Banco Santander S A : 9M’22 Press release

Santander reports attributable profit of €7,316 million

for the first nine months of 2022, up 25%

Earnings per share increased by 31% year-on-year on a statutory basis, supported by strong

profitability (RoTE of 13.6%). TNAV plus cash dividend per share increased by 11%

Cost of risk, at 0.86%, is on track to meet full-year guidance, reflecting prudent risk

management, while capital remains above 12%

Madrid, 26 October 2022 – PRESS RELEASE

• The group has seen solid growth in customer activity in the first nine months of 2022, with loans and deposits growing by 7% and 6% respectively in constant euros (i.e. excluding currency movements), and total revenue increasing by 5% on the same basis.
• Connectivity across the group continued to drive both revenue growth and cost efficiency, with global businesses performing well and a particularly strong performance in CIB.
• Inflationary effects led to an overall increase in costs (+6% in constant euros), however, in real terms, costs fell by 5% as the bank continued to improve productivity across markets. The cost to income ratio was 45.5%, placing Santander among the most efficient banks in its peer group.
• Loan-lossprovisions increased by 17% in constant euros, due in part to the release of provisions in the second quarter of 2021, as well as a further normalization in provisions in the US.
• Santander’s diversification remains key to the bank’s resilience and profitability, with all regions (Europe, North America, South America) and Digital Consumer Bank delivering strong returns and growth in customers, loans and deposits.
• In the third quarter alone, attributable profit was €2,422, up 11% year-on-year (+2% in constant euros).
• Santander’s balance sheet remained robust and the group’s fully-loaded CET1 capital ratio stood at 12.10% at the end of September 2022, above the group’s capital target.
• Santander is on track to achieve its revenue, profitability and capital targets for the year, and expects to improve the 2021 efficiency ratio and end the year close to its target despite inflationary pressures. The board remains committed to its 2022 shareholder remuneration policy to distribute approximately 40% of underlying profit, split approximately in equal parts in cash dividends and share buybacks1.

Ana Botín, Banco Santander executive chair, said:

“The group delivered another strong quarter, with revenues increasing and profitability remaining above target at 13.6% RoTE, supported by our rock-solid balance sheet.

Our focus remains on supporting our customers and transforming our business – improving connectivity across the group and ensuring efficient capital allocation. As a result, we will continue improving profitability and shareholder returns.

1 The implementation of the shareholder remuneration policy is subject to future corporate and regulatory decisions and approvals.

Note: Reconciliation of underlying results to statutory results, available in the Alternative Performance Measures section of the financial report at santander.com.

We expect the macroeconomic environment to remain challenging as markets across Europe and North America adapt to levels of inflation not experienced in decades. Our team has proven experience in navigating these conditions successfully and we are confident revenue growth will offset cost inflation pressures and any increase in cost of risk.

We are confident that our consistent track record in increasing profitability, reaching a year-on-year EPS growth of 31%, will drive further increases in our TNAV and dividend per share, creating value for shareholders.”

Underlying income statement(*)

EUR million

1. Reconciliation of underlying results to statutory results, available in the Alternative Performance Measures section of the financial report at santander.com.

Underlying business performance

To allow a like-for-like comparison of underlying business performance, all variations are year-on-year and in constant euros (i.e. excluding currency movements) unless otherwise stated.

Banco Santander achieved an attributable profit of €7,316 million in the first nine months of 2022, up 25% in current euros versus the first nine months of 2021. Excluding the restructuring charges of €530 million in the same period of 2021, underlying profit was up 15% in current euros.

In the third quarter alone, attributable profit was €2,422 million, up 2% (+11% in current euros), including a net charge of €181 million as a result of the new Polish mortgage payment holiday regulations.

Profit before tax was €11,761 million, down 6% (+3% in current euros), while tax on profit in the period was €3,538 million, resulting in an effective tax rate of 30%.

The bank continued to see strong customer activity in the quarter despite market uncertainty. Customer funds reached a new high (€1.13 trillion, +4%) thanks to good growth in deposits (+6%). Total loans grew 7%, to €1.04 trillion, with mortgages and consumer lending up 7%, and commercial lending up 6%. The bank’s loan book remains well diversified across both businesses lines and geographies, with 65% of total lending secured.

The group continued to grow its customer base, adding eight million customers in the last twelve months, taking the total to 159 million. The strong increase in digital adoption continued, with 56% of sales through online or mobile channels. The total number of customers using digital channels grew by more than three million to over 50 million for the first time.

The strong activity, as well as an increase in central bank interest rates in the UK, the eurozone, Poland and elsewhere, supported an 8% increase in net interest income (+15% in current euros due to a strengthening in most currencies), with particularly strong growth in the UK (+12%), Poland (+104%), Mexico (+12%), and Argentina (+142%).

Net fee income increased 7% (+14% in current euros) driven by higher volumes and improved activity. For example, card and points of sale turnover increased by 16% and 29%, respectively. Wealth Management & Insurance and Santander Corporate & Investment Banking (Santander CIB) also recorded significant growth.

As a result, total revenue grew 5% (+12% in current euros) to €38,629 million, with net interest income and net fee income accounting for 97% of the group’s revenue, reflecting the quality of the group’s earnings.

The sharp increase in inflation led to an overall rise in costs (+6%), however, in real terms costs fell by 5% as the bank continued to improve productivity and connectivity across markets. As a result, the cost-to-income ratio was 45.5% in the first nine months of 2022 (improving 0.1 percentage points versus the same period last year), placing Santander among the most efficient banks in its peer group.

The group’s diversification continues to provide a strong foundation for growth. Underlying profit for the first nine months of the year grew 32% in Europe to € 2,837 million and 6% in South America to € 2,884 million, while it decreased 9% in North America (+2% in current euros) to €2,271 million due to the expected normalization in loan- loss provisions. Digital Consumer Bank’s underlying profit also grew strongly (+11%) to €908 million.

Connectivity across the group continued to drive both revenue growth and cost efficiency. PagoNxt, for example, has increased revenues by 75%, while global businesses continued to do well, with particularly strong performance in Santander CIB, where underlying profit grew 36% to €2,364 million.

The results led to a significant improvement across the group’s key profitability metrics, with a return on tangible equity (RoTE) of 13.6%, well above cost of capital, and earnings per share (EPS) of €0.409, up 31%. For full year 2022, Santander’s underlying RoTE target is to be above 13%. Tangible net asset value (TNAV) per share in September 2022 was €4.31. TNAV per share plus cash dividends per share paid in May 2022 and the one already announced for November 2022, a key measure of shareholder value creation, grew 11% in the last twelve months.

The bank’s balance sheet remains robust, with the non-performing loan (NPL) ratio standing at 3.08%, down 10 basis points year-on-year thanks to the positive performance in Europe and Digital Consumer Bank, while the coverage ratio stood at 70%. Cost of risk was up 3 basis points in the quarter to 0.86% due to the increase in provisions, including additional provisions to cover macro uncertainties.

In line with the bank’s strategy to deploy capital to the most profitable businesses, in the first nine months of 2022 Santander completed the acquisition of Santander Consumer USA minority interests in the US and Amherst Pierpont, the US market-leading independent fixed-income broker dealer. The bank has also announced that it intends to make tender offers to acquire all of the outstanding shares of Santander México it does not own, which amount to approximately 3.76% of that unit’s share capital.

Santander maintained strong net organic capital generation in the quarter and the bank’s fully-loaded CET1 capital ratio stood at 12.10%. The group aims to maintain a fully-loaded CET1 of 12% going forward.

In applying the shareholder remuneration policy for 2022, the board of directors approved the first interim distribution against 2022 results, which will be made in two parts: a cash dividend of €5.83 cents per share to be

paid from 2 November 2022 (20% higher than the equivalent in 2021), and a share buyback programme of up to €979 million, which is expected to start once the applicable regulatory approval has been obtained. As a result, the total remuneration of this first payment will exceed €1.9 billion (+16% compared to its equivalent in 2021) and represent approximately 40% of the underlying profit of the first half of 20222.

Santander is on track to achieve its revenue (mid-single digit growth), profitability (RoTE above 13%) and capital (12%) targets for the year, while it expects to improve the 2021 efficiency ratio and end the year close to its target (45%) despite inflationary pressures. The board remains committed to generating returns for shareholders, including its nearly four million retail shareholders in Spain, the UK and elsewhere. As determined in its stated shareholder remuneration policy for 2022, it intends to return approximately 40% of underlying profit, split approximately in equal parts in cash dividend payments and share buybacks2.

Santander is committed to supporting the transition to a green economy. It is the leading provider of renewable energy project finance globally and continued to help its customers in their green transition, including, for example, financing of fully electric vehicles and offering new features and products. The bank has mobilized €78.7 billion between 2019 and September 2022 in green finance and has a target to mobilize €220 billion by 2030. Furthermore, Santander has set three new interim goals to decarbonize its portfolios by 2030, added to those the group had already announced in 2021: -29% absolute emissions financed in the energy sector; -33% emissions intensity in aviation sector, and -32% emissions intensity in the steel sector.

Santander also continued to strengthen its financial inclusion and empowerment proposition. It has financially empowered more than nine million people since 2019, heading towards its 10 million target by 2025, and granted €677 million in loans through microfinance programmes to 1.1 million micro-entrepreneurs in eight countries during 2022. Santander was named Best Global Bank for Financial Inclusion by Euromoney, highlighting its programmes in South America and Mexico, and Best Bank for Corporate Responsibility in Central and Eastern Europe for its support to refugees following the Russian invasion in Ukraine, as the bank has also been active in supporting the response to the humanitarian crisis.

Market summary (9M 2022 vs 9M 2021)

To better reflect the local performance of each market, the year-on-year percentage changes provided below are presented in constant euros unless stated otherwise. Variations in current euros are available in the financial report.

The group’s geographic and business diversification continues to support consistent, profitable growth, with Europe contributing 32% of underlying profit, South America 32%, North America 26%, and Digital Consumer Bank 10%. The group’s global businesses, Santander CIB and Wealth Management & Insurance, also continued to deliver solid growth.

Europe. Underlying attributable profit in the first nine months of 2022 was €2,837 million, 32% higher than in the same period of 2021, supported by growth in net interest income, continued efficiency improvement and better cost of risk. The bank continued to accelerate its business transformation to achieve superior growth and a more efficient operating model, while supporting more customers in more ways, as loans grew 5% and the number of digital customers increased by 8% to 17 million.

2 The implementation of the shareholder remuneration policy is subject to future corporate and regulatory decisions and approvals.

In Spain, underlying attributable profit for the first nine months of 2022 amounted to €1,104 million, up 99%, due to lower provisions (-27%) and costs (-2%). The consistent improvement in the bank’s risk profile resulted in a stable NPL ratio (3.69% after falling 118 basis points), as a result, the cost of risk stood at 0.71%. Total income rose 3%, backed by net fee income (+6%), with growth in both retail banking and CIB. The bank delivered net customer growth in every month, increasing its customer base by more than half a million year-to-date. Loans grew 7%, mainly due to growth in individuals and private banking segments. Mortgage lending slowed due to the rise in interest rates, while deposits grew 13%.

-YoY changes in constant euros.

-Contribution as a % of operating areas, excluding the Corporate Centre.

1. Adjusted RoTEs: adjusted based on Group’s deployed capital calculated as contribution of RWAs at 12%. Using tangible equity, RoTE is 9.1% for Europe, 11.5% for North America, 20.0% for South America and 12.7% for DCB.

In the UK, underlying attributable profit in the nine months of 2022 was stable at €1,138 million. Total income was up 10% driven by strong net interest income growth of 12% benefitting from higher interest rates and a resilient mortgage market. Operating expenses grew slightly driven by transformation spend and inflationary pressures, however, in real terms, underlying costs decreased 6% reflecting the savings generated from the bank’s transformation programme. Loans grew 4% supported by an increase of GBP 28.2 billion in gross new mortgage lending. Cost of risk remained very low.

North America. Underlying profit in North America reached €2,271 million, up 2% in current euros. In constant euros, profit was down 9% as growth in net interest income was offset by loan-loss provision normalization and lower lease income in the US, primarily due to an increase in the share of lease-end vehicles repurchased at the dealership. Loans grew 9% and digital customers increased 8%. Across the region the group continued to leverage local strengths and capabilities in Mexico and the US, while capitalizing on the group’s scale and connectivity.

In the US, underlying profit was €1,489 million, down 24% after an exceptional year in 2021. Overall, Santander US exhibited strong profitability for the first nine months of 2022 supported by the progress of strategic initiatives, including a focus on capital allocation towards more profitable segments and continued disciplined capital management. Loans grew 8% led by CIB, commercial real estate and auto, while deposits increased 6%.

In Mexico, underlying profit in the period was €874 million, up 33%. Total income grew 12% supported by higher volumes and rising interest rates. The bank gained market share in individual loans and saw positive net fee income