RESULTS

Strong profit recovery in the quarter in a still uncertain environment and year-to-date profit affected by higher loan-loss provisions and valuation adjustments recorded in the second quarter

In the third quarter, results recorded a positive performance compared to the second quarter, supported by an upturn in revenue, cost control and lower provisions. This was reflected in a 14% increase in the Group's underlying attributable profit in the quarter to EUR 1,750 million (+18% in constant euros). This improvement was recorded in the three main regions.

As a result of the worsening economic outlook, adjustments to the goodwill ascribed to some units and to deferred tax assets were made in the second quarter totalling EUR 12,600 million, which results in an attributable profit to the Group in the first nine months of 2020 of negative EUR 9,048 million.

Excluding the above adjustments and restructuring costs, underlying attributable profit in the first nine months of 2020 would have been EUR 3,658 million, 41% less than in the same period of 2019 (-33% excluding the exchange rate impact), with net operating income of EUR 17,879 million, 3% more without the exchange rate impact .

Total income remained stable (year-on-year), excluding the exchange rate impact, as the decrease in activity and lower interest rates were offset by higher volumes, sound management of market volatility and the lower cost of deposits.

Acceleration in cost reductions, ahead of schedule, reaching the expected savings for the year in Europe in September.

Greater loan-loss provisions compared to 2019, due to credit growth, the expected deterioration in economic conditions and its impact on the deterioration of the portfolio’s credit quality.

Quarterly performance of underlying attributable profit to the Group*

eur million

*Excluding net capital gains and provisions.

underlying attributable profit geographic distribution*

Well balanced Group profit by regions. January - September 2020

(*) As a % of operating areas. Excluding Corporate Centre and Santander Global Platform.

Core markets results

Our geographical and business diversification continues to add value

YoY changes in constant euros. Underlying profit contribution excludes Corporate Centre (EUR -1,455 mn) and Santander Global Platform. South America’s weight includes Uruguay & Andean Region (EUR 153 mn).

Main business areas performance

Changes in constant euros

North America

The US and Mexico are managed according to their local strategic priorities, while increasing coordination and cooperation between the two units.

Underlying attributable profit to September amounted to EUR 1,061 million, down 12% year-on-year due to the increase in provisions related to the pandemic. Revenue remained stable and costs decreased, enabling efficiency ratio to improve and net operating income to increase 1%.

Compared to the second quarter, underlying attributable profit surged 34% through higher customer revenue and lower provisions in both countries, mainly in the US.

Europe

In a changing environment, impacted not only by the health crisis but also by the profound transformation that the sector is experiencing, we are making progress in our strategy of greater collaboration within the Group, with the creation of One Europe, which will allow us to accelerate business transformation to offer our customers the best service.

In the first nine months of 2020, underlying attributable profit was 44% less than the previous year at EUR 2,022 million, due to the decline in total income (dampened by the health crisis and the low interest rate environment) and higher provisions, partly mitigated by lower costs, stemming from the optimisation processes carried out in previous years and the efficiencies generated since the pandemic started.

Strong profit recovery in the last quarter (+50% compared to the second quarter) driven by higher customer revenue and improved efficiency.

South America

We continued to identify growth opportunities across business units to capture profitable growth, backed by operational excellence and cost and risk control.

Underlying attributable profit in the first nine months of the year was EUR 2,119 and fell 10% affected by COVID-19 related provisions. Revenue grew more than costs, enabling efficiency to improve and net operating income to increase 6%.

In the last quarter, profit was 15% higher driven by customer revenue and lower provisions.

North America
The US and Mexico are managed according to their local strategic priorities, while increasing coordination and cooperation between the two units.

Underlying attributable profit to September amounted to EUR 1,061 million, down 12% year-on-year due to the increase in provisions related to the pandemic. Revenue remained stable and costs decreased, enabling efficiency ratio to improve and net operating income to increase 1%.

Compared to the second quarter, underlying attributable profit surged 34% through higher customer revenue and lower provisions in both countries, mainly in the US.

Europe
In a changing environment, impacted not only by the health crisis but also by the profound transformation that the sector is experiencing, we are making progress in our strategy of greater collaboration within the Group, with the creation of One Europe, which will allow us to accelerate business transformation to offer our customers the best service.

In the first nine months of 2020, underlying attributable profit was 44% less than the previous year at EUR 2,022 million, due to the decline in total income (dampened by the health crisis and the low interest rate environment) and higher provisions, partly mitigated by lower costs, stemming from the optimisation processes carried out in previous years and the efficiencies generated since the pandemic started.

Strong profit recovery in the last quarter (+50% compared to the second quarter) driven by higher customer revenue and improved efficiency.

South America
We continued to identify growth opportunities across business units to capture profitable growth, backed by operational excellence and cost and risk control.

Underlying attributable profit in the first nine months of the year was EUR 2,119 and fell 10% affected by COVID-19 related provisions. Revenue grew more than costs, enabling efficiency to improve and net operating income to increase 6%.

In the last quarter, profit was 15% higher driven by customer revenue and lower provisions.

Underlying Income statement

EUR MILLION
% change vs 9M'19
9M'20 EUR Constant
EUR
Net interest income 23,975 (9.3) 0.1
Gross income 33,605 (8.9) 0.3
Net operating income 17,879 (8.7) 2.5
Underlying profit before tax* 7,016 (38.6) (30.5)
Underlying attributable profit to the Group* 3,658 (40.8) (32.9)
Attributable profit to the Group (9,048) — —
*Excluding net capital gains and provisions.

FINANCIAL REPORT JANUARY - SEPTEMBER 2020

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