1 Brazil January September 2014 November 4 th, 2014
Disclaimer Banco Santander, S.A. ("Santander") cautions that this presentation contains forward-looking statements within the meaning of the US Private Securities Litigation Reform Act of 1995. 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. 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, 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. The risk factors and other key factors that we have indicated in our past and future filings and reports, including those with the Securities and Exchange Commission of the United States of America (the SEC ), could adversely affect our business and financial performance. Other unknown or unpredictable factors could cause actual results to differ materially from those in the forward-looking statements. 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 the 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. 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 there from. 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, historical share price or financial accretion are not intended to mean that future performance, historical 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. Note: The results information contained in this presentation has been prepared according to Spanish accounting criteria and regulation in a manner applicable to all subsidiaries of the Santander Group and as a result it may differ from the one disclosed locally. 2 All figures in this presentation were converted to constant currency at an average during Sep.14 of EUR 3.0993 (for income statements and average balances figures) and at EUR 3.0821 at the end of Sep.14 (for final balance sheet figures).
Agenda 3 Macro-economic environment and financial system Strategy and business Results Appendix
Macro-economic environment 4 Annual GDP Growth (%, real) Interest Rates - Selic (%, end year) 2.7 2.5 11.00 7.25 10.00 11.50 12.50 1.0 0.3 0.9 2011 2012 2013 2014 (e) 2015 (e) 2011 2012 2013 2014 (e) 2015 (e) Annual inflation rate (IPCA %) Exchange Rates R$ / US$ 6.5 5.8 5.9 6.5 6.8 1.88 2.04 2.34 2.55 2.71 2011 2012 2013 2014 (e) 2015 (e) 2011 2012 2013 2014 (e) 2015 (e) Source: The Central Bank of Brazil, IBGE and estimates by Santander Research (October 30 th, 2014) (*) According to IBGE, GDP growth of 2013 was revised from 2.3% to 2.5%.
Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Macro-economic environment 5 International Reserves and External Debt EMBI (average of period) US$ billion Total External debt 289 257 352 379 376 376 298 313 309 339 399 219 Brazil Emerging Markets 326 214 Reserves 2010 2011 2012 2013 Sep.14 Current Account Balance vs. FDI Unemployment Rate (%) - Monthly US$ billion, in 12 months 63.9 Current account balance Foreign direct investment 66.5 8% 7% 6% -50.0-83.6 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 5% 4% 3% 4.9% Source: The Central Bank of Brazil and IBGE
Financial system: Loan and deposit growth 6 Loans decelerate while funding shows an acceleration EUR¹ bn. YoY (%) Total loans 843 881 895 918 941 15.7% 14.6% 13.7% 11.8% 11.7% 4.8% 47% 53% 20.6% Non Earmarked Loans Earmarked Loans Growth (%) Sep.14/ Sep.13 Sep.13 Dec.13 Mar.14 Jun.14 Sep.14 Total Funding² 1,444 1,488 1,507 1,544 1,592 30.1% 21% 28% 52% 7.8% YoY (%) 9.7% 9.7% 9.0% 8.8% 10.2% Sep.13 Dec.13 Mar.14 Jun.14 Sep.14 2.8% Total Deposits Other Funding Mututal Funds Growth (%) Sep.14/ Sep.13 Source: The Central Bank of Brazil 1. Exchange Rate R$/EUR end of period as of Sep/14. 2. Includes: Total Deposits + Mutual funds + Other Funding from Clients (Debentures + Real Estate Credit Notes (LCI) and Agribusiness Credit Notes (LCA) + Letras Financeiras + COEs (Certificate of Structured Transactions)
Agenda 7 Macro-economic environment and financial system Strategy and business Results Appendix
Our Franchise 8 Santander Brazil is the country s third largest private sector bank by assets Distribution of Santander branches by region Mid-west + North 6% 15.0% of GDP Northeast Southeast 9% 13.4% of GDP 72% EUR Sep 14 Var. YoY Business and Results Loans¹ 82 bn. 5.5% Deposits² 44 bn. 4.9% Total customer funds³ 126 bn. 15.0% Consolidated Profit 1,493 mn. 1.1% Attributable Profit 1,167 mn. 1.9% Network and Customers Clients (million) 30.8 +1.8 Branches 4 2,243-129 ATMs 15,179-2,339 South 13% 55.4% of GDP Market Share 5 Loans 8.1% -47 b.p. 16.2% of GDP Deposits 7.6% -18 b.p. 1. Considers the Expanded Portfolio. 2. Includes Demand Deposits, Savings, Time Deposits. 3. Includes funding from clients, other deposits and assets under management. 4. Considers local criteria. 5. Market share as of August, 2014.
Strategy 9 We are a universal bank with focus on Retail We seek to expand our Business through: To be the first choice and Linkage: Segmented products and services, simple and effective, multichannel platform, enhancing the maximization of customer satisfaction; Recurrence and Sustainability: business growth with a higher revenues diversification reducing the cost of risk to the industry; Productivity: an intense schedule of productive transformation in line with the evolution of financing industry Capital Discipline and Liquidity: to maintain the soundness, to address regulatory changes and to take advantage of growth opportunities
Commercial focus / strategy 10 Customer Base (million) Number of Clients 29.0 30.4 30.8 Increasing linkage and customer base Sep.13 Jun.14 Sep.14 Better balance between loans and funding Loan / Funding Ratio 106.9% 98.8% 97.8% Sep.13 Jun.14 Sep.14 The bank has a comfortable liquidity position and a stable and adequate funding structure BIS Ratio Strong capitalisation 20.7% 17.9% 18.8% The highest among large Brazilian Banks Sep.13 Jun.14 Sep.14
Loans performance 11 Expanded Credit Portfolio grows 6% in twelve months Constant EUR billion Total loans 77.7 79.4 78.5 78.6 82.0 Sep'14 YoY (%) QoQ (%) Individuals 25.3 5.0% 1.9% Mortgage 6.4 33.6% 8.2% Consumer Credit 18.9-2.2% -0.1% Consumer Finance 9.3-2.8% -0.5% Companies 42.7 8.9% 7.2% SMEs 11.5-6.0% 0.0% Large Corporates 31.2 15.7% 10.1% Sep.13 Dec.13 Mar.14 Jun.14 Sep.14 Subtotal 77.2 6.1% 4.4% Other Operations¹ 4.7-2.6% 2.2% Total 82.0 5.5% 4.3% 1. Includes portfolios acquired from others banks and other credit risk transactions (debentures, FDIC, CRI, Floating Rate Notes and Promissory Notes).
Total customer funds 12 Total Funding+ Mutual Funds grow 15% in twelve months. Highlight to Savings, which grow 17%. Constant EUR billion Sep'14 YoY (%) QoQ (%) EUR billion Total Funding Demand Deposits 4.7 0.7% -3.6% Savings 11.9 17.2% 2.4% 68.1 71.9 72.7 74.9 79.0 Time Deposits 27.3 1.0% 2.0% Total Deposits 43.9 4.9% 1.5% Other Deposits¹ 35.1 33.4% 11.0% Sep.13 Dec.13 Mar.14 Jun.14 Sep.14 Total Funding 79.0 15.9% 5.5% Mutual Funds 47.5 13.5% 5.2% Total Funding + Mutual Funds 126.5 15.0% 5.4% 1. Includes Repurchase Agreement backed on Debentures, Real Estate Credit Notes (LCI) and Agribusiness Credit Notes (LCA) and Letras Financeiras (Bonds issued by Financial Institution on the domestic market)
Agenda 13 Macro-economic environment and financial system Strategy and business Results Appendix
Net Interest Income and Spreads 14 Net interest income decreases 1% in twelve months Constant EUR million Net Interest Income Loan spreads, % Commercial Banking 11.9% 11.8% 11.8% 11.6% 11.0% 2,236 2,288 2,298 2,263 2,209 9.9% 9.8% 9.9% 9.8% 9.1% Total Loans 3Q13 4Q13 1Q14 2Q14 3Q14 Deposit spreads, % 3Q13 4Q13 1Q14 2Q14 3Q14 Interest Rate (average) Selic 8.5% 9.5% 10.4% 10.9% 10.9% 0.8% 0.8% Commercial Banking 1.0% 0.9% 0.9% 1.0% 0.9% 0.9% 0.9% 0.9% Total Deposits 3Q13 4Q13 1Q14 2Q14 3Q14
Net Fees 15 Net Fees grow 6% YoY. Adjusting¹, it would grow 9% in the same period. Highlight for credit Cards, Cash and Comex Constant EUR million Net Fees 9M14 9M13 YoY (%) QoQ (%) Current Account 474 480-1.4% 3.2% Mutual Funds 227 229-0.8% 10.4% 624 700 657 676 721 Credit Cards 517 460 12.4% 4.2% Insurance 456 466-2.1% -2.4% Values² 85 88-3.3% -2.1% Foreign Trade (COMEX) 100 87 14.3% 6.4% Cash 169 148 14.0% -1.5% Others³ 28-16 n.a. n.a. 3Q13 4Q13 1Q14 2Q14 3Q14 Total 2,055 1,942 5.8% 6.7% 1. A normalization due to the new regulation which altered the rule for recognizing insurance policies renewals. 2. Securities brokerage, placement and custody services. 3. Includes guarantees, contingent liabilities and others
Gross income 16 Gross Income increases 5% in the quarter Constant EUR million Gross income 9M14 9M13 YoY (%) QoQ (%) 3,064 3,072 2,980 2,946 3,103 Net Interest Income 6,771 6,975-2.9% -2.4% Net Fees 2,055 1,942 5.8% 6.7% Subtotal 8,826 8,917-1.0% -0.3% Other¹ 204 450-54.7% n.a. Gross Income 9,029 9,367-3.6% 5.3% 3Q13 4Q13 1Q14 2Q14 3Q14 1. Other includes Gains (losses) on financial transactions and Other operating income
Operating expenses 17 Operating expenses, increase 1% YoY, below half of the annual inflation Constant EUR million Operating expenses General and admin. expenses 9M14 9M13 YoY (%) QoQ (%) 3,234 3,171 2.0% 5.9% 1,233 1,332 1,184 1,180 1,256 Depreciation and amortization 386 396-2.5% 11.5% Total 3,620 3,566 1.5% 6.5% Efficiency ratio (with amortisations) 40.1% 38.1% +2.0 pp +0.2 pp 3Q13 4Q13 1Q14 2Q14 3Q14
Net operating income after loan-loss provisions (LLPs) 18 Net operating income after LLPs grows 14% YoY Constant EUR million Cost of credit¹ Net loan-loss provisions 6.7% 6.3% 5.8% 5.4% 5.1% 1,060 LLPs and Cost of credit 999 946 920 930 Net Operating Income Loan Losses Provisions Net op. income after LLPs 9M14 9M13 YoY (%) QoQ (%) 5,410 5,801-6.7% 4.5% (2,795) (3,504) -20.2% 1.1% 2,614 2,297 13.8% 8.3% NPL Coverage ratio 91.4% 92.0% -0.6 pp -3.4 pp NPL ratio 5.64% 6.12% -0.5 pp -0.1 pp 3Q13 4Q13 1Q14 2Q14 3Q14 (*) Cost of credit = Last 12 month loan-loss provisions / average lending.
Attributable profit 19 Attributable profit of EUR 1,167 MM in 9M14, a growth of 2% in YoY Constant EUR million Attributable profit 9M14 9M13 YoY (%) QoQ (%) Profit before Taxes 2,053 1,995 2.9% -2.1% 355 307 380 390 397 Tax on Profit (560) (518) 8.1% -11.4% Net Profit 1,493 1,477 1.1% 1.4% Attributable Profit 1,167 1,145 1.9% 1.9% Effective Tax Rate 27.3% 26.0% 1.3 p.p. 2.6 p.p. 3Q13 4Q13 1Q14 2Q14 3Q14
Conclusions 20 Market Environment & Financial System Solid macroeconomic fundamentals: a positive perspective for the medium and longterm potential of the Brazilian economy. Financial System: - Loans grows 11%, mostly influenced by Earmarked Loans - Total Funding grows 10%, driven by Other Funding, which grow 30% Strategy & Business Loans grow, focus on products with lower risk, prioritizing credit quality Funding: growth in double digit is explained by the increase of customer base (linkage) and market evolution Gross Revenues: affected by product mix change, sluggish economic growth. In the quarter show a good evolution (+5%) Results Costs under control: growth below half of the annual inflation Loan Losses Provisions: Positive evolution with a decrease of 20% in YoY Attributable profit grows 2% in the quarter and in YoY (*) All comparisons are in twelve months
Agenda 21 Macro-economic environment and financial system Strategy and business Results Appendix
Balance sheet EUR million* Variation 09.30.14 09.30.13 Amount % Loans and credits** 72,918 69,395 3,523 5.1 Trading portfolio (w/o loans) 18,130 11,663 6,466 55.4 Available-for-sale financial assets 15,290 12,273 3,017 24.6 Due from credit institutions** 14,982 11,681 3,301 28.3 Intangible assets and property and equipment 2,742 2,863 (121) (4.2) Other assets 30,763 31,265 (502) (1.6) Total assets/liabilities & shareholders' equity 154,824 139,140 15,684 11.3 Customer deposits** 70,892 65,801 5,092 7.7 Marketable debt securities** 22,999 20,000 2,999 15.0 Subordinated debt 4,372 2,858 1,513 52.9 Insurance liabilities Due to credit institutions** 16,651 14,601 2,050 14.0 Other liabilities 28,368 23,286 5,082 21.8 Shareholders' equity*** 11,542 12,595 (1,053) (8.4) Off-balance-sheet funds 50,864 45,571 5,292 11.6 Mutual funds 47,513 42,445 5,067 11.9 Pension funds Managed portfolios 3,351 3,126 225 7.2 Customer funds under management 149,127 134,230 14,897 11.1 22 (*) As of R$/EUR 3.0002 (**) Includes all stock of concept classified in the balance sheet (***) Not including profit of the year
Income Statement 23 EUR million. Constant currency* Variation 9M 14 9M 13 Amount % Net interest income 6,771 6,975 (204) (2.9) Net fees 2,055 1,942 113 5.8 Gains (losses) on financial transactions 127 431 (304) (70.4) Other operating income** 77 19 57 297.4 Gross income 9,029 9,367 (338) (3.6) Operating expenses (3,620) (3,566) (53) 1.5 General administrative expenses (3,234) (3,171) (63) 2.0 Personnel (1,761) (1,719) (42) 2.4 Other general administrative expenses (1,472) (1,451) (21) 1.4 Depreciation and amortisation (386) (396) 10 (2.5) Net operating income 5,410 5,801 (391) (6.7) Net loan-loss provisions (2,795) (3,504) 709 (20.2) Other income (561) (302) (259) 86.0 Profit before taxes 2,053 1,995 58 2.9 Tax on profit (560) (518) (42) 8.1 Profit from continuing operations 1,493 1,477 17 1.1 Net profit from discontinued operations Consolidated profit 1,493 1,477 17 1.1 Minority interests 326 332 (5) (1.7) Attributable profit to the Group 1,167 1,145 22 1.9 (*) As of R$/EUR 3.0993 (**) Including dividends, income from equity-accounted method and other operating income/expenses
Quarterly statements of income 24 EUR million. Constant currency* 1Q 12 2Q 12 3Q 12 4Q 12 1Q 13 2Q 13 3Q 13 4Q 13 1Q 13 2Q 13 3Q 13 4Q 13 1Q 14 2Q 14 3Q 14 Net interest income 2,382 2,357 2,236 2,288 2,298 2,263 2,209 Net fees 648 670 624 700 657 676 721 Gains (losses) on financial transactions 183 55 193 66 17 (38) 148 Other operating income** 3 5 11 18 7 44 25 Gross income 3,215 3,088 3,064 3,072 2,980 2,946 3,103 Operating expenses (1,156) (1,178) (1,233) (1,332) (1,184) (1,180) (1,256) General administrative expenses (1,027) (1,044) (1,100) (1,194) (1,051) (1,060) (1,122) Personnel (573) (563) (584) (639) (574) (583) (603) Other general administrative expenses (454) (482) (516) (555) (477) (477) (519) Depreciation and amortisation (129) (134) (133) (139) (133) (120) (134) Net operating income 2,060 1,910 1,831 1,739 1,796 1,767 1,847 Net loan-loss provisions (1,251) (1,193) (1,060) (999) (946) (920) (930) Other income (66) (115) (121) (157) (149) (164) (248) Profit before taxes 743 602 651 583 702 683 669 Tax on profit (188) (144) (187) (184) (211) (185) (164) Profit from continuing operations 555 458 464 399 490 498 505 Net profit from discontinued operations Consolidated profit 555 458 464 399 490 498 505 Minority interests 131 92 109 93 110 108 108 Attributable profit to the Group 424 366 355 307 380 390 397 (*) As of R$/EUR 3.0993 (**) Including dividends, income from equity-accounted method and other operating income/expenses
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