1Q2016 Results: Santander Q1 profit reaches EUR 1.633 billion, 5% less year-on-year and up 8% excluding FX impact

36855ecd-3459-4bc8-8e87-f700c44e4783.pdf

RESULTS JANUARY‐MARCH 2016‌

Santander Q1 profit reaches EUR 1.633 billion, 5% less year‐on‐year and up 8% excluding FX impact

• "Our Q1 results are ahead of plan and we continue to deliver on all our commitments. Both revenues and customer lending grew at 4% year‐on‐year (excluding FX). NPLs performance improves, CET1 increases by 22 bps to 10.27% and RoTE reaches 11.1%.

• These results give us confidence that we will continue to deliver, including, as we announced, increasing the cash dividend per share by 10% and total dividend by 5%.

• Our commercial transformation continues to perform well in all our main markets, growing loyalty of customers as a result of improvements in service and satisfaction, and embedding our culture of doing things in a Simple, Personal and Fair manner, and helping customers to prosper.

• The number of digital customers grew 17%, to 17.8 million, with a 49% increase in clients that are frequent users of our mobile applications".

Ana Botín, Group executive chairman of Banco Santander

PRESS RELEASE

• CUSTOMERS. Loans grew 4% to EUR 787,033 million. Deposits and mutual funds totaled EUR 760,628 million, up 4% over the first quarter of 2015.

• RESULTS. Commercial revenues increased 6%, a half point more than costs, without the effect of currency exchange. In euros, revenue fell 5% and costs, 4%.

• CAPITAL. Regulatory CET1 stood at 12.36%, exceeding the minimum required for 2016 (9.75%). Fully loaded CET1 capital increased 22 basis points in the quarter, to 10.27%, in line to exceed 11% in 2018.

• DIVERSIFICATION. Europe contributed 61% to Group profit (U.K., 23% and Spain, 15%) and the Americas, 39% (Brazil, 18% and Mexico, 7%). Chile, Argentina, Portugal and Poland together contributed profits of EUR 374 million.

  • Spain: attributable profit was EUR 307 million (‐10%). Loans to businesses and SMEs rose 2% and current accounts, 8%. More than one million customers have the 1I2I3 account, which continued to gain market share in payroll deposits and pensions.

  • United Kingdom: attributable profit was EUR 453 million (349 million pounds, 0%). Lending grew 3%, with 11% increase in financing to businesses and 5% in customer funds. After four years, the 1|2|3 account has 4.8 million clients.

  • Brazil: attributable profit totaled EUR 359 million (1,540 million reais, 0%). Loans fell 1% and customer funds rose 10%.

• TRANSFORMATION. Santander reached 14 million loyal customers, with 10% growth in businesses and 8% in individuals. The 1|2|3 Strategy improved the risk profile of customers.

Madrid, 27 April 2016. Banco Santander registered attributable profit of EUR 1,633 million in the first quarter of 2016, a 5% decrease compared to the same period of 2015. This decline is due to the depreciation against the euro of the currencies of all the countries where the Group is present, except the dollar. Without the exchange rate impact, profit would have increased 8%.

Loans	+4%
Funds	+4%

Net interest income	+6%
Fee income	+7%

Individuals	+899,000 +8%
Companies	+110,000 +10%

In a year marked by a complex international economic context, with historically low interest rates in currencies key for the Group, such as the euro and the pound, Banco Santander performed well. The bank increased its two main business lines, loans and customer funds, by 4%. This means a 6% increase in commercial revenues, which becomes a 5% decline when converted to euros.

1Q'16 Financial Highlights Attributable profit of €1,633 million vs. 1Q'15-5%in euros Commercial revenues up y-o-y Enhanced balance sheet quality and lower cost of credit Capital increase compatible with high RoTE +8% (currency-neutral basis) (currency-neutral basis)		1Q'16 Business Highlights Var. Mar'16 / Mar'15 Selective growth: Lending to individuals and SMEs (+4%) Demand deposits (+9%) Loyal customers: 14.0million Digital customers: 17.8million
Note: Loans excluding repos. Customer funds: deposits excluding repos + marketed mutual funds. % change on a currency-neutral basis

1

1

2

2

NPL ratio	4.33%
Cost of credit	1.22%

Total customers	+2.6 mill. +17%
Mobile banking users	+2.4 mill. +49%

FL CET1	10.27%
RoTE	11.1%

Improved performance in revenue and business was also supported by progress in the Group's commercial transformation, particularly in technology and digitalization. The number of loyal clients reached 14 million, with growth of 10% in businesses and 8% individuals. Digital customers increased 17% to 17.8 million, with a 49% increase in customers who frequently use our mobile applications.

Results

Results for the first quarter of 2016 were affected by the exchange rate fluctuation in the different currencies in which the bank operates, which depreciated against the euro throughout last year. For the purpose of comparison, in the P&L variations are shown in euros and without the exchange rate impact.

Overall, revenues grew 4% (‐6% in euros), supported by normal commercial revenues, i.e., net interest income and fees, which increased 6% and 7%, respectively. Meanwhile, results from financial transactions, which are more volatile due to their ties to capital markets, dropped 24%.

Commercial revenues grew slightly more than costs (0.5 point), without the exchange rate effect. In euros the two decreased 5% and 4%, respectively, resulting in net operating income of EUR 5,572 million for the quarter, up 3% without the exchange rate effect, and down 8% in euros. Growth of 4% in commercial revenues in Spain compared to the prior quarter is particularly noteworthy.

The efficiency ratio is now 48.1%, a 1.7 point improvement over the fourth quarter of last year and one of the best among international banks. Santander aims to bring this ratio to below 45% in 2018 and it is implementing plans to reconcile the investment needed for the Group's commercial transformation with greater costs resulting from increasing regulatory requirements.

INCOME STATEMENT

Higher attributable profit backed by commercial revenues and lower cost of credit (currency-neutral basis)

€ million

1Q'16 %1Q'15 %1Q'15

(currency-neutral)

Gross income backed by A

commercial transformation

NII + Fee income Gross income	10,021 10,730	-5.1 -6.2	6.0 4.1
Operating expenses	-5,158	-4.1	5.6
Net operating income	5,572	-8.1	2.8
Loan-loss provisions	-2,408	-6.0	4.5
PBT	2,732	-8.6	2.7
Tax	-810	-12.2	-1.9
Attributable profit	1,633	-4.9	8.2

Operational excellence and B

greater effort in cost control

Ongoing credit quality improvement, with stable C

provisions in recent quarters

3

3

Profit growth, focusing on generating shareholder value D

Loan loss provisions stood at EUR 2,408 million, 5% more than those made in the same quarter of 2015 (‐6% in euros). This performance in provisions occurs in the context of a drop in the NPL rate, which came in at 4.33%, 0.52 percentage point lower than a year ago, and an increase in coverage, which grew five points to 74%. NPLs fell in the quarter in six countries and Santander Consumer Finance, but rose in Portugal, due to the integration of Banif, United States and Argentina.

Europe accounted for 61% of profit and the Americas 39%. By countries, the largest contribution to profit, 23%, was made by the United Kingdom, followed by Brazil (18%), Spain (15%), Mexico (7%), Portugal and Chile (6% each), United States (4%), Argentina and Poland (3% each). Santander Consumer Finance, which carries out its activity in more than ten European countries, mainly in Germany, Spain and the Nordic countries, contributed 13% of profit, after earning EUR 251 million, with growth of 14% in euros and 17% without the exchange rate effect.

BUSINESS AREAS

Attributable profit 1Q'16

Well-diversified results between Europe and the Americas

Argentina; 3%Other America;

1%

Chile; 6%

UK; 23%

Brazil; 18%

South

America

Europe

Mexico; 7%

USA; 4%

Other Europe; 1%

North

America

Spain; 15%

Portugal; 6%

Excluding the Corporate Centre and Real Estate Activity in Spain

4

4

SCF; 13%

Poland; 3%

Business

Banco Santander closed the first quarter of 2016 with total assets of EUR 1.32 trillion, 3% more than the same period last year (‐3% in euros). Loan volume rose to EUR 787,033 million, 4% more than the prior year (‐3% in euros). Banco Santander's total customer funds reached EUR 760,628 million, with growth of 4% (‐2% in euros).

Spain. The total loan portfolio stood at EUR 156,134 million, with a decrease of 3% from the close of March 2015. This fall is greatly affected by a 19% drop in financing to the public sector, while financing stock to SMEs and companies grew 2%. New production continued to register strong growth, with lending to SMEs increasing 13% and to individuals, 30%.

Santander Spain's customer funds totaled EUR 220,295 million between deposits and mutual funds, with a decline of 4%. Low interest rates and the appeal of the 1|2|3 account meant a 28% drop in term deposits, while demand deposits increased 8% and mutual funds, 1%. Cost of deposits, which grew 0.01 point in the previous two quarters, decreased 0.08 point with respect to the last quarter and 0.14 point with respect to the same period last year.