Brazil Results 2013 January 30 th, 2014
Important information 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. All figures in this presentation were converted to constant currency at an average during Dec.13 of US$ 2.1483 (for income statements and average balances figures) and at US$ 2.3621 at the end of Dec.13 (for final balance sheet figures). 2
Table of Contents 3 Macroeconomic Scenario and Financial System 2013 - Strategies and Business - Results
Macroeconomic Scenario 4 GDP (real annual growth %) Interest Rate Selic (Final %) 2.7 1.0 2.3 1.7 1.5 11.00 7.25 10.00 11.00 12.50 2011 2012 2013 (e) 2014 (e) 2015 (e) 2011 2012 2013 2014 (e) 2015 (e) Inflation (IPCA %) Exchange Rate R$/US$ End of period 6.5 5.8 5.9 6.0 5.5 1.88 2.04 2.34 2.55 2.65 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 (January 27 th, 2014). (*) GDP growth of 2012 was revised from 0.9% to 1.0%, according to IBGE.
Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Macroeconomic Scenario 5 International Reserves and External Debt Current Account Balance vs. FDI US$ billion Total External debt¹ 239 198 289 257 352 379 376 298 313 312 US$ billion, in 12 months Current account balance Foreign direct investment 75.4 62.8 Reserves 2009 2010 2011 2012 2013 Exchange Rate -50.0-81.1 Nov-11 May-12 Nov-12 May-13 Nov-13 EMBI End of Period 2.43 R$/US$ R$/EUR 3.25 Average of Period 399 Brazil Emerging Markets 363 1.88 2.36 219 238 Source: The Central Bank of Brazil and IBGE 1. Last data from Nov/13
Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Macroeconomic Scenario 6 Interest rate¹ and Inflation Unemployment Rate (%) - Monthly 10.90% Interest rate (Selic) Inflation - IPCA - 12 moths 9.90% 7 Unemployment remains at minimum levels since 2010 6.5 6.50% 5.91% 6 5.5 5.2 5 Target: 4.5% 4.5 4 4.6 3.5 3 Source: The Central Bank of Brazil and IBGE 1. Effective annualized Selic
Financial System: Credit Dynamics Total Loan grows 15% YoY due to the earmarked loans, which grow 24% in the same period. 7 Total Loans Non-Earmarked Loans US$ Billion (constant FX rate) 996 1,021 1,046 1,091 1,119 1,141 US$ Billion (constant FX rate) 592 603 608 623 631 638 16.2% 16.4% 16.7% 16.4% 15.7% 14.6% 13.6% 13.6% 12.0% 9.7% 8.7% 7.8% Nov.12 Dec.12 Mar.13 Jun.13 Sep.13 Nov.13 Var. 12M (%) Earmarked Loans Nov.12 Dec.12 Mar.13 Jun.13 Sep.13 Nov.13 Var. 12M (%) Market Share (%) Total Loans US$ Billion (constant FX rate) 404 418 438 24.0% 20.9% 20.3% 468 488 503 26.7% 26.2% 24.4% Nov/13 6% 8% 34% 15% 51% 23% Nov.12 Dec.12 Mar.13 Jun.13 Sep.13 Nov.13 Var. 12M (%) Public Banks Private Banks Foreign Banks Growth (%) Nov.13/Nov.12 Source: The Central Bank of Brazil (*) Exchange Rate R$/US$ end of period as of Nov/13.
Financial System: Funding growth dynamics Total funding grows 9% in twelve months. Highlight for other funding from clients, which grew 32% in twelve months. US$ Billion (Constant FX Rate) Total Funding Other Funding from Clients 1,782 1,802 1,836 1,885 1,918 1,948 272 278 289 312 14.6% 9.3% Debêntures LCI+LCA¹ Letras Financeiras 116 101 102 109 338 360 126 122 50 52 57 66 81 89 121 125 122 130 136 145 8 Nov.12 Dec.12 Mar.13 Jun.13 Sep.13 Nov.13 Deposits Nov.12 Dec.12 Mar.13 Jun.13 Sep.13 Nov.13 Mutual Funds 559 566 558 571 570 574 283 277 268 268 256 251 2.3% 2.8% 276 289 290 303 313 323 Nov.12 Dec.12 Mar.13 Jun.13 Sep.13 Nov.13 Time Demand + Savings 952 958 989 1,001 1,010 1,014 812 808 840 854 864 868 16.3% 6.5% 139 149 149 147 147 146 Nov.12 Dec.12 Mar.13 Jun.13 Sep.13 Nov.13 Non Retail Retail Source: The Central Bank of Brazil (*) Exchange Rate R$/US$ end of period as of Nov/13. 1. Real Estate Credit Notes (LCI) and Agribusiness Credit Notes (LCA). Volume Y-o-Y Variation %
Table of Contents 9 Macroeconomic Scenario and Financial System 2013 - Strategies and Business - Results
Strategy Universal bank focused on retail 10 Revenues¹ by Segment 2013 Commercial Bank 88% Business (US$ billion) 2013 Loan Portfolio 97.2 Total Funding² 153.6 Results (US$ Million) Net Profit 2,713 Attributable Net Profit 2,094 10% 2% Global Banking and Markets Asset Management and Insurance Customer Base 2013 Current Account Holders³(thousand) 21,808 Total Customers (thousand) 29,512 Commercial Network Branches 2,313 Mini-Branches (PABs) 1,253 ATMs 16,958 1. Considers Net Interest Income + Net Fees + Gain (losses) on financial transactions + other operating income 2. Total funding: total deposits + debentures/lci/lca+ Letras Financeiras +AUM 3. Active and inactive current account during a 30-day period, according to Banco Central do Brasil.
Strategy 11 Strategy supported by five pillars Customer satisfaction: through efficient services, adequate segmentation and multichannel platform; Efficiency: offering the customers a simpler bank and increasing commercial productivity; Commercial model: more diversification of revenues and rigorous risk management; Capital discipline: for preserving solidity, facing regulatory changes and taking advantage of growth opportunities. Simplicity, Productivity and Efficiency: to promote an intense productivity transformation agenda, aligned with the financial industry transformation
Business: Portfolio Evolution 12 Expanded Credit Portfolio grows 7% in twelve months US$ Billion (Constant FX Rate) 7.4% 2.3% 96.8 96.9 99.7 101.6 104.0 12.31.13 12.31.12 YoY QoQ US$ billion US$ billion Variation Variation Individuals 32.0 29.9 6.9% 2.4% - Credit Cards 7.3 6.8 6.5% 10.6% - Mortgage 7.0 5.3 31.1% 8.7% - Others 17.7 17.7-0.2% -2.8% Consumer Finance 12.4 12.8-3.5% -0.5% SMEs / Companies 31.8 30.5 4.2% 3.0% Retail 76.2 73.3 3.9% 2.2% Corporate¹ 21.1 18.0 16.8% 2.6% Total 97.2 91.3 6.5% 2.3% Dec.12 Mar.13 Jun.13 Sep.13 Dec.13 Expanded Credit Portfolio Other Operations² 6.7 5.5 23.4% 2.9% Total + Acquired Loans² 104.0 96.8 7.4% 2.3% 1. Includes Corporate Activities and GB&M. 2. Includes portfolios acquired from others banks: US$ 0.3 billion in 4Q13, US$ 0.5 billion in 4Q12 and other credit risk transactions (debentures, FDIC, CRI, Floating Rate Notes and Promissory Notes).
Business: Deposits + Funds Evolution 13 Total Funding grows 9% in twelve months. Highlight to Demand + Savings, which grow 22% in twelve months US$ Billion (Constant FX Rate) 8.6% 2.6% 12.31.13 12.31.12 YoY QoQ US$ billion US$ billion Variation Variation Demand + Savings 20.8 17.1 21.6% 7.9% 141.5 143.1 147.5 149.7 153.6 84.3 83.2 86.4 88.6 92.2 Time Deposits 35.2 35.9-1.8% -0.2% Debentures / LCI / LCA¹ 24.2 20.6 17.7% 6.8% Letras Financeiras² 11.9 10.7 11.5% 5.2% 57.1 59.9 61.1 61.1 61.4 Dec.12 Mar.13 Jun.13 Sep.13 Dec.13 Total Funding 92.2 84.3 9.4% 4.1% Mutual Funds³ 61.4 57.1 7.4% 0.5% Total Funding + Mutual Funds 153.6 141.5 8.6% 2.6% Mutual Funds³ Total Funding 1. Repurchase Agreement backed on Debentures, Real Estate Credit Notes (LCI) and Agribusiness Credit Notes (LCA) 2. Bonds issued by Financial Institution on the domestic market 3. Considers ANBIMA criterion.
Business: Market Share 14 Market Share (%) Nov/13* Var. 3M (b.p) Var. 12M (b.p) Total Banking System Loans Total Loans 8.5% -10-60 Total Non-Earmarked Loans 10.7% -10-70 - Individuals Non-Earmarked Loans 11.9% -10-70 Deposits + Funds Deposits 7.9% +18-6 Mutual Funds 6.1% -6 +6 Source: Banco Central do Brasil and ANBIMA. (*) last data available. (**) From 2013 on, credit market share is over the Financial System, and not over the Banking System.
Table of Contents 15 Macroeconomic Scenario and Financial System 2013 - Strategies and Business - Results
Results: Net Interest Income 16 Net Interest Income decreases 10% in twelve months (2013 vs. 2012) US$ Million (Constant FX Rate) Deposits Spread % -8.0% Retail 2.3% 3,589 3,438 3,401 3,228 3,303 0.5 0.5 0.7 0.8 0.8 1.0 0.7 0.7 0.8 0.9 Total Deposits 4Q12 1Q13 2Q13 3Q13 4Q13 Loans Spread¹ % 4Q12 1Q13 2Q13 3Q13 4Q13 Retail 13.4 13.1 12.5 11.9 11.8 4Q12 Interest Rate (average) Selic 1Q13 2Q13 3Q13 4Q13 11.2 11.1 10.5 9.9 9.8 Total Loans 7.18% 7.13% 7.53% 8.53% 9.53% 4Q12 1Q13 2Q13 3Q13 4Q13 1. Spread of total loan portfolio (production + end of balance)
Results: Net Fees 17 Net Fees grow 7% in twelve months (2013 vs. 2012) US$ Million (Constant FX Rate) 10.5% 13.1% 2013 2012 Variation YoY Variation QoQ Current Account 768 811-5.3% 2.3% Mutual Funds 548 560-2.1% 0.6% 948 950 985 926 1,047 Credit Cards 885 748 18.3% 21.1% Insurance 877 723 21.2% 27.6% Values¹ 174 165 5.8% 16.4% Foreign Trade (COMEX) 197 160 22.8% 16.9% 4Q12 1Q13 2Q13 3Q13 4Q13 Net Fees Cash 417 381 9.6% 4.4% Others² 40 104-61.2% 24.0% Total 3,907 3,653 7.0% 13.1% 1. Securities brokerage, placement and custody services. 2. Includes guarantees, contingent liabilities and others
Results: Total Revenues 18 Total Revenues presents reduction of 6% in twelve months US$ Million (Constant FX Rate) -5.0% 0.3% Net Interest Income 2013 2012 Variation YoY Variation QoQ 13,370 14,840-9.9% 2.3% 4,683 4,652 4,468 4,438 4,449 Fees 3,907 3,653 7.0% 13.1% Subtotal 17,277 18,492-6.6% 4.7% Gain/Losses on financial transactions 717 833-13.9% -65.6% Others 13 (92) n.a. -48.6% 4Q12 1Q13 2Q13 3Q13 4Q13 Total Revenues 18,007 19,233-6.4% 0.3% Total Revenues
Results: Administrative Expenses and Amortization 19 Expenses increasing below inflation, reflection of efficiency and commercial productivity effort US$ Million (Constant FX Rate) 7.3% 8.1% 1,799 1,675 1,706 1,786 189 186 193 192 1,930 200 Administrative Expenses 2013 2012 Variation YoY Variation QoQ 6,326 6,166 2.6% 8.5% 1,610 1,489 1,513 1,594 1,730 Amortization 771 666 15.7% 4.3% Total 7,097 6,833 3.9% 8.1% 4Q12 1Q13 2Q13 3Q13 4Q13 Amortization Administrative Expenses
Results: Operating Income 20 Operating Income reduces 12% in twelve months (2013 vs. 2012) and 5% in the quarter US$ Million (Constant FX Rate) 2,885-12.7% 2,977 2,762-5.0% 2,652 2,520 Net Interest Income + Fees Gain/Losses on financial transaction 2013 2012 Variation YoY Variation QoQ 17,277 18,492-6.6% 4.7% 717 833-13.9% -65.6% Others 13 (92) n.a. -48.6% 4Q12 1Q13 2Q13 3Q13 4Q13 Operating Income Adm. Expenses + Amortization. Operating Income (7,097) (6,833) 3.9% 8.1% 10,911 12,401-12.0% -5.0%
Results: Provisions and Loan Quality 21 Provisions reduce 9% in twelve months (2013 vs. 2012) and 6% in the quarter US$ MM (Constant FX Rate) Provisions and Risk Premium¹ NPL and Coverage 7.1% 6.6% 6.2% 6.0% 5.2% 6.9% 5.6% 1,737 1,805 1,721 1,529 1,441 90.2% 95.1% 4Q12 1Q13 2Q13 3Q13 4Q13 4Q12 4Q13 Provisions Risk Premium NPL Coverage 1. Risk Premium: ((Initial NPL Balance Ending NPL Balance) + Charge Offs Recoveries) / Average Loan portfolio
Results: Net Profit 22 Net Profit reaches US$ 2,713 million in 2013 US$ MM (Constant FX Rate) - 28.1% -14.1% 2013 2012 Variation YoY Variation QoQ 803 801 662 672 577 Profit before Taxes 3,751 4,327-13.3% -10.3% Taxes (1,038) (1,091) -4.8% -1.1% Net Profit 2,713 3,236-16.2% -14.1% Attributable Profit 2,094 2,548-17.8% -13.7% 4Q12 1Q13 2Q13 3Q13 4Q13 Net Profit
Results: Indicators 23 Efficiency* % Recurrence¹ % ROE % +390 b.p. 35.5 39.4 +250 b.p. 59.2 61.8 17.7-580 b.p. 11.9 2012 2013 2012 2013 2012 2013 (*) Includes amortization 1. Recurrence (fees/ expenses).
Conclusion 24 Loan portfolio grows 7% in twelve months Costs control reflects the effort of efficiency and commercial productivity Loan loss provisions decreases 9% in twelve months, with improvement of risk premium Balance sheet strength
25 ANNEXES Results Quarterly Results Balance Sheet
Results Spanish GAAP 26 US$ million. Constant currency* Variation 2013 2012 Amount % Net interest income 13,370 14,840 (1,470) (9.9) Net fees 3,907 3,653 255 7.0 Gains (losses) on financial transactions 717 833 (116) (13.9) Other operating income** 13 (92) 105 Gross income 18,007 19,233 (1,226) (6.4) Operating expenses (7,097) (6,833) (264) 3.9 General administrative expenses (6,326) (6,166) (159) 2.6 Personnel (3,422) (3,430) 7 (0.2) Other general administrative expenses (2,903) (2,737) (166) 6.1 Depreciation and amortization (771) (666) (105) 15.7 Net operating income 10,911 12,401 (1,490) (12.0) Net loan-loss provisions (6,496) (7,130) 634 (8.9) Other income (663) (944) 281 (29.7) Profit before taxes 3,751 4,327 (575) (13.3) Tax on profit (1,038) (1,091) 53 (4.8) Profit from continuing operations 2,713 3,236 (523) (16.2) Net profit from discontinued operations Consolidated profit 2,713 3,236 (523) (16.2) Minority interests 619 688 (69) (10.0) Attributable profit to the Group 2,094 2,548 (454) (17.8) *As of R$/US$ 2.1483 ** Including dividends, income from equity-accounted method and other operating income/expenses.
Quarterly Results Spanish GAAP 27 US$ million. Constant currency* 1Q 12 2Q 12 3Q 12 4Q 12 1Q 13 2Q 13 3Q 13 4Q 13 Net interest income 3,639 3,860 3,752 3,589 3,438 3,401 3,228 3,303 Net fees 914 871 920 948 950 985 926 1,047 Gains (losses) on financial transactions 183 258 238 154 264 79 278 96 Other operating income** (44) (20) (21) (8) 0 2 7 4 Gross income 4,692 4,969 4,889 4,683 4,652 4,468 4,438 4,449 Operating expenses (1,657) (1,651) (1,727) (1,799) (1,675) (1,706) (1,786) (1,930) General administrative expenses (1,510) (1,497) (1,549) (1,610) (1,489) (1,513) (1,594) (1,730) Personnel (842) (832) (866) (890) (831) (815) (848) (928) Other general administrative expense (668) (665) (684) (720) (658) (698) (746) (802) Depreciation and amortization (146) (154) (178) (189) (186) (193) (192) (200) Net operating income 3,036 3,319 3,162 2,885 2,977 2,762 2,652 2,520 Net loan-loss provisions (1,606) (2,010) (1,777) (1,737) (1,805) (1,721) (1,529) (1,441) Other income (240) (285) (283) (135) (96) (166) (174) (227) Profit before taxes 1,190 1,023 1,101 1,013 1,076 876 949 851 Tax on profit (305) (261) (316) (209) (274) (214) (277) (274) Profit from continuing operations 885 762 785 803 801 662 672 577 Net profit from discontinued operations Consolidated profit 885 762 785 803 801 662 672 577 Minority interests 193 176 158 161 190 135 160 135 Attributable profit to the Group 691 587 627 643 612 527 513 442 * As of R$/US$ 2.1483 ** Including dividends, income from equity-accounted method and other operating income/expenses.
Balance Sheet Spanish GAAP 28 US$ million. Constant currency¹ Variation 12.31.13 12.31.12 Amount % Loans and credits* 91,636 85,283 6,353 7.4 Trading portfolio (w/o loans) 14,234 14,477 (243) (1.7) Available-for-sale financial assets 19,548 18,639 910 4.9 Due from credit institutions* 20,320 12,980 7,340 56.5 Intangible assets and property and equipment 3,852 3,843 9 0.2 Other assets 35,106 35,628 (522) (1.5) Total assets/liabilities & shareholders' equity 184,695 170,849 13,846 8.1 Customer deposits* 84,801 79,947 4,854 6.1 Marketable debt securities* 27,584 22,862 4,723 20.7 Subordinated debt 3,770 5,046 (1,276) (25.3) Due to credit institutions* 17,830 19,915 (2,085) (10.5) Other liabilities 34,793 29,539 5,254 17.8 Shareholders' equity** 15,917 13,541 2,376 17.5 Off-balance-sheet funds 51,591 39,846 11,745 29.5 Mutual funds 47,502 35,870 11,632 32.4 Managed portfolios 4,089 3,977 113 2.8 Customer funds under management 167,747 147,700 20,046 13.6 1. As of R$/US$ 2.3621 * Includes all stock of concept classified in the balance sheet ** Not including profit of the year
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