used in translation of foreign currency-denominated assets and liabilities to euros, see note 2(a) to our consolidated financial statements on Form 20-F and to our consolidated financial statements available on the CNMV’s website (www.cnmv.es) and on Banco Santander’s website (www.santander.com).

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

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Item 2

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JANUARY - JUNE    » Key consolidated data

KEY CONSOLIDATED DATA

(including Banco Popular)

Balance sheet (€ million)				Jun’17				Mar’17				%				Jun’17				Jun’16				%				Dec’16
Total assets					1,445,260				1,351,956				6.9				1,445,260				1,342,906				7.6				1,339,125
Net customer loans					861,221				795,312				8.3				861,221				783,457				9.9				790,470
Customer deposits					764,336				705,786				8.3				764,336				671,903				13.8				691,111
Total Customer funds					969,778				898,110				8.0				969,778				846,383				14.6				873,618
Total equity					100,955				104,869				(3.7)				100,955				100,346				0.6				102,699
Note: Total customer funds included customer deposits, mutual funds, pension funds, managed portfolios and insurance premiums.
Income statement (€ million)				2Q’17				1Q’17				%				1H’17				1H’16				%				2016
Net interest income					8,606				8,402				2.4				17,008				15,194				11.9				31,089
Gross income					12,049				12,029				0.2				24,078				21,485				12.1				43,853
Net operating income					6,401				6,486				(1.3)				12,887				11,100				16.1				22,766
Underlying profit before taxes*					3,273				3,311				(1.1)				6,585				5,510				19.5				11,288
Underlying attributable profit to the Group*					1,749				1,867				(6.4)				3,616				3,160				14.4				6,621
Attributable profit to the Group					1,749				1,867				(6.4)				3,616				2,911				24.2				6,204

EPS, profitability and efficiency (%)				2Q’17				1Q’17				%				1H’17				1H’16				%				2016
Underlying EPS (euro) *					0.114				0.122				(7.2)				0.236				0.208				13.4				0.436
EPS (euro)					0.114				0.122				(7.2)				0.236				0.191				23.7				0.407
RoE					7.74				8.19								7.97				6.89								6.99
Underlying RoTE*					11.46				12.13								11.82				10.69								11.08
RoTE					11.46				12.13								11.82				10.27								10.38
RoA					0.63				0.65								0.64				0.55								0.56
Underlying RoRWA*					1.43				1.48								1.45				1.31								1.36
RoRWA					1.43				1.48								1.45				1.27								1.29
Efficiency ratio (with amortisations)					46.9				46.1								46.5				48.3								48.1
Solvency and NPL ratios (%)				Jun’17				Mar’17				%				Jun’17				Jun’16				%				Dec’16
CET1 fully-loaded					9.58				10.66								9.58				10.36								10.55
CET1 phase-in					10.98				12.12								10.98				12.32								12.53
NPL ratio					5.37				3.74								5.37				4.29								3.93
Coverage ratio					67.7				74.6								67.7				72.5								73.8
Note: Including the capital increase in July, the fully loaded CET1 at June’17 was 10.72% and the phase-in CET1 12.08%.
Market capitalisation and shares				Jun’17				Mar’17				%				Jun’17				Jun’16				%				Dec’16
Shares (millions)					14,582				14,582				—				14,582				14,434				1.0				14,582
Share price (euros)					5.792				5.745				0.8				5.792				3.429				68.9				4.959
Market capitalisation (€ million)					84,461				83,776				0.8				84,461				49,496				70.6				72,314
Tangible book value per share (euro)					4.13				4.26								4.13				4.13								4.22
Price / Tangible book value (X)					1.40				1.35								1.40				0.83								1.17
P/E ratio (X)					12.28				11.74								12.28				8.99								12.18
Note: Including July’s capital increase tanglible book value per share at June’17 was €4.18.
Other data				Jun’17				Mar’17				%				Jun’17				Jun’16				%				Dec’16
Number of shareholders					4,019,706				3,957,838				1.6				4,019,706				3,794,920				5.9				3,928,950
Number of employees					201,596				188,182				7.1				201,596				191,138				5.5				188,492
Number of branches					13,825				12,117				14.1				13,825				12,589				9.8				12,235

(*).- Excluding non-recurring net capital gains and provisions

FINANCIAL REPORT 2017		3

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JANUARY - JUNE    » Highlights of the period

HIGHLIGHTS OF THE PERIOD

Strategic and financial rationale

Creating shareholder value through consolidation in two of our key markets. In Spain, the resulting entity, which will operate in the future under the Santander brand, becomes the leader in terms of loans and deposits. In Portugal, it becomes the second largest in loans and the biggest private sector bank.

Increasing business with SMEs is one of the Group’s strategic priorities in Spain. Popular’s integration will enable it to diversify the business portfolio more, with a greater weight in segments that contribute higher profitability.

In Spain, it makes us the leading franchise in the corporate market. The two franchises complement one another, and we are confident about our capacity to improve business, deepen the customer relation and at a lower wholesale funding cost, all at a propitious moment of the cycle.

The transaction is expected to generate a return on investment of 13-14% in 2020 and increase earnings per share as of 2019. The resulting entity aims to boost profitability and generate cost synergies of close to € 500 million a year as of 2020, with efficiency ratios among the best in Spain and Portugal, and a greater revenue growth potential.

First steps taken after the acquisition

Stabilise operating liquidity and restore liquidity ratios on June 7.

Changes in Banco Popular’s board of directors.

First measures of Banco Popular after June 7*

Appointments. Banco Popular’s board, formed by Banco Santander after the acquisition, agreed the appointment of members of the Appointments, Governance and Corporate Responsibility Committee, the Remuneration Committee, the Audit Committee and the Risk and Compliance Committee.

Review of agreements and joint ventures. Re-purchase of 51% of the real estate servicing company, Aliseda Servicios de Gestión Inmobiliaria, S.L. This acquisition is expected to be completed in the third quarter of this year.

Stabilising business in Spain as a priority. Banco Popular’s core activity fell significantly in 2017 before its acquisition. After the acquisition there was a change in trend. Some € 5,000 million deposits have been recovered, mainly institutional ones, and in loans a downward trend has been maintained, although at a slower pace.

Banco Santander and Banco Popular have decided to launch a commercial action (Fidelity Action) aimed at building loyalty among their networks’ retail clients affected by Banco Popular’s resolution.

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JANUARY - JUNE    » Highlights of the period

HIGHLIGHTS OF THE PERIOD

Income statement 1H’17
€ million
		SAN ex-Popular				Popular				Total Group
Gross income			23,939				139				24,078
Operating expenses			(11,095)				(96)				(11,191)
Net operating income			12,844				43				12,887
Net loan-loss provisions			(4,672)				(8)				(4,680)
Other income			(1,603)				(20)				(1,623)
Profit before taxes			6,569				15				6,585
Attributable profit to the Group			3,605				11				3,616
Banco Popular and its subsidiaries were integrated by global consolidation as of the acquisition date (June 7, 2017)
Balance sheet June’17
€ million
		SAN ex-Popular				Popular				Total Group
Net customer loans			778,632				82,589				861,221
Customer deposits			699,523				64,814				764,336
Mutual funds			151,525				10,003				161,528
Pension funds and other funds off-balance sheet			35,796				8,118				43,914
Note: Net customer loans and customer deposits including repos
Ratios 1H’17
%
		SAN ex-Popular				Popular				Total Group
EPS (euro)			0.235				—				0.236
RoTE			11.71				—				11.82
NPL ratio			3.55				20.00				5.37
Coverage ratio			72.7				60.5				67.7

(*) Including Banco Santander’s real estate activity in Spain and the total real estate assets of Banco Popular’s perimeter

FINANCIAL REPORT 2017		5

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JANUARY - JUNE    » Highlights of the period

HIGHLIGHTS OF THE PERIOD

Terms of the capital increase

Banco Santander made a capital increase to reinforce and optimize the Bank’s equity structure in order to adequately cover the acquisition of 100% of Banco Popular’s share capital.

Terms of the transaction: The capital increase was executed by issuing new shares for an amount of €7,072* million, at a price of €4.85 per share, which represents a discount of 19.19% on the price of the shares at the close of the market on July 3 (the date when the capital increase was announced). The capital increase involved the issue of 1,458,232,745 new shares. The preferential subscription period was July 6 to 20, both inclusive.

 

Result of the transaction: Banco Santander successfully completed the capital increase, which was fully subscribed. This underscored the market’s confidence and positive view of Santander’s strategy and the good reception of Popular’s acquisition. The new shares are expected to begin trading on July 31 and will have the right to receive the first dividend charged to 2017’s earnings on August 4.

Capital ratios: With this capital increase, the acquisition of Banco Popular is neutral in terms of capital and we maintain a pro-forma fully loaded CET1 ratio of 10.72% at June, taking into consideration the effect the capital increase would have had, had it been done on that date. Consequently, we remain committed to the goal of attaining a fully loaded CET1 ratio of more than 11% in 2018.

SHUSA passed the Federal Reserve’s stress test both quantitatively and qualitatively.

In the first case, its core capital ratio under the adverse scenario is 12.4%, above the 4.5% required minimum and the average for the banks that participated in the exercise of 9.2%.

In the second case, the Board of Governors of the Federal Reserve raised no objections to SHUSA’s capital plan, including the payment of dividends for the first time since 2011.

(*) The effective amount of the capital increase was € 7,072,428,813.25.

6		FINANCIAL REPORT 2017

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JANUARY - JUNE    » Santander aim

SANTANDER AIM

FINANCIAL REPORT 2017		7

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JANUARY - JUNE    » Santander aim

SANTANDER AIM

		Simple  |  Personal  |   Fair
		We made progress in implementing MyContribution, the new corporate model of performance management that strengthens the Bank’s culture as the driver of transformation. MyContribution balances the objectives on corporate behaviour (40%) and business and performance (60%) for the Corporate Centre.     The We are Santander Week was held. This is a global initiative which aims to transmit our culture and foster pride in belonging to Grupo Santander. This year the challenge was to recognise those employees who best represent the Group’s eight corporate behaviours, as well as an event to recognise SPF Ambassadors.     The second BeHealthy challenge was launched to unite via the miles walked by employees the countries in which we operate and contribute to a solidarity project launched by the Action against Hunger NGO to combat childhood anaemia in Peru.
		The commercial transformation programme started in 2015 continues to drive growth in the number of customers (+1.9 million loyal ones and +4.0 million digital ones in the last 12 months).     In loyalty and customer satisfaction enhancement, the Bank’s products and proposals continued to be well received. Of note was the launch of Select Me in Mexico, which seeks to support women, including solutions that help their day-to-day professional development.     Openbank becomes Spain’s first fully digital bank, with one of the sector’s most complete, flexible and agile platforms. It has a full range of products and a 24×7 tailored service.     In order to speed up our digital transformation, the new Santander Digital division was strengthened in order to drive innovation and digitalisation throughout the Group, cooperation and teamwork with all countries, and foster the exchange of the best commercial practices.
		Santander celebrated 30 years of being listed on the New York Stock Exchange, the world’s largest stock exchange by trading volume and the number of companies quoted.     Following the acquisition of Banco Popular, we created in our corporate website santander.com a dedicated section with all the information on this operation. This strengthens communication of this purchase with the aim of increasing the creation of shareholder value.     The IR Magazine Awards 2017 recognised Banco Santander’s Investor Relations team as the second best of a European bank and the best in Spain, according to the Extel 2017 survey. On October 10, Banco Santander will hold a Group Strategy Update in New York at which senior management will explain the Group’s strategy to investors and analysts.
		Santander joined the Climate Leadership Council as a founder member, with Ana Botín representing the Bank. This Council comprises global leaders and combats climate change with market solutions.     Universia Spain held its AGM and was attended by Santander’s chairman, representatives of all Spanish universities, close to 100 businessmen and 230 entrepreneurs and university students.     Santander turned off for the eighth year running the lights in its most emblematic buildings in its 10 core countries and in its branch network, as part of the WWF’s Earth Hour.     Thanks to Santander scholarships, 5,000 young Spaniards carried out paid work experience in SMEs. In 2016 alone, more than 10,000 such scholarships were awarded in nine countries.

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JANUARY - JUNE    » Group evolution excluding Banco Popular

GROUP EVOLUTION EXCLUDING BANCO POPULAR

The number of loyal customers increased by 1.9 million in the last 12 months (+13% individuals and +14% companies).

 

The number of digital customers rose by 4 million over the same period, reflecting the multi channel strength.

 

Digital banking logins increased 36% and monetary transaction 27%.

Second quarter attributable profit of €1,738 million, affected by the contribution to the Single Resolution Fund (€ 146 million net of taxes). Excluding this, profit was in line with that in the first quarter.

 

First half attributable profit of €3,605 million, up 24% (+20% excluding the fx impact), aided by the recording in 2016 of a non-recurring charge of €248 million. Excluding this, underlying profit was 14% higher (+11% in constant euros), due to:

 

•

Increase in the most commercial revenues (net interest income, +7%; fee income, +11%),

 

•

Operating expenses declined in real terms, the fruit of efficiency plans developed in 2016.

 

•

Loan-loss provisions continued to decline for the third straight quarter.

Both the RoTE as well as the RoRWA are the best among our peers, higher in both cases than in the first half of 2016.

 

Earnings per share (EPS) were 23% higher than in the first half of 2016 (+13% over the underlying EPS).

 

The envisaged total dividend per share to be charged to 2017’s earnings is €0.22. The first dividend of €0.06 will be paid on August 4.

FINANCIAL REPORT 2017		9

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JANUARY - JUNE    » Group evolution excluding Banco Popular

GROUP EVOLUTION EXCLUDING BANCO POPULAR

Lending fell 2% year-on-year and funds rose 5%, conditioned by a negative impact of exchange rates of 3 p.p. both, on loans and funds.

 

Excluding this impact:

 

•

Lending increased 1%, with growth in the main segments and in 6 of our 10 core units.

 

•

Funds grew 8% due to demand deposits and mutual funds. They rose in nine of the 10 core units.

 

Solid funding and liquidity structure. The net loan-to-deposit ratio was 111% (117% in June 2016).

Non-performing loans were 8% lower in the quarter and 18% in the last 12 months.

 

The NPL ratio dropped again in the quarter (-20 b.p.), with a good performance in all units. The ratios are at their lowest levels since the first half of 2011.

 

Cost of credit remained unchanged over June 2016. The cost of credit is below the target announced at the Investor Day. Excluding Santander Consumer USA, the cost is 0.86%.

The fully-loaded CET1 ratio is 10.72%, 6 b.p. higher than in the first quarter and 36 b.p. year-on-year. The contribution to the Single Resolution Fund had an impact of -3 b.p. in the quarter.

 

Total capital ratio of 14.38%, 28 b.p. more than in March 2017. The fully loaded leverage ratio stood at 5.1%

Tangible capital per share is €4.15.

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JANUARY - JUNE    » Group evolution excluding Banco Popular

GROUP EVOLUTION EXCLUDING BANCO POPULAR

(Changes in constant euros)

FINANCIAL REPORT 2017		11

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JANUARY - JUNE    » General background

» GENERAL BACKGROUND

Grupo Santander developed its business in an economic environment that continued to strengthen. The outlook for global growth is back in line with the long-term historic average. Mature economies were more dynamic and developing ones showed signs of recovery in Latin America, particularly in Brazil and Argentina, while Mexico is growing faster than expected.

Interest rates continued to rise in the US and Mexico, although they are still at lows in most mature economies and declined in some Latin American countries, impacting banking activity.

Lastly, the euro strengthened in the second quarter against the currencies of the main countries where the Group operates.

(*) Year-on-year change 1Q’17

 Exchange rates: 1 euro / currency parity

12		FINANCIAL REPORT 2017

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JANUARY - JUNE    » Consolidated financial report

 GRUPO SANTANDER RESULTS

Second quarter attributable profit of €1,738 million (excluding Banco Popular), affected by the contribution to the Single Resolution Fund (€146 million net of taxes). Excluding this, profit was in line with the first quarter.

The first half profit amounted to €3,605 million, 24% higher year-on-year and 20% in constant euros.

One-offs were recorded in the second quarter of 2016. Excluding these factors, underlying profit was 14% higher (+11% in constant euros), with the main items as follows:

The RoTE was 144 b.p. higher at 11.71%, among the best of comparable banks. Earnings per share rose 23% y-o-y to €0.235.

Banco Popular’s contribution to the Group’s profit was €11 million (0.3% of the total).

 Income statement

    € million