Balance Sheet of Banco Santander, S.A. As of 30 June 2020, Along with the Corresponding Auditor's Report (Item

Banco Santander, S.A.

Independent auditor´s report on the balance sheet as at June 30, 2020 pwc

This version of our report is a free translation of the original, which was prepared in Spanish. All possible care has been taken to ensure that the translation is an accurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation

Independent auditor’s report on the balance sheet

To the shareholders of Banco Santander, S.A. at the request of management:

Report on the Balance Sheet

Opinion

We have audited the Balance sheet of Banco Santander, S.A. (the Bank) as at June 30, 2020, and the related notes, which include a summary of significant accounting policies (together called “the Balance sheet”).

In our opinion, the accompanying Balance sheet presents fairly, in all material respects, the equity and financial position of the Bank as at June 30, 2020, in accordance with the applicable financial reporting framework relevant to the preparation of such a financial statement (as identified in Note 1 of the accompanying notes), and in particular, with the accounting principles and criteria included therein.

Basis for opinion

We conducted our audit in accordance with legislation governing the audit practice in Spain. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the balance sheet section of our report.

We are independent of the Bank in accordance with the ethical requirements, including those relating to independence, that are relevant to our audit of the balance sheet in Spain, in accordance with legislation governing the audit practice. In this regard, we have not rendered services other than those relating to the audit of the accounts, and situations or circumstances have not arisen that, in accordance with the provisions of the aforementioned legislation, have affected our necessary independence such that it has been compromised.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the Balance sheet as at June 30, 2020. These matters were addressed in the context of our audit of the Balance sheet as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

.------· . PricewaterhouseCoopers Auditores, S.L., Torre PwC, Pº de la Castellana 259 B, 28046 Madrid, Espaa Tel.: +34 915 684 400 / +34 902 021 111, Fax: +34 915 685 400, www.pwc.es 1

R. M. Madrid, hoja 87.250-1, folio 75, tomo 9.267, libro 8.054, seccin 3ª Inscrita en el R.O.A.C. con el nmero S0242 - CIF: B-79 031290 pwc

Banco Santander, S.A.

Key audit matter How our audit addressed the key audit matter Estimation of impairment of financial assets at amortised cost - loans and advances to customers – for credit risk

The complexity of the expected loss impairment We have performed, together with our credit risk calculation models has increased due to their expert team, an understanding of management's adaptations made in the context of the COVID- process to estimate the impairment of financial 19 crisis by incorporating new estimates and assets at amortised cost - loans and advances to judgment elements such as the consideration of costumers - on a collective and individual basis certain flexibility measures in the application of the criteria for classification by phases (staging) In regards with the internal control, we performed an understanding and test of controls over the of the operations subject to moratoriums, the process, focusing on management’s review of the consideration of guarantees in operations with main assumptions used, estimation and approval of government endorsement or the consideration post models adjustments, moratoriums and of the adjustments to the models for their government guarantees processes derived from adaptation to the new environment. These COVID-19 crisis, if applicable. estimates imply a high judgment component by management and are one of the most significant In addition, we performed the following tests of and complex estimates in the preparation of the details: accompanying Balance sheet, which is why it • Tests of principal models focusing on: i) has been considered one of the key audit calculation and segmentation methods; ii) matters. methodology used for the estimation of the expected loss parameters; iii) data and main The main judgements and assumptions used by assumptions used, iv) staging criteria and v) management are the following: scenario information and assumptions.

• Identification and classification criteria of • For a sample of loans subject to either the assets across different stages moratoriums or government guarantees, including criteria used in the analysis of assess the documentation used in the the operations covered by moratoriums origination process.

• The estimation of the Probability of • Reperformance of collective impairment Default (PD) and Loss Given Default losses based on the expected credit loss (LGD) parameters. models parameters.

• The definition and evaluation of post • Evaluation of the post model adjustments model adjustments to adapt the made by management. parameters estimated by the models to the current environment derived from the • On a sample basis, evaluating individual COVID-19 crisis. credit files to determine the adequacy of their accounting and classification, discounted The Bank’s business is focused on commercial cash flows and, where appropriate, banking products. In this context, the Bank uses corresponding impairment. internal models that allow it to estimate both the collective provisions and the provisions for risks We have not identified exceptions outside of a estimated individually. reasonable range in the procedures outlined above. Refer to notes 2, 5 and 9 of the related notes to the accompanying Balance sheet as at June 30, 2020.

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Banco Santander, S.A.

Key audit matter How our audit addressed the key audit matter Recoverability of deferred tax assets

Assessing the recoverability of deferred tax In collaboration with our tax experts, we have assets is an exercise that requires a high obtained an understanding of the estimation degree of judgement and estimation, therefore process undertaken by management and the it has been considered one of the key audit controls designed and implemented in the matters. following processes:

Within the framework of a recoverability model • Process based in the generation of the defined by the Bank's management, in relation projections of future taxable profits used in to the Consolidated Tax Group, on an annual the estimation of the recoverability of basis, each business unit compiles the deferred tax assets. assumptions that support the business plans that are projected over the time horizon • Calculation of deductible temporary established for that business. As a result of difference, including the adequacy with the COVID-19, the changes in the macroeconomic current tax regulation. variables and the actual results as compared to budget derived, the Bank has evaluated the We also performed the following tests of details: ability to generate future taxable profits in assessing the recoverability of the deferred tax • Evaluated the accuracy of the calculations assets recorded as at June 30, 2020. and the reasonableness of the estimations made by management for deductible The process carried out during this period temporary differences. includes specific considerations that management considers in assessing the • Assessed the completeness and recoverability of deferred tax assets, placing appropriateness of the assumptions used by special attention to the environment and management in their calculation of the uncertainty resulting from the pandemic. The deductible temporary differences. most significant considerations made by the management in this respect are: • Analysis of the key assumptions used by management in their estimation and • Assuring that the tax regulations of each monitoring of the recoverability of deferred country are applied correctly and the tax assets, with special attention to the temporary differences that meet the COVID-19 impact, including: consideration as deductibles are duly recognised. - Obtaining and analysing the financial projections carried out by the Bank • Reviewing the projections that are part of and the assumptions used, including the recoverability model which is in turn the detail of the economic forecasts used to estimate the tax profits used to and indicators used in the analysis. assess the recoverability of the deferred tax assets in future periods in relation to - Analysis of the tax strategy planned deductible temporary differences and by the Bank for the recoverability of unused tax losses. the deferred tax assets.

• Applying the model and validating the We have not identified exceptions outside of a calculations of these models to ensure reasonable range in the procedures outlined that the valuation of tax assets, and that above. the conclusions drawn regarding their recoverability are appropriate.

Refer to notes 1, 2 and 23 of the related notes to the accompanying Balance sheet as at June 30, 2020.

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Banco Santander, S.A.

Key audit matter How our audit addressed the key audit matter Litigation provisions and contingencies

The Bank is party to a range of tax and legal We have obtained an understanding and proceedings - administrative and judicial – of evaluated the estimation process performed by tax and legal nature which primarily arose in management and the controls designed and the ordinary course of its operations. There are implemented in the following processes: also situations not yet subject to any judicial proceedings that may require the recognition of • Additions, logs and updates over the provisions, such as the customer compensation completeness of the legal matters in the related to conduct matters. systems.

These procedures generally take a long period • Accuracy of the key data, maintained in the of time to run their course, giving rise to systems, used in the calculation of the complex processes in accordance with current litigations provisions and contingencies. legislation, which is why it has been considered one of the key audit matters. • Assessment of the criteria used to estimate the expected losses from litigation The management decides when to recognize a provisions and contingencies and evaluation provision for these contingent liabilities, based of the adequacy over the calculation of the on an estimate calculated using certain provisions for regulatory, legal or tax procedures consistent with the nature of the procedures and their recognition. uncertainty of the obligations. • Reconciliation between the minutes of the Among these provisions, the most significant inspections and the amounts accounted for. are those for customer compensation for the sale of certain products; these estimates are In addition, we performed the following tests of based on the number of claims expected to be details: received, the number expected to be accepted, and the estimated average pay out per case. • Analysis for reasonableness of the expected outcomes of the most significant tax and Refer to notes 2 and 22 of the related notes to legal proceedings. the accompanying Balance sheet as at June 30, 2020. • Assessment of possible contingencies relating to compliance with the tax obligations for all the years open to inspection, of the communications with the regulatory bodies, analysis of the ongoing regulatory inspections.

• Obtaining confirmation letters from external and internal lawyers and external tax advisors who work with the Bank and performing alternative procedures.

• Analysis of the recognition and reasonableness of the provisions recorded.

In the procedures described above, no exceptions were identified outside of a reasonable range.

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Banco Santander, S.A.

Key audit matter How our audit addressed the key audit matter Impairment of investments in Company´s subsidiaries, joint ventures and affiliates

As indicated in Note 1 of the accompanying We have obtained an understanding of the related notes to the Balance sheet as at June valuation process of the investment Company´s 30, 2020, Banco Santander, S.A. is the parent subsidiaries, joint ventures and affiliates. In company of a group of entities, whose addition, where the valuation of investment require fundamental activities are in the financial the use of significant judgment, we have relied on sector. The accounting value of the the assistance of our our valuation experts. investments Company´s subsidiaries, joint ventures and affiliates as of June 30, 2020 is With respect to internal control, we have focused 81.286 million euros, as indicated in Note 12 of on the design and operating effectiveness of the the related notes to the accompanying Balance controls in the valuation process and over the sheet. methodology, inputs and relevant assumptions use by Management for the year-end estimates, Management performs an analysis of the including the controls in place to supervise the potential losses in investments in Group entities process and the related approvals. that it has registered in its accounting records. This analysis is performed using different Additionally, we have performed tests of details parameters such as the market price and the, consisting of the following: recoverable value, which is obtained from the estimations of the expected cash flows or the • Verify the valuation performed by the Bank, net equity adjusted for the unrealized gains using as a reference the recoverable existing at the valuation date, including goodwill balance of the investments in Group net of its corresponding amortization. entities.

The valuation or analysis of the impairment of • Verify that Management´s valuation some of these investments require the use of methodology is in line with the applicable significant judgments, principally for those accounting standards, market practice and investments measured using the net equity the specific expectations of the sector. adjusted for the unrealized gains existing at the valuation date including its goodwill, including • For investments whose valuation is those measured using the net book value, calculated including goodwill, we evaluated therefore it has been considered one of the key the reasonability of the discounted cash flow audit matters. projections, including the validation of the key inputs with external data and performing In this evaluation, management is based on the a sensitivity analysis on them. analyzes performed by the Group in the evaluation of goodwill, where using We have not identified exceptions, outside a assumptions such as financial projections, reasonable range, in the test described above. discount rates, perpetual growth rates, market quotes (if available), market references (multiples). Such valuations, and some of these assumptions, are performed by management’s experts.

Management’s assessment has considered the updated economic and business environment resulting from COVID-19, the current market conditions and the existing economic uncertainty.

Refer to notes 1, 2 and 12 of the related notes to the accompanying Balance sheet as at June 30, 2020.

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Banco Santander, S.A.

Key audit matter How our audit addressed the key audit matter Information systems

The Bank’s financial information is highly We have evaluated, in collaboration with our IT dependent on information technology (IT) system specialists, the internal controls over the systems, therefore an adequate control of IT systems, databases and applications that these systems is crucial to ensuring correct support the Bank’s financial reporting. data processing. For this purpose, we have performed procedures In this context, it is vital to evaluate aspects over internal control and test of details related to: such as the organisation of the Bank’s Technology and Operations department, • The function of the IT governance controls over software maintenance and framework. development, physical and logical security controls, and controls over computer • Access and logical security controls over operations, therefore, it has been considered the applications, operating systems and one of the key audit matters. databases that support the relevant financial information. In this respect, management has developed a plan to reinforce the internal controls over IT • Application development and change systems. This plan includes aspects such as management. improvements in the access control and the internal governance that manage the IT • Maintenance of computer operations. processes that support the Bank, which includes the cybersecurity model. In addition, considering the plan developed by the Bank to reinforce the internal controls over IT systems, our approach and audit plan focused on the following aspects:

• Evaluation of the changes made as part of this plan and of the enhancements implemented in the access control environment of the Bank.

• Testing of the design and operating effectiveness of the controls implemented by the management.

In the procedures described above, no essential exceptions were identified related to this matter.

Responsibility of the directors and the audit committee for the balance sheet

The Bank´s directors are responsible for the preparation of the Balance sheet such that it fairly presents the equity and financial position of the bank, in accordance with the financial reporting framework applicable to the entity for the preparation of such a financial statement in Spain, and for such internal control as the directors determine is necessary to enable the preparation of a Balance sheet that is free from material misstatement, whether due to fraud or error.

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Banco Santander, S.A.

In preparing the Balance sheet, the Bank´s directors are responsible for assessing the Bank´s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Bank or to cease operations, or have no realistic alternative but to do so.

The audit committee is responsible for overseeing the process of preparation and presentation of the Balance sheet.

Auditor's responsibilities for the audit of the balance sheet

Our objectives are to obtain reasonable assurance about whether the Balance sheet as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor´s report that includes our opinion.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with legislation governing the audit practice in Spain will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these Balance sheet.

As part of an audit in accordance with legislation governing the audit practice in Spain, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the Balance sheet, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity´s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Bank´s directors.

• Conclude on the appropriateness of the directors´ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank´s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor´s report to the related disclosures in the Balance sheet or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor´s report. However, future events or conditions may cause the Bank to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the Balance sheet, including the disclosures, and whether the Balance sheet represents the underlying transactions and events in a manner that achieves fair presentation.

We communicate with the entity’s audit committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

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Banco Santander, S.A.

We also provide the entity´s audit committee with a statement that we have complied with relevant ethical requirements, including those relating to independence, and we communicate with the audit committee those matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with the entity’s audit committee , we determine those matters that were of most significance in the audit of the Balance sheet as at June 30, 2020 and are therefore the key audit matters.

We describe these risks in our auditor’s report unless law or regulation precludes public disclosure about the matter.

Report on other legal and regulatory requirements

Appointment period

The General Ordinary Shareholders’ Meeting held on April 3, 2020 appointed us as auditors of the Bank for a period of one year, for the year ended December 31, 2020.

Previously, we were appointed by resolution of the General Shareholders’ Meeting for a period of 3 years and we have audited the accounts continuously since the year ended December 31, 2016.

Services provided

Services provided to the audited entity for services other than the audit of the accounts, are described in Note 2.s of the related notes to the accompanying Balance sheet as at June 30, 2020.

PricewaterhouseCoopers Auditores, S.L. (S0242)

Original in Spanish signed by Alejandro Esnal Elorrieta (19930)

September 22, 2020

Banco Santander, S.A.

Balance Sheet as of 2020

Translation of balance sheet originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the Bank in Spain (See Notes 1 and 34). In the event of a discrepancy, the Spanish-language version prevails.

BALANCE SHEET AS OF JUNE 30, 2020 AND DECEMBER 31, 2019 (Millions of euros)

ASSETS Note 30/06/2020 31/12/2019 (*)

CASH, CASH BALANCES AT CENTRAL BANKS AND OTHER DEPOSITS ON DEMAND 55,361 32,471

FINANCIAL ASSETS HELD FOR TRADING 96,549 86,583 Derivatives 8 72,026 55,694 Equity instruments 7 7,389 11,697 Debt instruments 6 17,059 19,094 Loans and advances 75 98 Central banks 5 - - Credit institutions 5 - - Customers 9 75 98 Memorandum items: lent or delivered as guarantee with disposal or pledge rights 30 8,793 21,192

NON_TRADING FINANCIAL ASSETS MANDATORILY AT FAIR VALUE THROUGH PROFIT OR LOSS 2,336 2,619 Equity instruments 7 246 231 Debt instruments 6 955 1,099 Loans and advances 1,135 1,289 Central banks 5 - - Credit institutions 5 - - Customers 9 1,135 1,289 Memorandum items: lent or delivered as guarantee with disposal or pledge rights 30 392 224

FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS 81,193 49,859 Debt instruments 6 - - Loans and advances 81,193 49,859 Central banks 5 272 138 Credit institutions 5 48,712 18,543 Customers 9 32,209 31,178 Memorandum items: lent or delivered as guarantee with disposal or pledge rights 30 9,691 4,783

FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME 22,162 32,027 Equity instruments 7 & 24 1,448 1,856 Debt instruments 6, 24 & 33 15,961 26,306 Loans and advances 4,753 3,865 Central banks 5 - - Credit institutions 5 - - Customers 9 4,753 3,865 Memorandum items: lent or delivered as guarantee with disposal or pledge rights 30 3,238 5,329

FINANCIAL ASSETS AT AMORTISED COST 318,137 289,295 Debt instruments 6 13,238 14,528 Loans and advances 304,899 274,767 Central banks 5 20 22 Credit institutions 5 39,471 34,747 Customers 9 265,408 239,998 Memorandum items: lent or delivered as guarantee with disposal or pledge rights 30 5,726 2,640

HEDGING DERIVATIVES 31 4,508 2,226

CHANGES IN THE FAIR VALUE OF HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK 31 231 248

INVESTMENTS 81,286 87,330 Group entities 12 76,883 82,223 Joint ventures entities 247 247 Associated companies 12 4,156 4,860

TANGIBLE ASSETS 14 6,753 7,131 Property, plant and equipment: 6,522 6,904 For own use 5,850 6,253 Leased out under an operating lease 672 651 Investment property: 231 227 Of which: Leased out under an operating lease 231 227 Memorandum ítems:in lease 3,062 3,167

INTANGIBLE ASSETS 15 983 685 Goodwill 489 521 Other intangible assets 494 164

TAX ASSETS 23 9,860 12,331 Current tax assets 1,215 2,215 Deferred tax assets 8,645 10,116

OTHER ASSETS 16 4,804 5,947 Insurance contracts linked to pensions 13, 16 & 22 457 511 Inventories 16 - - Other 16 4,347 5,436

NON-CURRENT ASSETS HELD FOR SALE 11 1,377 1,164 TOTAL ASSETS 685,540 609,916 (*) Presented for comparison purposes only. The accompanying Notes 1 to 34 and Appendices are an integral part of the balance sheet as of June 30, 2020.

BALANCE SHEET AS OF JUNE 30, 2020 AND DECEMBER 31, 2019 (Millions of euros)

LIABILITIES Note 30/06/2020 31/12/2019 (*)

FINANCIAL LIABILITIES HELD FOR TRADING 81,276 64,356 Derivatives 8 71,771 56,068 Short positions 8 9,505 8,288 Deposits - - Central banks 17 - - Credit institutions 17 - - Customers 18 - - Marketable debt securities 19 - - Other financial liabilities 21 - -

FINANCIAL LIABILITIES DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS 30,066 24,264 Deposits 30,066 24,264 Central banks 17 8,995 7,596 Credit institutions 17 8,172 6,152 Customers 18 12,899 10,516 Marketable debt securities 19 - - Other financial liabilities 21 - - Memorandum ítems: subordinated liabilities - -

FINANCIAL LIABILITIES AT AMORTISED COST 500,851 437,018 Deposits 389,545 338,597 Central banks 17 61,331 36,896 Credit institutions 17 56,806 51,180 Customers 18 271,408 250,521 Marketable debt securities 19 96,916 87,567 Other financial liabilities 21 14,390 10,854 Memorandum ítems: subordinated liabilities 19 & 20 15,266 15,352

HEDGING DERIVATIVES 31 1,295 2,044

CHANGES IN THE FAIR VALUE OF HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RISK RATE - -

PROVISIONS 22 5,914 6,490 Provision for pensions and similar obligations 3,487 3,918 Other long-term employee benefits 1,046 1,220 Restructuring 340 - Provisions for taxes and other legal contingencies 465 501 Provisions for commitments and guarantees given 153 180 Other provisions 423 671

TAX LIABILITIES 23 1,748 1,591 Current tax liabilities 39 - Deferred tax liabilities 1,709 1,591

OTHER LIABILITIES 16 2,123 3,931

LIABILITIES ASSOCIATED WITH NON-CURRENT ASSETS HELD FOR SALE - - TOTAL LIABILITIES 623,273 539,694

SHAREHOLDERS’ EQUITY 25 63,436 70,562

CAPITAL 8,309 8,309 Called up paid capital 26 8,309 8,309 Unpaid capital which has been called up - - Memorandum ítems: uncalled up capital - -

SHARE PREMIUM 27 52,446 52,446

29 EQUITY INSTRUMENTS ISSUED OTHER THAN CAPITAL 611 598

Equity component of compound financial instruments - - Other equity instruments 611 598

OTHER EQUITY INSTRUMENTS 125 144 ACCUMULATED RETAINED EARNINGS 28 11,344 7,814 REVALUATION RESERVES - - OTHER RESERVES 28 (926) (617) (-) OWN SHARES - - RESULTS FOR THE PERIOD (6,811) 3,530 (-) DIVIDENDS (1,662) (1,662)

OTHER COMPREHENSIVE INCOME 24 (1,169) (340)

ITEMS NOT RECLASSIFIED TO PROFIT OR LOSS 24 (1,644) (1,024)

ITEMS THAT MAY BE RECLASSIFIED TO PROFIT OR LOSS 24 475 684

TOTAL EQUITY 62,267 70,222 TOTAL LIABILITIES AND EQUITY 685,540 609,916 MEMORANDUM ITEMS Financial guarantees granted 30 9,727 9,474 Loans commitment granted 30 90,639 85,840 Other commitments granted 30 64,364 52,460 (*) Presented for comparison purposes only. The accompanying Notes 1 to 34 and Appendices are an integral part of the balance sheet as of June 30, 2020.

Banco Santander, S.A.

Notes to the balance sheet as of June 30, 2020 (Expressed in millions of euros)

1. Introduction, basis of presentation and other information

a) Introduction

Banco Santander, S.A. (“Bank” or “Banco Santander”) is a private-law entity subject to the rules and regulations applicable to banks operating in Spain. The Bylaws and other public information of the Bank can be consulted at its registered office at Paseo de Pereda 9-12, Santander.

In addition to the operations carried on directly by it, the Bank is the head of a group of subsidiaries that engage in various business activities and which compose, together with it, Santander Group (“Group” or “Santander Group”). Consequently, the Bank is obliged to prepare, in addition to its own individual annual accounts, consolidated annual accounts of the Group, which also include interests in joint ventures and investments in associated entities.

The consolidated annual accounts of the Group and those of the Bank for the 2019 financial year were approved by the general meeting of shareholders held on April 3, 2020 and deposited in the Mercantile Registry of Santander. The consolidated condensed interim financial statements of the Santander Group corresponding to the six-month period ended June 30, 2020 were prepared and prepared by its Administrators, at the meeting of its Board of Directors held on July 28, 2020.

The present Balance Sheet is formulated for the purposes of the capital increase operation charged to reserves in accordance with article 303.2 of the Spanish Corporate Law.

b) Basis of presentation of the balance sheet as of June 30, 2020

The Bank's balance sheet as of June 30, 2020 and the explanatory notes thereto as of that date, have been formulated by its Administrators (at the Board of Directors meeting held on September 21, 2020), in accordance with the provisions of the Circular 4/2017 of the Bank of Spain, considering its modifications, as well as the commercial regulations applicable to the Bank, applying the principles, accounting policies and valuation criteria described in Note 2, in such a way that they show the true image of the equity and the financial situation of the Bank as of June 30, 2020. Said balance sheet has been prepared from the accounting records maintained by the Bank.

The balance sheet as of June 30, 2020 has been prepared taking into consideration all the accounting principles and standards and the mandatory appraisal criteria that have a significant effect on them, in such a way that they show the true image of the assets and of the Bank's financial situation as of June 30, 2020. However, the explanatory notes to the balance sheet do not include all the information that would require complete financial statements prepared in accordance with Bank of Spain Circular 4/2017, in particular, they do not include the profit and loss account, nor its corresponding notes, the statement of recognized income and expenses, the statement of changes in equity and the corresponding statement of cash flows. Note 2 summarizes the most significant accounting principles and valuation criteria applied in its preparation. The Bank's annual accounts for the 2019 financial year were approved by the Bank's General Shareholders' Meeting at its meeting held on April 3, 2020 and deposited in the Mercantile Registry of Santander.

Adoption of new standards and interpretations issues

Below is a summary of the main applicable Bank of Spain Circulars, issued and that came into force in the period between January 1 and June 30, 2020.

Circular 1/2020, of January 28, of the Banco de Spain, by which Circular 1/2013, of May 24, of the Bank of Spain, on the Risk Information Center is modified. (BOE of February 5, 2020).

On March 15, Law 5/2019, of March 15, regulating real estate credit contracts, which transposes Directive 2014/17 / EU of the European Parliament and of the Council, of February 4, 2014, into Spanish law, came into force on credit agreements entered into with consumers for real estate for residential use. The aforementioned law modifies, in its seventh final provision, Law 44/2002, of November 22, on Reform Measures of the Financial System, in order to give access to the Central Risk Information Center (CRI) of the Bank of Spain to all real estate credit lenders. As a result of this modification, the perimeter of the reporting entities is broadened to include real estate lenders and credit institutions that operate under the free provision of services regime, and real estate credit intermediaries are enabled to have access to reports on the risks of natural and legal persons registered in the CRI under the same conditions as the reporting entities. In relation to the information on the declared data, the Bank of Spain is empowered to temporarily prevent a reporting entity from accessing the CRI data when it fails to comply with its information obligations with the necessary quality and accuracy. Additionally, Royal Decree 309/2019, of April 26, which partially develops Law 5/2019, of March 15, regulating real estate credit contracts and adopts other measures in financial matters, at its disposal additional third, empowers the Bank of Spain to establish regulatory technical standards on how to access the CRI that must be public, non-discriminatory and proportionate.

Additionally, after a certain period of time has elapsed since the entry into force of Regulation (EU) num. 867/2016 of the European Central Bank, of May 18, on the collection of granular credit and credit risk data (ECB / 2016 / 13) (hereinafter, Regulation (EU) 867/2016), and the modification of Circular 1/2013 to collect through the CRI the information that the Bank of Spain has to request from the reporting entities to communicate it to the European Central Bank in accordance with the provisions of the aforementioned regulation, it has been considered necessary to introduce some modifications in Circular 1/2013 to improve the coherence of the information collected through the CRI with respect to that established in the framework of the Regulation ( EU) 867/2016.

Finally, with the aim of updating the standard, some changes have been made to Circular 1/2013 to clarify the information that must be submitted regarding certain operations, reorganize the way the information is presented in some modules and introduce some extra dimension. Likewise, some clarifications are introduced in relation to the presentation of claims to the CRI.

For all these reasons, this circular complies with the principles of necessity, effectiveness, proportionality, legal certainty, transparency and efficiency regulated in article 129 of Law 39/2015, of October 1, on the common administrative procedure of the Administrations Public, since with it the pursued ends are achieved without imposing unnecessary or accessory burdens, regulating exclusively the essential aspects in a coherent way with the rest of the legal system.

Circular 2/2020, of June 11, of the Bank of Spain, which modifies Circular 4/2017, of November 27, to credit institutions, on standards of public and reserved financial information, and models of financial statements. (BOE of June 16, 2020).

The main objective of this circular is to adapt Circular 4/2017, of November 27, to credit institutions, on standards of public and reserved financial information, and models of financial statements, to changes in international law on information requirements to credit institutions.

This circular meets the principles of necessity, effectiveness, proportionality, legal certainty and efficiency required by article 129.1 of Law 39/2015, of October 1, on the common administrative procedure of Public Administrations, since it undertakes changes necessary to maintain the accounting regulation and financial information requirements of credit institutions complete, integrated and harmonized with the rest of the legal system, both national and of the European Union.

The principle of transparency is achieved through the prior public consultation of the potentially affected, established by article 133 of Law 39/2015, of October 1, and the public hearing of the interested parties, both forming part of the process of processing of this circular.

The authorizations of the Bank of Spain to issue this circular are the same as those for the approval of Circular 4/2017, that is, those established in the Order of March 31, 1989, which empowers the Bank of Spain to establish and modify the accounting standards of credit institutions. In it, the Minister of Economy and Finance delegated to the Bank of Spain the authorization to establish and modify the accounting standards and the models to which the financial statements, both individual and consolidated, of credit institutions must be subject.

Circular 3/2020, of June 11, of the Bank of Spain, which modifies Circular 4/2017, of November 27, to credit institutions, on standards of public and reserved financial information, and models of financial statements. (BOE of June 16, 2020).

The public health emergency situation created by the spread of COVID-19 and the necessary containment measures are causing a disturbance of great intensity for the Spanish economy, affecting companies and households. As a complement to the extraordinary urgent measures to face the economic and social impact of COVID-19, it is necessary that credit institutions continue to provide financial support to companies and households negatively affected by this transitory and exceptional situation.

In this context, bank regulators and supervisors around the world are recommending making adequate use of the flexibility implicit in the regulatory framework, without prejudice to the adequate identification of the deterioration of operations and a reasonable estimate of their coverage for risk of credit. Specifically, the European Banking Authority (EBA), in its Communication of March 12, 2020, on actions to mitigate the impact of COVID-19 in the banking sector of the European Union (EU), recommends make full use of the flexibility implicit in the regulatory framework and develops this recommendation in the aspects related to the accounting classification of credit risk operations that are included, among others, in its Communication of March 25, 2020, on the application of the regulatory framework with regard to non-payment, restructuring or refinancing, and IFRS 9 in view of the response measures to COVID-19.

Circular 4/2020, of June 26, of the Bank of Spain, on advertising of banking products and services. (BOE of July 15, 2020).

Advertising is a key element in the marketing of banking products and services. In general, it is the first point of contact between an entity and its potential client. Through advertising, entities publicize their offer of products and services, through the use of specialized techniques in order to encourage their hiring, so the information transmitted in advertising messages usually has a great impact on expectations, of the client and in the subsequent decision-making process. In this context, the regulation of financial advertising becomes an essential protection mechanism for banking customers. It is necessary, therefore, to articulate regulatory and supervisory measures aimed at ensuring that advertising is clear, sufficient, objective and not misleading, and that the relationships of clients with their entities in the post-contracting phases are less conflictive.

From the application of the aforementioned circulars, no significant effects have been derived on the balance sheet as of June 30, 2020.

Below is a summary of the main applicable Bank of Spain Circulars, issued and that entered in force for the period from January 1, to December 31, 2019.

Circular 1/2019, of January 30, of the Bank of Spain, which modifies Circular 8/2015, of December 18, to the entities and branches attached to the Deposit Guarantee Fund of Credit Institutions, on information to determine the basis for calculating contributions to the Deposit Guarantee Fund for Credit Institutions. (BOE of February 8, 2019).

The objective is to modify Appendix 2 of Circular 8/2015, in order to add new fields with the depositor's contact information, specify the definition of some fields whose content was not sufficiently explained and allow the use of some special characters, as that are necessary to correctly process certain contact details of depositors. This is to ensure a higher quality of the data in the files with the information per depositor and to allow depositors to be more easily identified when they have to face a situation of reimbursement to the latter by the Deposit Guarantee Fund of Entities of credit.

Circular 2/2019, of March 29, of the Bank of Spain, on the requirements of the Informative Document of the Commissions and the Statement of Commissions, and the payment account comparison websites, and that modifies Circular 5/2012, of June 27, to credit institutions and payment service providers, on transparency of banking services and responsibility in granting loans. (BOE of April 4, 2019).

From the application of the mentioned circulars, there have been no significant effects on the Bank's balance sheet as of June 30, 2020.

Circular 2/2018, of December 21, of the Bank of Spain, which modifies Circular 4/2017, of November 27, to credit institutions, on standards of public and reserved financial information, and models of financial statements, and Circular 1/2013, of May 24, on the Risk Information Center.

On December 28, 2018, Circular 2/2018, of December 21, of the Bank of Spain was published in the Official State Gazette. This Circular enters into force on January 1, 2019 and the main objective is to adapt Circular 4/2017, of November 27, to credit institutions, on standards of public and reserved financial information, and models of financial statements, as far as relative to the International Financial Reporting Standard (IFRS- EU) 16, on leases.

Finally, it should be noted that this circular also modifies Circular 1/2013, of May 24, on the Risk Information Center (CRI), incorporating minor changes in order to introduce clarifications and improvements.

The main aspects contained in IFRS 16, to which the aforementioned Circular 2/2018 is adapted, are the following:

IFRS 16 Leases

On 1 January 2019, the IFRS 16 Leases Standard entered into force. IFRS16 establishes the principles for the recognition, measurement, presentation and breakdown of lease contracts, with the aim of guaranteeing that both the lessee and lessor provide relevant information that represents the true image of said operations. The Bank adopted the standard retrospectively as amended from 1 January 2019, not restating the comparative financial statements for fiscal year 2018, as allowed under the specific transitory provisions of the standard.

The adoption of IFRS 16 led to changes in the Bank's accounting policies for the recognition, valuation, presentation and breakdown of lease contracts.

As a result of the entry into force of IFRS 16 and Circular 2/2018, the impact of the first application recorded in the Group corresponds, fundamentally, to the recognition of assets for right of use amounting to EUR 6,693 million, financial liabilities for an amount of EUR 7,084 million and a negative impact on the Group's equity amounting to EUR 391 million (of which 4,236, 4,627 and 391 correspond to Banco Santander, SA). The impact of the first application of IFRS 16 on the common equity ratio (Common Equity Tier 1 - CET 1) has been -20 b.p.

Likewise, on the date of formulation of this balance sheet, the following regulations are in force whose effective date is after June 30, 2020:

Circular 3/2019, of October 22, of the Bank of Spain, by which the Power conferred by Regulation (EU) 575/2013 to define the threshold of significance of past due credit obligations.

The purpose of this circular is to exercise the power that article 178, paragraph 2, letter d) of Regulation (EU) num. 575/2013 attributes to the competent authorities to define the threshold of significance of past due credit obligations. Credit institutions will apply, as of December 31, 2020 at the latest, the threshold of significance of overdue credit obligations established in this circular, and must notify the Bank of Spain, before December 31, 2019, the date exact in which they will begin to apply it. c) Use of critical estimates

The main accounting principles and policies and valuation criteria are indicated in Note 2. In the balance sheet of June 30, 2020 and the explanatory notes as of that date, estimates made by the Bank's senior management have occasionally been used to quantify some of the assets, liabilities, income, expenses and commitments that are recorded therein. Basically, these estimates, made based on the best information available, refer to:

- The impairment losses on certain assets – Financial assets at fair value through other comprehensive income, financial assets at amortised cost, non-current assets held for sale, investments, tangible assets and intangible assets; (see Notes 5, 6, 9, 11, 12, y 15); - The assumptions used in the calculation of the post-employment benefit liabilities and commitments and other obligations; (see Note 22); - The useful life of the tangible and intangible assets; (see Notes 14 y 15); - The evaluation of the impairment of investments in subsidiaries, joint ventures and associates (see Note 12); - The calculation of provisions and the consideration of contingent liabilities; (see Note 22); - The fair value of certain unquoted assets and liabilities; (see Notes 5, 6, 7, 8, 9, 17, 18, 19); - The recoverability of deferred tax assets; (see Note 23). To update the above estimates, the Bank's management has considered that since March 2020, COVID- 19, a new strain of Coronavirus, has spread to many countries, including Spain. This event has resulted the viral outbreak to be classified as a pandemic by the World Health Organization, which significantly affects economic activity worldwide and, as a result, the Bank's operations and financial results. While there has been a worsening of the macroeconomic outlook to date, the extent to which COVID-19 will ultimately impact the Bank's results will depend on future developments, including actions to contain or treat the disease and mitigate its impact on the economies of the affected countries and especially Spain, which generate uncertainties in the Bank’s estimates. For this reason, the Bank's management has assessed the current situation according to the best information available, then developing the potential impacts of COVID-19 on the estimates made during the six months period ended on June 30, 2020. From the results of this evaluation, the following aspects stand out:

1. Estimation of expected credit losses:

Context

The COVID-19 health crisis has been unexpected, unpredictable and severe, but it is estimated to be of a limited temporary nature. The Bank's priority in these circumstances has been to look after the health of its employees, customers and shareholders, but also to help reduce the economic impact that the coronavirus pandemic may have. This includes trying to offer the best solutions to help individual customers and businesses.

Conceptually, the phases in managing the effects of COVID-19 have been:

- Identification of customers or groups affected or potentially affected by the pandemic. - Early relief of temporary financial difficulties caused by COVID-19 through measures promoted by governments, central banks, and financial institutions. - Monitoring the evolution of customers, to ensure that they continue to be provided with the best solution for their situation, and also to guarantee that their potential impairment is correctly reflected in the Bank's risk management and accounting. - Monitoring is accompanied by recovery management activities when necessary.

These conceptual phases do not occur sequentially but overlap in time. Additionally, the continuous interaction and coordination between the different local units of the Group is proving to be a fundamental asset in the management of this crisis. The experience obtained in the fight against the health crisis and its financial consequences in our different geographies, and the different speeds at which it has been developing in each of them, allow us to share the best practices identified and to implement in an agile and efficient manner those strategies and concrete actions that have been most successful, always adapted to the local reality of each market.

Measures to support the economy

In accordance with the comments made earlier regarding the relief of our clients' temporary financial difficulties caused by the pandemic, the Bank has adopted measures to foster the economic resilience of our clients during the crisis. The most outstanding of these include the following:

- Providing liquidity and credit facilities to companies facing difficulties. - Facilitate grace periods or moratoriums in many of their markets. - Temporary option to increase the limit on credit cards and overdrafts. - Support vulnerable customers (elderly, SMEs, etc.) by being proactive and trying to cover their needs. - Temporary reduction or suspension of commissions (when withdrawing money from ATMs, on interest-free online purchases, on bank transfers, etc.). - Guaranteeing COVID-19 coverage in health insurance. - Specialized teams to advise clients in financial difficulties.

Regarding specific liquidity measures, shortages or moratoriums, the Group has implemented a series of support programmes in accordance with the guidelines set by regulatory and supervisory authorities, as well as by governments, central banks and supranational entities. The main objective is to mitigate the temporary impact on the activity of our customers, since the absence of appropriate measures and their adequate prudential and accounting treatment could worsen the economic consequences of the crisis, generating procyclical effects that would lengthen its duration and impact.

The different measures offered can be grouped into the following categories:

- Government liquidity measures: Generally speaking, these are lending facilities provided by the bank to legal entities, which have government guarantees on a specific percentage of the exposure generated in the event of default. Examples of this type of measure include ICO (Instituto de Crédito Oficial) loans in Spain. - Government moratorium measures: In this case, the government authorities define a series of requirements, which, in the event that they are met by the beneficiary, involve the granting of moratoriums by the bank on the payment of capital and/ or interest on the various credit operations that customers may have contracted.

- Internal/sectoral moratorium measures: This is, broadly speaking, the granting of moratoriums by the Bank on the payment of capital and/or interest on the various credit operations that customers may have contracted. In this case, the specific characteristics of these measures, in terms of terms, amounts, etc., vary according to each geography, product or customer segment in order to adapt them as best as possible to the reality of the market, as well as to the needs of the customer and the product contracted. In many cases, the general conditions of application have been agreed on a sectoral basis, for example through the national banking associations. - Other internal measures: This category includes all those measures not included in the previous sections.

The Bank has helped customers through the various liquidity programmes, government guarantees, moratoriums and others.

Estimation of expected loss

In the context described in the previous sections, many regulators and supervisors have highlighted the uncertainties surrounding the economic impacts of the health crisis. This is also evident in the frequent updates of macroeconomic forecasts, with different perspectives and views on the depth and duration of the crisis. Thus, the guidance (including IASB, ESMA, EBA and ECB) does not set a mechanistic approach to estimating expected credit losses under Bank of Spain Circular 4/2017, considering its modifications (aligned with IFRS 9), in order to prevent this variability in economic conditions from translating into undesired volatility in results, with its potential pro-cyclical effects on the economy.

Thus, the Bank analyses losses under Bank of Spain Circular 4/2017, considering its modifications (aligned with IFRS 9), based on three types of elements:

a) Continuous monitoring of customers

Monitoring the credit quality of customers may be more complex in the current circumstances, in the absence of certain contractual payments on transactions subject to a moratorium. To this end, and in addition to the application of internal customer monitoring policies, all available information should be used which in a non-exhaustive way may include:

- The payment of interest in the case of principal-only shortfalls. - The payment of other operations of the same client in the institution (not subject to moratorium). - Information on payment of loans in other entities (through credit bureaus). - Customer financial information: average balances in current accounts, availability/use of limits, etc. - Available behavioural elements (variables that feed the behavioural scores, etc.) - Information gathered from customer contacts (surveys, calls, questionnaires, etc.). This may include customers who have taken up furlough programs, direct government aid, etc.

b) Forward-looking vision

As reflected by the IASB, macroeconomic uncertainty makes the usual application of IFRS 9 expected loss calculation models difficult but does not exempt the incorporation of the prospective feature of the standard. To this end, the European Central Bank and Spanish Bank has recommended the use of a stable, long-term view (long-run) of the macroeconomic forecasts, which considers in the assessment the multiple support measures explained above.

Santander Group uses macroeconomic scenarios in its strategic and budgetary processes. For the purposes of estimating provisions under IFRS 9, in accordance with the regulatory recommendations, the long-run view consistent with these scenarios was used. This long-run vision is generated through a stable long-term perspective, reflecting the structural impairment caused by the pandemic. For this propose, the movement when the macro, represented by the GDP, recovers its average trend is analysed for each geography, considering seasonal factors applicable to each economy. These criteria have also been followed in the case of Spain.

c) Additional elements

Additional elements will be required when necessary because they have not been captured under the two previous elements. This includes, among others, the analysis of sectors most affected by the pandemic if their impacts are not sufficiently captured by the macroeconomic scenarios. Also, collective analysis techniques, when the potential impairment in a group of clients cannot be identified individually.

With the elements indicated above, the Group assesses the evolution of the credit quality of its clients in each of the geographies, for the purposes of its classification in stages and consequently the calculation of the expected loss.

In terms of classification, the Group has generally maintained the criteria and thresholds for classification during the pandemic, incorporating the regulatory interpretations of the effect of moratoria on classification (in particular, the European Banking Authority's 'Guidelines on legislative and non-legislative moratoria on loan repayments applied in COVID-19 crisis'). In this way, moratoriums that meet the specifications of these guidelines are not considered as automatic indicators for identifying these contractual changes as forbearances or classifying them in Stage 2. However, this does not exempt the rigorous application in the monitoring of costumer credit quality and, using individual or collective analysis techniques, the timely detection of significant increases in risk in certain transactions or group of transactions.

Details of the exposure by stage can be found in Note 9 in this interim condensed consolidated financial statement. This note shows the levels of provisions for the first six months, which amount to EUR 1,111 million, including the provisions to cover the impact to date on expected losses resulting from the pandemic.

2. Liabilities and commitments for post-employment compensation and other obligations:

Considering the long-term nature of these commitments, the valuation and main hypothesis-setting criteria are maintained for recording and accounting for post- employment and long-term commitments although it has updated its estimates with new mortality tables. On the other hand, eligible assets are quantified at market value and the reference discount rate to determine the value of the obligation continues to be the interest rate of corporate bonds with high credit ratings at the accounting reference date consistent with the duration of the obligations, although the high volatility of the spreads corresponding to said bonds in the last days of the first six months has been taken into account.

3. Useful life of tangible and intangible assets:

Based on the type of Bank's assets, there have been no significant changes in the estimates of useful life made at the end of 2019 due to COVID-19.

4. The evaluation of the impairment of investments in subsidiaries, joint ventures and associates:

The Bank evaluates the impairment of the investees using different parameters, among which is the analysis and evaluation carried out by the Group of Goodwill as described below:

The accounting standard (IAS 36) requires that a cash generating unit (“CGU”) to which goodwill has been allocated is tested for impairment annually, and whenever there is an indication that the goodwill may be impaired.

The Group’s impairment test in respect of goodwill allocated to each CGU is performed annually. Nevertheless, a review for indicators of impairment is undertaken at each quarter-end. Having considered the reasons explained below, an interim impairment test has been performed as of June 30, 2020 for all certain CGUs.

The standard establishes a minimum of indicators in assessing whether there is any indication, so even though there is still high uncertainty about how the crisis is going to impact the economies of some of our subsidiaries, the Group considers the circumstances described below as indications of impairment:

• Current changes in the economic environment where a decrease of the GDP is expected in most countries and its recovery will take 2 or 3 years. The evolution forecasted by the different national and international organisms for 2020 magnitudes such as GDP, unemployment rate, credit portfolios growth, etc. are negative and the recovery of these economies, will be less steep and at a slower pace than its fall. • The uncertainty in the macroeconomic situation also causes higher expected returns, and market premiums increase significantly. As a result of the higher cost of capital, the discount rates applied to the cash flows are higher (rates reflect the risk associated to the current environment), which result in a lower value in use.

Additionally, the Group is already observing budget deviations in some of the subsidiaries due to the current macroeconomic outlook, which also negatively affect the future cash flows.

Considering the reasons described above, in June 2020 the Bank carried out the evaluation of its investees. In relation to the assessment carried out, during the first six months of fiscal year 2020, the Bank has recognized impairment losses in associated entities and investee entities for an amount of EUR 327 million and EUR 4,581 million, respectively (see Note 12).

5. Provisions and contingent liabilities:

The Bank's management, after its analysis, has concluded that there have been no significant changes in the estimates made at the end of the 2019 fiscal year in relation to the probability of the obligations that the Bank has to meet as of June 30, 2020 due to the situation produced to date by COVID-19.

6. Market risk:

The pressures observed in the financial markets during the first semester of 2020 did not have a significant impact in terms of valuation, impairment or allocation of levels for the Group's portfolios, considering, the typology of the Group's products, the low complexity of the portfolios, the decrease in volatility and credit spreads in the second quarter and the observability of the price sources used.

There is currently no significant reduction in observables price from sources used for the valuation of financial instruments, although there is still some widening of the price ranges and some dispersion among the various contributors. Therefore, it has meant that no significant worsening of the observable conditions has been detected in the inputs used for the valuation of portfolio financial instruments, nor less access to price contributors and real market operations. Consequently, considering the composition of the Group's portfolios, the impact on the fair value hierarchy has been reduced and most markets and terms have maintained their classifications according to our observability and significance criteria. Given the low market complexity as a general rule of our portfolios, and despite certain increases in valuation adjustments to adequately reflect their fair value in a still volatile environment, there have been no significant reclassifications between levels. The Bank continues to monitor the evolution of the markets, their liquidity and the observability conditions of the valuation inputs in order to apply the criteria established in the Group for the levelling of assets and liabilities measured at fair value.

The risk levels measured in terms of VaR for all Group's units are at historically low levels. During the first quarter of the year, and despite a general reduction in positions in a context of high volatility, there was a certain one-off increase in VaR as a result of the use of the Weighted VaR methodology, which assigns greater weight to the most recent market scenarios. However, the return to normal market conditions in recent months and the maintenance of reduced positions in most trading portfolios has enabled that at the end of the second quarter risk exposure is at historically low levels of approximately EUR 10 million (VaR 1d 99%).

7. Deferred tax assets:

The Bank has reassessed the ability to generate future taxable income in relation to the recoverability of deferred tax assets recorded in the Bank and its Tax Group. Management estimates that according to the results of the analyses performed, the changes in the key assumptions on which the projected results of its tax group are based, arising from the impact of COVID-19 according to the circumstances described in the previous section related to investee entities, have resulted in the recognition of an impairment of EUR

1,632 million of deferred tax assets (See Note 23), maintaining a maximum 15 year period of recoverability of the deferred tax assets recognised as of June 30, 2020.

During the first six months ended June 30, 2020, there have been no additional significant changes in the estimates, other than those indicated in this interim financial information.

Despite the fact that these estimates have been made on the basis of the best information available at the close of the first half of the year 2020, it is possible that events that may take place in the future will force them to be modified (up or down) in the next exercises, which would be carried out, if applicable, prospectively, recognizing the effects of the change in estimate in the corresponding profit and loss account. d) Comparative information

The information contained in this balance sheet as of June 30, 2020 and the explanatory notes corresponding to the year 2019 is presented, solely and exclusively, for comparative purposes with the information relating to June 30, 2020. e) Capital management

i. Regulatory and economic capital

The Bank and Group's capital management is performed at regulatory and economic levels.

The aim is to secure the Group's solvency and guarantee its economic capital adequacy and its compliance with regulatory requirements, as well as an efficient use of capital.

To this end, the regulatory and economic capital figures and their associated metrics RORWA (return on risk-weighted assets), RORAC (return on risk-adjusted capital) and value creation of each business unit- are generated, analysed and reported to the relevant governing bodies on a regular basis.

Likewise, within the framework of the internal capital adequacy assessment process to comply with the requirement of Pillar 2 of Basel, the Group uses an economic capital measurement model with the objective of ensuring that there is sufficient capital available to support all the risks of its activity in various economic scenarios, with the solvency levels agreed upon by the Group, at the same time the Bank assesses, also in the various scenarios, whether it meets the regulatory capital ratio requirements.

In order to adequately manage the Group’s capital, it is essential to estimate and analyse future needs, in anticipation of the various phases of the business cycle. Projections of regulatory and economic capital are made based on the budgetary information (balance, income statement, etc.) and the macroeconomic scenarios defined by the Group’s economic research service. These estimates are used as a reference when planning the management actions (issues, securitisations, etc.) required to achieve its capital targets.

In addition, certain stress scenarios are simulated in order to assess the availability of capital in adverse situations. These scenarios are based on sharp fluctuations in macroeconomic variables (GDP, interest rates, housing prices, etc.) that mirror historical crises that could happen again or plausible but unlikely stress situations.

Following is a brief description of the regulatory capital framework to which the Group is subject.

On 26 June 2013 the Basel III legal framework was included in European law through Directive 2013/36 (henceforth “CRD IV”), repealing Directives 2006/48 and 2006/49, and through Regulation 575/2013 on prudential requirements for credit institutions and investment firms (henceforth “CRR”).

The CRD IV was transposed into Spanish legislation through Law 10/2014 on the regulation, supervision and capital adequacy of credit institutions, and its subsequent implementing regulations contained in Royal Decree-Law 84/2015 and Bank of Spain Circular 2/2016, was completed the adaptation to the Spanish law.

The CRR came into force immediately, established a calendar with a phase in that has permitted a progressive adaptation to the new requirements in the European Union regarding AT1 and T2 capital instruments. These calendars have been incorporated into Spanish regulations through Bank of Spain Circular 2/2014, affecting both the new deductions and those issues and equity items that are no longer eligible as such under the new regulations.

On 27 December 2017, Regulation (EU) 2017/2395 was published, amending the CRR with regard to the transitional provisions to mitigate the impact of the introduction of IFRS 9, which took place on 1 January 2018. The timetable provides for a gradual implementation period of 5 years, and for the current year (2020) the applicable factor will be 0.7.

In addition, on 28th December 2017 Regulations (EU) 2017/2401 and 2017/2402 were published, incorporating the new securitisation framework. The first regulation establishes a new methodology for calculating capital requirements for securitisations and a transitional period ending on December 31, 2019, while the second regulation defines a type of STS ('simple, transparent and standardised') securitisation which, due to its characteristics of simplicity, of financing the real economy, etc., receives preferential treatment in terms of lower capital requirements.

About non performing exposures (NPEs), rules have been published with the aim of implementing the "Action plan for non-performing exposures in Europe", published by the European Council in July 2017. The most relevant are the following:

- The European Central Bank (ECB) supervisory expectation to address the stock of NPEs through provisioning.

- ECB Guidance on non-performing loans to credit institutions. published in March 2017: The Appendix to this Guidance, published in March 2018, sets out timetables with quantitative supervisory expectations for provisioning of this type of exposure. Applicable to exposures that originate prior to 26 April 2019 and that have become NPE on or after 1 April 2018 and a default could result in a higher charge for Pillar 2.

- Amendment of the CRR by Regulation (EU) 2019/630 regarding the minimum coverage of losses derived from doubtful exposures (prudential backstop), published in April 2019: This Regulation (EU) includes timetables of quantitative requirements for minimum provisioning of NPE's. It applies to NPE's originated after 26 April 2019 and failure to comply would result in a deduction from the institutions' CET1.

On 20 May 2019, the new regulatory package was approved through Regulation (EU) 2019/876 (hereinafter CRR II) and Directive (EU) 2019/878 (hereinafter CRD V).

As a general rule, CRR II will come into force on 28 June 2021, with some exceptions that will come into force during a period that began on 1 January 2019 and will end on 28 June 2023.

Among these exceptions, the entry into force on 27 June 2019 of the main changes regarding equity, capital deductions, standard and IRB credit risk, and authorisations is highlighted.

On 27 June CRD V entered into force but is not yet applicable as Member States have until 28 December 2020 to transpose it into national law. The CRD V includes significant changes such as the Pillar 2G regulation ('guidance').

In the regulatory package published in June 2019, the TLAC Term Sheet set at international level by the FSB (Financial Stability Board) has been incorporated into RRC II as a Pillar I of minimum equity and computable liability requirements for GSIBs.

This package of modifications also includes the modification of the Resolution Directive (BRRD), replacing it with BRRD II, which establishes MREL requirements with Pillar 2 for all resolution entities, whether systemic or not, in which the resolution authority will decide on the requirements on a case-by-case basis. For G-SIBs, CRR II introduces the minimum requirement established in the TLAC term sheet (16% / 18%), which must be made up of subordinated liabilities, with the exception of a percentage of senior debt (2.5% / 3.5%). For large banks (defined as those whose total assets exceed EUR 100 billion) or those which, without being large, the resolution authority considers may be systemic, BRRD II establishes a minimum subordination requirement of 13.5% of risk-weighted assets, or 5% of the leverage ratio exposure, whichever is higher. For the remaining entities the subordination requirement will be determined on a case-by-case basis by the resolution authority.

As of June 30, 2020, the Bank met the minimum capital requirements established by current legislation.

ii. Plan for the roll-out of advanced approaches and authorisation from the supervisory authorities

The Bank, following Group policy, continues adopting, over the next few years, the advanced internal ratings based (AIRB) approach under Basel II for substantially all its banks, until the percentage of exposure of the loan portfolio covered by this approach exceeds 90%. The commitment assumed before the supervisor still implies the adoption of advanced models within the ten key markets where Santander Group operates.

Accordingly, the Group continued, during the period from January 1 to June 30, 2020, with the project for the progressive implementation of the technology platforms and methodological improvements required for the roll-out of the AIRB approach for regulatory capital calculation purposes at the various Group units.

The Group has obtained authorisation from the supervisory authorities to use the AIRB approach for the calculation of regulatory capital requirements for credit risk for the Parent and the main subsidiaries in Spain, the United Kingdom and Portugal, as well as for certain portfolios in Germany, Mexico, Brazil, Chile, the Nordic countries (Norway, Sweden and Finland), France and the United States.

For the purpose of calculating regulatory capital for operational risk, the Group uses the standardised approach provided for the CRR. f) Environmental impact

In view of the business activities carried on by the Bank, it does not have any environmental liability, expenses, assets, provisions or contingencies that might be material with respect to its equity, financial position or results. Therefore, no specific disclosures relating to environmental issues are included in the report. g) Deposit Guarantee Fund and Resolution Fund

a) Deposit Guarantee Fund The Bank participates in the Deposit Guarantee Fund (“the DGF”). The annual contribution to be made by the entities to this fund, established by Royal Decree - Law 16/2011 of October 14, by which the DGF is created in accordance with the wording given by the Tenth Final Disposition of Law 11/2015 of June 18 on Recovery and Resolution of credit institutions and investment services companies (in force since June 20, 2015), is determined by the Management Committee of the DGF and is established based on the guaranteed deposits of each entity and its risk profile. The annual contribution to be made by the entities to this fund is determined by the Management Committee of the FGD, and consists of the contribution based on the guaranteed deposits of each entity corrected for its risk profile, which includes the phase of the economic cycle and the impact of pro-cyclical contributions, according to section 3 of article 6 of the Royal Decree-Law 16/2011. The purpose of the FGD is to guarantee deposits with credit institutions up to the limit established in the mentioned Royal Decree-Law. b) National Resolution Fund.

The Law 11/2015 regulates the creation of the National Resolution Fund whose financial resources should reach, before December 31, 2024, at least 1% of the amount of deposits guaranteed through contributions from credit institutions and service companies established in Spain. The details of how to calculate the contributions to this Fund are regulated by Commission Delegated Regulation (EU) 2015/63 of 21 October 2014 and it is calculated by the Ordinary Banking Order Fund ("FROB") on a basis to the information provided by each entity.

c) Single Resolution Fund

In this respect, on 1 January 2016, the FUR introduced by Regulation (EU) No. 806/2014 of the European Parliament and of the Council entered into force. The rules governing the banking union establish that banks will pay contributions to the FUR over eight years. The competence of the calculation of the contributions that must be made by credit institutions and investment firms to the FUR corresponds to the JUR. From 2016 these contributions are based on: (a) a flat-rate contribution (or annual base contribution) pro rata of the liabilities of each entity excluding own resources and deposits with coverage with respect to total liabilities and excluding the liabilities own funds and deposits covered by all entities authorized in the territory of the participating member states; and based on (b) a risk-adjusted contribution based on the criteria laid down in Article 103 (7) of Directive 2014/59 / EU, taking into account the principle of proportionality and without creating distortions between banking sector structures in the Member States. The amount of this contribution is accrued annually from 2016. The expenses incurred by contributions to the National Resolution Fund and to the Single Resolution Fund during the period from January 1 to June 30, 2020, amounted to EUR 262 million (EUR 187 million in 2019) and they are recognised under Other operating expenses in the income statement. h) Events after the reporting period

From 1 July 2020 until the approval date of the balance sheet as of June 30, 2020, no significant events other than those indicated in the the explanatory notes to the Bank's balance sheet. i) Other information

United Kingdom Referendum 31 January 2020 the United Kingdom ceased to be a member of the European Union. The UK and the European Union agreed withdrawal terms which establish a transition period until 31 December 2020. During the transition period (i) the United Kingdom will be treated as if it were still a member of the European Union for trading purposes, (ii) European Union legislation will continue to apply in the United Kingdom and (iii) negotiations on a trade agreement will be conducted, as well as on the extent of legislative and regulatory convergence and regulatory cooperation. The European Union will also carry out regulatory equivalence assessments for financial services. Such assessments, even if positive, do not guarantee that equivalence will be granted. Although the withdrawal agreement foresees the possibility to extend the transition period for two more years after the 31 January 2020, this is not automatic and the United Kingdom has enshrined the 31 December 2020 date in local legislation passing the withdrawal agreement as the end of the transition period, signalling a current desire not to extend it. Uncertainty remains around the terms of the United Kingdom´s relationship with the European Union at the end of the transition period. If the transition period were to end without a comprehensive trade agreement, the United Kingdom’s and Europe´s economic growth may be negatively impacted. At the end of the transition period, even if a trade agreement is entered into force and/or if equivalence is granted to certain areas of the United Kingdom’s financial services, contingency measures may still be necessary in certain economic or financial matters to avoid uncertainty and adverse economic effects and there will be some changes in the products and services that Santander United Kingdom can continue to offer into the European Economic Area (EEA) and to EEA residents or EEA incorporated entities. Where possible, Santander UK would look to service such EEA customers from Banco Santander, S.A. instead. While the longer term effects of the United Kingdom’s anticipated withdrawal from the European Union are difficult to predict, there is ongoing political and economic uncertainty, which is likely to continue in the

medium term depending on its result, and could have adverse effect on the operations, financial situation and prospects of Santander UK, especially in the Retail and Commercial banking segments. The Group has identified several risks to Santander as a consequence of this uncertainty and the result of the withdrawal process, including the following: Increased market volatility could have a negative impact on the Group´s cost of or access to funding, especially in an environment in which credit ratings are impacted, it could affect interest and currency exchange rates and the value of assets in our banking book or of securities held by the Group for liquidity purposes. The Group in the UK is subject to significant regulation and supervision by the European Union. Although legislation has now been passed transferring the European Union regulations into United Kingdom law, there remains significant uncertainty as to the legal and regulatory environment in which the Group´s UK subsidiaries will operate when the transition period ends, and the basis on which cross-border financial business will take place after that date. Furthermore, at the operational level, the Group´s UK subsidiaries and other financial institutions may no longer be able to rely on the European cross-border framework for financial services and it is not clear what the alternative regime will be after Brexit. This uncertainty and the actions taken as a result of it, as well as the new or amended rules, could have significant adverse impacts on the Group's operations, profitability and business. An adverse effect on the UK economy could have a negative impact on the Group's customers in that country. However, given the current uncertainty, the Group has continued to focus on perfecting the Brexit contingency plans. The materialisation of one or more of the above risks would have a material adverse effect on the Group's operations, financial situation and prospects. The Group and the Bank have considered these circumstances when reviewing the impairment of Santander UK's stake during 2020 and 2019 (see Note 12).

2. Accounting policies In the balance sheet as of June 30, 2020, the following accounting principles and policies and valuation criteria have been applied:

a) Foreign currency transactions

The Bank's functional and presentation currency is the euro. Therefore, all balances and transactions denominated in currencies other than the euro are deemed to be denominated in foreign currency.

The balances of the annual accounts of the entities, whose functional currency is different from the euro, are converted into euros as follows:

- Assets and liabilities, by application of the exchange rate on the date of the balances. - Income and expenses, applying the average exchange rates for the year. - Equity, at historical exchange rates.

In general, balances denominated in foreign currency, including those of branches in countries not belonging to the Monetary Union, have been converted to euros using the official average exchange rates of the Spanish spot foreign exchange market (through the quotation of the US dollar in local markets, for currencies not quoted in the Spanish market) at the end of June 30, 2020 and December 31, 2019.

The exchange differences that occur when the balances denominated in foreign currency are converted to the functional currency are generally recorded at their net amount under the heading. Net exchange differences, in the profit and loss account, except for the exchange differences produced in financial instruments classified at their fair value with changes in profit and loss, which are recorded in the profit and loss account without differentiating them from the rest of the variations that their fair value may suffer, and exchange differences arising in non-monetary items whose fair value is adjusted with a counterpart in equity, which are recorded under the heading Other accumulated comprehensive income - Items that can

be reclassified in results - Foreign currency translation, except exchange differences of Equity instruments, in which the option of irrevocably has been chosen, be valued at fair value with changes in other accumulated comprehensive income, which are recognized in the chapter Other accumulated comprehensive income - Items that will not be reclassified in results - Changes in fair value of equity instruments measured at fair value with changes in other comprehensive income (see Note 24). b) Investments in subsidiaries, joint ventures and associates

Subsidiaries or entities of the Group are considered to be those over which the Bank has the capacity to exercise control; capacity that is manifested, in general, but not only, by the ownership, direct or indirect, of at least 50% of the political rights of the investee entities, or even this percentage being less or null if, as in the case of agreements with shareholders thereof, such control is granted to the Bank. Control is understood as the power to manage the financial and operating policies, by legal provision, statutory or agreement, of an entity in order to obtain benefits from its activities.

Joint ventures are deemed to be entities that are not subsidiaries, but which are jointly controlled by two or more unrelated entities. This is evidenced by contractual arrangements whereby two or more parties have interests in entities or carry out operations or maintain assets in such a way that any strategic decision of a financial or operational nature that affects them requires the unanimous consent of all the participants.

Associates are entities over which the Bank can exercise significant influence, but not control or joint control. Significant influence generally exists when the Bank holds 20% or more of the voting power of the investee.

Investments in subsidiaries, jointly controlled entities and associates are presented in the balance at acquisition cost, net of any impairment losses.

When there is evidence of impairment of these investments, the amount of the related impairment loss is equal to the difference between the carrying amount of the investments and their recoverable amount. Impairment losses are recognised with a charge to Impairment losses on other assets (net) - Other assets in the income statement.

Appendices I and II contain significant information on these companies. In addition, Note 12 provides information on the most significant acquisitions and disposals during the period between January 1 and June 30, 2020 and fiscal year 2019. c) Definitions and classification of financial instruments

i. Definitions

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

An equity instrument is a contract that evidences a residual interest in the assets of the issuing entity after deducting all its liabilities.

A financial derivative is a financial instrument whose value changes in response to the change in an observable market variable (such as an interest rate, foreign exchange rate, financial instrument price, market index or credit rating), whose initial investment is very small compared with other financial instruments with a similar response to changes in market factors, and which is generally settled at a future date.

Hybrid financial instruments are contracts that simultaneously include a non-derivative host contract together with a derivative, known as an embedded derivative, that is not separately transferable and has the effect that some of the cash flows of the hybrid contract vary in a way similar to a stand-alone derivative.

Compound financial instruments are contracts that simultaneously create for their issuer a financial liability and an own equity instrument (such as convertible bonds, which entitle their holders to convert them into equity instruments of the issuer).

The preference shares contingently convertible into ordinary shares eligible as Additional Tier 1 capital (“CCPSs”) - perpetual shares, which may be repurchased by the issuer in certain circumstances, the interest on which is discretionary, and would convert into variable number of newly issued ordinary shares if the capital ratio of the Bank or its consolidated group falls below a given percentage (trigger event), as those two terms are defined in the related issue prospectuses- are recognised for accounting purposes by the Bank as compound instruments. The liability component reflects the issuer’s obligation to deliver a variable number of shares and the equity component reflects the issuer’s discretion in relation to the payment of the related coupons. In order to effect the initial allocation, the Bank estimates the fair value of the liability as the amount that would have to be delivered if the trigger event were to occur immediately and, accordingly, the equity component, calculated as the residual amount, is zero. In view of the aforementioned discretionary nature of the payment of the coupons. they are deducted directly from equity.

Capital perpetual preference shares (“CPPSs”), with the possibility of purchase by the issuer in certain circumstances, whose remuneration is discretionary, and which will be amortised permanently, totally or partially, in the event that the Bank or its consolidated group submits a capital ratio lesser than a certain percentage (trigger event), as defined in the corresponding prospectuses, are accounted for by the Bank as equity instruments.

The following transactions are not treated for accounting purposes as financial instruments:

- Investments in associates and joint ventures (See Note 12). - Rights and obligations under employee benefit plans (See Note 22). - Rights and obligations under insurance contracts (See Note 13). - Contracts and obligations relating to employee remuneration based on own equity instruments (See Note 29).

ii. Classification of financial assets for measurement purposes

Financial assets are initially classified into the various categories used for management and measurement purposes, unless they have to be presented as Non-current assets held for sale or they relate to Cash, cash balances at central banks and other deposits on demand, Changes in the fair value of hedged items in portfolio hedges of interest rate risk (asset side), Hedging derivatives and Investments, which are reported separately.

Classification of financial instruments: the classification criteria for financial assets depends on the business model for their management and the characteristics of their contractual flows.

The Bank's business models refer to the way in which it manages its financial assets to generate cash flows. In defining these models, the Bank considers the following factors:

- How key management staff are assessed and reported on the performance of the business model and the financial assets held in the business model. - The risks that affect the performance of the business model (and the financial assets held in the business model) and, specifically, the way in which these risks are managed. - How business managers are remunerated. - The frequency and volume of sales in previous years, as well as expectations of future sales.

The analysis of the characteristics of the contractual flows of financial assets requires an assessment of the congruence of these flows with a basic loan agreement. The Bank determines if the contractual cash flows of its financial assets that are only principal and interest payments on the outstanding principal amount at the beginning of the transaction. This analysis takes into consideration four factors

(performance, clauses, contractually linked products and currencies). Furthermore, among the most significant judgements used by the Bank in carrying out this analysis, the following ones are included:

- The return on the financial asset, in cases of periodic interest rate adjustments where the term of the reference rate does not coincide with the frequency of the adjustment. In these cases, an assessment is made to determine whether the contractual cash flows differ significantly from the flows without this change in the time value of money, establishing a tolerance level of 2%. - The contractual clauses that may modify the cash flows of the financial asset, for which the structure of the cash flows before and after the activation of such clauses is analysed. - Financial assets whose cash flows have different priority for payment due to a contractual link to underlying assets (e.g. securitisations) require a look-through analysis by the Group so as to review that both the financial asset and the underlying assets are only principal and interest payments and that the exposure to credit risk of the set of underlying assets belonging to the tranche analysed is less than or equal to the exposure to credit risk of the set of underlying assets of the instrument. Depending on these factors, the asset can be measured at amortised cost, at fair value with changes in other comprehensive income, or at fair value with changes through profit and loss. Bank of Spain Circular 4/2017 also establishes an option to designate an instrument at fair value with changes in profit or loss, when doing so eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as 'accounting asymmetry') that would otherwise arise from measuring assets or liabilities or recognising gains and losses on different bases. The Bank uses the following criteria for the classification of financial debt instruments:

- Amortized cost: financial instruments under a business model whose objective is to collect principal and interest flows, over which there is no significant unjustified sales and fair value is not a key element in the management of these assets and contractual conditions they give rise to cash flows on specific dates, which are only payments of principal and interest on the outstanding principal amount. In this sense, unjustified sales are those other than those related to an increase in the credit risk of the asset, unanticipated funding needs (stress case scenarios). Additionally, the characteristics of its contractual flows represent substantially a "basic financing agreement". - Fair value with changes in other comprehensive income: financial instruments held in a business model whose objective is to collect principal and interest cash flows and the sale of these assets, where fair value is a key factor in their management. Additionally, the contractual cash flow characteristics substantially represent a “basic financing agreement”. - Fair value with changes in profit or loss: financial instruments included in a business model whose objective is not obtained through the above mentioned models, where fair value is a key factor in managing of these assets, and financial instruments whose contractual cash flow characteristics do not substantially represent a “basic financing agreement”. In this section it can be enclosed the portfolios classified under Financial assets held for trading, Non-trading financial assets mandatorily at fair value through profit or loss and Financial assets at fair value through profit or loss. In this regard, the most of the financial assets presented in the category of Financial assets designated at value reasonable with change in results are instruments financial services that, not being part of the portfolio of negotiation, are contracted jointly with other financial instruments that are recorded in the category of "held for trading", and that by both are recorded at fair value with changes in results, so your record in any other category would produce accounting asymmetries.

Equity instruments will be classified at fair value under Bank of Spain Circular 4/2017, with changes in profit or loss, unless the Bank decides, for non-trading assets, to classify them at fair value with changes in other comprehensive income (irrevocably) in the initial moment.

iii. Classification of financial assets for presentation purposes

Financial assets are classified by nature into the following items in the balance:

- Cash, cash balances at Central Banks and other deposits on demand: cash balances and balances receivable on demand relating to deposits with central banks and credit institutions.

- Loans and advances: includes the debit balances of all credit and loans granted by the Bank, other than those represented by securities, as well as finance lease receivables and other debit balances of a financial nature in favour of the Bank, such as cheques drawn on credit institutions, balances receivable from clearing houses and settlement agencies for transactions on the stock exchange and organised markets, bonds given in cash, capital calls, fees and commissions receivable for financial guarantees and debit balances arising from transactions not originating in banking transactions and services, such as the collection of rentals and similar items. They are classified, based on the institutional sector to which the debtor belongs, into:

- Central banks: credit of any nature, including deposits and money market operations received from the Bank of Spain or other central banks.

- Credit institutions: credit of any nature, including deposits and money market operations, in the name of credit institutions.

- Customers: includes the remaining credit, including money market operations through central counterparties.

- Debt instruments: bonds and other securities that represent a debt for their issuer, that generate an interest return, and that are in the form of certificates or book entries.

- Equity instruments: financial instruments issued by other entities, such as shares, which have the nature of equity instruments for the issuer, other than investments in subsidiaries, joint ventures or associates. Investment fund units are included in this item.

- Derivatives: includes the fair value in favour of the Bank of derivatives which do not form part of hedge accounting, including embedded derivatives separated from hybrid financial instruments.

- Changes in the fair value of hedged items in portfolio hedges of interest rate risk: this item is the balancing entry for the amounts credited to the income statement in respect of the measurement of the portfolios of financial instruments which are effectively hedged against interest rate risk through fair value hedging derivatives.

- Hedging derivatives: Includes the fair value in favour of the Bank of derivatives, including embedded derivatives separated from hybrid financial instruments, designated as hedging instruments in hedge accounting.

iv. Classification of financial liabilities for measurement purposes

Financial liabilities are initially classified into the various categories used for management and measurement purposes, unless they have to be presented as Liabilities associated with non-current assets held for sale or they relate to Hedging derivatives or Changes in the fair value of hedged items in portfolio hedges of interest rate risk (liability side), which are reported separately.

Bank of Spain Circular 4/2017 and subsequent amendments stablish the classification and measurement criteria of financial liabilities (Note 2.c). In most cases, the changes in the fair value of financial liabilities designated at fair value with changes recognized through profit or loss, due to the entity credit risk, are recorded in equity.

Financial liabilities are included for measurement purposes in one of the following categories:

- Financial liabilities held for trading (at fair value through profit or loss): this category includes financial liabilities incurred for the purpose of generating a profit in the near term from fluctuations in their prices, financial derivatives not designated as hedging instruments, and financial liabilities arising from the outright sale of financial assets acquired under reverse repurchase agreements ("reverse repos") or borrowed (short positions).

- Financial liabilities designated at fair value through profit or loss: financial liabilities are included in this category when they provide more relevant information, either because this eliminates or significantly reduces recognition or measurement inconsistencies (accounting mismatches) that would otherwise arise from measuring assets or liabilities or recognising the gains or losses on them on different bases, or because a group of financial liabilities or financial assets and liabilities is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group is provided on that basis to the Group's key management personnel. Liabilities may only be included in this category on the date when they are incurred or originated.

- Financial liabilities at amortised cost: financial liabilities, irrespective of their instrumentation and maturity, not included in any of the above-mentioned categories which arise from the ordinary borrowing activities carried on by financial institutions.

v. Classification of financial liabilities for presentation purposes

Financial liabilities are classified by nature into the following items in the balance:

- Deposits: includes all repayable balances received in cash by the entity, other than those instrumented as marketable securities and those having the substance of subordinated liabilities (amount of the loans received, which for credit priority purposes are after common creditors), except for the debt instruments. This item also includes cash bonds and cash consignments received the amount of which may be invested without restriction. Deposits are classified based on the creditor's institutional sector into:

- Central banks: deposits of any nature, including credit received and money market transactions received from the Bank of Spain or other central banks.

- Credit institutions: deposits of any nature, including credit received and money market transactions in the name of credit institutions.

- Customer: includes the remaining deposits, including money market transactions through central counterparties.

- Marketable debt securities: includes the amount of bonds and other debt represented by marketable securities, other than those having the substance of subordinated liabilities (amount of the loans received, which for credit priority purposes are after common creditors, and includes the amount of the financial instruments issued by the Bank which, having the legal nature of capital, do not meet the requirements to qualify as equity, such as certain preferred shares issued). This item includes the component that has the consideration of financial liability of the securities issued that are compound financial instruments.

- Derivatives: includes the fair value, with a negative balance for the Bank, of derivatives, including embedded derivatives separated from the host contract, which do not form part of hedge accounting.

- Short positions: includes the amount of financial liabilities arising from the outright sale of financial assets acquired under reverse repurchase agreements or borrowed.

- Other financial liabilities: includes the amount of payment obligations having the nature of financial liabilities not included in other items, and liabilities under financial guarantee contracts, unless they have been classified as non-performing.

- Changes in the fair value of hedged items in portfolio hedges of interest rate risk: this item is the balancing entry for the amounts charged to the income statement in respect of the measurement of the portfolios of financial instruments which are effectively hedged against interest rate risk through fair value hedging derivatives.

- Hedging derivatives: includes the fair value of the Bank's liability in respect of derivatives, including embedded derivatives separated from hybrid financial instruments, designated as hedging instruments in hedge accounting. d) Measurement of financial assets and liabilities and recognition of fair value changes

In general, financial assets and liabilities are initially recognised at fair value which, in the absence of evidence to the contrary, is deemed to be the transaction price. The fair value of instruments not measured at fair value through profit and loss is adjusted by transaction costs. Subsequently, and on each accounting close, they are valued in accordance with the following criteria:

i. Measurement of financial assets

Financial assets are measured at fair value are valued mainly at their fair value without deducting any transaction cost for their sale.

The fair value of a financial instrument on a given date is taken to be the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The most objective and common reference for the fair value of a financial instrument is the price that would be paid for it on an active, transparent and deep market (quoted price or market price). As of June 30, 2020, there were no significant investments in quoted financial instruments that had ceased to be recognised at their quoted price because their market could not be deemed to be active.

If there is no market price for a given financial instrument, its fair value is estimated on the basis of the price established in recent transactions involving similar instruments and, in the absence thereof, of valuation techniques commonly used by the international financial community, taking into account the specific features of the instrument to be measured and, particularly, the various types of risk associated with it.

All derivatives are recognised in the balance at fair value from the trade date. If the fair value is positive, they are recognised as an asset and if the fair value is negative, they are recognised as a liability. The fair value on the trade date is deemed, in the absence of evidence to the contrary, to be the transaction price. The changes in the fair value of derivatives from the trade date are recognised in Gains/losses on financial assets and liabilities held for trading (net) in the income statement. Specifically, the fair value of financial derivatives traded in organised markets included in the portfolios of financial assets or liabilities held for trading is deemed to be their daily quoted price and if, for exceptional reasons, the quoted price cannot be determined on a given date, these financial derivatives are measured using methods similar to those used to measure OTC derivatives.

The fair value of OTC derivatives is taken to be the sum of the future cash flows arising from the instrument, discounted to present value at the date of measurement (present value or theoretical close) using valuation techniques commonly used by the financial markets: net present value (NPV), option pricing models and other methods.

The amount of debt securities and loans and advances under a business model whose objective is to collect the principal and interest flows are valued at their amortised cost, provided they meet the "SPPI" test (Solely Payments of Principal and Interest), using the effective interest rate method in their determination. Amortised cost refers to the acquisition cost of a corrected financial asset or liability (more or less, as the case may be) for repayments of principal and the part systematically charged to the income statement of the difference between the initial cost and the corresponding reimbursement value at expiration. In the case of financial assets, the amortised cost includes, in addition, the corrections to their value due to the impairment. In the loans and advances covered in fair value hedging transactions, the changes that occur in their fair value related to the risk or the risks covered in these hedging transactions are recorded.

The effective interest rate is the discount rate that exactly matches the carrying amount of a financial instrument to all its estimated cash flows of all kinds over its remaining life. For fixed rate financial instruments, the effective interest rate coincides with the contractual interest rate established on the acquisition date plus, where applicable, the fees and transaction costs that, because of their nature, form part of their financial return. In the case of floating rate financial instruments, the effective interest rate coincides with the rate of return prevailing in all connections until the next benchmark interest reset date.

Equity instruments and contracts related with these instruments are measured at fair value. However, in certain circumstances the Bank estimates cost value as a suitable estimate of the fair value. This can happen if the recent event available information is not enough to measure the fair value or if there is a broad range of possible measures and the cost value represents the best estimates of fair value within this range.

The amounts at which the financial assets are recognised represent, in all material respects, the Bank´s maximum exposure to credit risk at each reporting date. Also, the Bank has received collateral and other credit enhancements to mitigate its exposure to credit risk, which consist mainly of mortgage guarantees, cash collateral, equity instruments and personal security, assets leased out under finance lease and full- service lease agreements, assets acquired under repurchase agreements, securities loans and credit derivatives.

ii. Measurement of financial liabilities

In general, financial liabilities are measured at amortised cost, as defined above, except for those included under Financial liabilities held for trading and Financial liabilities designated at fair value through profit or loss and financial liabilities designated as hedged items (or hedging instruments) in fair value hedges, which are measured at fair value. The changes in credit risk arising from financial liabilities designated at fair value through profit or loss are recognised in accumulated other comprehensive income, unless they generate or increase an accounting mismatch, in which case changes in the fair value of the financial liability in all respects are recognised in the income statement.

iii. Valuation techniques

The following table shows a summary of the fair values, at the end of June 2020 and December 2019 of the financial assets and liabilities indicated below, classified based on the various measurement methods used by the Bank to determine their fair value:

Millons of euros 30/06/2020 31/12/2019 Published Published price price quotations quotations in active in active Markets Internal Models Markets Internal Models (Level 1) (Level 2 and 3) Total (Level 1) (Level 2 and 3) Total

Financial assets held for trading 25,108 71,441 96,549 30,857 55,726 86,583 Non-trading financial assets mandatorily at fair value through profit or loss 49 2,287 2,336 45 2,574 2,619 Financial assets designated at fair value through profit or loss - 81,193 81,193 - 49,859 49,859 Financial assets at fair value through other comprehensive income 15,511 6,651 22,162 26,513 5,514 32,027 Hedging derivatives (assets) - 4,508 4,508 - 2,226 2,226 Financial liabilities held for trading 11,047 70,229 81,276 9,190 55,166 64,356 Financial liabilities designated at fair value through profit or loss - 30,066 30,066 - 24,264 24,264 Hedging derivatives (liabilities) - 1,295 1,295 - 2,044 2,044

The financial instruments at fair value determined based on published price quotations in active markets (Level 1) include government debt securities, private-sector debt securities, derivatives traded in organised markets, securitised assets, shares, short positions and fixed-income securities issued.

In cases where price quotations cannot be observed, management makes its best estimate of the price that the market would set, using its own internal models. In most cases, these internal models use data based on observable market parameters as significant inputs (Level 2) and, in cases, they use significant inputs not observable in market data (Level 3). In order to make these estimates, various techniques are employed, including the extrapolation of observable market data. The best evidence of the fair value of a financial instrument on initial recognition is the transaction price, unless the fair value of the instrument can be obtained from other market transactions performed with the same or similar instruments or can be measured by using a valuation technique in which the variables used include only observable market data. mainly interest rates.

The Group, to which Banco Santander belongs to, has developed a formal process for the systematic valuation and management of financial instruments, which has been implemented worldwide across all the Group's units. The governance scheme for this process distributes responsibilities between two independent divisions: Treasury (development, marketing and daily management of financial products and market data) and Risk (on a periodic basis, validation of pricing models and market data, computation of risk metrics, new transaction approval policies, management of market risk and implementation of fair value adjustment policies).

The approval of new products follows a sequence of steps (request, development, validation, integration in corporate systems and quality assurance) before the product is brought into production. This process ensures that pricing systems have been properly reviewed and are stable before they are used.

The following subsections set forth the most important products and families of derivatives, and the related valuation techniques and inputs. by asset class:

Fixed income and inflation

The fixed income asset class includes basic instruments such as interest rate forwards, interest rate swaps and cross currency swaps, which are valued using the net present value of the estimated future cash flows discounted taking into account basis swap and cross currency spreads determined on the basis of the payment frequency and currency of each leg of the derivative. Vanilla options, including caps, floors and swaptions, are priced using the Black-Scholes model, which is one of the benchmark industries models. More exotic derivatives are priced using more complex models which are generally accepted as standard across institutions.

These pricing models are fed with observable market data such as deposit interest rates, futures rates, cross currency swap and constant maturity swap rates, and basis spreads, on the basis of which different yield curves, depending on the payment frequency, and discounting curves are calculated for each currency. In the case of options, implied volatilities are also used as model inputs. These volatilities are observable in the market for cap and floor options and swaptions, and interpolation and extrapolation of volatilities from the quoted ranges are carried out using generally accepted industry models. The pricing of more exotic derivatives may require the use of non-observable data or parameters, such as correlation (among interest rates and cross-asset), mean reversion rates and prepayment rates, which are usually defined from historical data or through calibration.

Inflation-related assets include zero-coupon or year-on-year inflation-linked bonds and swaps, valued with the present value method using forward estimation and discounting. Derivatives on inflation indices are priced using standard or more complex bespoke models, as appropriate. Valuation inputs of these models consider inflation-linked swap spreads observable in the market and estimations of inflation seasonality, based on which a forward inflation curve is calculated. Also, implied volatilities taken from zero-coupon and year-on-year inflation options are also inputs for the pricing of more complex derivatives.

Equity and foreign exchange

The most important products in these asset classes are forward and futures contracts; they also include vanilla, listed and OTC (Over-The-Counter) derivatives on single underlying assets and baskets of assets. Vanilla options are priced using the standard Black-Scholes model and more exotic derivatives involving forward returns, average performance, or digital, barrier or callable features are priced using generally accepted industry models or bespoke models, as appropriate. For derivatives on illiquid stocks, hedging considers the liquidity constraints in models.

The inputs of equity models consider yield curves, spot prices, dividends, asset funding costs (repo margin spreads), implied volatilities, correlation among equity stocks and indices, and cross-asset correlation. Implied volatilities are obtained from market quotes of European and American-style vanilla call and put options. Various interpolation and extrapolation techniques are used to obtain continuous volatility for illiquid stocks. Dividends are usually estimated for the mid and long term. Correlations are implied, when possible, from market quotes of correlation-dependent products. In all other cases, proxies are used for correlations between benchmark underlying or correlations are obtained from historical data.

The inputs of foreign exchange models include the yield curve for each currency, the spot foreign exchange rate, the implied volatilities and the correlation among assets of this class. Volatilities are obtained from European call and put options which are quoted in markets as of-the-money, risk reversal or butterfly options. Illiquid currency pairs are usually handled by using the data of the liquid pairs from which the illiquid currency can be derived. For more exotic products, unobservable model parameters may be estimated by fitting to reference prices provided by other non-quoted market sources.

Credit

The most common instrument in this asset class is the credit default swap (CDS), which is used to hedge credit exposure to third parties. In addition, models for First-to-default (FTD), N-to-default (NTD) and Single-tranche collateralised debt obligation (CDO) products are also available. These products are valued with standard industry models, which estimate the probability of default of a single issuer (for CDS) or the joint probability of default of more than one issuer for FTD, NTD and CDO.

Valuation inputs are the yield curve, the CDS spread curve and the recovery rate. For indices and important individual issuers, the CDS spread curve is obtained in the market. For less liquid issuers, this spread curve is estimated using proxies or other credit-dependent instruments. Recovery rates are usually set to standard values. For listed single-tranche CDO, the correlation of joint default of several issuers is implied from the market. For FTD, NTD and bespoke CDO, the correlation is estimated from proxies or historical data when no other option is available.

Valuation adjustment for counterparty risk or default risk

The Credit valuation adjustment (CVA) is a valuation adjustment to OTC derivatives as a result of the risk associated with the credit exposure assumed to each counterparty.

The CVA is calculated considering potential exposure to each counterparty in each future period. The CVA for a specific counterparty is equal to the sum of the CVA for all the periods. The following inputs are used to calculate the CVA:

- Expected exposure: including for each transaction the mark-to-market (MtM) value plus an add-on for the potential future exposure for each period. Mitigating factors such as collateral and netting agreements are considered, as well as a temporary impairment factor for derivatives with interim payments. - Loss Given Default: percentage of final loss assumed in a counterparty credit event/default. - Probability of default: for cases where there is no market information (the CDS quoted spread curve, etc.), proxies based on companies holding exchange listed CDS, in the same industry and with the same external rating as the counterparty, are used. - Discount factor curve.

The debit valuation adjustment (DVA) is a valuation adjustment similar to the CVA but, in this case, it arises as a result of the Group's own risk assumed by its counterparties in OTC derivatives.

The CVA as of June 30, 2020 amounted to EUR 349 million and DVA amounted EUR 101 million (as of December 31, 2019, these amounts amounted to EUR 200.9 million and EUR 55.2 million, respectively).

Additionally, the Group's financing fair value adjustment (FFVA) is calculated by applying future market financing margins to the expected future financing exposure of any unsecured component of the OTC derivatives portfolio. This includes the unsecured component of guaranteed derivatives, in addition to derivatives that are not fully guaranteed. The expected future financing exposure is calculated using a simulation methodology, when available. The impact of the FFVA is not significant for the balance sheet as of June 30, 2020.

During the first six months of 2020, the Group has not made significant transfers of financial instruments between levels other than those included in the level 3 movements table.

Valuation adjustments due to model risk

The valuation models described above do not involve a significant level of subjectivity, since they can be adjusted and recalibrated, where appropriate, through internal calculation of the fair value and subsequent comparison with the related actively traded price. However, valuation adjustments may be necessary when market quoted prices are not available for comparison purposes.

The sources of risk are associated with uncertain model parameters, illiquid underlying issuers, and poor quality market data or missing risk factors (sometimes the best available option is to use limited models with controllable risk). In these situations, the Bank calculates and applies valuation adjustments in accordance with common industry practice. The main sources of model risk are described below:

- In the fixed income markets, the sources of model risk include bond index correlations, basis spread modelling, the risk of calibrating model parameters and the treatment of near-zero or negative interest rates. Other sources of risk arise from the estimation of market data, such as volatilities or yield curves, whether used for estimation or cash flow discounting purposes.

- In the equity markets, the sources of model risk include forward skew modelling, the impact of stochastic interest rates, correlation and multi-curve modelling. Other sources of risk arise from managing hedges of digital callable and barrier option payments. Also worthy of consideration as sources of risk are the estimation of market data such as dividends and correlation for quanto and composite basket options.

- For specific financial instruments relating to home mortgage loans secured by financial institutions in the UK (which are regulated and partially financed by the Government) and property asset derivatives, the main input is the Halifax House Price Index (HPI). In these cases, risk assumptions include estimations of the future growth and the volatility of the HPI, the mortality rate and the implied credit spreads.

- Inflation markets are exposed to model risk resulting from uncertainty around modelling the correlation structure among various CPI rates. Another source of risk may arise from the bid-offer spread of inflation-linked swaps.

- The currency markets are exposed to model risk resulting from forward skew modelling and the impact of stochastic interest rate and correlation modelling for multi-asset instruments. Risk may also arise from market data, due to the existence of specific illiquid foreign exchange pairs.

- The most important source of model risk for credit derivatives relates to the estimation of the correlation between the probabilities of default of different underlying issuers. For illiquid underlying issuers, the CDS spread may not be well defined.

The following table shows the changes in the financial instruments of the Group classified as Level 3 in the first half of 2020 and 2019 were as follows:

31/12/2019 Changes 30/06/2020

Fair value Fair calculated Changes in fair value Changes in fair calculated using using internal Purchases/ Sales/ recognised in profit or value recognised Level internal models Millions of euros models (Level 3) Issuances Settlements loss in equity reclassifications Other (Level 3)

Financial assets held for trading 598 33 (43) 163 - (18) (66) 667 Debt instruments and equity instruments 65 1 (20) 2 - - (6) 42 Trading derivatives 533 32 (23) 161 - (18) (60) 625 Swaps 182 - (7) 10 - (8) (13) 164 Exchange rate options 8 - - 1 - - (1) 8 Interest rate options 177 14 (11) 84 - 264 Index and securities options 95 18 (3) 79 - (10) (37) 142 Other 71 - (2) (13) - - (9) 47 Hedging derivatives (Assets) ------Swaps ------Financial assets at fair value through profit or loss 664 191 (11) (2) - (160) (144) 538 Credit entities 50 164 - (2) - (50) - 162 Loans and advances to customers 32 - (11) 2 - - - 23 Debt instruments 582 27 - (2) - (110) (144) 353 Non-trading financial assets mandatorily at fair value through profit or loss 1,601 1,543 (238) (38) - - (380) 2,488 Loans and advances to customers 376 1,531 (80) 10 - - (49) 1,788 Debt instruments 675 - (139) (56) - - (335) 145 Equity instruments 550 12 (19) 8 - - 4 555 Financial assets at fair value through other comprehensive income 3,788 4,361 (3,162) - (355) 438 138 5,208 TOTAL ASSETS 6,651 6,128 (3,454) 123 (355) 260 (452) 8,901

Financial liabilities held for trading 290 17 (6) 91 - (71) (45) 276 Trading derivatives 290 17 (6) 91 - (71) (45) 276 Swaps 115 - 5 25 - (27) (7) 111 Exchange rate options 1 - - 1 - - (1) 1 Interest rate options 34 - (2) 21 - - - 53 Index and securities options 88 14 (3) 69 - (44) (29) 95 Securities and interest rate futures 2 3 - - - - (1) 4 Others 50 - (6) (25) - - (7) 12 Hedging derivatives (Liabilities) ------Swaps ------Financial liabilities designated at fair value through profit or loss 784 4 (1) (24) - - (118) 645 TOTAL LIABILITIES 1,074 21 (7) 67 - (71) (163) 921

31/12/2018 Changes 31/12/2019

Financial assets held for trading 738 142 (80) 115 - (317) - 598 Debt instruments and equity instruments 153 34 (38) 4 - (88) - 65 Trading derivatives 585 108 (42) 111 - (229) - 533 Swaps 185 10 (14) 22 - (20) (1) 182 Exchange rate options 2 - - 6 - - - 8 Interest rate options 149 - (5) 33 - - - 177 Index and securities options 198 48 (18) 50 - (182) (1) 95 Other 51 50 (5) - - (27) 2 71 Hedging derivatives (Assets) 21 - - - - (21) - - Swaps 21 - - - - (21) - - Financial assets at fair value through profit or loss 876 55 (16) 65 - (261) (55) 664 Credit entities 201 - - - - (151) - 50 Loans and advances to customers 560 20 (9) (1) - (496) (42) 32 Debt instruments 115 35 (7) 66 - 386 (13) 582 Non-trading financial assets mandatorily at fair value through profit or loss 1,403 426 (325) 81 - - 16 1,601 Loans and advances to customers 460 126 (252) 21 - - 21 376 Debt instruments 481 199 (7) (10) - - 12 675 Equity instruments 462 101 (66) 70 - - (17) 550 Financial assets at fair value through other comprehensive income 1,435 4,424 (1,698) - (190) (252) 69 3,788 TOTAL ASSETS 4,473 5,047 (2,119) 261 (190) (851) 30 6,651

Financial liabilities held for trading 289 136 (12) 45 - (164) (4) 290 Trading derivatives 289 136 (12) 45 - (164) (4) 290 Swaps 111 6 (5) (17) - 20 - 115 Exchange rate options 7 1 - - - (7) - 1 Interest rate options 26 - - 8 - - - 34 Index and securities options 143 79 (7) 51 - (177) (1) 88 Securities and interest rate futures - 3 - - - - (1) 2 Others 2 47 - 3 - - (2) 50 Hedging derivatives (Liabilities) 6 - - - - (6) - - Swaps 6 - - - - (6) - - Financial liabilities designated at fair value through profit or loss 147 298 (5) 31 - 313 - 784 TOTAL LIABILITIES 442 434 (17) 76 - 143 (4) 1,074

Level 3 financial instruments Set forth below are the Group's main financial instruments measured using unobservable market data as significant inputs of the internal models (Level 3): - Instruments in Santander UK's portfolio (loans, debt instruments and derivatives) linked to the House Price Index (HPI). Even if the valuation techniques used for these instruments may be the same as those used to value similar products (present value in the case of loans and debt instruments, and the Black-Scholes model for derivatives), the main factors used in the valuation of these instruments are the HPI spot rate, the growth and volatility thereof, and the mortality rates, which are not always observable in the market and, accordingly, these instruments are considered illiquid.

• HPI spot rate: for some instruments the NSA HPI spot rate, which is directly observable and published on a monthly basis, is used. For other instruments where regional HPI rates must be used (published quarterly), adjustments are made to reflect the different composition of the rates and adapt them to the regional composition of Santander UK's portfolio.

• HPI growth rate: this is not always directly observable in the market, especially for long maturities, and is estimated in accordance with existing quoted prices. To reflect the uncertainty implicit in these estimates, adjustments are made based on an analysis of the historical volatility of the HPI, incorporating reversion to the mean. • HPI volatility: the long-term volatility is not directly observable in the market but is estimated on the basis of shorter-term quoted prices and by making an adjustment to reflect the existing uncertainty, based on the standard deviation of historical volatility over various time periods. • Mortality rates: these are based on published official tables, adjusted to reflect the composition of the client portfolio for this type of product in Santander UK. - Callable interest rate derivatives (Bermudan-style options) where the main unobservable input is mean reversion of interest rates.

- Trading derivatives on interest rates, taking as an underlying asset titling and with the amortization rate (CPR, Conditional prepayment rate) as unobservable main entry.

- Derivatives from trading on inflation in Spain, where volatility is not observable in the market.

- Derivatives on volatility of long-term interest rates (more than 30 years) where volatility is not observable in the market at the indicated term.

- Equity volatility derivatives, specifically indices and equities, where volatility is not observable in the long term.

- Interest rate derivatives and long-term FX in some Latam units (mainly Brazil), where for certain underlying it is not possible to demonstrate observability at those terms.

- Debt instruments in Latam units referenced to certain illiquid interest rates, for which there is no reasonable observability in the market.

- Illiquid equities in non-trading portfolios, classified at fair value with changes in results and at fair value with changes in equity.

- HTC&S (Hold to collect and sale) syndicated loans classified in the fair value category with changes in other comprehensive income, where the cost of liquidity is not directly observable in the market, as well as the prepayment option in favour of the borrower.

- Loans compulsorily classified at fair value with changes in results in SCUSA, for which there are no observable prices in the market and certain valuation inputs associated with their credit risk are likewise unobservable.

The measurements obtained using the internal models might have been different if other methods or assumptions had been used with respect to interest rate risk, to credit risk, market risk and foreign currency risk spreads, or to their related correlations and volatilities. Nevertheless, the Bank’s directors consider that the fair value of the financial assets and liabilities recognised in the balance and the gains and losses arising from these financial instruments are reasonable.

Set forth below are the financial instruments at fair value whose measurement was based on internal models (Levels 2 and 3) as of June 30, 2020 and December 31, 2019:

Millions of euros Millions of euros Fair values calculated using internal Fair values calculated using internal models at 30/06/2020 (*) models at 31/12/2019 (*) Level 2 Level 3 Level 2 Level 3 Valuation techniques Main assumptions ASSETS: 160,522 5,558 111,852 4,047 Financial assets held for trading 70,907 534 55,276 449 Credit institutions - - - - Customers (**) 75 - 98 - Present value method FX Yield curves, Interest rates curves Debt and equity instruments 841 32 833 36 Present value method FX Yield curves, Interest rates curves Derivatives 69,991 502 54,345 413 Swaps 59,804 493 46,932 404 Present value method. Gaussian Copula, Interest rates curves, Volatility Surfaces, FX Market Black-Scholes Model, Heath-Jarrow-Morton, Prices and equity, Dividends, Correlation, Liquidity. Monte Carlo simulation and others. Exchange rate options 6,938 8 4,476 5 Interest rate options 2,148 1 2,160 2 Interest rate futures 77 - 52 - Index and securities options 856 - 619 - Other 168 - 106 2 Hedging derivatives 2,222 4 Present value method. Gaussian Copula, Black-Scholes Model, Heath-Jarrow-Morton, Interest rates curves, Volatility Surfaces, FX, Market 4,507 1 Monte Carlo simulation and others. Prices and equity, Dividends, Correlation, Liquidity. Swaps 2,744 1 1,918 4 Exchange rate options 1,739 - 254 - Interest rate options 12 10 - Other 12 - 40 - Non-trading financial assets mandatorily at fair value through profit or loss 1,984 303 1,954 620 Equity instruments 62 147 62 137 Present value method FX Market price. Interest rates curves. Debt instruments 811 132 629 457 Present value method FX Market price. Interest rates curves. Loans and receivables (**) 1,111 24 1,263 26 Present value method FX Market price. Interest rates curves.

Financial assets designated at fair value through profit or loss 81,031 162 49,809 50 Central Banks 272 - 138 - Present value method FX Market price. Interest rates curves. Credit institutions 48,550 162 18,493 50 Present value method FX Market price. Interest rates curves. Customers 32,209 - 31,178 - Present value method FX Market price. Interest rates curves. Debt instruments - - - - Financial assets at fair value through other comprehensive income 2,093 4,558 2,591 2,924 Equity instruments - 95 - 148 Present value method FX Market price. Interest rates curves. Debt instruments 1,804 - 1,502 - Loans and receivables 289 4,463 1,089 2,776

LIABILITIES 100,840 750 80,827 647 Present value method. Gaussian Copula, Interest rates curves, Volatility Surfaces, FX Market Financial liabilities held for trading 69,772 457 54,811 355 Black-Scholes Model, Heath-Jarrow-Morton, Prices and equity, Dividends, Correlation, Liquidity. Central Banks - - - - Monte Carlo simulation and others. Credit institutions - - - - Customers - - - - Derivatives Present value method. Gaussian Copula, Interest rates curves, Volatility Surfaces, FX Market Black-Scholes Model, Heath-Jarrow-Morton, Prices and equity, Dividends, Correlation, Liquidity. 69,772 457 54,811 355 Monte Carlo simulation and others. Swaps 57,282 401 45,059 337 Exchange rate options 6,675 4 4,355 - Interest rate options 2,707 34 2,212 18 Index and securities options 80 - 55 - Interest rate and equity futures 602 - 570 - Other 2,426 18 2,570 - Short positions - - - - Hedging derivatives 1,292 3 2,040 4 Swaps Present value method. Gaussian Copula, Interest rates curves, Volatility Surfaces, FX Market Black-Scholes Model, Heath-Jarrow-Morton, Prices and equity, Dividends, Correlation, Liquidity. 1,014 3 907 4 Monte Carlo simulation and others. Exchange rate options 123 - 766 - Interest rate options 25 - 313 - Other 130 - 54 - Financial liabilities designated at fair value through profit or loss 29,776 290 23,976 288 Liabilities under insurance contracts Present value method FX Market price. Interest rates curves.

(*) Level 2 internal models use data based on observable market parameters, while level 3 internal models use significant non-observable inputs in market data. (**) Includes mainly short-term loans and reverse repurchase agreements with corporate customers (mainly brokerage and investment companies).

The table below shows the effect, as of June 30, 2020 on the fair value of the main financial instruments classified as Level 3 of a reasonable change in the assumptions used in the valuation. This effect was determined by applying the probable valuation ranges of the main unobservable inputs detailed in the following table:

Portfolio/Instrument Impacts (Millions of euros) Valuation technique Main unobservable inputs Range Weighted average Unfavourable Favourable (Level 3) scenario scenario Financial assets held for trading Trading derivatives Present value model Curves on TAB indices (*) (a) (a) (0.2) 0.2 Present value model, modified Black-Scholes HPI forward growth rate 0%-5% HPI spot n/a 2.53% (23.8) 23.1 427,73 (**) (8.5) 8.5 No interest rate curve observable in the market. It is valued with the MXNTIIE28 MXNTIIE28 curve + Caps/floors Interest Rate Curves, FX Market Prices swap curve and an FVA is calculated based on the differential between the (14bp) (163.2) 84.4 (-25bp, -2bp) corresponding fixings.

Black Model 0.015 0.002 MXNTIIE91 Curve = MXNTIIE28 Curve - No interest rate curve observable in the market. It is valued with the MXNTIIE28 + (-25bp, -2bp) Bid Offer Spread IRS TIIE 8bp X-CCY MXN/USD swap curve and an FVA is calculated based on the differential between the IRS TIIE 0bp - 18bp 7bp Swaps UDI/ MXN Cross Currency Swaps Forward estimation corresponding fixings. X-CCY USD/MXN 3bp - (0.326) 0.339 13bp -MXN long term fees 10bp

Swaps UDI/MXN 5bp - 20bp

%6 - 12% Interest Rate Swaps (Swaps Lock in) Forward Estimation (formula not closed) Pre-paid fee 7% - -

This is a Balance Guaranteed Swap, which, as it did not have the appropriate Interest Rate Swaps Forward Estimation (formula not closed) valuation model, was completely covered Back-to-Back (both IRS clauses contain - - the same conditions for repayments).

- No interest rate curve observable in the market. It is valued with the MXNTIIE28 MXNTIIE91 Curve = MXNTIIE28 Curve TIIE91 -14bp IRS TIIE 8bp swap curve and an FVA is calculated based on the differential between the + (-25bp, -2bp) Bid Offer Spread X-CCY MXN/USD 7bp Swaps 0.24 Interest Rate Swaps Forward Estimation corresponding fixings. IRS TIIE 2bp - 10bp UDI/ MXN 13bp (0.888) -MXN long term fees CCY USD/MXN 3bp - 2 10bp

Financial assets at fair value through other

comprehensive income Debt instruments and equity holdings Present value method, others Contingencies for litigation 0% - 100% 26% (32.45) 11.4 Present value method, others Late payment and prepayment rate capital cost long-term profit growth rate (a) (a) (15.9) 15.9 Present value method, others Interest Rate Curves, FX Market Prices and Credit Curves (a) (a) (31.9) 31.9 Loans and advances to customers Local Volatility Long term volatility n/a 34% 244.9 (313.8) Estimation of default probabilities form credit curves Non-trading financial assets mandatorily at fair value

through profit or loss Weighted average by probability (according to forecast mortality Credit to customers HPI forward growth rate 0% - 5% 2.7% (6,7) 5.9 rates) of European HPI options, using the Black-Scholes model Debt instruments and equity instruments HPI spot n/a 427,73 (**) (6,4) 6.4 TD Black Spain volatility n/a 4.7% 2,2 (11.5) Asset Swap & CDS Model Model - Interest Rate Curves and Credit n/a 7.7% (19,8) 4.4 Cvx. Adj (SLN) Long term volatility n/a 8.0% (121,2) 105.1 Present Value Model, others Credit Spreads 0.2% - 1.6% 0.17% - - Financial liabilities held for trading Trading derivatives Present value method, modified Black-Scholes Model HPI forward growth rate 0% - 5% 2.39% (6.9) 6.3 HPI spot n/a 414,19(**) (3.9) 4.4 EquityLinked Deposits 0.5% (6.8) 0.8 Curves on TAB indexes (*) (a) (a) - -

This is a Balance Guaranteed Swap, which, as it did not have the appropriate n/a n/a Discounted flows denominated in different currencies valuation model, was completely covered Back-to-Back (both IRS clauses contain - - the same conditions for repayments)

No interest rate curve observable in the market. It is valued with the MXNTIIE28 MXNTIIE28 Curve Discounted flows denominated in different currencies (5bp) (0.039) 0.082 swap curve and an FVA is calculated + (-20bp, 9.5bp) Hedging derivatives (liabilities) Hedging derivatives Advanced models of local and stochastic volatility Correlation between the price of shares 55% - 75% 65% n/a n/a Advanced multi-factor interest rate models Mean reversion of interest rates 0.0001 - 0.03 0.01 (***) - -

Financial liabilities designated at fair value through ------profit or loss

Customer deposits Flow Discounting Method Curve specified by the local regulator Curve (IGPM + 6) + 100bps Curve (IGPM + 6) + 100bps (30) 30

(*) TAB: “Tasa Activa Bankria” (Active Bank Rate). Average interest rates on 30, 90, 180 and 360-day deposits published by the Chilean Association of Banks and Financial Institutions (ABIF) in nominal currency (Chilean peso) and in real terms, adjusted for inflation (in Chilean unit of account (Unidad de Fomento - UF)). (**) There are national and regional HPIs. The HPI spot value is the weighted average of the indices that correspond to the positions of each portfolio. The impact reported is in response to a 10% shift. (***) Theoretical average value of the parameter. The change made for the favourable scenario is from 0.0001 to 0.03. An unfavourable scenario was not considered as there was no margin for downward movement from the parameter's current level. The exercise was performed for the unobservable inputs described in the column "Main unobservable inputs" under probable scenarios. The weighted average range and value used is not shown because this exercise has been carried out jointly for different inputs or variants of them (for example, the TAB input are vector-term curves. for which there are also nominal and indexed curves to inflation), it is not possible to break down the result in an isolated manner by type of input. In the case of the TAB curve, the result is reported before movements of +/- 100 b.p. for the joint sensitivity of this index in CLP (Chilean peso) and CLF. The same applies for interest rates in MXN (Mexican peso). The Group calculates the potential impact on the measurement of each instrument on a joint basis, regardless of whether the individual value is positive (assets) or negative (liabilities), and discloses the joint effect associated with the related instruments classified on the asset side of the consolidated balance. Note: Null impacts in Quanto options arise because the position is completely covered back-to-back. The null impacts on Interest Rate Swaps (Swaps Lock In) arise because the prepayment risk is fully covered.

iv. Recognition of fair value changes

As a general rule, changes in the carrying amount of financial assets and liabilities are recognised in the income statement. A distinction is made between the changes resulting from the accrual of interest and similar items, (which are recognised under Interest income or Interest expense, as appropriate), and those arising for other reasons, which are recognised at their net amount under Gains/losses on financial assets and liabilities.

Adjustments due to changes in fair value arising from:

- Financial assets at fair value with changes in other comprehensive income are recorded temporarily, in the case of debt instruments in other comprehensive income - Elements that can be reclassified to profit or loss - Financial assets at fair value with changes in other comprehensive income, while in the case of equity instruments are recorded in other comprehensive income -Elements that will not be reclassified to line item - Changes in the fair value of equity instruments valued at fair value with changes in other comprehensive income. Exchange differences on debt instruments measured at fair value with changes in other comprehensive income are recognised under Exchange Differences, net of the consolidated income statement. Exchange differences on equity instruments, in which the irrevocable option of being measured at fair value with changes in other comprehensive income has been chosen, are recognised in Other comprehensive income - Items that will not be reclassified to profit or loss - Changes in the fair value of equity instruments measured at fair value with changes in other comprehensive income.

- Items charged or credited to Items that may be reclassified to profit or loss – Financial assets at fair value through other comprehensive income and Other comprehensive income – Items that may be reclassified to profit or loss – Exchange differences in equity remain in the Bank's equity until the asset giving rise to them is impaired or derecognised, at which time they are recognised in the income statement. - Unrealised gains on Financial assets classified as Non-current assets held for sale because they form part of a disposal group or a discontinued operation are recognised in Other comprehensive income under Items that may be reclassified to profit or loss – Non-current assets held for sale. v. Hedging transactions

The Bank use financial derivatives for the following purposes: i) to facilitate these instruments to customers who request them in the management of their market and credit risks; ii) to use these derivatives in the management of the risks of its own positions and assets and liabilities (hedging derivatives); and iii) to obtain gains from changes in the prices of these derivatives (derivatives).

Financial derivatives that do not qualify for hedge accounting are treated for accounting purposes as trading derivatives.

A derivative qualifies for hedge accounting if all the following conditions are met:

1. The derivative hedges one of the following three types of exposure: a. Changes in the fair value of assets and liabilities due to fluctuations, among others, in the interest rate and/or exchange rate to which the position or balance to be hedged is subject (fair value hedge); b. Changes in the estimated cash flows arising from financial assets and liabilities, commitments and highly probable forecast transactions (cash flow hedge); c. The net investment in a foreign operation (hedge of a net investment in a foreign operation).

2. It is effective in offsetting exposure inherent in the hedged item or position throughout the expected term of the hedge, which means that: a. At the date of arrangement, the hedge is expected, under normal conditions, to be highly effective (prospective effectiveness). b. There is enough evidence that the hedge was effective during the whole life of the hedged item or position (retrospective effectiveness). To this end, the Bank checks that the results of the hedge were within a range of 80% to 125% of the results of the hedged item.

3. There must be adequate documentation evidencing the specific designation of the financial derivative to hedge certain balances or transactions and how this hedge was expected to be achieved and measured, provided that this is consistent with the Bank's management of own risks.

The changes in value of financial instruments qualifying for hedge accounting are recognised as follows: a. In fair value hedges, the gains or losses arising on both the hedging instruments and the hedged items attributable to the type of risk being hedged are recognised directly in the income statement. In fair value hedges of interest rate risk on a portfolio of financial instruments, the gains or losses that arise on measuring the hedging instruments are recognised directly in the income statement, whereas the gains or losses due to changes in the fair value of the hedged amount (attributable to the hedged risk) are recognised in the income statement with a balancing entry under Changes in the fair value of hedged items in portfolio hedges of interest rate risk on the asset or liability side of the balance, as appropriate. b. In cash flow hedges, the effective portion of the change in value of the hedging instrument is recognised temporarily in Other comprehensive income – under Items that may be reclassified to profit or loss – Hedging derivatives – Cash flow hedges (effective portion) until the forecast transactions occur, when it is recognised in the income statement, unless, if the forecast transactions result in the recognition of non-financial assets or liabilities, it is included in the cost of the non-financial asset or liability. c. In hedges of a net investment in a foreign operation, the gains or losses attributable to the portion of the hedging instruments qualifying as an effective hedge are recognised temporarily in Other comprehensive income under Items that may be reclassified to profit or loss – Hedges of net investments in foreign operations until the gains or losses – on the hedged item are recognised in profit or loss. d. The ineffective portion of the gains or losses on the hedging instruments of cash flow hedges and hedges of a net investment in a foreign operation is recognised directly under Gains/losses on financial assets and liabilities (net) in the income statement, in Gains or losses from hedge accounting. net.

If a derivative designated as a hedge no longer meets the requirements described above due to expiration, ineffectiveness or for any other reason, the derivative is classified for accounting purposes as a trading derivative.

When fair value hedge accounting is discontinued, the adjustments previously recognised on the hedged item are amortised to profit or loss at the effective interest rate recalculated at the date of hedge discontinuation. The adjustments must be fully amortised at maturity.

When cash flow hedge accounting is discontinued, any cumulative gain or loss on the hedging instrument recognised in equity under other comprehensive income - Items that may be reclassified to profit or loss (from the period when the hedge was effective) remains in this equity item until the forecast transaction occurs, at which time it is recognised in profit or loss, unless the transaction is no longer expected to occur, in which case the cumulative gain or loss is recognised immediately in profit or loss.

vi. Derivatives embedded in hybrid financial instruments

Derivatives embedded in other financial instruments or in other host contracts are accounted for separately as derivatives if their risks and characteristics are not closely related to those of the host contracts, provided that the host contracts are not classified as financial assets/liabilities designated at fair value through profit or loss or as Financial assets/liabilities held for trading. e) Derecognition of financial assets and liabilities

The accounting treatment of transfers of financial assets depends on the extent to which the risks and rewards associated with the transferred assets are transferred to third parties:

1. If the Bank transfers substantially all the risks and rewards to third parties unconditional sale of financial assets, sale of financial assets under an agreement to repurchase them at their fair value at the date of repurchase, sale of financial assets with a purchased call option or written put option that is deeply out of the money, securitisation of assets in which the transferor does not retain a subordinated debt or grant any credit enhancement to the new holders. and other similar cases-, the transferred financial asset is derecognised, and any rights or obligations retained or created in the transfer are recognised simultaneously.

2. If the Bank retains substantially all the risks and rewards associated with the transferred financial asset -sale of financial assets under an agreement to repurchase them at a fixed price or at the sale price plus interest, a securities lending agreement in which the borrower undertakes to return the same or similar assets, and other similar cases-, the transferred financial asset is not derecognised and continues to be measured by the same criteria as those used before the transfer. However, the following items are recognised:

a. An associated financial liability, which is recognised for an amount equal to the consideration received and is subsequently measured at amortised cost, unless it meets the requirements for classification under Financial liabilities designated at fair value through profit or loss. b. The income from the transferred financial asset not derecognised and any expense incurred on the new financial liability, without offsetting.

3. If the Bank neither transfers nor retains substantially all the risks and rewards associated with the transferred financial asset -sale of financial assets with a purchased call option or written put option that is not deeply in or out of the money, securitisation of assets in which the transferor retains a subordinated debt or other type of credit enhancement for a portion of the transferred asset, and other similar cases- the following distinction is made:

a. If the transferor does not retain control of the transferred financial asset, the asset is derecognised, and any rights or obligations retained or created in the transfer are recognised.

b. If the transferor retains control of the transferred financial asset, it continues to recognise it for an amount equal to its exposure to changes in value and recognises a financial liability associated with the transferred financial asset. The net carrying amount of the transferred asset and the associated liability is the amortised cost of the rights and obligations retained, if the transferred asset is measured at amortised cost, or the fair value of the rights and obligations retained, if the transferred asset is measured at fair value.

Accordingly, financial assets are only derecognised when the rights to the cash flows, they generate have expired or when substantially all the inherent risks and rewards have been transferred to third parties. Similarly, financial liabilities are only derecognised when the obligations they generate have been extinguished or when they are acquired with the intention either to cancel them or to resell them.

f) Offsetting of financial instruments

Financial asset and liability balances are offset, i.e. reported in the balance at their net amount, only if the Bank currently has a legally enforceable right to set off the recognised amounts and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Following is the detail of financial assets and liabilities that were offset in the balance as of June 30, 2020 and December 31, 2019:

Millions of euros 30/06/2020 31/12/2019 Net amount Net amount Gross amount of of financial assets Gross amount of of financial assets Gross amount of financial liabilities presented in the Gross amount of financial liabilities presented in the Assets financial assets offset in the balance balance financial assets offset in the balance balance

Derivates 138,989 (62,455) 76,534 111,629 (53,709) 57,920 Repos 82,237 (3,062) 79,175 49,047 (3,198) 45,849 221,226 (65,517) 155,709 160,676 (56,907) 103,769

Millions of euros 30/06/2020 31/12/2019 Net amount Net amount Gross amount of of financial liabilities Gross amount of of financial liabilities Gross amount of financial assets offset presented in the Gross amount of financial assets offset presented in the Liabilities financial liabilities in the balance balance financial liabilities in the balance balance

Derivatives 135,522 (62,456) 73,066 111,821 (53,709) 58,112 Repos 27,819 (3,061) 24,758 20,084 (3,198) 16,886 163,341 (65,517) 97,824 131,905 (56,907) 74,998

Also, most of the derivatives and repos not compensated in balance are subject to netting and collateral agreements.

As of June 30, 2020, the balance amounts EUR 150,576 million on derivatives and repos as assets and EUR 92.496 million on derivatives and repos as liabilities that are subject to netting and collateral arrangements (EUR 91,250 million and EUR 66,501 million at December 31, 2019 respectively). g) Impairment of financial assets

i. Definition

The Bank associates an impairment in the value of financial assets measured at amortized cost, debt instruments measured at fair value with changes in other comprehensive income, lease receivables and commitments and guarantees granted that are not measured at fair value.

The impairment for expected credit losses is recorded with a charge to the income statement for the period in which the impairment arises. In the event of occurrence, the recoveries of previously recognized impairment losses are recorded in the income statement for the period in which the impairment no longer exists or is reduced.

In the case of purchased or originated credit-impaired assets, the Bank only recognizes at the reporting date the changes in the expected credit losses during the life of the asset since the initial recognition as a credit loss. In the case of assets measured at fair value with changes in other comprehensive income, the changes in the fair value due to expected credit losses are charged in the consolidated income statement of the year where the change happened, reflecting the rest of the valuation in other comprehensive income.

As a rule, the expected credit loss is estimated as the difference between the contractual cash flows to be recovered and the expected cash flows discounted with the original effective interest rate. In the case of purchased or originated credit-impaired assets, this difference is discounted using the effective interest rate adjusted by credit rating.

Depending on the classification of financial instruments, which is mentioned in the following sections, the expected credit losses may be along 12 months or during the life of the financial instrument:

- 12-month expected credit losses: arising from the potential default events, as defined in the following sections that are estimated to be likely to occur within the 12 months following the reporting date. These losses will be associated with financial assets classified as "normal risk" as defined in the following sections.

- Expected credit losses over the life of the financial instrument: expected credit losses arising from potential default events that are estimated to be likely to occur throughout the life of the instruments. These losses are associated with financial assets classified as "normal risk under watchlist" or "doubtful risk".

With the purpose of estimating the expected life of the financial instrument all the contractual terms have been taken into account (e.g. prepayments, duration, purchase options, etc.), being the contractual period (including extension options) the maximum period considered to measure the expected credit losses. In the case of financial instruments with an uncertain maturity period and a component of undrawn commitment (e.g.: credit cards), the expected life is estimated through quantitative analyses to determine the period during which the entity is exposed to credit risk, also considering the effectiveness of management procedures that mitigate such exposure (e.g. the ability to unilaterally cancel such financial instruments, etc.).

The following constitute effective guarantees:

a) Mortgage guarantees on housing as long as they are first duly constituted and registered in favour of the entity. The properties include:

i. Buildings and building elements, distinguishing among: - Houses. - Offices commercial and multi-purpose premises. - Rest of buildings such as non-multi-purpose premises and hotels.

ii. Urban and developable ordered land.

iii. Rest of properties that would be classified as: buildings and building elements under construction, such as property development in progress and halted development, and the rest of land types, such as rustic lands.

b) Collateral guarantees on financial instruments in the form of cash deposits and debt securities issued by creditworthy issuers.

c) Other types of real guarantees, including properties received in guarantee and second and subsequent mortgages on properties, as long as the entity demonstrates its effectiveness. When assessing the effectiveness of the second and subsequent mortgages on properties the entity will implement particularly restrictive criteria. It will consider, among others, whether the previous charges are in favour of the entity itself or not and the relationship between the risk guaranteed by them and the property value. d) Personal guarantees, as well as the incorporation of new owners, covering the entire amount of the instruments and implying direct and joint liability to the entity of persons other entities whose solvency is sufficiently proven to ensure the repayment of the loan on the agreed terms.

The different aspects that the Bank considers for the evaluation of specific guarantees are set out below in relation to the individualized analysis.

On the other hand, it should be noted that, due to the situation generated by COVID-19, in addition to the aspects indicated below both for the classification of financial instruments and for the calculation of the impairment correction, as of June 30, 2020, the Bank has taken into consideration the aspects described in Note 1.c in its estimates. ii. Financial instruments presentation For the purposes of estimating the impairment adjustment, and in accordance with its internal policies, the Bank classifies its financial instruments (financial asset, commitments and guarantees) measured at amortized cost or fair value through other comprehensive income in one of the following categories: - Normal Risk ("Stage 1"): includes all instruments that do not meet the requirements to be classified in the rest of the categories.

- Normal risk under watchlist ("Stage 2"): includes all instruments that, without meeting the criteria for classification as doubtful or default risk, have experienced significant increases in credit risk since initial recognition.

In order to determine whether a financial instrument has increased its credit risk since initial recognition and is to be classified in Stage 2, the Bank considers the following criteria:

Changes in the risk of a default occurring through the expected life of the financial instrument are analysed and quantified with respect to its credit level in its initial recognition. With the purpose of determining if such changes are considered as significant, with the consequent classification into Stage 2, the Bank has defined the quantitative thresholds to consider in each of its portfolios considering corporate guidelines ensuring a consistent interpretation in all units. Quantitative criteria Within these quantitative thresholds, two types are considered: a relative threshold is understood to be that which compares the current credit quality with the credit quality at the time of origination in percentage terms of change. Additionally, an absolute threshold compares both references in total terms, calculating the difference between the two. These absolute/relative concepts are used homogeneously (with different values) in all geographies.

In addition to the quantitative criteria indicated, various indicators are used that are aligned with those used by the Group in the normal management of credit risk. Irregular positions of more than 30 days and renewals are common criteria with the Bank. In addition, each unit can define other qualitative indicators, for each of its portfolios, Qualitative criteria according to the particularities and normal management practices in line with the policies currently in force (e.g. use of management alerts, etc.). The use of these qualitative criteria is complemented with the use of an expert judgement, under the corresponding governance.

In the case of forbearances, instruments classified as "normal risk under watchlist" may be reclassified to "normal risk" in the following circumstances: at least two years have elapsed from the date of reclassification to that category or from its forbearance date, the client has paid the accrued principal and interest balance, and the client has no other instruments with more than 30 days past due balances.

- Doubtful Risk (“Stage 3"): includes financial instruments, overdue or not, in which, without meeting the circumstances to classify them in the category of default risk, there are reasonable doubts about their total repayment (principal and interests) by the client in the terms contractually agreed. Likewise, off-balance-sheet exposures whose payment is probable and their recovery doubtful are considered in Stage 3. Within this category, two situations are differentiated:

- Doubtful risk for non-performing loans: financial instruments, irrespective of the client and guarantee, with balances more than 90 days past due for principal, interest or expenses contractually agreed. This category also includes all loan balances for a client which overdue amount more than 90 days past due is greater than 20% of the loan receivable balance.

These instruments may be reclassified to other categories if, as a result of the collection of part of the past due balances, the reasons for their classification in this category do not remain and the client does not have balances more than 90 days past due in other loans.

- Doubtful risk for reasons other than non-performing loans: this category includes doubtful recovery financial instruments that are not overdue by more than 90 days past due.

The Bank considers that a financial instrument to be doubtful for reasons other than delinquency when one or more combined events have occurred with a negative impact on the estimated future cash flows of the financial instrument. To this end, the following indicators, among others, are considered:

1) Negative net equity or decrease because of losses of the customer's net equity by at least 50% during the last financial year.

2) Continued losses or significant decrease in revenue or, in general, in the customer's recurring cash flows.

3) Generalised delay in payments or insufficient cash flows to service debts.

4) Significantly inadequate economic or financial structure or inability to obtain additional financing by the client.

5) Existence of an internal or external credit rating showing that the customer is in default.

6) Existence of overdue customer commitments with a significant amount to public institutions or employees.

These financial instruments may be reclassified to other categories if, as a result of an individualised study, reasonable doubts do not remain about the total repayment under the contractually agreed terms and the client does not have balances with more than 90 days past due.

In the case of forbearances, instruments classified as doubtful risk may be reclassified to the category of 'normal risk under watchlist' when the following circumstances are present: a minimum period of one year has elapsed from the forbearance date, the client has paid the accrued principal and interest amounts, and the client has no other loan balance with amounts of more than 90 days past due.

- Default Risk: includes all financial assets, or part of them, for which, after an individualised analysis, their recovery is considered remote due to a notorious and irrecoverable deterioration of their solvency.

In any event, except in the case of financial instruments with effective collateral covering more than 10% of the transaction amount, the Bank generally consider as remote recovery: the operations of holders that are in the liquidation phase of the bankruptcy, the doubtful operations due to delinquency that have an antiquity in this category exceeding 4 years and the doubtful operations because of the delinquency whose part is not covered by collateral has been maintained with 100% credit risk coverage for more than two years.

A financial asset amount is maintained in the balance until they are considered as a "default risk", either all or a part of it, and the write-off is registered against the balance.

In the case of operations that have only been partially derecognised, for forgiveness reasons or because part of the total balance is considered unrecoverable, the remaining amount shall be fully classified in the category of "doubtful risk", except where duly justified.

The classification of a financial asset, or part of it, as a 'default risk' does not involve the disruption of negotiations and legal proceedings to recover the amount.

iii. Impairment valuation assessment

The Bank has policies, methods and procedures in place to hedge its credit risk, both due to the insolvency attributable to counterparties and its residence in a specific country. These policies, methods and procedures are applied in the concession, study and documentation of financial assets, risks and contingent commitments, as well as in the identification of their impairment and in the calculation of the amounts needed to cover their credit risk.

The asset impairment model in Circular 4/2017 applies to financial assets measured at amortised cost, debt instruments at fair value with changes in other comprehensive income, lease receivables and commitments and guarantees granted that are not measured at fair value.

The impairment represents the best estimation of the financial assets expected credit losses at the balance date, assessed both individually and collectively.

- Individually: for the purposes of estimating the provisions for credit risk arising from the insolvency of a financial instrument, the Bank individually assesses impairment by estimating the expected credit losses on those financial instruments that are considered to be significant and with sufficient information to make such an estimate.

Therefore, this classification mostly includes wholesale banking customers – Corporations, specialized financing - as well as some of the largest companies – Chartered and real estate developers - from retail banking. The determination of the perimeter in which the individualized estimate is applied is detailed in a later section.

The individually assessed impairment estimate is equal to the difference between the gross carrying amount of the financial instrument and the estimated value of the expected cash flows receivable discounted using the original effective interest rate of the transaction. The estimate of these cash flows considers all available information on the financial asset and the effective guarantees associated with that asset. This estimation process is detailed below.

- Collectively: The Bank also assesses impairment by estimating the expected credit losses collectively in cases where they are not assessed on an individual basis. This includes, for example, loans with individuals, sole proprietors or businesses in retail banking subject to a standardised risk management.

For the purposes of the collective assessment of expected credit losses, the Bank has consistent and reliable internal models. For the development of these models, instruments with similar credit risk characteristics that are indicative of the debtors' capacity to pay are considered.

The credit risk characteristics used to group the instruments are, among others: type of instrument, debtor's sector of activity, geographical area of activity, type of guarantee, aging of past due balances and any other factor relevant to estimating the future cash flows.

The Bank performs retrospective and monitoring tests to evaluate the reasonableness of the collective estimate.

On the other hand, the methodology required to estimate the expected credit loss due to credit events is based on an unbiased and weighted consideration by the probability of occurrence of a series of scenarios, considering a range of three to five possible future scenarios, depending on the characteristics of each unit, which could have an impact on the collection of contractual cash flows, always taking into account the time value of money, as well as all available and relevant information on past events, current conditions and forecasts of the evolution of macroeconomic factors that are shown to be relevant for the estimation of this amount (for example: GDP (Gross Domestic Product), housing price, unemployment rate, etc.).

For the estimation of the parameters used in the estimation of impairment provisions (EAD (Exposure at Default), PD (Probability of Default), LGD (Loss Given Default)), the Bank based its experience in developing internal models for the estimation of parameters both in the regulatory area and for management purposes, adapting the development of the impairment provision models under Circular 4/2017.

- Exposure at default: is the amount of estimated risk incurred at the time of the counterparty's analysis.

- Probability of default: is the estimated probability that the counterparty will default on its principal and/or interest payment obligations.

- Loss given default: is the estimate of the severity of the loss incurred in the event of non-compliance. It depends mainly on the updating of the guarantees associated with the operation and the future cash flows that are expected to be recovered.

In any case, when estimating the flows expected to be recovered, portfolio sales are included. It should be noted that due to the Bank's recovery policy and the experience observed in relation to the prices of past sales of assets classified as Stage 3 and/or default risk, there is no substantial divergence between the flows obtained from recoveries after performing recovery management of the assets with those obtained from the sale of portfolios of assets discounting structural expenses and other costs incurred.

The definition of default implemented at the Bank for the purpose of calculating the impairment provision models is based on the definition in Article 178 of Regulation 575/2013 of the European Union (CRR), which is fully aligned with the requirements of the Bank of Spain Circular 4/2017, which considers that a "default" exists in relation to a specific customer/contract when at least one of the following circumstances exists: the entity considers that there are reasonable doubts about the payment of all its credit obligations or that the customer/contract is in an irregular situation for more than 90 days with respect to any significant credit obligation.

In addition, the Bank considers the risk generated in all cross-border transactions due to circumstances other than the usual commercial risk of insolvency (sovereign risk, transfer risk or risks arising from international financial activity, such as wars, natural catastrophes, balance of payments crisis, etc.).

Bank of Spain Circular 4/2017 includes a series of practical solutions that can be implemented by entities, with the aim of facilitating its implementation. However, in order to achieve a complete and high-level implementation of the standard, and following the best practices of the industry, the Bank does not apply these practical solutions in a generalized manner:

- Rebuttable presumption that the credit risk has increased significantly, when payments are more than 30 days past due: this threshold is used as an additional, but not primary, indicator of significant risk increase. Additionally, there may be cases in the Bank where its use has been rebutted as a result of studies that show a low correlation of the significant risk increase with this past due threshold.

- Assets with low credit risk at the reporting date: The Bank assesses the existence of significant risk increase in all its financial instruments.

iv. Detail of the individualized estimate of the impairment correction

For the individual estimate of the correction for impairment of the financial asset, the Bank has a specific methodology to estimate the value of the cash flows expected to be collected: • Recovery through the debtor's ordinary activities (“Going Concern” approach). • Recovery through the execution and sale of collaterals that guarantee operations (“Gone Concern” approach).

“Gone Concern” approach:

a. Evaluation of the effectiveness of guarantees

The Bank assesses the effectiveness of all the guarantees associated considering the following aspects: • The time required to execute these guarantees; • The Bank’s ability to enforce or assert these guarantees in its favor; • The existence of limitations imposed by each local unit´s regulation on the foreclosure of collateral.

Under no circumstances the Bank considers that a guarantee is effective if its effectiveness depends substantially on the solvency of the debtor, as could be the case:

• Promises of shares or other securities of the debtor himself when their valuation may be significantly affected by a debtor's default. • Personal cross-collateralisation: when the guarantor of a transaction is, at the same time, guaranteed by the holder of that transaction.

Based on the foregoing, the following types of guarantees are considered to be effective

• Mortgage guarantees on properties, which are first charge, duly constituted and registered: Real estate includes: - Buildings and finished building elements; - Urban and developable land in order; - Other real estate. including buildings under construction, developments in progress or at a standstill, and other land, such as rural properties.

• Pledges on financial instruments such as cash deposits, debt securities of recognised issuers or equity instruments.

• Other types of security interests, including movable property received as security and second and subsequent mortgages on real state, provided that they are proven to be effective under particularly restrictive criteria.

• Personal guarantees, as well as the incorporation of new owners, covering the entire amount of the transaction and involving the direct and joint liability before the entity of persons or entities whose equity solvency is sufficiently proven to ensure repayment of the transaction under the agreed terms.

b. Valuation of guarantees

The Bank assesses the guarantees based on their nature in accordance with the following:

• Mortgage guarantees on properties associated with financial instruments using complete individual valuations carried out by independent valuation experts and under generally accepted valuation standards. If it is not possible, alternative valuations are used by duly documented and approved internal valuation models.

• Personal guarantees are valued individually based on the guarantor´s updated information.

• The rest of the guarantees are valued based on current market values.

c. Adjustments to the value of guarantees and estimation of future cash flow inflows and outflows.

The Bank applies a series of adjustments to the value of the guarantees in order to improve the reference values:

• Adjustments based on the historical sales experience of local units for certain types of assets.

• Individual expert adjustments based on additional management information.

Likewise, to adjust the value of the guarantees, the temporary value of the money is considered based on the historical experience of each of the units, estimating:

• Period of adjudication. • Estimated time of sale of the asset.

In addition, the Bank considers all those cash inflows and outflows linked to that guarantee until its sold:

• Possible future income commitments in favour of the borrower which will available after the asset is awarded.

• Estimated foreclosure costs.

• Asset maintenance costs, taxes and community costs.

• Estimated marketing or sales costs.

Finally, since it is considered that the guarantee will be sold in the future, the Bank applies an additional adjustment ("index forward") in order to adjust the value of the guarantees to future valuation expectations. v. Scope of application of the individual estimate of the correction for impairment

The Bank determines the perimeter over which it makes an estimate of the correction for impairment on an individual basis based on a materiality threshold set by the Bank and the phase in which the operations are located. In general, the Group applies the individualized calculation of expected losses to the significant exposures classified in Stage 3, although Banco Santander, S.A. has also extended its analyses to some of the exposures classified in Stage 2.

It should be noted that, in any case and irrespective of the stage in which their transactions are carried out, for customers who do not receive standardized treatment, a relational risk management model is applied, with individualized treatment and monitoring by the assigned risk analyst. Within this relational management model, in addition to wholesale customers (SCIB, Santander Corporate & Investment Banking) and large companies, this relational management model also includes other segments of smaller companies for which there is information and capacity for more personalized and expert analysis and monitoring. As indicated in the Bank's wholesale credit model, the individual treatment of the client facilitates the continuous updating of the client’s specific rating for each customer, which determines the appropriate parameters for calculating the expected loss, so that it is the rating itself that initially modulates the necessary coverage, adjusting the severity of the possible loss to the guarantees and other mitigating factors that the customer may have available. In addition, if as a result of this individualized monitoring of the customer, the analyst finally considers that his coverage is not enough, he has the necessary mechanisms to adjust it under his expert judgement, always under the appropriate governance.

h) Repurchase agreements and reverse repurchase agreements

Purchases (sales) of financial instruments under a non-optional resale (repurchase) agreement at a fixed price (repos) are recognised in the balance as financing granted (received), based on the nature of the debtor (creditor), under Loans and advances with central banks, Loans and advances to credit institutions or Loans and advances to customers (Deposits from central banks, Deposits from credit institutions or Customer deposits).

Differences between the purchase and sale prices are recognised as interest over the contract term. i) Non-current assets and Liabilities associated with non-current assets held for sale

Non-current assets held for sale includes the carrying amount of individual items, disposal groups or items forming part of a business unit earmarked for disposal (discontinued operations), whose sale in their present condition is highly likely to be completed within one year from the reporting date. Therefore, the recovery of the carrying amount of these items -which can be of a financial nature or otherwise- will foreseeably be effected through the proceeds from their disposal.

Specifically, property or other non-current assets received as total or partial settlement of their debtors' payment obligations to them are deemed to be Non-current assets held for sale, unless the Bank have decided to make continuing use of these assets. In this connection, for the purpose of its consideration in the initial recognition of these assets, the Bank obtains, at the foreclosure date, the fair value of the related asset through a request for appraisal by external appraisal agencies.

The Bank has in place a corporate policy that ensures the professional competence and the independence and objectivity of the external appraisal agencies, in accordance with the regulations, which require appraisal agencies to meet independence, neutrality and credibility requirements, so that the use of their estimates does not reduce the reliability of its valuations. This policy establishes that all the appraisal companies and agencies with which the Bank works in Spain should be registered in the Official Register of the Bank of Spain and that the appraisals performed by them should follow the methodology established in Ministry of Economy Order ECO/805/2003, of 27 March. The main appraisal companies and agencies with which they worked in Spain during the first half of fiscal year 2020 are as follows: Eurovaloraciones, S.A., Gloval Valuation, S.A.U., Tinsa Tasaciones Real States, S.A.U. and Krata., S.A.

Liabilities associated with non-current assets held for sale includes the balances payable arising from the assets held for sale or disposal groups and from discontinued operations.

Non-current assets and disposal groups of items that have been classified as held for sale are generally recognised at the date of their allocation to this category and are subsequently valued at the lower of their fair value less costs to sell or book value. Non-current assets and disposal groups of items that are classified as held for sale are not amortised as long as they remain in this category.

As of June 30, 2020 the fair value less costs to sell of non-current assets held for sale exceeded their carrying amount by EUR 114 million (EUR 151 million in 2019); however, in accordance with the applicable legislation, this unrealised gain could not be recognised.

The value of the portfolio is determined as the sum of the values of the individual elements that compose the portfolio, without considering any total or batch grouping in order to correct the individual values.

Banco Santander, in compliance with Bank of Spain Circular 4/2017 on public and private financial reporting standards and financial statement models, has developed a methodology that enables it to estimate the fair value and costs of sale of assets foreclosed or received in payment of debts. This methodology is based on the classification of the portfolio of foreclosed assets into different segments. Segmentation enables the intrinsic characteristics of Banco Santander's portfolio of foreclosed assets to be differentiated, so that assets with homogeneous characteristics are grouped by segment.

Thus, the portfolio is segmented into i) finished assets of a residential and tertiary nature, ii) developments in progress and iii) land (assets in a situation of "stopped development" are included under "land").

In determining the critical segments in the overall portfolio, assets are classified based on the nature of the asset and its stage of development. This segmentation is made in order to seek the liquidation of the asset (which should be carried out in the shortest possible time).

When making decisions, the situation and/or characteristics of the asset are fundamentally considered, as well as the evaluation of all the determining factors that favour the recovery of the debt. For them, the following aspects are analysed. among others: • The time that has elapsed since the adjudication. • The transferability and contingencies of the foreclosed asset. • The economic viability from the real estate point of view with the necessary investment estimate. • The expenses that may arise from the marketing process. • The offers received, as well as the difficulties in finding buyers.

In the case of real estate assets foreclosed in Spain, the valuation of the portfolio is carried out by applying the following models:

- Market Value Model used in the valuation of finished properties of a residential nature (mainly homes and car parks) and properties of a tertiary nature (offices, commercial premises and multipurpose buildings). For the valuation of finished assets whose availability for sale is immediate, a market sale value provided by a third party external to Banco Santander is considered, calculated under the AVM methodology by the comparable properties method adjusted by our experience in selling similar assets, given the term, price, volume, trend in the value of these assets and the time elapsing until their sale and discounting the estimated costs of sale.

The market value is determined on the basis of the definition established by the International Valuation Standards drawn up by the IVSC (International Valuation Standards Council), understood as the estimated amount for which an asset or a liability should be exchanged on the measurement date between a willing buyer and a willing seller, in an arm's length transaction, after appropriate marketing, and in which the parties have acted with sufficient information, prudently and without coercion.

The current market value of the properties is estimated on the basis of automated valuations obtained by taking comparable properties as a reference; simulating the procedure carried out by an appraiser in a physical valuation according to Order ECO 805/2003: selection of properties and obtaining the unit value by applying homogenisation adjustments. The selection of the properties is carried out by location within the same real estate cluster and according to the characteristics of the properties, filtering by type (assets qualified as protected housing are considered). The Maximum Legal Value of these assets is determined by the VPO module, obtained from the result of multiplying the State Basic Module (MBE) by a zone coefficient determined by each Autonomous Community. To carry out the valuation of a protected property, the useful surface area is used in accordance with current regulations), surface area range and age. The model enables a distinction to be made within the municipality under study as to which areas are similar and comparable and therefore have a similar value in the property market, discriminating between which properties are good comparators and which are not.

Adjustments to homogenize the properties are made according to: i) the age of the property according to the age of the property to be valued, ii) the deviation of the built area from the common area with respect to the property to be valued and iii) by age of the date of capture of the property according to the price evolution index of the real estate market.

In addition, for individually significant assets, complete individual valuations are carried out, including a visit to the asset, market analysis (data relating to supply, demand, current sale or rental price ranges and supply-demand and revaluation expectations) and an estimate of expected income and costs.

For this segmentation of assets, when they are completed, the real costs are known and the actual expenses for the marketing and sale of the asset must be considered. Therefore, Banco Santander, S.A. uses the actual costs in its calculation engine or, failing that, those estimated based on its observed experience.

- Market Value Model according to Evolution of Market Values used to update the valuation of developments in progress. The valuation model estimates the current market value of the properties based on complete individual valuations by third parties, calculated from the values of the feasibility studies and development costs of the promotion, as well as the selling costs, distinguishing by location, size and type of property. The inputs used in the valuation model for residential assets under construction are actual revenues and costs.

For this purpose, in order to calculate the investment flows, Banco Santander considers, on the basis of the feasibility studies, the expenditure required for construction, the professional fees relating to the project and to project management, the premiums for mandatory building insurance, the developer's administrative expenses, licences, taxes on new construction and fees, and urban development charges.

With respect to the calculation of income flows, Banco Santander considers the square metres built, the number of homes under construction and the estimated selling price over 1.5 years.

The market value will be the result of the difference between the income flows and the investment flows estimated at each moment.

- Land Valuation model. The methodology followed by the Bank regarding land valuation consists of updating the individual reference valuation of each of the soils on an annual basis, through updated valuation valuations carried out by independent professionals and following the methodology established in the OM (Ministerial Order) ECO/805/2003, of 27 March, whose main verifications in the case of soil valuation, regardless of the degree of urbanisation of the soil, correspond to: - Visual verification of the assessed property. - Registry description. - Urban planning. - Visible easements. - Visible state of occupation, possession, use and exploitation. - Protection regime. - Apparent state of preservation. - Correspondence with cadastral property. - Existence of expropriation procedure, expropriation plan or project, administrative resolution or file that may lead to expropriation. - Expiry of the Urbanization or Building deadlines. - Existence of a procedure for failure to comply with obligations. - Verification of surfaces.

For the purposes of valuation, the land will be classified in the following levels:

- Level I: It will include all the lands that do not belong to Level II. - Level II: It shall include land classified as undeveloped where building is not allowed for uses other than agriculture, forestry, livestock or linked to an economic exploitation permitted by the regulations in force. Also included are lands classified as developable that are not included in a development area of urban planning or that, in such an area, the conditions for its development have not been defined.

In those cases where the Bank does not have an updated reference value through an ECO valuation for the current year, we use as a reference value the latest available ECO valuation reduced or corrected by the average annual coverage ratio of the land on which we have obtained an updated reference value, through an ECO valuation.

The Bank applies a discount to the aforementioned reference values that considers both the discount on the reference value in the sales process and the estimated costs of marketing or selling the land. Said percentage is calculated based on our historical experience and is adjusted every six months; so that - Discount on reference value = % Discount on Sales + % Marketing Costs being: - % Discount on Sales: = 100 - (sales price / updated appraisal value). - Marketing Costs: Calculated based on our historical experience in sales and in accordance with the marketing management fees negotiated with our suppliers of this type of service.

In this way the Bank obtains the corrected market value, an amount that we compare with the net cost of each piece of land to determine its correct valuation and conclude with our valuation process.

In addition, in relation to the previously mentioned valuations, less costs to sell, are contrasted with the sales experience of each type of asset in order to confirm that there is no significant difference between the sale price and the valuation.

Impairment losses on an asset or disposal group arising from a reduction in it carrying amount to its fair value (less costs to sell) are recognised under Gains or (losses) on non-current assets held for sale not classified as discontinued operations in the income statement. The gains on a non-current asset held for sale resulting from subsequent increases in fair value (less costs to sell) increase it carrying amount and are recognised in the income statement up to an amount equal to the impairment losses previously recognised. j) Reinsurance Assets and Liabilities under insurance contracts

Insurance contracts linked to pensions on the asset side of the balance, included in the section Other assets (Note 2.n) includes the amounts that the Bank is entitled to receive for insurance contracts with third parties and, specifically, the insurer's share of the technical provisions recorded by the insurance entities.

At least once a year these assets are reviewed to ascertain whether they are impaired (i.e. there is objective evidence, as a result of an event that occurred after initial recognition of the reinsurance asset, that the Bank may not receive all amounts due to it under the terms of the contract and the amount that will not be received can be reliably measured), and any impairment loss is recognised in the income statement and the assets are written down. k) Tangible assets

Tangible assets include the amount of buildings, land, furniture, vehicles, computer hardware and other fixtures owned by the consolidated entities or acquired under finance leases. Tangible assets are classified by use as follows:

i. Property, plant and equipment for own use

Property, plant and equipment for own use – including tangible assets received by the Bank in full or partial satisfaction of financial assets representing receivables from third parties which are intended to be held for continuing use and tangible assets acquired under finance leases– are presented at acquisition cost, less the related accumulated depreciation and any estimated impairment losses (carrying amount higher than recoverable amount).

Depreciation is calculated, using the straight-line method, based on the acquisition cost of the assets less their residual value. The land on which the buildings and other structures stand has an indefinite life and, therefore, is not depreciated.

The period tangible asset depreciation charge is recognized in the income statement and is calculated using the following depreciation rates (based on the average years of estimated useful life of the various assets):

Annual rate

Buildings for own use 2 Furniture 10 Fixtures 5 Computer equipment 25 Vehicles 16 Other 5

Less than the lease term or the Lease usage rights useful life of the underlying asset

The Bank assess at the reporting date whether there is any indication that an asset may be impaired (i.e. it carrying amount exceeds its recoverable amount). If this is the case, the carrying amount of the asset is reduced to its recoverable amount and future depreciation charges are adjusted in proportion to the revised carrying amount and to the new remaining useful life (if the useful life must be re-estimated).

Similarly, if there is an indication of a recovery in the value of a tangible asset, the Bank recognises the reversal of the impairment loss recognised in prior periods and adjust the future depreciation charges accordingly. In no circumstances may the reversal of an impairment loss on an asset raise it carrying amount above that which it would have if no impairment losses had been recognised in prior years.

The estimated useful lives of the items of property, plant and equipment for own use are reviewed at least at the end of the reporting period with a view to detecting significant changes therein. If changes are detected, the useful lives of the assets are adjusted by correcting the depreciation charge to be recognised in the income statement in future years based on the new useful lives.

Upkeep and maintenance expenses relating to Property, plant and equipment for own use are recognised as an expense in the period in which they are incurred, since they do not increase the useful lives of the assets. ii. Investment property

Investment property reflects the net values of the land, buildings and other structures held either to earn rentals or for obtaining profits by sales due to future increase in market prices.

The criteria used to recognise the acquisition cost of investment property, to calculate its depreciation and its estimated useful life and to recognise any impairment losses thereon are consistent with those described in relation to property, plant and equipment for own use.

In order to evaluate the possible impairment, the Bank determines periodically the fair value of its investment property so that, at the end of the reporting period, the fair value reflects the market conditions of the investment property at that date. This fair value is determined annually, taking as benchmarks the valuations performed by independent experts. The methodology used to determine the fair value of investment property is selected based on the status of the asset in question; thus, for properties earmarked for lease, the valuations are performed using the sales comparison approach, whereas for leased properties the valuations are made primarily using the income capitalisation approach and, exceptionally, the sales comparison approach.

In the sales comparison approach, the property market segment for comparable properties is analysed, inter alia, and, based on specific information on actual transactions and firm offers, current prices are obtained for cash sales of those properties. The valuations performed using this approach are considered as Level 2 valuations.

In the income capitalisation approach, the cash flows estimated to be obtained over the useful life of the property are discounted taking into account factors that may influence the amount and actual obtainment thereof, such as: (i) the payments that are normally received on comparable properties; (ii) current and probable future occupancy; (iii) the current or foreseeable default rate on payments. The valuations performed using this approach are considered as Level 3 valuations, since significant unobservable inputs are used. such as current and probable future occupancy and/or the current or foreseeable default rate on payments.

iii. Assets leased out under an operating lease

Property, plant and equipment - Leased out under an operating lease reflects the amount of the tangible assets, other than land and buildings, leased out by the Bank under an operating lease.

The criteria used to recognise the acquisition cost of assets leased out under operating leases, to calculate their depreciation and their respective estimated useful lives and to recognise the impairment losses thereon are consistent with those described in relation to property, plant and equipment for own use. l) Accounting for leases

Since January 1, 2019, with the entry into force of the Circular 2/2018 of the Spanish Bank, when the Bank acts as a lessee, an asset for the right of use is recognized, representing its right to use the leased asset and the corresponding lease liability in the date the leased asset is available for use by the Bank.

Each lease payment is allocated between the liability and the financial expense. The financial expense is charged to income during the term of the lease in such a way that it produces a constant periodic interest rate on the remaining balance of the liability for each year. The right-of-use asset is amortized over the useful life of the asset or the lease term, whichever is shorter, on a straight-line basis. If the Bank is reasonably certain of exercising a call option, the right-of-use asset is amortized over the useful life of the underlying asset.

Assets and liabilities arising from a lease are initially valued based on present value. Lease liabilities include the net present value of the following lease payments:

- Fixed payments (including payments linked to inflation), less any lease incentive receivable,

- Variable lease payments that depend on an index or a rate,

- The amounts that the lessee is expected to pay for residual value guarantees,

- The exercise price of a purchase option if the lessee is reasonably certain that it will exercise that option, and

- Payment of penalties for termination of the lease, if the lease term reflects the exercise by the lessee of that option.

Lease payments are discounted using the interest rate implicit in the lease.

Given that in certain situations this interest rate cannot be obtained, the discount rate used in such cases is the interest rate for the incremental indebtedness of the lessee to date. For these purposes, the entity has calculated said incremental interest rate taking as reference the listed debt instruments issued by the Bank; in this sense, the Bank has estimated different rate curves depending on the currency and the economic environment where the contracts are located.

The incremental interest rate is defined as the interest rate that a lessee would have to pay to borrow, for a term similar to the duration of the lease and with similar security, the funds necessary to obtain an asset of similar value to the asset for right of use in a similar economic environment.

Right-of-use assets are valued at cost that includes the following:

- The amount of the initial valuation of the lease liability,

- Any lease payments made on or before the commencement date less any lease incentives received,

- Any initial direct costs, and

- Restoration costs.

Payments associated with short-term leases and leases of low-value assets are recognized on a straight-line basis as an expense in results.

Short-term leases are leases with a lease term of less than or equal to 12 months (a lease with a purchase option does not constitute a short-term lease).

When the bank acts as a lessor:

i. Finance leases

Finance leases are leases that transfer substantially all the risks and rewards incidental to ownership of the leased asset to the lessee.

When the Bank acts as the lessors of an asset, the sum of the present value of the lease payments receivable from the lessee, including the exercise price of the lessee’s purchase option at the end of the lease term when such exercise price is sufficiently below fair value at the option date such that it is reasonably certain that the option will be exercised, is recognised as lending to third parties and is therefore included under Loans and receivables in the balance.

The financial income and expenses arising from these contracts are credited and charged, respectively, to the profit and loss account, in the chapters Interest income or Interest expense, respectively, so that the yield remains constant throughout the life of the contracts.

ii. Operating leases

In operating leases, ownership of the leased asset and substantially all the risks and rewards incidental thereto remain with the lessor.

When the Bank acts as the lessor, it presents the acquisition cost of the leased assets under Tangible assets (See Note 14). The depreciation policy for these assets is consistent with that for similar items of property, plant and equipment for own use, and income from operating leases is recognised on a straight-line basis under Other operating income in the income statement.

iii. Sale and leaseback transactions

In sale and leaseback transactions where the sale is at fair value and the leaseback is an operating lease, any profit or loss is recognised at the time of sale. In the case of finance leasebacks, any profit or loss is amortised over the lease term.

In accordance with Bank of Spain Circular 4/2017 and subsequent modifications, in determining whether a sale and leaseback transaction results in an operating lease, the Bank should analyse, inter alia, whether at the inception of the lease there are purchase options whose terms and conditions make it reasonably certain that they will be exercised, and to whom the gains or losses from the fluctuations in the fair value of the residual value of the related asset will accrue.

m) Intangible assets

Intangible assets are identifiable non-monetary assets (separable from other assets) without physical substance which arise as a result of a legal transaction or which are developed internally by the Bank. Only assets whose cost can be estimated reliably and from which the consolidated entities consider it probable that future economic benefits will be generated are recognised.

Intangible assets are recognised initially at acquisition or production cost and are subsequently measured at cost less any accumulated amortisation and any accumulated impairment losses.

Goodwill

Any excess of the cost of the investments in the equity of subsidiaries, joint ventures and associate entities, accounted using the equity method over the corresponding underlying carrying amounts acquired adjusted at the date of first-time consolidation, is allocated as follows:

- If it is attributable to specific assets and liabilities of the companies acquired, by increasing the value of the assets (or reducing the value of the liabilities) whose fair values were higher (lower) than the carrying amounts at which they had been recognised in the acquired entities' balances.

- If it is attributable to specific intangible assets, by recognising it explicitly in the balance provided that the fair value of these assets within twelve months following the date of acquisition, can be measured reliably.

- The remaining amount is recognised as Goodwill which is allocated to one or more cash-generating units (a cash-generating unit is the smallest identifiable group of assets that. as a result of continuing operation, generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets). The cash-generating units represent the Bank’s geographical and/or business segments.

Goodwill (only recognised when it has been acquired by consideration) represents. Therefore, a payment made by the acquirer in anticipation of future economic benefits from assets of the acquired entity that are not capable of being individually identified and separately recognised.

Goodwill in accordance with Bank of Spain Circular 4/2017, will be amortised over a 10-year period unless proven otherwise. The debits to the income statements for the amortisation of these assets are recorded under the section Amortisation in the income statement.

At the end of each annual reporting period or whenever there is any indication of impairment goodwill is reviewed for impairment (i.e. a reduction in its recoverable amount to below its carrying amount) and, if there is any impairment, the goodwill is written down with a charge to Impairment or reversal of impairment on non- financial assets, headed in - Intangible assets in the income statement.

An impairment loss recognised for goodwill is not reversed in a subsequent period.

Other intangible assets

Other intangible assets include the amount of identifiable intangible assets (such as purchased customer lists and computer software).

In accordance with Rule Twenty-Eight of Bank of Spain Circular 4/2017, in the balance sheet (individual and consolidated) not subject to the framework of International Financial Reporting Standards, intangible assets will be assets with a limited useful life.

Intangible assets useful life may not exceed the period during which the entity is entitled to use the asset. If the right of use is for a limited period that can be renewed, the useful life will include the renewal period only when there is evidence that the renewal will be carried out without significant cost.

When the useful life of assets cannot be estimated reliably, they will be amortized over a period of ten years. In the absence of evidence to the contrary, the useful life of goodwill if applicable, shall be deemed ten years.

Intangible assets shall be amortised in accordance with the criteria established for the tangible assets (a maximum period of 10 years). The Bank reviews, at least at the end of each year, the amortisation period and the amortisation method of each of its intangible assets. If it considers that they are not appropriate, the impact will be treated as a change in its accounting estimates.

The intangible asset amortisation charge is recognised under Depreciation and amortisation cost in the income statement.

In both cases the Bank recognises any impairment loss on the carrying amount of these assets with a charge to Impairment or reversal of impairment on non-financial assets, headed in - Intangible assets in the income statement. The criteria used to recognise the impairment losses on these assets and, where applicable, the reversal of impairment losses recognised in prior years are similar to those used for tangible assets (See Note 2.k).

Internally developed computer software

Internally developed computer software is recognised as an intangible asset if among other requisites (basically the Bank's ability to use or sell it), it can be identified and its ability to generate future economic benefits can be demonstrated.

Expenditure on research activities is recognised as an expense in the year in which it is incurred and cannot be subsequently capitalised into the carrying amount of the intangible asset. n) Other assets

Other assets in the balance includes the amount of any assets not recorded in other items, the breakdown being as follows:

- Inventories: this item includes the amount of any assets, other than financial instruments, that are held for sale in the ordinary course of business, that are in the process of production, construction or development for such purpose; or that are to be consumed in the production process or in the provision of services. Inventories includes land and other property held for sale in the property development business.

Inventories are measured at the lower of cost and net realisable value, which is the estimated selling price of the inventories in the ordinary course of business, less the estimated costs of completion and the estimated costs required to make the sale.

Any write-downs of inventories -such as those due to damage, obsolescence or reduction of selling price- to net realisable value and other impairment losses are recognised as expenses in the year in which the impairment or loss occurs. Subsequent reversals are recognised in the income statement for the year in which they occur.

The carrying number of inventories is derecognised and recognised as an expense in the period in which the revenue from their sale is recognised.

- Other: this item includes the balance of all prepayments and accrued income (excluding accrued interest, fees and commissions), the net amount of the difference between pension plan obligations and the value of the plan assets with a balance in the entity's favour, when this net amount is to be reported in the balance, and the amount of any other assets not included in other items.

ñ) Other liabilities

Other liabilities include the balance of all accrued expenses and deferred income, excluding accrued interest, and the amount of any other liabilities not included in other categories.

o) Provisions and contingent assets and liabilities

It differs between:

- Provisions: credit balances covering present obligations at the reporting date arising from past events which could give rise to a loss for the Bank, which is considered to be likely to occur and certain as to its nature but uncertain as to its amount and/or timing.

- Contingent liabilities: possible obligations that arise from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more future events not wholly within the control of the Bank. They include the present obligations of the Bank when it is not probable that an outflow of resources embodying economic benefits will be required to settle them. The Bank does not recognise the contingent liability.

- Contingent assets: possible assets that arise from past events and whose existence is conditional on, and will be confirmed only by, the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Bank. Contingent assets are not recognised in the balance.

The Bank's balance sheet includes all the material provisions with respect to which it is considered that it is more likely than not the obligation will have to be settled. In accordance with accounting standards, contingent liabilities must not be recognised in the entity’s balance sheet.

Provisions, which are quantified based on the best information available on the consequences of the event giving rise to them and are reviewed and re-estimated at the end of each year, are used to cater for the specific obligations for which they were originally recognised. Provisions are fully or partially reversed when such obligations cease to exist or are reduced.

Provisions are classified according to the obligations covered as follows (See Note 22):

- Provision for pensions and similar obligations: it includes the amount of all the provisions made to cover post-employment benefits including obligations to pre-retirees and similar obligations (Note 2.u).

- Other retributions long term to employees: it includes arrangements with pre-retired employees as it comes in Note 2.v.

- Provisions for contingent liabilities and commitments: it includes the amount of the provisions made to cover contingent liabilities -defined as those transactions in which the company guarantees the obligations of a third party, arising as a result of financial guarantees granted or contracts of another kind- and contingent commitments -defined as irrevocable commitments that may give rise to the recognition of financial assets.

- Provisions for taxes and other legal contingencies and Other provisions: it includes the amount of the provisions recognised to cover tax and legal contingencies and litigation and the other provisions recognised by the Bank.

- Rest of provisions: it includes the rest of provisions held by the Bank. This line contains provisions from restructuring and environmental issues, if any. p) Court proceedings and/or claims in process

At the end of the first half of 2020, certain court proceedings and claims were in process against the Bank arising from the ordinary course of their operations (See Note 22).

q) Own equity instruments

Own equity instruments are those meeting both of the following conditions:

- The instruments do not include any contractual obligation for the issuer: (i) to deliver cash or another financial asset to a third party; or (ii) to exchange financial assets or financial liabilities with a third party under conditions that are potentially unfavourable to the issuer.

- The instruments will or may be settled in the issuer's own equity instruments and are: (i) a non- derivative that includes no contractual obligation for the issuer to deliver a variable number of its own equity instruments; or (ii) a derivative that will be settled by the issuer through the exchange of a fixed amount of cash or another financial asset for a fixed number of its own equity instruments.

Transactions involving own equity instruments, including their issuance and cancellation, are charged directly to equity.

Changes in the value of instruments classified as own equity instruments are not recognised in the Balance sheet. Consideration received or paid in exchange for such instruments, including the coupons on preference shares contingently convertible into ordinary shares and the coupons associated with CCPP, is directly added to or deducted from equity. r) Equity-instrument-based employee remuneration

Own equity instruments delivered to employees in consideration for their services, if the instruments are delivered once the specific period of service has ended, are recognised as an expense for services (with the corresponding increase in equity) as the services are rendered by employees during the service period. At the grant date the services received (and the related increase in equity) are measured at the fair value of the equity instruments granted. If the equity instruments granted are vested immediately, the Bank recognises in full, at the grant date, the expense for the services received.

When the requirements stipulated in the remuneration agreement include external market conditions (such as equity instruments reaching a certain quoted price), the amount ultimately to be recognised in equity will depend on the other conditions being met by the employees (normally length of service requirements), irrespective of whether the market conditions are satisfied. If the conditions of the agreement are met but the external market conditions are not satisfied, the amounts previously recognised in equity are not reversed, even if the employees do not exercise their right to receive the equity instruments. s) Recognition of income and expenses

The most significant criteria used by the Bank to recognise income and expenses are summarised as follows:

i. Interest income, interest expenses and similar items

Interest income, interest expenses and similar items are generally recognised on an accrual basis using the effective interest method. Dividends received from other companies are recognised as income when the Bank's right to receive them arises.

However, the recognition of accrued interest in the income statement is suspended for debt instruments individually classified as impaired and for the instruments for which impairment losses have been assessed collectively because they have payments more than 90 days past due. Any interest that may have been recognised in the income statement before the corresponding debt instruments were classified as impaired, and that had not been collected at the date of that classification, is considered when determining the allowance for loan losses; accordingly, if subsequently collected the reversal of the related impairment losses on this interest is recognised. Interest whose recognition in the income statement has been suspended is accounted for as interest income, when collected, on a cash basis.

ii. Commissions, fees and similar items

Fee and commission income and expenses are recognised in the income statement using criteria that vary according to their nature. The main criteria are as follows:

- Fee and commission income and expenses relating to financial assets and financial liabilities measured at fair value through profit or loss are recognised when paid.

- Those arising from transactions or services that are performed over a period are recognised over the life of these transactions or services.

- Those relating to services provided in a single act are recognised when the single act is carried out.

iii. Non-finance income and expenses

They are recognised for accounting purposes when the good is delivered or the non-financial service is rendered. To determine the amount and timing of recognition, a five-step model is followed: identification of the contract with the customer, identification of the separate obligations of the contract, determination of the transaction price, distribution of the transaction price among the identified obligations and finally recording of income as the obligations are satisfied.

The fees corresponding to audit services provided by the auditors to Banco Santander, S.A. for the first half ended June 30, 2020, they amounted to about EUR 9 million. Additionally, they have been loaned to Banco Santander, S.A. other non-audit services corresponding to limited reviews, audit-related services (mainly comfort letters, assurance services and other reviews required of the auditor) and other services amounting to about EUR 4 million.

iv. Deferred collections and payments

These are recognised for accounting purposes at the amount resulting from discounting the expected cash flows at market rates. v. Commissions in the formalization of loans

The financial commissions that arise in the formalization of loans, mainly the opening, study and information commissions, are accrued and recorded in results throughout the life of the loan.

t) Financial guarantees

Financial guarantees are defined as contracts whereby an entity undertakes to make specific payments on behalf of a third party if the latter fails to do so, irrespective of the various legal forms they may have, such as guarantees, insurance policies or credit derivatives.

The Bank initially recognises the financial guarantees provided on the liability side of the balance at fair value, which is generally the present value of the fees. Commissions and interest receivable from these contracts over the term thereof, and simultaneously the Bank recognises the amount of the fees, commissions and similar interest received at the inception of the transactions and a credit on the asset side of the balance for the present value of the fees, commissions and interest outstanding.

Financial guarantees, regardless of the guarantor, instrumentation or other circumstances, are reviewed periodically to determine the credit risk to which they are exposed, if appropriate, to consider whether a provision is required. The credit risk is determined by application of criteria similar to those established for quantifying impairment losses on debt instruments carried at amortised cost (described in section g) above).

The provisions made for these transactions are recognised under Provisions - Provisions for contingent liabilities and commitments and guarantees given in the balance (See Note 22). These provisions are recognised and reversed with a charge or credit, respectively, to Provisions or reversal of provisions in the consolidated income statement.

If a specific provision is required for financial guarantees, the related unearned commissions recognised under Financial liabilities at amortised cost - Other financial liabilities in the balance are reclassified to the appropriate provision. u) Post-employment benefits

Under the collective agreements currently in force and other arrangements, the Spanish banks integrated into the Group and some of the other entities (national and foreign) has undertaken to supplement the public social security system benefits accruing to certain employees, and to their beneficiary right holders, for retirement, permanent disability or death, and the post-employment welfare benefits.

The Bank's post-employment obligations to its employees are deemed to be defined contribution plans when the Bank makes pre-determined contributions (recognised under personnel expenses in the income statement) to a separate entity and will have no legal or effective obligation to make further contributions if the separate entity cannot pay the employee benefits relating to the service rendered in the current and prior periods. Post-employment obligations that do not meet the conditions are classified as defined benefit plans (See Note 22).

Defined contribution plans

The contributions made in this connection in each year are recognised under Personnel expenses in the income statement. The amounts not yet contributed as of June 30, 2020 and December 31, 2019 are recognised, at their present value, under the head Provisions - Provision for pensions and similar obligations on the liability side of the balance.

Defined benefit plans

The Bank recognises under Provisions - Provision for pensions and similar obligations on the liability side of the balance (or under Other assets on the asset side, as appropriate) the present value of its defined benefit post-employment obligations, net of the fair value of the plan assets.

Plan assets are defined as those that will be directly used to settle obligations and that meet the following conditions:

- They are not owned by the Bank, but by a legally separate third party that is not a party related to the Bank.

- They are only available to pay or fund post-employment benefits and they cannot be returned to the Bank unless the assets remaining in the plan are sufficient to meet all the benefit obligations of the plan and of the entity to current and former employees, or they are returned to reimburse employee benefits already paid by the Bank.

If the Bank can look to an insurer to pay part or all the expenditure required to settle a defined benefit obligation and it is practically certain that said insurer will reimburse some or all the expenditure required to settle that obligation, but the insurance policy does not qualify as a plan asset, the Bank recognises its right to reimbursement - which in all other respects is treated as a plan asset- under Insurance contracts linked to pensions on the asset side of the balance.

Post-employment benefits are recognised in the income statement as follows:

- Current service cost (the increase in the present value of the obligations resulting from employee service in the current period) is recognised under Staff costs. - The past service cost, which arises from changes to existing post-employment benefits or from the introduction of new benefits and includes the cost of reductions, is recognised under Provisions or reversal of provisions. - Any gain or loss arising from a liquidation of the plan is included in the provisions or reversion of provisions.

- Net interest on the net defined benefit liability (asset), i.e. the change during the period in the net defined benefit liability (asset) that arises from the passage of time, is recognised under Interest expense and similar charges (Interest and similar income if it constitutes income) in the income statement.

The remeasurement of the net defined benefit liability (asset) is recognised under Other comprehensive income under items not reclassified to profit or loss and includes:

- Actuarial gains and losses generated in the year, arising from the differences between the previous actuarial assumptions and what has occurred and from the effects of changes in actuarial assumptions.

- The return on plan assets, excluding amounts included in net interest on the net defined benefit liability (asset).

- Any change in the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability (asset).

v) Other long-term employee benefits

Other long-term employee benefits, defined as obligations to pre-retirees -taken to be those who have ceased to render services at the entity but who, without being legally retired, continue to have economic rights vis-à- vis the entity until they acquire the legal status of retiree-, long-service bonuses obligations for death of spouse or disability before retirement that depend on the employee's length of service at the entity and other similar items, are treated for accounting purposes, where applicable, as established above for defined benefit post-employment plans, except that actuarial gains and losses are recognised under Provisions or reversal of provisions, net, in the income statement (See Note 22). w) Termination benefits

Termination benefits are recognised when there is a detailed formal plan identifying the basic changes to be made, if implementation of the plan has begun, its main features have been publicly announced or objective facts concerning about this execution. x) Income tax

The income tax expense is recognised in the income statement, except when they arise from a transaction whose results are recognised directly in equity, in which case the related tax effect is recognised in equity.

The current income tax expense is calculated as the sum of the current tax resulting from application of the appropriate tax rate to the taxable profit for the year (net of any deductions allowable for tax purposes), and of the changes in deferred tax assets and liabilities recognised in the income statement.

Deferred tax assets and liabilities include temporary differences, which are identified as the amounts expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities and their related tax bases, and tax loss and tax credit carry forwards not fiscally applied. These amounts are measured at the tax rates that are expected to apply in the period when the asset is realised, or the liability is settled.

Tax assets includes the amount of all tax assets, which are broken down into current -amounts of tax to be recovered within the next twelve months- and deferred -amounts of tax to be recovered in future years, including those arising from tax loss or tax credit carry forwards.

Tax liabilities includes the amount of all tax liabilities (except provisions for taxes), which are broken down into current -the amount payable in respect of the income tax on the taxable profit for the year and other taxes in the next twelve months- and deferred -the amount of income tax payable in future years.

Deferred tax liabilities are recognised in respect of taxable temporary differences associated with investments in subsidiaries, associates or joint ventures, except when the Bank is able to control the timing of the reversal of the temporary difference. In addition, it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax assets are only recognised for temporary differences to the extent that it is considered probable that the Bank will have enough future taxable profits against which the deferred tax assets can be utilised, and the deferred tax assets do not arise from the initial recognition (except in a business combination) of other assets and liabilities in a transaction that affects neither taxable profit nor accounting profit. Other deferred tax assets (tax loss and tax credit carry forwards) are only recognised if it is considered probable it will have enough future taxable profits against which they can be utilised.

Income and expenses recognised directly in equity are accounted for as temporary differences.

The deferred tax assets and liabilities are reassessed at the reporting date in order to ascertain whether any adjustments need to be made based on the findings of the analyses performed (See Note 23).

y) Residual maturity periods and average interest rates

The analysis of the maturities of the balances of certain items in the balance and the average interest rates at the end of the first half of 2020 is provided in Note 34.

3. Santander Group

a) Banco Santander, S.A. and international Group structure

The growth of the Group in the last decades has led the Bank to also act, in practice, as a holding entity of the shares of the various companies in its Group, and its results are becoming progressively less representative of the performance and earnings of the Group. Therefore, each year the Bank determines the amount of the dividends to be distributed to its shareholders on the basis of the consolidated net profit, while maintaining the Group’s objectives of capitalisation and taking into account that the transactions of the Bank and of the rest of the Group are managed on a consolidated basis (notwithstanding the allocation to each company of the related net worth effect).

At the international level, the various banks and other subsidiaries, joint ventures and associates of the Group are integrated in a corporate structure comprising various holding companies which are the ultimate shareholders of the banks and subsidiaries abroad.

The structure, all of which is controlled by the Bank, is to optimise the international organisation from the strategic, economic, financial and tax standpoints, since it makes it possible to define the most appropriate units to be entrusted with acquiring, selling or holding stakes in other international entities, the most appropriate financing method for these transactions and the most appropriate means of remitting the profits obtained by the Group's various operating units to Spain.

The Appendices provide relevant data on the consolidated Group companies and on the companies accounted for using the equity method.

The most significant operations carried out during the first six months of 2020 or pending execution as of June 30, 2020 are described below:

Agreement to acquire a stake in Ebury

On April 28, 2020, the investment in Ebury, one of the best payments and currency platforms for SMEs, was completed, announced on November 4, 2019. The operation has involved a total disbursement of 367 million pounds (EUR 410 million approx.) of which 70 million pounds (EUR 80 million approx.) are referred to new shares that supports the company's plans to enter new markets in Latin America and Asia. At end of 2019 the Group have acquired 6.4% of the company for 40 million pounds (EUR 45 million approx.). After the disbursement made in April 2020, the Group has the right to receive 50.38% of the dividends of the company. The participation is recorded under the heading Investments in subsidiaries, joint ventures and associates.

Reorganization of the insurance banking, asset management and pension plans business in Spain.

On June 24, 2019, Banco Santander, S.A. got into an agreement with Group Allianz to finish with the cooperation that Banco Popular Español, S.A. (“Banco Popular”) used to have to distribute exclusive types of live insurances, general insurance, collective investments institution and pension plans throughout Banco Popular (the "Agreement") worknet. Due to this agreement the Group controlled 40% of the equity of Allianz Popular S.L. At 31 December 2019 the amount of EUR 409 million is registered in the head of Investments in subsidiaries, joint ventures and associates.

The agreement took place on January 15, 2020, for the non-live insurance and for the rest on January 31, 2020, after the regulatory authorizations were obtained in the first half of 2020. The execution of the Termination Agreement has entailed the payment by Banco Santander of a total consideration of EUR 859 million (after discounting the dividends paid until the closing of the operation) and the acquisition of 60% on the rest equity from Allianz Popular, S.L.

On July 10, 51% of the life-risk insurance business held by Banco Santander and 51% of the new General Insurances business coming from Banco Popular net which were not transfer to Mapfre (in accordance with the agreement indicated below), had been acquired by Aeon valuing these businesses in a total amount of approximately EUR 557 million.

The net amount of the business related to live insurances, collective investment institution and pension plans rise to EUR 711 million and it has generated a goodwill of EUR 271 million.

Additionally, according to the agreement reached between Banco Santander and Mapfre on January 21, 2019 50.01% of the automobile insurance business, commercial multi-risk, SME multi-risk and civil liability for companies throughout the network of Banco Santander in Spain was acquired by Mapfre on June 25 , 2019, for an amount of EUR 82 million.

4. Related parties

The parties related to the Bank are deemed to include, in addition to its subsidiaries, associates and jointly controlled entities, the Bank's key management personnel (the members of its board of directors and the executive vice presidents, together with their close family members) and the entities over which the key management personnel may exercise significant influence or control.

Following is a detail of the transactions performed by the Group with its related parties as of June 30, 2020, distinguishing between subsidiaries, associates and jointly controlled entities, members of the Bank's board of directors, the Bank's executive vice presidents, and other related parties. Related party transactions were made on terms equivalent to those that prevail in arm's-length transactions or, when this was not the case, the related compensation in kind was recognised.

Millions of euros Subsidiaries. associates and Members of the Executive vice Other related jointly controlled board of directors presidents parties entities Assets 135,936 - 25 96 Equity instruments 81,298 - - - Debt instruments 13,278 - - - Loans and advances 41,360 - 25 96 From which: impaired financial assets 6 - - - Liabilities 19,355 21 15 87 Deposits credit institution and clients 18,464 21 15 87 Marketable debt securities 891 - - - Income statement 1,507 - - - Interest and similar income 408 - - - Interest expense and similar charges 55 - - - Interest from equity instruments 654 - - - Gains / (Losses) on financial instruments and other 4 - - - Fee and commission income 338 - - - Fee and commission expense 48 - - - Other 385,038 2 1 13 Contingent liabilities 4,566 - - 2 Contingent commitments 8,868 1 1 11 Financial instruments - derivatives 371,604 1 - -

Additionally, the above-mentioned breakdown shows pension insurance contracts with Group insurance companies amounting to EUR 270 million on June 30, 2020.

5. Loans and advances to central banks and credit institutions

The detail, by classification, type and currency, of Loans and advances to credit institutions in the accompanying balances is as follows:

Millions of euros 30/06/2020 31/12/2019

CENTRAL BANKS Classification: Financial assets held for trading - - Non-trading financial assets mandatorily at fair value through profit or loss - - Financial assets designated at fair value through profit or loss 272 138 Financial assets designated at fair value through other comprehensive income - - Financial assets at amortised cost 20 22 292 160 Breakdown by product: Reverse repurchase agreements 272 138 Other term loans 20 20 Advances different from loans - 2 Of which: impaired assets - - Of which: valuation adjustments for impairment - - 292 160 Currency: Euro 292 160 292 160

CREDIT INSTITUTIONS Classification: Financial assets held for trading - - Non-trading financial assets mandatorily at fair value through profit or loss - - Financial assets designated at fair value through profit or loss 48,712 18,543 Financial assets designated at fair value through other comprehensive income - - Financial assets at amortised cost 39,471 34,747 88,183 53,290 Breakdown by product: Credit card Debt - - Commercial credit 814 1,044 Finance leases 8 8 Reverse repurchase agreements 55,207 24,667 Other term loans 17,152 14,324 Advances different from loans 15,002 13,247 Of which: impaired assets - - Of which: valuation adjustments for impairment (4) (7) 88,183 53,290 Currency: Euro 71,952 40,069 Pound sterling 2,130 1,539 US dollar 13,201 10,555 Chilean pesos 699 747 Brazilian real - 237 Other currencies 201 143 88,183 53,290 TOTAL 88,475 53,450 The loans and advances classified under Financial assets designated at fair value through profit or loss consist of assets of Spanish and foreign institutions acquired under reverse repurchase agreements.

Deposits in credit institutions classified as Financial assets at amortized cost (Bank of Spain Circular 4/2017) and Loans and receivables (Bank of Spain Circular 4/2004 and subsequent amendments) are mainly Term accounts and guarantees given in cash to credit institutions.

Additionally, as of June 30, 2020 there are demand balances with Central Banks and Credit Institutions for EUR 48,843 million and EUR 5,458 million, respectively (EUR 24,596 million and EUR 6,325 million as of December 31, 2019). These balances are included in the Cash line, cash balances in central banks and other demand deposits.

Note 33 contains a detail of the residual maturity periods of Financial assets at amortised cost (Bank of Spain Circular 4/2017) and of Loans and receivables (Bank of Spain Circular 4/2004 and subsequent amendments), as well as its average interest rates.

The breakdown as of June 30, 2020 of the exposure and of the provision fund by phase of impairment of the Financial assets at amortised cost (Bank of Spain Circular 4/2017) is EUR 39,495 million and EUR -4 million in phase 1.

6. Debt instruments

The detail, by classification, type, listing status and currency, of Debt instruments in the accompanying balances is as follows:

Millions of euros 30/06/2020 31/12/2019

Classification: Financial assets held for trading 17,059 19,094 Non-trading financial assets mandatorily at fair value through profit or loss 955 1,099 Financial assets designated at fair value through profit or loss - - Financial assets designated at fair value through other comprehensive income 15,961 26,306 Financial assets at amortised cost 13,238 14,528 47,213 61,027 Sectorization: Central banks 426 322 Public sector 22,850 36,252 Credit institutions 11,302 10,651 Other financial institutions 10,941 12,327 Non-financial institutions 1,694 1,475 Of which: impaired assets - - Of which: value adjustments for impairment (11) (11) 47,213 61,027 Currency: Euro 31,555 44,556 Us dollar 7,365 7,699 Pound sterling 5,562 5,693 Brazilian real 1,367 1,834 Other currencies 1,364 1,245 47,213 61,027

As of June 30, 2020, the nominal amount of debt instruments assigned to the Bank's own obligations, mainly to secure financing facilities received by the Bank, amounted to EUR 15,406 million (EUR 18,373 million in 2019), of which EUR 10,483 million related to Spanish government debt (EUR 11,553 million in 2019).

The breakdown as of June 30, 2020 of the exposure subject of impairment of assets recorded under Bank of Spain Circular 4/2017 is EUR 29,209 million in phase 1, EUR 0 million in phase 2 and EUR 0 million in phase 3.

As of June 30, 2020, the breakdown of the provision by phase of impairment of assets recorded under Circular 4/2017 is EUR 11 million in phase 1, with no exposure or provision in phase 2 and 3.

Note 24 shows the detail of Accumulated other comprehensive income, recognised in Equity, relating to Financial assets designated at fair value through other comprehensive income (Bank of Spain Circular 4/2017), as well as impairment losses.

Note 33 provides details of the maturity of Loans and advances and of Financial assets designated at fair value through other comprehensive income, as well as their average interest rates.

7. Equity instruments

a) Breakdown

The detail, by classification, listing status, currency and type, of Equity instruments in the accompanying balances is as follows:

Millions of euros

30/06/2020 31/12/2019

Classification: Financial assets held for trading 7,389 11,697 Non-trading financial assets mandatorily at fair value through profit or loss 246 231 Financial assets designated at fair value through other comprehensive income 1,448 1,856 9,083 13,784 Listing status: Listed 8,780 13,439 Unlisted 303 345 9,083 13,784 Currency: Euros 6,244 8,751 Pound sterling 944 2,737 Chinese yuan 970 1,127 Brazilian real - 451 US Dollar 533 126 Other currencies 392 592 9,083 13,784 Type: Shares of Spanish companies 2,467 3,555 Shares of foreign companies 5,897 9,668 Investment fund units and shares 719 561 9,083 13,784

Note 24 contains a detail of the Other comprehensive income, recognised in equity, on Financial assets designated at fair value through other comprehensive income (Bank of Spain Circular 4/2017).

b) Movement

The changes in Financial assets at fair value with changes in other comprehensive income during the first half of 2020 and fiscal year 2019, were as follows:

Millions of euros 30/06/2020 31/12/2019

Balance at December 31 of the previous year 1,856 1,751 Additions - 749 Of which: Saudi British Bank - 632

Disposals and capital reductions (46) (550) Of which: RFS Holdings. B.V. - (540) Ebury Partners Limited (45) - Other global result (362) (94) Balance at the end 1,448 1,856

i. On the past April 23, 2020, the Bank has made a non-monetary contribution to equity to the company Santander Digital Businesses, S.L. of EUR 45 million, by a contribution in the participation of Ebury Partners Limited (see Note 12.b.ii).

ii. RFS Holding. B.V. / Saudí British Bank. Under the “Share Premium Contribution Agreement” dated on June 13, 2019 and July 10, 2019, the Bank has contributed EUR 53 million to RFS Holding and this entity has proceeded to the distribution of assets and liabilities among each of the partners of the holding, then proceeding to the sale of this.

Due to the distribution cited in the previous paragraph, the Bank has received shares of Saudi British Bank equivalent to 3,01% of the capital of said entity for a market value of EUR 632 million and has withdrawn its participation in RFS Holding.

c) Notifications of acquisitions of investments

The notification on the acquisition and sale of shares made by the Bank in the first half of 2020, in compliance with Article 155 of the Spanish Corporate Law, has been as follows:

As of January 31, 2020, the Bank has re-bought 60% of Allianz Popular, S.L. for an amount of EUR 414 million getting up to a 100% of the participations on the entity.

In relation to compliance with Article 125 of the Securities Market Law, in the first half of 2020 no communication has been made to the CNMV.

8. Derivatives (assets and liabilities) and Short positions

a) Trading derivatives

The detail, by type of inherent risk, of the fair value of the trading derivatives arranged by the Bank as of June 30, 2020 and December 31, 2019 is as follows:

Millions of euros 30/06/2020 31/12/2019 Debit balance Credit balance Debit balance Credit Balance

Interest rate 45,247 42,437 37,828 35,305 Equity instruments 3,347 2,586 2,233 1,816 Currency and Gold 23,276 26,498 15,324 18,562 Credit 77 177 206 286 Commodities - - - - Others 79 73 103 99 72,026 71,771 55,694 56,068

b) Short positions Following is a breakdown of the short positions: Millions of euros 30/06/2020 31/12/2019

Securities lending: Equity instruments 580 308

Uncovered on assignments: Debt instruments 8,925 7,980

Total 9,505 8,288

9. Loans and advances to customers

a) Detail The detail, by classification, of Loans and advances to customers in the accompanying balances is as follows:

Millions of euros 30/06/2020 31/12/2019

Financial assets held for trading 75 98 Non-trading financial assets mandatorily at fair value through profit or loss 1,135 1,289 Financial assets designated at fair value through profit or loss 32,209 31,178 Financial assets at fair value through other comprehensive income 4,753 3,865 Financial assets at amortised cost 265,408 239,998 Of which: Disregarding impairment losses 276,885 250,108 Impairment losses (6,724) (6,245)

303,580 276,428

Loans and advances to customers disregarding impairment losses 310,304 282,673

Note 33 contains a detail of the maturity periods of Financial assets at amortised cost and of the related average interest rates.

As of June 30, 2020, and December 31, 2019, there were no loans and advances to customers for material amounts without fixed maturity dates.

b) Breakdown The following is a breakdown of the loans and advances granted to the Bank´s clients, which include exposure to the Bank´s credit risk in its main activity, without considering the balance of impairment reserve or the valuation adjustments (except accrued interest) depending on the modality and situation of the operations, the geographical area of the residence of the borrower and the modality of interest rate of the operation:

Millions of euros 30/06/2020 31/12/2019

Loan type and status: On demand and with a short prior period 4,057 1,967 Credit cards receivables 1,259 1,597 Commercial credit 14,482 17,277 Finance leases 3,190 3,471 Reverse repurchase agreements 23,696 21,043 Other term loans 246,382 220,829 Non loans advances 10,514 10,244 Of which: Impaired assets 14,243 13,994 Impairment losses (6,724) (6,245) Mortgage loans 93,618 94,758 Other secured loans 43,794 41,845 Book value 303,580 276,428 Gross book value 310,304 282,673

By sector: Public sector 13,922 13,287 Other financial institutions 62,769 57,143 Non-financial institutions 145,843 125,907 Households 87,770 86,336 310,304 282,673

Geographical area: Spain 213,007 199,878 European Union (excluding Spain) 46,759 41,129 United States of America and Puerto Rico 22,889 17,082 Other OECD countries 7,957 7,814 Latin America (non-OECD) 7,785 7,373 Rest of the world 11,907 9,397 310,304 282,673

Interest rate: Fixed rate 134,793 113,223 Floating rate 175,511 169,450 310,304 282,673

As of June 30, 2020 and December 31, 2019, the Bank had EUR 10,052 million and EUR 9,691 million, respectively, of loans and advances granted to Spanish public administrations whose rating as of June 30, 2020 is A (rating at December 31, 2019 was A) and with EUR 3,870 million and EUR 3,596 million, respectively, granted to the Public Sector of other countries (as of June 30, 2020 this amount was composed, based on the rating of the issuer as follows: 54% AAA, 9% AA, 7% A, 3% BBB and 27% lower than BBB).

The above-mentioned ratings were obtained by converting the internal ratings awarded to the customers by the Bank (see Note 34) into the external ratings classification established by Standard & Poor’s, in order to make them more readily comparable.

Without considering the Public Administrations, the amount of loans and advances as of June 30, 2020 amounts to EUR 296,382 million, of which EUR 282,133 million are in no doubt situation.

Following is a detail, by activity, of the loans to customers as of June 30, 2020, net of impairment losses:

Millions of euros Secured loans Net exposure Loan-to-value ratio (a) More than More than More than 40% and 60% and 80% and Of which: Of which: Less than or less than or less than or less than or Without Property Other equal to equal to equal to equal to More than Total (*) collateral collateral collateral 40% 60% 80% 100% 100%

Public sector 11,730 11,060 238 432 95 92 77 349 57 Other financial institutions and individual traders (business financial activity) 55,193 29,097 917 25,179 462 540 210 24,230 654 Non-financial companies and individual entrepreneurs (non-financial business activity) (broken down by purpose) 148,600 102,683 26,381 19,536 10,132 8,452 5,173 10,032 12,128 Of which: Construction and property development (including land) 2,789 10 2,778 1 1,138 957 434 124 126 Civil engineering construction 2,336 1,317 110 909 20 208 7 223 561 Large companies 90,016 68,974 7,363 13,679 2,934 2,390 1,876 5,898 7,944 SMEs and individual traders 53,459 32,382 16,130 4,947 6,040 4,897 2,856 3,787 3,497 Other households (broken down by purpose) 77,543 10,044 66,053 1,446 18,516 20,052 19,000 6,469 3,462 Of which: Residential 60,647 770 59,696 181 16,500 18,537 17,566 5,176 2,098 Consumer loans 9,237 8,420 487 330 209 142 153 163 150 Other purposes 7,659 854 5,870 935 1,807 1,373 1,281 1,130 1,214 Total (**) 293,066 152,884 93,589 46,593 29,205 29,136 24,460 41,080 16,301 Memorandum item Refinanced and restructured transactions 11,220 1,337 8,975 908 1,648 1,529 1,419 1,347 3,940

(*) Includes the net balance of the valuation adjustments associated with impaired assets. (**) Not including loans advances. (a) The ratio of the carrying amount of the transactions as of June 30, 2020 to the latest available appraisal value of the collateral.

Note 34 includes information regarding the refinanced/restructured portfolio.

Following the movement of the gross exposure is broken down by the phase of impairment of loans and advances to customers recognised under Financial assets at amortized cost and Financial assets at fair value through other comprehensive income under Bank of Spain Circular 4/2017 and subsequent modifications as of June 30, 2020:

Millons of euros

Stage 1 Stage 2 Stage 3 Total Balance at beginning of the year 226,826 9,288 13,994 250,108 Movements Transfers Transfer to Stage 2 from Stage 1 (1,314) 1,314 - - Transfer to Stage 3 from Stage 1 (524) - 524 - Transfer to Stage 3 from Stage 2 - (796) 796 - Transfer to Stage 1 from Stage 2 1,551 (1,551) - - Transfer to Stage 2 from Stage 3 - 170 (170) - Transfer to Stage 1 from Stage 3 38 - (38) - Net changes on financial assets 28,373 (733) (119) 27,521 Write-offs - - (744) (744) Loss allowance as of June 30, 2020 254,950 7,692 14,243 276,885

As of June 30, 2020, the total net exposure of loans and advances to Bank customers is EUR 270,161 million, of which EUR 254,142 million correspond to phase 1, EUR 7,261 million to phase 2 and EUR 8,758 million with phase 3. These amounts contain EUR 382 million (EUR 444 million in 2019) in impaired assets purchased with impairment, which correspond mainly to the business combinations that the Bank has carried out. c) Impairment losses on loans and advances to customers at amortised cost and at fair value through other comprehensive income

The changes in the impairment losses on the assets making up the balances of financial assets at amortised cost and at fair value through other comprehensive income - Loans and advances – Customers:

Millions of euros 30/06/2020 31/12/2019

Balance at beginning of the year 6,245 7,300 Net impairment losses charged to income for the year 1,111 1,423 Of which: Impairment losses charged to income 2,249 3,972 Impairment losses reversed with a credit to income (1,138) (2,549) Decreases due to amounts used against value adjustments (744) (2,480) Exchange differences and other changes 112 2 Balance at end 6,724 6,245 Of which: By status of the asset: Impaired assets 5,486 5,397 Of which: due to country risk 6 5 Other assets 1,238 848 Balance at end 6,724 6,245 Of which: Individually calculated: 844 1,083 Collective calculated: 5,880 5,162

Previously suspense assets recovered during the first half of fiscal year 2020 amounted to EUR 37 million (EUR 179 million in 2019).

Considering these assets in suspense recovered, as well as the net impairment recorded in the Loans and advances of central banks and credit institutions, of debt securities (see Notes 5 and 6, respectively) and of clientele (the latter detailed in the previous table), the impairment losses recorded under the heading of Loans and advances to customers at amortized cost and fair value with changes in another comprehensive income of the profit and loss account amounted to EUR 1,070 million during the first half of fiscal year 2020 (EUR 1,246 million in 2019).

Following is the movement of the loan loss provision broken down by impairment stage of loans and advances to customers classified as Financial assets at amortised cost, under Circular 4/2017 of Bank of Spain during the first half of fiscal year 2020:

Millions of euros Stage 1 Stage 2 Stage 3 Total Balance at beginning of the year 335 513 5,397 6,245 Transfers Transfer to Stage 2 from Stage 1 (20) 66 - 46 Transfer to Stage 3 from Stage 1 (2) - 87 85 Transfer to Stage 3 from Stage 2 - (127) 223 96 Transfer to Stage 1 from Stage 2 49 (79) - (30) Transfer to Stage 2 from Stage 3 - 42 (40) 2 Transfer to Stage 1 from Stage 3 3 - (4) (1) Net changes of the exposure and modifications in the credit risk 442 16 567 1,025 Changes due to update in the methodology of estimates of the entity - - - - Write-offs - - (744) (744) Gross carrying amount as of June 30, 2020 807 431 5,486 6,724

As of June 30, 2020, the total net amount of loans and advances to the Bank's customers is EUR 270,161 million, of which EUR 254,142 million are in phase 1, EUR 7,261 million in phase 2 and EUR 8,758 million in phase 3. d) Impaired assets and assets with unpaid past-due amounts

The detail of the changes in the balance of the financial assets classified as Financial assets at amortised cost – Customers considered to be impaired due to credit risk is as follows:

Millions of euros 30/06/2020 31/12/2019

Balance at beginning of the year 13,994 15,695 Net additions 993 779 Written-off assets (744) (2,480) Other changes - - Balance at end 14,243 13,994

This amount, once the corresponding provisions have been deducted, is the Bank´s best estimate of the discounted value of the flows that are expected to be recovered from impaired assets.

As of June 30, 2020, the balance of the assets written-off amounted to EUR 8,613 million, (EUR 8,296 million in 2019).

Details of those financial assets classified in the Financial assets at amortised cost – Customers portfolio and considered as impaired by reason of their credit risk, classified according to the sector where the risks are located, as well as depending on the period elapsed since the maturity of the amount unpaid on said oldest date of each operation:

30/06/2020 Millions of euros With no past-due With balances past due by balances or less than 3 months 6 To 12 More than 12 past due 3 To 6 months months months Total

Public sector 11 - - 9 20 Other financial institutions 152 24 43 30 249 Non-financial institutions 2,142 440 563 4,655 7,800 Households 1,398 389 556 3,831 6,174 3,703 853 1,162 8,525 14,243

31/12/2019 Millions of euros With no past-due With balances past due by balances or less than 3 months 6 To 12 More than 12 past due 3 To 6 months months months Total

Public sector 6 - - 9 15 Other financial institutions 4 1 1 16 22 Non-financial institutions 2,222 368 805 4,579 7,974 Households 1,441 434 454 3,654 5,983 3,673 803 1,260 8,258 13,994

Set forth below for each class of impaired asset are the gross amount, associated allowances and information relating to the collateral and/or other credit enhancements obtained as of June 30, 2020:

Millions of euros Estimated collateral Allowance value Gross amount recognised (*) Without associated real collateral 3,254 2,415 - With real estate real collateral 10,295 2,888 6,825 With other collateral 694 183 180 Total 14,243 5,486 7,005 (*) Including the estimated value of the collateral associated with each loan. Accordingly, any other cash flows that may be obtained, such as those arising from borrowers’ personal guarantees, are not included.

When classifying assets in the previous table, the main factors considered by the Bank to determine whether an asset has become impaired are the existence of amounts past due -assets impaired due to arrears- or other circumstances may be arise which will not result in all contractual cash flow being recovered, such as a deterioration of the borrower's financial situation, the worsening of its capacity to generate funds or difficulties experienced by it in accessing credit.

Past-due amounts receivable

In addition, as of June 30, 2020, there were assets with amounts receivable that were past due by 90 days or less, the detail of which, by age of the oldest past-due amount, is as follows:

Millions of euros Less than1 1 to 2 2 to 3 month months months Loans and advances to customers 661 38 36 Of which Public Sector 1 - - Total 661 38 36

e) Securitisation

The heading Loans and advances to customers includes, among other, the securitised loans transferred to third parties on which the Bank has retained risk and benefits, albeit partially, and which therefore, in accordance with the applicable accounting standards, cannot be derecognised. The breakdown of the securitised loans, by type of original financial instrument, and of the securitised loans derecognised because the stipulated requirements were met (see Note 2.e) is shown below. The liabilities associated with these securitisation transactions are detailed in Note 18.

Millions of euros 30/06/2020 31/12/2019

Derecognised 1,078 1,130 Of which mortgage assets are securitised through:

Mortgage participation certificates 431 454 Mortgage transfer certificates 96 594

Retained on the balance 18,689 18,769 Of which mortgage assets are securitised through: Mortgage transfer certificates 13,893 14,569 19,767 19,899

The evolution of this activity responds to its use as a regulatory capital management tool and as a resource for the diversification of Bank´s liquidity sources. During the first half of fiscal year 2020 and the fiscal year 2019, the Bank did not derecognise any of the securitisations performed, and the balance shown as derecognised for those years relates to securitisations performed in prior years.

The loans retained on the face of the balance include the loans associated with securitisations in which the Bank retains a subordinated debt and/or grants any manner of credit enhancements to the new holders.

The loans transferred through securitisation are mainly mortgage loans, loans to companies and consumer loans.

f) Guarantee

Following is a detail of the mortgage-backed bonds and securitised bonds, excluding treasury shares, securing liabilities or contingent liabilities as of June 30, 2020 and December 31, 2019:

Millions of euros 30/06/2020 31/12/2019

Guarantee: Mortgage-backed bonds 24,839 23,594 Asset-backed securities 392 116 25,231 23,710

The mortgage-backed bonds are secured by mortgage loans with average maturities of more than ten years. In order to calculate the amount of the qualifying assets, the following transactions are excluded from the total base of the unsecuritised mortgage portfolio:

- Transactions classified as at pre-action stage and procedural stage. - Transactions without appraisal by a specialist valuer. - Transactions exceeding 80% of the appraised value in residential financing and 60% in the case of other assets. - Second mortgages or mortgages with insufficient collateral. - Transactions without insurance or with insufficient insurance.

The asset-backed securities. including asset-backed securities and notes issued by special-purpose vehicles (SPVs), are secured by: - Mortgage loans to individuals to finance the acquisition and refurbishment of homes with an average maturity of more than ten years. - Personal consumer finance loans with no specific guarantee and unsecured loans with an average maturity of five years. - Loans to SMEs (non-financial small and medium-sized enterprises) secured by State guarantees, and loans to companies (SMEs -self-employed, microbusinesses, small and medium-sized enterprises- and large companies) secured by property mortgages, the borrower's personal guarantee, guarantees and other collateral other than property mortgages, with an average maturity of seven years. - Mortgage and non-mortgage loans to finance municipalities, autonomous communities and subsidiaries with an average maturity of more than ten years. - Asset-backed securities issued by various European special-purpose vehicles backed by German and Italian loans for the purchase of vehicles and Italian personal loans, with an average maturity of eight years. - Commercial credit of Banco Santander (ordinary and occasional invoice discounting and advances to customers on legitimate receivables) with an average maturity of 45 days.

The fair value of the guarantees received by the Bank (financial and non-financial assets) which the Bank is authorised to sell or pledge even if the owner of the guarantee has not defaulted is scantly material taking into account the Bank's financial statements as a whole.

10. Trading derivatives

The detail of the notional and/or contractual amounts and the market values of the trading derivatives held by the Bank as of June 30, 2020 and December 31, 2019 is as follows:

Millions of euros 30/06/2020 31/12/2019 Notional Notional Market value Market value value value

Held for trading: Interest rate 4,503,628 2,811 4,638,109 2,523 Options 308,229 (610) 302,937 (533) Other 4,195,399 3,421 4,335,172 3,056 Equity instruments 57,580 761 54,880 417 Options 40,716 (181) 35,402 (301) Other 16,864 942 19,478 718 Currency 637,667 (3,222) 634,016 (3,239) Options 40,689 (20) 39,205 13 Other 596,978 (3,202) 594,811 (3,252) Credit 16,204 (100) 23,190 (80) Hedging default derivative 16,204 (100) 23,190 (80) Securities and commodities derivatives and other 5,712 5 5,677 4 5,220,791 255 5,355,872 (375)

11. Non-current assets held for sale

The detail of Non-current assets held for sale in the accompanying balances is as follows:

Millions of euros

30/06/2020 31/12/2019 Foreclosed assets 1,131 1,089 Property, Plant and Equipment (For own use and 206 33 Other assets leased out under an operating lease) Investment property 40 42 Total 1,377 1,164

As of June 30, 2020, Non-current assets held for sale was reduced by impairment losses amounting to EUR 541 million (EUR 598 million in 2019).

As of June 30, 2020, there are no liabilities associated in disposable groups of items that have been classified as held for sale associated with other non-current assets and alienable groups of items that have been classified as held for sale.

12. Investments

a) Associates

Investments - Associates in the accompanying balances includes the Bank's ownership interests in associates (See Note 2.b). Appendix II contains a detail of these companies, indicating the percentages of direct or indirect ownership and other relevant information. As of June 30, 2020, there were no capital increases in progress at any major associate.

i. Breakdown The detail of the balance of this heading of the attached balances, based on the contracting currency and the admission or non-listing of the securities, is as follows:

Millions of euros 30/06/2020 31/12/2019

Currency: Euro 4,156 4,860 Foreign Currency - - 4,156 4,860 Listing status: Listed 2,024 1,938 Unlisted 2,132 2,922 4,156 4,860

ii. Changes During the first semester of fiscal year 2020 and the fiscal year 2019, the changes in Investments – Associates, disregarding impairment losses, were as follows:

Millions of euros 30/06/2020 31/12/2019

Balance at the beginning of the year 5,432 5,446 Purchases. capital increases and mergers 522 83 Of which: Allianz Popular, S.A. 414 - Merlin Properties Socimi, S.A. 105 - Promotoria Manzana. S.A.. 3 72 Disposals. reductions and mergers: (22) (116) Of which: Merlin Properties. SOCIMI. S.A. (18) (8) Grupo Financiero Ve por Más. S.A. de C.V. - (86) Transfers (834) - Of which: Allianz Popular, S.A. (834) - Other changes (net) (43) 19 Balance 5,055 5,432

At of 31 January 2020 the Bank has buyback 60% of Allianz Popular, S.L. for an amount of EUR 779 million getting up to a 100% of the participations on the entity. EUR 373 million have been recorded under the heading of intangible assets (See Note 15 b.ii) and EUR 414 million, considering expenses associated with the operation, as a higher cost of ownership. The total cost of this participation after the acquisition has been fixed on EUR 834 million. It has been re-clasificated in the epigraph Group Entities (See Note 12 b.ii).

In addition, during the first half of fiscal year 2020, the Bank has acquired, by different purchases, shares from Merlin Properties SOCIMI, S.A. for EUR 105 million.

On March 2019, various Group companies has acquired 20% of the entity Promontoria Manzana, S.A., by contributing with investment in real state. As a result, the cost of the operations rises to EUR 72 million.

In addition, on July 1, 2019, the Bank sold its stake in the Mexican company Grupo Financiero Ve por Más, S.A. de CV for EUR 85 million, with EUR 12 million of profit.

iii. Impairment losses

The changes in the balance of this item were as follows:

Millions of euros 30/06/2020 31/12/2019

Balance at the beginning of the year 572 346 Net impairment losses (reversals) 327 250 Other changes - (24) Balance at end 899 572

b) Subsidiaries

Investments - Subsidiaries includes the equity instruments owned by the Group and issued by subsidiaries belonging to Santander Group.

Relevant information on these companies is provided in Appendix I.

i. Breakdown

The detail, by currency and listing status, of Investments - Subsidiaries in the balances as of June 30, 2020 and December 31, 2019, based on the contracting currency and the admission or not to listing on the Stock Market of the investee companies, is as follows.

Millions of euros 30/06/2020 31/12/2019

Currency: Euro 38,077 38,212 Pound Sterling 11,036 15,383 Other currencies 27,770 28,628 76,883 82,223 Listing status: Listed 8,465 8,787 Unlisted 68,418 73,436 76,883 82,223

ii.Changes

The changes in the first semester of fiscal year 2020 and the fiscal year 2019 in Investments – Subsidiaries, disregarding impairment losses, were as follows:

Millions of euros 30/06/2020 31/12/2019

Balance at beginning of the year 89,318 83,309

Acquisitions. contributions. capital increase payments and mergers 1,154 6,026 Of which: Santander Consumer Finance, S.A. - 3,193 Landmark Iberica, S.L. 33 272 Banco Santander (México), S.A., Institución de Bank Múltiple - 1,683 Santander Digital Businesses, S.L. 593 - Santander Merchant Platform Solutions, S.L. 103 - Sam Investment Holding Limited 292 -

Disposals. capital reductions and mergers (307) (770) Of which: Inversiones Capital Global, S.A. - - Allianz Popular, S.A. (292) (197)

Transfers 834 3 Of which: Allianz Popular, S.A. (Traspaso de Associated) 834 - FX and other movements (2,449) 750 Balance 88,550 89,318

On January 31, 2020 the Bank transferred to this heading 100% of this stake in Allianz Popular, S.L., for an amount of EUR 834 million (See Note 12.a.ii). Subsequently, on April 28, 2020, Allianz Popular, S.L. approved a return of share premium of EUR 292 million to the Bank, through the assignment of a credit right derived from the deferred price of two share purchase agreements. Then, the Bank made a contribution to the equity of SAM Investment Holding Limited for the same amount, through by assigning the aforementioned right.

On May 8, 2020, the Bank has subscribed two capital increases for Landcompany 2000, be two S.L. (formerly Landmark Iberia, S.L.), through non-monetary contributions of real state, reaching the amount of EUR 33 million, and a participation of 17.22%.

During the first half of fiscal year 2020, the Bank has made various monetary contributions to the company's equity of Santander Digital Businesses, S.L. for EUR 548 million. Likewise, on April 23, 2020, the Bank has made a contribution to equity in kind to this company, for EUR 45 million, through the contribution of its stake in Ebury Partners Limited (See Note 7.b).

Also, during the first half of fiscal year 2020 the Bank has made various monetary contributions to the company's funds for Santander Merchant Platform Solutions, S.L. of EUR 103 million.

On January 22, 2019, the Bank has set up the company Landmark Ibéria, S.L. Subsequently, on April 29, 2019, it has made a contribution of partners for EUR 1 million and on November 8 it signed, together with other Group companies, a non-monetary capital increase with an emission premium through land contributions, for a value of EUR 271 million. After these operations it has reached a participation percentage of 16.20% in said company.

On September 10, 2019, on the occasion of the Public Offer of Acquisition of shares of Banco Santander (México), S.A., Multiple Bank Institution, the Bank has acquired 16.68% of the shares of said company, for this purpose, it has made a capital increase of 381,540,640 shares with an issue premium, for a total of EUR 1,683 million, which have been delivered to the shareholders of the aforementioned entity that have come to the Offer.

In addition, on September 26, 2019 the entity Inversiones Capital Global S.A.U. made a return of reserves for EUR 169 million, which the Bank has registered reducing the net cost of the participation by that amount.

On December 20, 2019, the Bank purchased Holneth B.V. its participation in Santander Consumer Finance. S.A. for EUR 3,193 million, reaching with this acquisition a percentage of 99.99% in said company.

iii. Impairment losses

The changes in the balance of this item were as follows:

Millions of euros 30/06/2020 31/12/2019

Balance at beginning of the year 7,095 6,985 Net impairment losses (reversals) 4,581 207 Other changes (9) (97) Balance 11,667 7,095

The management of the company make an analysis of the potential loss of value of the investments in Group companies, jointly entities and associates that it has registered in relation to its book value. This analysis is carried out using different parameters, such as equity value, list value and recoverable value. The investments valued in the last item are analyzed by comparing this book value and its recoverable amount, which is obtained from the estimates of expected cash flows or net equity corrected by the unrealized capital gains existing on the valuation date, including the goodwill registered at that date.

The impairment provisions made by the Bank during the first half of fiscal year 2020 include EUR 4,168 million corresponding to the impairment of the stake held in Santander UK Group Holding P.L.C., EUR 165 million by Santander Global Facilities, S.L., EUR 44 million by Luri 6, S.A. , EUR 39 million for Allianz Popular, S.L. and EUR 34 million for Openbank Digital Services, S.L. (EUR 90 million in 2019). c) Jointly controlled entities

The cost of the investee entities registered under this heading as of June 30, 2020 amounts of EUR 426 million, while the provisions for impairment recorded as of that date are of EUR 179 million. The net amount in the head is EUR 247 million.

During the first half of fiscal year 2020, there are not significant variations in provisions due to impairment in controlled entities.

13. Reinsurance assets

The detail of Insurance contracts linked to pensions in the accompanying balances is as follows:

Millions of euros 30/06/2020 31/12/2019

Assets relating to insurance contracts covering post-employment benefit plan obligations (Notes 16 & 22) 457 511 457 511

14. Tangible assets

a) Changes

The changes in tangible assets in the balances were as follows:

Millions of euros Tangible assets Of which: Right-of-use for operating lease

Leased out Leased out under under an operating Investment an operating Investment For own use lease property Total For own use lease property Total

Cost: Balance at 1 January 2019 7,955 678 447 9,080 4,236 - - 4.236 Additions/disposals (net) 754 172 (5) 921 (1,290) - - (1,290) Transfers and other (112) - (105) (217) - - - - Balances at December 31, 2019 8,597 850 337 9,784 2,946 - - 2,946 Additions/disposals (net) 60 40 - 100 20 - - 20 Transfers and others (239) - 9 (230) - - - - Balances at June 30, 2020 8,418 890 346 9,654 2,966 - - 2,966

Accumulated depreciation: Balance at 1 January 2019 (2,056) (183) (20) (2,259) - - - - Charge for the year (435) (67) (5) (507) (268) - - (268) Disposals 195 62 2 259 - - - - Transfers and others (2) (11) 2 (11) - - - - Balances at December 31, 2019 (2,298) (199) (21) (2,518) (268) - - (268) Charge for the year (225) (48) (1) (274) (133) - - (133) Disposals 22 29 - 51 15 - - 15 Transfers and other 28 - (1) 27 - - - - Balances at June 30, 2020 (2,473) (218) (23) (2,714) (386) - - (386)

Impairment losses: Balance at 1 January 2019 (22) - (153) (175) - - - - Transfers and others (24) - 64 40 Balances at December 31, 2019 (46) - (89) (135) - - - - Transfers and other (49) - (3) (52) - - - - Balances at June 30, 2020 (95) - (92) (187) - - - -

Tangible assets net: Balances at December 31, 2019 6,253 651 227 7,131 2,678 - - 2,678 Balances at June 30, 2020 5,850 672 231 6,753 2,580 - - 2,580

b) Property, plant and equipment for own use

The detail, by class of asset, of Property, plant and equipment - For own use in the balances is as follows:

Millions of euros Accumulated Impairment Carrying Of which: Right-of-use Cost depreciation losses amount for operating lease

Land and buildings 5,759 (439) (46) 5,274 2,678 Furniture, fixtures and vehicles 2,202 (1,352) - 850 - Computer hardware 602 (507) - 95 - Other 34 - - 34 - Balances at December 31, 2019 8,597 (2,298) (46) 6,253 2,678

Land and buildings 5,592 (577) (95) 4,920 2,580 Furniture, fixtures and vehicles 2,173 (1,369) - 804 - Computer hardware 617 (527) - 90 - Other 36 - - 36 - Balances at June 30, 2020 8,418 (2,473) (95) 5,850 2,580

The carrying amount as of June 30, 2020 in the table above includes the following approximate amounts:

- EUR 3 million (EUR 2 million in 2019) relating to property, plant and equipment owned by the Bank's branches located abroad.

- EUR 593 million (EUR 627 million in 2019) relating to property, plant and equipment held under finance leases by the Bank, of which EUR 482 million related to leases in force as of June 30, 2020 (EUR 513 million in 2019).

15. Intangible assets

a) Goodwill

The detail of goodwill, based on the cash-generating units giving rise thereto, is as follows:

Millions of euros 30/06/2020 31/12/2019 Santander Spain 623 623 Amortization charge (134) (102) Balance at end 489 521

The changes in the first half of fiscal year 2020 and the fiscal year 2019 in goodwill were as follows:

Millions of euros 30/06/2020 31/12/2019

Balance at beginning of the year 521 583 Additions (Note 3) - - Amortization charge (32) (62) Impairment losses - - Disposals or changes in scope - - Balance 489 521

In accordance with Bank of Spain Circular 4/2017 will be amortized over a period of ten years. In addition, the Bank periodically reviews the term and method of amortization and, if it considers that they are not adequate, the impact will be treated as a change in the accounting estimates.

As of June 30, 2020, and December 31, 2019, the amount of goodwill recorded by the Bank, net of accumulated amortization, amounts to EUR 489 million and EUR 521 million, respectively.

The Bank, at least once per year and whenever there is evidence of impairment, performs an analysis of the potential loss of value of the goodwill it has recorded with respect to its recoverable value.

The first step that must be taken in order to perform this analysis is the identification of the cash- generating units which are the Bank's smallest identifiable groups of assets that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets.

This book value is compared to its recoverable amount in order to determine if there is impairment. The recoverable amount of the Santander Spain cash generating unit has been determined as the fair value of said cash generating unit obtained from quotes, market references (multiples) and internal estimates. At the end of the year, said value exceeded the book value.

b) Other intangible assets

i. Breakdown

The detail of Intangible assets - Other intangible assets in the balances is as follows:

Millions of euros 30/06/2020 31/12/2019 With finite useful life Cost 940 550 Accumulated amortisation (446) (386) Balance at end 494 164 ii. Changes

The changes in the first semester of fiscal year 2020 and the fiscal year 2019 in Intangible assets - Other intangible assets in the balances were as follows

Millions of euros 30/06/2020 31/12/2019

Balance at end of prior year 164 195 Net additions and disposals 390 62 Amortization charge (60) (93) Balance at end 494 164

On January 31, 2020, on the occasion of the acquisition of 60% of the stake in Allianz Popular, S.L. (See Note 12.a.ii), the Bank has recorded EUR 373 million derived from the higher expected collection of commercialization commissions of the business acquired after the renegotiation of conditions with the Allianz Popular subsidiaries.

16. Other assets and Other liabilities

The detail of Other assets and Other liabilities in the accompanying balances is as follows:

Millions of euros Assets Liabilities 30/06/2020 31/12/2019 30/06/2020 31/12/2019 Transactions in transit - 565 6 433 Insurance contracts linked to pensions (Note 13 & 22) 457 511 - - Inventory - - - - Prepayments and accrued income 514 503 1,505 1,737 Other (*) 3,833 4,368 612 1,761 Total: 4,804 5,947 2,123 3,931

(*) Includes, mainly, unsettled transactions.

17. Deposits from central banks and credit institutions

The detail by classification, type and currency of Deposits from central banks and Deposits from credit institutions in the accompanying balances is as follows:

Millions of euros 30/06/2020 31/12/2019

CENTRAL BANKS Classification: Financial liabilities designated at fair value through profit or loss 8,995 7,596 Financial liabilities at amortised cost 61,331 36,896 70,326 44,492 Type: Time deposits 66,299 43,686 Deposits available with prior notice - - Repurchase agreements 4,027 806 Of which: valuation adjustments 52 (306) 70,326 44,492 Currency: Euro 57,741 37,237 US dollar 9,913 7,189 Pound Sterling 2,452 6 Other currencies 220 60 70,326 44,492 CREDIT INSTITUTIONS Classification Financial liabilities designated at fair value through 8,172 profit or loss 6,152 Financial liabilities at amortised cost 56,806 51,180 64,978 57,332

Nature: Current accounts / Intraday deposits 14,372 15,911 Time deposits 33,975 28,496 Deposits available with prior notice - - Repurchase agreements 16,631 12,925 Of which: valuation adjustments 345 364 64,978 57,332

Currency: Euro 41,137 33,804 US dollar 18,120 18,614 Sterling Pound 4,977 4,163 Other currencies 744 751 64,978 57,332 TOTAL 135,304 101,824

The Bank, having benefited from the various long-term financing programs of the European Central Bank (TLTRO I, TLTRO II, TLTRO III), maintains deposits at amortised cost from these programs amounting to EUR 56,288 million as of June 30, 2020 (EUR 35,200 million in 2019).

Note 33 contains a detail of the residual maturity periods of financial liabilities at amortised cost and of the related average interest rates.

18. Customer deposits

The detail by classification, type and geographical area, of Customer deposits in the accompanying balances is as follows:

Millions of euros 30/06/2020 31/12/2019 Classification: Financial liabilities held for trading - - Financial liabilities designated at fair value through profit or loss 12,899 10,516 Financial liabilities at amortised cost 271,408 250,521 284,307 261,037 Type: Current accounts / Intraday deposits 237,907 219,852 Time deposits 42,300 38,030 Deposits available with prior notice - - Repurchase agreements 4,100 3,155 Of which: subordinated deposits - - Of which: issued securities 462 116 Of which: valuation adjustments 2,810 2,639 284,307 261,037 Sector: Public sector 19,149 20,012 Other financial companies 45,478 40,090 Non-financial companies 79,670 64,442 Households 140,010 136,493

284,307 261,037 Geographical area: Spain 243,913 229,873 European Union (excluding Spain) 22,306 22,286 United States and Puerto Rico 11,701 3,451 Other OECD countries 2,248 2,606 Latin America (non-OECD) 2,163 2,146 Rest of the world 1,976 675 284,307 261,037

Funds received under financial asset transfers in the table above includes the liabilities associated with securitisation transactions (See Note 9.e).

Note 33 contains a detail of the residual maturity periods of financial liabilities at amortised cost and of the related average interest rates.

19. Marketable debt instruments

a) Breakdown

The detail by classification and type, of Marketable debt securities in the accompanying balances is as follows.

Millions of euros 30/06/2020 31/12/2019

Classification: Financial liabilities at amortised cost 96,916 87,567 96,916 87,567 Type: Certificates of deposit 7,024 3,661 Guaranteed bonds 56,997 49,610 Mortgage bonds 45,699 41,199 Others mortgage bonds and guaranteed bonds 11,298 8,411 Other non-convertible issued securities (Note 20) 64,378 59,273 Of which subordinated liabilities 15,266 15,352 Treasury shares (*) (33,302) (26,351) Valuation adjustments 1,819 1,374 96,916 87,567 (*) As of June 30, 2020, and December 31, 2019, the registered balance corresponds mainly to guaranteed bonds.

Note 33 contains a detail of the residual maturity periods of financial liabilities at amortised cost and of the related average interest rates.

b) Certificates of deposit

The detail of Certificates of deposits by currency of issuance is as follows:

Millions of euros 30/06/2020 Outstanding issue amount in foreign Annual currency interest rate Currency of issuance 30/06/2020 31/12/2019 (millions) (*)

US dollar 6,406 3,661 7,211 1.45% Hong Kong dollar 618 - 562 0.39% Balance at June 30, 2020 7,024 3,661 - -

(*) Average interest rate of the issuances based on their principal amounts.

i. Changes

The changes in Certificates of deposits in the first half of 2020 and 2019 were as follows:

Millions of euros 30/06/2020 31/12/2019

Balance at the end of the prior year 3,661 1,495 Issues 7,711 10,404 Redemptions (4,268) (8,278) Exchange differences and other changes (80) 40 Balance at June 30, 2020 7,024 3,661

As of June 30, 2020, the Bank issued certificates of deposits amounting to EUR 7,711 million (EUR 10,404 million in 2019), with an average maturity of 6 months (5 months during 2019) and of which EUR 4,268 million were amortised during the first half of fiscal year 2020 (EUR 8,278 million in 2019). c) Marketable mortgage-backed securities

The breakdown of the balance of this account, depending on the currency of issue, is as follows:

Millions of euros 30/06/2020 Annual interest Currency of issuance 30/06/2020 31/12/2019 rate (*)

Euros 45,699 41,199 0.99% Balance at June 30, 2020 45,699 41,199

(*) Average interest rate of the various issues as of June 30, 2020 based on their nominal values.

i. Changes

The changes in the first half of 2020 and 2019 in Marketable mortgage-backed securities were as follows:

Millions of euros 30/06/2020 31/12/2019 Balance at the end of the prior year 41,199 38,470 Reclassification of deposits - - Issues 5,750 4,749 Of which: May 2019 - 1,499 July 2019 - 1,500 December 2019 - 1,750 February 2020 2,750 - March 2020 1,000 - April 2020 2,000 - Transfers - - Amortizations on maturity (1,250) (2,020) Advanced amortizations - - Balance at end 45,699 41,199

ii. Disclosures required pursuant to the Mortgage Market Law 2/1981, of 25 March, of the Spanish Royal Decree 716/2009, of 24 April, implementing certain provisions of this Law, and to Bank of Spain Circular 7/2010, of 30 November, and Bank of Spain Circular 5/2011, of 30 November.

The members of the board of directors hereby state that the Group entities operating in the Spanish mortgage-market issues area have established and implemented specific policies and procedures to cover all activities carried on and guarantee strict compliance with mortgage-market regulations applicable to these activities as provided for in Royal Decree 716/2009, of 24 April implementing certain provisions of Mortgage Market Law 2/1981, of 25 March. And, by application thereof, in Bank of Spain Circulars 7/2010 and 5/2011, and other financial and mortgage system regulations. Also, financial management defines the Group entities' funding strategy.

The risk policies applicable to mortgage market transactions envisage maximum loan-to-value (LTV) ratios, and specific policies are also in place adapted to each mortgage product, which occasionally require the application of stricter limits.

The Bank's general policies in this respect require the repayment capacity of each potential customer (the effort ratio in loan approval) to be analysed using specific indicators that must be met. This analysis must determine whether each customer's income is enough to meet the repayments of the loan requested. In addition, the analysis of each customer must include a conclusion on the stability over time of the customer's income considered with respect to the life of the loan. The indicator used to measure the repayment capacity (effort ratio in loan approval) of each potential customer takes into account mainly the relationship between the potential debt and the income generated, considering on the one hand the monthly repayments of the loan requested and other transactions and, on the other, the monthly salary income and duly supported income.

The Group entities have specialised document comparison procedures and tools for verifying customer information and solvency (See note 33).

The Group´s procedures envisage that each mortgage originated in the mortgage market must be individually valued by an appraisal company not related to the Group.

In accordance with Article 3 of Mortgage Market Law 41/2007, any appraisal company approved by the Bank of Spain may issue valid appraisal reports. However, as permitted by this same article, the Group entities perform several checks and select, from among these companies, a small group with which they enter into cooperation agreements with special conditions and automated control mechanisms. The Group's internal regulations specify, in detail, each of the internally approved companies, as well as the approval requirements and procedures and the controls established to uphold them. In this connection, the regulations establish the functions of an appraisal company committee on which the various areas of the Group related to these companies are represented. The aim of the committee is to regulate and adapt the internal regulations and the activities of the appraisal companies to the current market and business situation (See Note 2.i).

Basically, the companies wishing to cooperate with the Group must have a significant level of activity in the mortgage market in the area in which they operate, they must pass a preliminary screening process based on criteria of independence, technical capacity and solvency -in order to ascertain the continuity of their business- and, lastly, they must pass a series of tests prior to obtaining definitive approval.

In order to the fully legislation comply, any appraisal provided by the customer is reviewed, irrespective of which appraisal company issues it, to check that the requirements, procedures and methods used to prepare it are formally adapted to the valued asset pursuant to current legislation and that the values reported are customary in the market.

Mortgage-backed bonds

The mortgage-backed bonds ("cédulas hipotecarias") issued by the Group entities are securities of which the principal and interest are specifically secured by mortgages, there being no need for registration in the Property Register, by mortgage on all those that at any time are recorded in favor of the issuer and are not affected by the issuance of mortgage bonds and/or are subject to mortgage participations, and/or mortgage transfer certificates and, if they exist, by substitution assets eligible to be hedged and for the economic flows generated by derivative financial instruments linked to each issue, and without prejudice to the issuer's unlimited liability.

The mortgage bonds include the credit right of its holder against the issuing entity, guaranteeing in the manner provided for in the previous paragraph, and involve the execution to claim from the issuer the payment after due date. The holders of these securities are recognised as preferred creditors, singularly privileged, with the preference, included in number 3º of article 1.923 of the Spanish Civil Code against any other creditor, in relation with the entire group of loans and mortgage loans registered in favor of the issuer, except those that act as coverage for mortgage bonds and/or are subject to mortgage participations and/or mortgage transfer certificates.

In the event of insolvency, the holders of mortgage-backed bonds, as long as they are not considered "persons especially related" to the issuing entity in accordance with the Insolvency Law 22/2003, of 9 July, will enjoy the special privilege established in Article 90.1.1 of the aforementioned law. Without prejudice to the foregoing, in accordance with Article 84.2.7 of the Insolvency Law, during the insolvency proceedings, the payments relating to the repayment of the principal and interest of the bonds issued and outstanding at the date of the insolvency filing will be settled up to the amount of the income received by the insolvent party from the mortgage loans and credits and, where appropriate, from the replacement assets backing the bonds and from the cash flows generated by the financial instruments associated with the issues (Final Provision 19 of the Insolvency Law).

If, due to a timing mismatch, the income received by the insolvent party is insufficient to meet the payments described in the preceding paragraph, the insolvency managers must settle them by realising the replacement assets set aside to cover the issue and, if this is not sufficient, they must obtain financing to meet the mandated payments to the holders of the mortgage-backed bonds, and the finance provider must be subrogated to the position of the bond-holders.

In the event that the measure indicated in Article 155.3 of the Insolvency Law were to be adopted, the payments to all holders of the mortgage-backed bonds issued would be made on a pro-rata basis, irrespective of the issue dates of the bonds. If the same credit or loan is subject to the payment of bonds and a mortgage bond issue, it will be paid first to the holders of the bonds.

Mortgage-backed bond issuers have an early redemption option solely for the purpose of complying with the limits on the volume of outstanding mortgage-backed bonds stipulated by mortgage market regulations. In addition, the issuing entity may advance the mortgage-backed bonds, if this has been expressly established in the final conditions of the issue in question and under the conditions set out therein.

None of the mortgage-backed bonds issued by the Group entities had replacement assets assigned to them.

Following is a detail, by their main features, of the marketable mortgage-backed bonds outstanding as of June 30, 2020 and December 31, 2019:

Million euros Annual interest Fecha de Currency ISIN Code Nominal value 30/06/2020 31/12/2019 rate vencimiento as of 30/06/2020 Emisiones: Euros Emisión April 2005 ES0413900087 - 993 - - April 2020 Emisión February 2006 ES0413900129 1,488 1,488 1,500 3.87 February 2026 Emisión May 2007 ES0413900160 1,494 1,494 1,500 4.63 May 2027 Emisión January 2010 ES0413900194 100 100 100 0.25 January 2022 Emisión June 2012 ES0413900293 - 100 - 2.80 June 2020 Emision November 2014 ES0413900368 1,728 1,728 1,750 1.13 November 2024 Emision November 2014 ES0413900376 1,238 1,238 1,250 2.00 November 2034 Emision September 2015 ES0413900384 994 994 1,000 0.75 September 2022 Emision January 2016 ES0413900392 997 997 1,000 1.50 January 2026 Emision february 2016 ES0413900400 933 933 907 2.04 February 2036 Emision March 2016 ES0413900418 100 100 100 1.52 March 2028 Emision June 2016 ES0413900434 4,000 4,000 4,000 0.13 June 2021 Emision June 2016 ES0413900442 - 150 - 0.00 June 2020 Emision December 2016 ES0413900467 250 250 250 0.45 December 2021 Emision June 2017 ES0413900475 350 350 350 0.13 June 2022 Emision June 2017 ES0413900483 2,000 2,000 2,000 0.02 June 2021 Emision June 2017 ES0413900491 2,000 2,000 2,000 0.16 June 2022 Emision November 2017 ES0413900509 12 12 12 0.01 November 2029 Cedula Pitch 299 299 300 5.13 July 2022 Emisión april 2010 (Banco ES0413770100 39 39 40 4.55 July 2020 Popular) Emisión april 2013 ES0413790256 200 200 200 2.31 April 2021 Emisión July 2013 ES0413790264 15 15 15 5.28 June 2029 Emisión July 2013 ES0413790280 400 400 400 1.35 September 2026 Emisión July 2013 ES0413790298 500 500 500 1.60 October 2027 Emisión July 2013 ES0413790306 1,500 1,500 1,500 1.85 November 2028 Emisión December 2013 ES0413790322 100 100 100 2.05 December 2021 Emisión february 2014 ES0413790330 1,000 1,000 1,000 2.09 February 2026 Emisión March 2014 ES0413790348 200 200 200 1.19 March 2022 Emisión March 2014 ES0413790389 250 250 250 0.48 September 2022 Emisión april 2015 ES0413790397 995 995 1,000 1.00 April 2025 Emisión June 2015 ES0413790405 575 575 575 0.06 June 2023 Emisión July 2015 ES0413790413 1,248 1,248 1,250 0.75 September 2020 Emisión October 2015 ES0413790421 749 749 750 0.88 September 2021 Emisión March 2016 ES0413790439 1,500 1,500 1,500 1.00 March 2022 Emisión October 2016 ES0413790454 500 500 500 0.00 October 2021 Emision December 2016 ES0413790462 250 250 250 1.13 December 2024 Emisión March 2017 ES0413790470 1,000 1,000 1,000 0.50 March 2024 Emisión april 2017 ES0413790488 1,600 1,600 1,600 0.93 April 2027 Emisión July 2014 (Banco 1,000 1,000 1,000 2.71 ES0405035009 July 2028 Pastor) Emisión June 2018 ES0413900517 350 350 350 0.00 June 2023 Emisión October 2018 ES0413900533 987 987 1,000 1.12 October 2028 Emisión October 2018 ES0413900525 2,000 2,000 2,000 0.29 October 2022 Emisión November 2018 ES0413900541 200 200 200 0.40 November 2023 Emision May 2019 ES0413900558 1,485 1,485 1,500 0.88 May 2031 Emision July 2019 ES0413900566 1,493 1,493 1,500 0.25 July 2029 Emision December 2019 ES0413900574 1,733 1,733 1,750 0.13 June 2030 Emisión february 2020 ES0413900590 1,261 - 1,250 0.01 February 2025 Emisión february 2020 ES0413900608 1,248 - 1,250 0.10 February 2032 Emisión february 2020 ES0413900582 250 - 250 0.05 February 2030 Emisión March 2020 ES0413900616 1,021 - 1,000 0.01 March 2025 Emisión april 2020 ES0413900624 2,000 - 2,000 0.27 April 2027

Balance as of June 30, 2020 45,632 41,095 45,699

The detail of the principal amount of the Bank's mortgage securities outstanding as of June 30, 2020 and December 31, 2019 is as follows:

30/06/2020 31/12/2019

1. Mortgage bonds outstanding - -

2. Mortgage-backed bonds issued 45,699 41,199 Of which: Recognised in liabilities 24,839 23,594 2.1. Debt instruments. Issued through a public offering 45,699 41,199 - Term to maturity of up to one year 7,490 2,540 - Term to maturity of one to two years 5,750 7,800 - Term to maturity of two to three years 4,475 7,700 - Term to maturity of three to five years 6,450 4,125 - Term to maturity of five to ten years 16,627 13,627 - Term to maturity of more than ten years 4,907 5,407 2.2. Debt instruments. Other issues - - 2.3. Deposits - - - Term to maturity of up to one year - - - Term to maturity of one to two years - - - Term to maturity of two to three years - - - Term to maturity of three to five years - - - Term to maturity of five to ten years - - - Term to maturity of more than ten years - - 3. Mortgage participation certificates issued (1) - -

4. Mortgage transfer certificates issued (1) (2) 13,893 14,569 4.1. Issued through a public offering (Note 9.e) 13,893 14,569

(1) Relating solely to mortgage loans and credits not derecognised. (2) The average term to maturity weighted by amount, expressed in months, rounded up, was 465 months.

Asset transactions

Pursuant to Bank of Spain Circulars 7/2010 and 5/2011, of 30 November, on the implementation of certain aspects of the mortgage market, the table below details: the principal amount of all the mortgage loans and credits, those that are eligible pursuant to Royal Degree 716/2009 on the regulation of the Spanish mortgage market for the purposes of calculating the limit of mortgage-backed bond issues, the mortgage loans and credits covering mortgage bond issues, those that have been transferred through mortgage participation certificates or mortgage transfer certificates, and the uncommitted transactions relating to the Bank. The breakdown of the mortgage loans as of June 30, 2020 and December 31, 2019 indicating their eligibility and computability for mortgage market regulatory purposes, is as follows:

Principal amount

(Millions of euros) 30/06/2020 31/12/2019

Total mortgage loans and credits (1) 96,843 98,823

Mortgage participation certificates issued 431 454 Of which: loans recognised in assets - -

Mortgage transfer certificates issued 14,172 15,346 Of which: loans recognised in assets 13,893 14,569

Mortgage loans and credits backing mortgage and mortgage-backed bond issues (2) 82,240 83,023 i) Non-eligible mortgage loans and credits (3) 23,898 24,614 Which comply with the eligibility requirements. except for the limit established in - 14,928 15,934 Article 5.1 of Royal Decree 716/2009 - Other non-eligible loans 8,970 8,680 ii) Eligible mortgage loans and credits (4) 58,342 58,409 - Un-measurable amounts (5) - - - Measurable amounts 58,342 58,409 a) Mortgage loans and credits covering mortgage bond issues - - b) Mortgage loans and credits eligible to cover mortgage-backed bond issues 58,342 58,409

(1) Including mortgage loans and credits acquired through mortgage participation certificates and mortgage transfer certificates, irrespective of whether they have been derecognised. (2) Total loans less mortgage participation certificates issued, mortgage transfer certificates issued and mortgage loans securing borrowings. (3) Due to non-compliance with the requirements of Art. 3 of Royal Decree 716/2009. (4) Pursuant to Art. 3 of Royal Decree 716/2009, without considering the measurement limits established in Art. 12 of Royal Decree 716/2009. (5) Pursuant to Art. 12 of Royal Decree 716/2009.

Following is a detail of the principal amount of the outstanding mortgage loans and credits and of the principal amount of the loans and credits that are eligible pursuant to Royal Decree 716/2009, without considering the measurement limits established under Article 12 of Royal Decree 716/2009, by origin, currency, payment status, average term to maturity, interest rate, borrower and type of guarantee:

Principal amount (millions of euros) 30/06/2020 31/12/2019 Mortgage loans Mortgage loans and credits and credits backing backing mortgage and mortgage and mortgage- Of which: mortgage- Of which: backed bond Eligible backed bond Eligible issues loans (*) issues loans (*)

By origin of transactions Originated by the entity 81,412 57,562 82,137 57,574 From subrogations 828 780 886 835 82,240 58,342 83,023 58,409 By currency Euro 81,432 58,342 81,971 58,409 Other currencies 808 - 1,052 - 82,240 58,342 83,023 58,409 By payment status Current 72,754 56,643 73,508 56,772 Past due 9,486 1,699 9,515 1,637 82,240 58,342 83,023 58,409 By term to maturity Less than 10 years 27,339 15,714 27,795 15,806 10 to 20 years 29,112 24,171 29,395 24,404 20 to 30 years 22,519 17,834 22,259 17,431 More than 30 years 3,270 623 3,574 768 82,240 58,342 83,023 58,409 By interest rate Fixed-rate loans 12,916 10,071 11,213 8,332 Floating-rate loans 69,324 48,271 71,810 50,077 82,240 58,342 83,023 58,409 By borrower Legal entities and individual traders 27,636 14,101 28,078 14,248 Of which: Property developments (including land) 3,059 - 3,376 1,042 Other individuals and non-profit institutions serving households 54,604 44,241 54,945 44,161 82,240 58,342 83,023 58,409 By type of guarantee Completed buildings – residential 60,621 47,265 60,835 47,167 Of which: Officially sponsored housing 4,087 3,459 3,695 3,190 Completed buildings – commercial 7,226 4,053 6,720 3,807 Completed buildings – other 10,457 5,683 11,024 5,870 Buildings under construction – residential 1,177 1 1,106 3 Of which: Officially sponsored housing 89 - 5 2 Buildings under construction – commercial 42 - 38 - Buildings under construction – other 67 5 68 9 Land – developed consolidated land 978 517 1,656 750 Land – other 1,672 818 1,576 803 82,240 58,342 83,023 58,409

(*) Pursuant to Art. 3 of Royal Decree 716/2009, without considering the measurement limits established in Art. 12 of Royal Decree 716/2009.

Following is a detail, by loan-to-value ratio, of the principal amount of the eligible mortgage loans and credits pursuant to Royal Decree 716/2009, without considering the measurement limits established in Article 12 of Royal Decree 716/2009, based on the percentage of the operation amound and appraisal value of the respective mortgaged property:

30/06/2020 Principal amount by LTV range (millions of euros) >40% >60% <=40% <= 60% <= 80% >80% TOTAL

Mortgage loans and credits for mortgage and mortgage-backed bond issues 58,342 Home property 17,858 15,884 13,524 - 47,266 Other property 6,104 4,972 - - 11,076

(*) Pursuant to Art. 3 of Royal Decree 716/2009, without considering the measurement limits established in Art. 12 of RD 716/2009.

Following is a detail of the changes during the first half of fiscal year 2020 in the principal amount of eligible and non-eligible mortgage loans and credits pursuant to Royal Decree 716/2009:

Millions of euros Eligible Non-eligible mortgage mortgage loans and loans and credits (**) credits (*)

Balance as of December 31, 2019 58,409 24,614 Period additions: 4,157 2,688 Originated by the Bank 2,558 1,204 Subrogations from other entities 1 1 Other 1,598 1,483

Period disposals: 4,224 3,404

Repayments on maturity 89 428 Early repayments 979 705 Other (***) 3,156 2,271 Balance as of June 30, 2020 58,342 23,898

(*) Pursuant to Art. 3 of Royal Decree 716/2009, without considering the measurement limits established in Art. 12 of Royal Decree 716/2009.

(**) That do not comply with the requirements of Art. 3 of Royal Decree 716/2009.

(***) The Bank performs a reappraisal its mortgage portfolio on a regular basis and, as a result, the measurable amount is updated.

Following is a detail of the undrawn balances of the mortgage loans and credits backing mortgage and mortgage-backed bond issues:

Millions of euros Principal amount (*) 30/06/2020 31/12/2019

Potentially eligible (**) 607 622 Non-eligible 1,636 2,131

(*) Amounts committed less amounts drawn down, including amounts delivered to property developers only when the housing units are sold. (**) Pursuant to Art. 3 of Royal Decree 716/2009.

d) Other non-convertible marketable securities

The balance of Other non-convertible marketable securities relates to territorial bonds (cédulas territoriales), non-convertible bonds and internationalisation bonds. The detail, by issue currency and interest rate, is as follows:

Millions of euros 30/06/2020 Currency of issuance 30/06/2020 31/12/2019 Annual interest rate (*)

Euro 5,622 6,668 0.29% US dollar - 1,743 Balance at end 5,622 8,411

(*) Average interest rate of the various securities as of June 30, 2020 based on their nominal amounts.

i. Changes

The changes during the first half of fiscal year 2020 and fiscal year 2019 in Other non-convertible marketable securities were as follows:

Millions of euros Annual interest Maturity 30/06/2020 31/12/2019 rate (%) (**) date

Balance at end of the prior year 8,411 10,141 Issues 2,750 - 6.27% Junio 2027 Of which: December 2018 2,750 - Redemptions (5,539) (1,778) Exchange differences - 48 Balance at end 5,622 8,411

In February 2020, the bank has amortized the outstanding internationalization bonds as of December 2019 for an amount of EUR 2,639 million. Likewise, there have been other Territorial Card amortizations amounting to EUR 2,900 million.

Two new issues have been made in the first half of 2020 for an amount of EUR 2.000 million and EUR 750 million.

ii. Territorial certificates

Below is a detail of the total principal amount of the loans used to secure the territorial bonds outstanding as of June 30, 2020:

Principal amount (*) (Millions of euros) Residents in Spain

Central governments 164 Autonomous or regional governments 8,006 Local governments 1,133 9,303 (*) Unrepaid portion of the loan nominal amounts.

Following is a detail of the territorial bonds issued outstanding as of June 30, 2020:

Principal amount (Millions of euros)

Issued through a public offering - Other issues 5,622 Of which: Treasury shares 4,750 Term to maturity of up to one year 2,218 Term to maturity of one to two years 174 Term to maturity of two to three years 230 Term to maturity of three to five years 250 Term to maturity of five to ten years 2,750 Term to maturity of more than ten years - 15,994

The coverage ratio of the territorial bonds with respect to the loans was 60.40% as of June 30, 2020 (65.39% in 2019).

Internationalisation bonds

The internationalization bonds have been redeemed early in February 2020.

20. Other non-convertible issuances

a) Breakdown The detail by type and currency of Subordinated liabilities in the accompanying balances is as follows:

Millions of euros (*) 30/06/2020 31/12/2019

Type: Other non-convertible issuances (Note 19) 64,378 59,273 Of which subordinated liabilities 15,266 15,352 64,378 59,273 Currency: Euro 32,480 29,384 US dollar 24,341 22,596 Pound Sterling 3,922 3,685 Other currencies (*) 3,635 3,608 64,378 59,273

(*) As of June 30, 2020, the most significant currencies are Yen (EUR 1,591 million), Swiss Francs (EUR 952 million) and Australian Dollar (EUR 669 million).

b) Changes The changes in Subordinated marketable debt securities in the foregoing table for the years 2020 and 2019 are as follows:

Millions of euros

30/06/2020 31/12/2019 Balance at the beginning of the year 59,273 53,380 Issues 22,052 44,305 Redemptions (16,658) (39,230) Exchange differences (289) 818 Balance at end 64,378 59,273

Within the sub-heading Other Non-convertible Marketable Securities, there are commercial paper issues, as well as other issues made by the bank.

- Commercial paper

On April 16, 2020, Banco Santander approved the annual renewal of the "European Commercial Paper Issuance Program" for a maximum nominal global amount of up to EUR 15,000 million.

As of June 30, 2020, the interest rate is between -0.52% and 3.0% per year, with the average nominal interest rate being 1.234% per year. At the end of 2019, the interest rate was between -0.53% and 3.285% per year, with the average nominal interest rate being 1.586% per year.

In fiscal year 2019, the “Program for the issuance of commercial paper or promissory notes in the United States” in force in 2018 has not been renewed. The average rate of the securities in force in 2019 amounts to 2.05%.

On April 17, 2019, Banco Santander approved the annual renewal of the "European Commercial Paper Issuance Program", which was originally agreed on May 29, 2008, empowering certain authorized persons to set the necessary conditions to carry out such renewal, as well as those of the emissions that are made under its protection. Said Program has as issuer Banco Santander, S.A., for a maximum nominal global amount of up to EUR 15,000 million.

The issuance of commercial paper made in both currencies is admitted to trading on the Irish Stock Exchange and gives its holders the right to receive remuneration payable at the expiration of the issuance, at the fixed or variable interest rate that each of them offers.

On June 5, 2018, Banco Santander, S.A. approved the annual renewal of the "Program for the issuance of commercial paper or promissory notes in the United States", empowering certain authorized persons to set the necessary conditions to carry out such renewal, as well as those of the emissions that are made under their protection. Said Program has as issuer Banco Santander, S.A., for a maximum nominal global amount of up to EUR 20,000 million US dollars.

- Remaining emissions

During the first half of fiscal year 2020, Banco Santander, S.A. has reported 17 issues for a nominal amount of EUR 8,088 million (excluding perpetual issues amounting to EUR 1,500 million) (See Note 20.c). The average remuneration for these issues has been set at 1.63% per year.

During fiscal year 2019, Banco Santander, S.A. has reported 42 issues for a nominal amount of EUR 8,230 million (excluding perpetual issues amounting to USD 1,200 million) (See Note 20.c). The average remuneration for these issues has been set at 2.10% per year. c) Other information

This heading includes preferred shares as well as other financial instruments issued, which, having the legal nature of capital, do not meet the requirements to qualify as equity (preferred shares).

Preferred shares have no voting rights and are not cumulative. They have been subscribed by third parties outside the Bank, the rest are amortizable by decision of the issuer, according to the conditions of each issue.

The preferred shares are placed for the purpose of priority of loans behind common creditors and subordinated deposits. Their remuneration is conditional on obtaining enough distributable benefits, and on the limitations imposed by Spanish banking regulations on own resources, and they lack political rights. The rest of the issues are subordinated and, for the purposes of the priority of credits, are placed behind all common creditors of the issuing entities.

As of June 30, 2020, there are the following convertible issues in Bank shares:

On January 14, 2020, Banco Santander, S.A. carried out the issuance of convertible preferred shares contingently convertible into newly issued Bank common shares (the PPCC) for a nominal amount of USD 1,500 million. The remuneration of CCPs whose payment is subject to certain conditions and is at the same time discretionary, was set at 4,375% per year for the first five years, thereafter, being revised applying a margin of 453.4 basics points on the type Five-year Mid-Swap Rate.

As of December 31, 2019, there are the following convertible issues in Bank shares:

On February 8, 2019, Banco Santander, S.A. carried out the issuance of convertible preferred shares contingently convertible into newly issued Bank common shares (the PPCC) for a nominal amount of USD 1,200 million. The remuneration of CCPs whose payment is subject to certain conditions and is at the same time discretionary, was set at 7.5% per year for the first five years, thereafter, being revised applying a margin of 498.9 basis points on the type Five-year Mid-Swap Rate.

On March 25, May 28 and September 30, 2014, the Bank of Spain approved the computability of these PPCCs as Tier 1 capital (additional tier 1) under the new European own resource’s regulations of European Regulation 575/2013. PPCCs are perpetual, although they may be amortized in advance in certain circumstances, and would be converted into newly issued ordinary shares of Banco Santander if the Bank or its consolidable group had a ratio lower than 5.125% of ordinary-level capital (common equity Tier 1 ratio), calculated according to the aforementioned regulation 575/2013. PPCCs are traded on the Global Exchange Market of the Irish Stock Exchange.

On April 25, and September 29, 2017, Banco Santander, S.A. carried out issues of preferred shares contingently convertible into ordinary shares of the newly issued Bank (the “PPCC”), for a nominal amount of EUR 750 million, and EUR 1,000 million respectively. The remuneration of the PPCC, whose payment is subject to certain conditions and is also discretionary, was set at 6.75% per annum for the first five years (revised thereafter applying a margin of 680.3 basis points on the type Five-year Mid-Swap Rate) for the issue disbursed in April, at 5.25% per year for the first six years (revised thereafter by applying a margin of 499.9 basis points over the 5-year Mid-Swap Rate) for the issuance disbursed in September.

On March 19, 2018, Banco Santander, S.A. carried out the issuance of convertible preferred shares contingently convertible into ordinary shares of the newly issued Bank (the PPCC) for a nominal amount of EUR 1.500 million. The remuneration of the PPCC, whose payment is subject to certain conditions and is also discretionary, was set at 4.75% per annum for the first five years. thereafter being revised applying a margin of 409.7 basis points on the Mid type -Swap to five years (5 year Mid- Swap Rate).

The interests of the PPCC during the 2019 financial year amounted to EUR 466 million (EUR 425 million in 2019).

21. Other financial liabilities

a) Breakdown:

The composition of the balance of this heading of the balance sheets is presented below:

Millions of euros 30/06/2020 31/12/2019 Trade payables 680 758 Payment obligations 3,001 3,239 Public agency revenue collection accounts 5,805 3,401 Unsettled financial transactions 454 1,133 Other accounts 4,450 2,323 14,390 10,854

b) Lease liabilities

The total cash outflow of leases in the first half of 2020 was EUR 162 million.

The analysis of the maturities of lease liabilities as of June 30, 2020 is shown below:

Millions of euros 30/06/2020 Maturity Analysis – Discounted payments Within 1 year 304 Between 1 and 3 years 511 Between 3 and 5 years 383 Later than 5 years 1,446 Total Discounted payments at June 30, 2020 2,644

During the first half of 2020, there were no significant variable lease payments not included in the valuation of lease liabilities.

22. Provisions

a) Breakdown

The detail of Provisions in the balances as of June 30, 2020 and December 31, 2019 is as follows:

Millions of euros 30/06/2020 31/12/2019

Provision for pensions and similar obligations 4,533 5,138 Of which: Pensions and similar defined benefit obligations post- 3,487 3,918 employment Other long-term remunerations to employees 1,046 1,220 Restructuring (*) 340 279 Provisions for taxes and other legal contingencies 465 501 Provisions for commitments and guarantees given 153 180 Rest of provisions 423 392 5,914 6,490

(*) In the report of December 31, 2019, for breakdown purposes, this amount was recorded in the Rest of provisions line.

b) Changes

The changes in Provisions in the first half of 2020 and 2019 were as follows:

Millions of euros 30/06/2020 31/12/2019 Commitments Contingent Post- Long – and guarantees Other Post- Long - liabilities and Other employment Term given provisions Total employment Term commitments provisions Total

Balance at end of prior year 3,918 1,220 180 1,172 6,490 3,895 1,111 263 1,412 6,681 Changes in value recognised in equity 42 - - - 42 327 327 Additions charged to income: (303) 12 (26) 503 186 15 639 (60) 560 1,154 (Interest income)/Interest expense 14 5 - - 19 28 14 42 Staff costs 5 6 - - 11 12 1 - - 13 Provisions or reversal of provision (322) 1 (26) 503 156 (25) 624 (60) 560 1,099 Payments to pensioners and pre-retirees (174) (186) - - (360) (297) (565) (862) Amounts used and other changes 4 - (1) (447) (444) (22) 35 (23) (800) (810)

Balances at end 3,487 1,046 153 1,228 5,914 3,918 1,220 180 1,172 6,490

c) Provision for pensions and similar obligations

The detail of Provision for pensions and similar obligations as of June 30, 2020 and December 31, 2019 is as follows:

Millions of euros 30/06/2020 31/12/2019

Provisions for pensions and similar defined benefit plan obligations 4,533 5,138 Of which: Provisions for pensions 3,487 3,918 Provisions for similar obligations 1,046 1,220 Of which: pre-retirements 1,026 1,206 Provisions for pensions and similar defined contribution plan obligations - - Total provisions for pensions and similar obligations 4,533 5,138

i. Defined contribution plans

At the end of 2012, the Bank reached an agreement with the employees’ representatives to convert the defined benefit obligations arising from the collective agreement into defined contribution plans. In addition, the senior executive’s contracts with defined-benefit pension obligations were amended to convert such obligations into a defined-contribution employee welfare system.

Practically all pension commitments with active personnel correspond to defined contribution plans. The total contributions made to said aircraft during the first half of fiscal year 2020 amounted to EUR 40 million (EUR 82 million during the year 2019).

ii. Defined benefit plans

In addition to the previously defended contribution plans, as of June 30, 2020 and December 31, 2019, the Bank had defined benefit commitments. The following shows the current value of the commitments assumed by the Bank in terms of post-employment benefits for defined benefits, as well as the value of the reimbursement rights of the insurance contracts linked to said obligations, as of June 30, 2020 and the previous four exercises.

Millions of euros 30/06/2020 31/12/2019 31/12/2018 31/12/2017 31/12/2016

Present value of the obligations: To current employees 79 78 58 22 43 To retired employees 4,954 5,378 5,331 4,244 4,433 Other - - - 19 297 5,033 5,456 5,389 4,285 4,773

Fair value of plan assets (1,550) (1,543) (1,496) (146) (154) Assets not recognised 4 5 2 2 2 Provisions - Provisions for 3,487 3,918 3,895 4,141 4,621 pensions

Of which: Internal provisions for pensions 3,030 3,407 2,241 2,409 2,787 Insurance contracts linked to pensions (Note 13 & 16) 457 511 1,654 1,732 1,834 Of which: Group insurance entities 271 319 1,445 1,494 1,565 Other insurers 186 192 209 238 269

In December 2019, Banco Santander reached an agreement with the Unions, approved by the different government bodies (Corporate Accounting and Financial Information Committee) and reported to the Executive Committee, to transform the collective's lifetime annuity commitment of liabilities in the entity's Internal Fund, in a single payment as a substitute for the life annuity payable in a single payment or in instalments up to a maximum of five years. Of the total group affected by the Internal Fund, with a total obligation as of June 30, 2020 of EUR 3,159 million, a total of 13,991 liabilities has signed this agreement, representing an obligation of EUR 1,416 million. The reduction effect resulting from the offer to replace the pension for a single or deferred payment is shown in the following tables.

The amount of the defined benefit obligations was determined based on the work performed by independent actuaries, using the following actuarial techniques:

1. Valuation method: projected unit credit method, which sees each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately.

2. Actuarial assumptions used: unbiased and mutually compatible. Specifically, the most significant actuarial assumptions used in the calculations were as follows:

30/06/2020 31/12/2019

Annual discount rate 0.80% 0.80% Expected return on plan assets rate 0.80% 0.80% Mortality tables PEM/F 20012 PE2000P Col1 M/F Cumulative annual CPI growth 1% 1% Annual pension increase rate 1% 1%

3. The discount rate used for the flows was determined by reference to high-quality corporate bonds.

4. The estimated retirement age of each employee is the first at which the employee is entitled to retire or the agreed-upon age, as appropriate.

5. The fair value of insurance contracts was determined as the present value of the related payment obligations, considering the following assumptions:

30/06/2020 31/12/2019

Expected rate of return on reimbursement rights 0.80% 0.80%

The amounts recognised in the income statements in relation to the aforementioned defined benefit obligations are as follows:

Millions of euros 30/06/2020 31/12/2019

Service cost: Current service cost 5 12 Past service cost (including reductions) 2 3 Pre-retirement cost - 1 Settlements (325) (29) Net interest 19 52 Expected return on insurance contracts linked to pensions (5) (24) (304) 15

In addition, between December 2019 and June 2020, the heading Other accumulated comprehensive income -Items that will not be reclassified to profit and loss- Actuarial gains or losses on defined benefit pension plans led to an actuarial loss of EUR 42 million in respect of defined benefit commitments, mainly as a result of the change in the mortality table (actuarial loss of EUR 327 million in 2019), without taking into account its corresponding tax effect.

The changes in the first half of 2020 and 2019 in the present value of the accrued defined benefit obligations were as follows:

Millions of euros 30/06/2020 31/12/2019 Present value of the obligations at beginning of the year 5,456 5,389 Current service cost 5 12 Interest cost 25 71 Pre-retirement cost - 1 Settlements (325) (29) Benefits paid for settlements - - Other benefits paid (213) (397) Past service cost 2 3 Actuarial (gains)/losses (*) 84 404 Exchanges rate differences and others (1) 2 Present value of the obligations 5,033 5,456

(*) As of June 30, 2020, it includes demographic actuarial losses of EUR 84 million (2019: demographic actuarial losses of EUR 15 million and financial actuarial losses of EUR 389 million).

The changes during the first half of fiscal year 2020 and the fiscal year 2019 in the fair value of the plan assets are as follows:

Millions of euros 30/06/2020 31/12/2019 irFa value of plan assets at beginning of year 1,543 1,496 pectedEx return on plan assets 6 19 Benefits paid (42) (108) Contributions payable by the employer 3 8 Exchange rate differences and others (2) 2 Actuarial gains/(losses) 42 126 Fair value of plan assets 1,550 1,543

The changes during the first semester of fiscal year 2020 and fiscal year 2019 in the fair value of the insurance contracts linked to pensions are as follows:

Millions of euros 30/06/2020 31/12/2019 Fair value of insurance contracts linked to pensions at beginning of the year 511 1,654 Expected return on insurance contracts 5 24 Actuarial gains/(losses) (1) (47) Premiums paid/(surrenders) (4) (1,006) Benefits paid (54) (114) Fair value of insurance contracts linked to pensions (Notes 13 & 16) 457 511

Plan assets and pension insurance contracts linked to pensions are mainly instrumented in insurance policies.

iii. Other long-term employee benefits

In various years the Bank offered to some certain of its employees the possibility of leaving its employ prior to their retirement. Therefore, provisions are recognised to cover the obligations to pre- retirees -in terms of both salaries and other employee benefit costs- from the date of their pre- retirement to the date of their effective retirement.

The present value of the aforementioned obligations and the fair value of the assets arising from insurance contracts linked to these obligations as of June 30, 2020 and for the preceding four years were as follows:

Millions of euros 30/06/2020 31/12/2019 31/12/2018 31/12/2017 31/12/2016

Present value of the obligations: To pre-retirees 1,039 1,220 1,111 1,220 1,578 Long-service bonuses and other benefits 20 14 15 11 10 Provisions - Provisions for pensions 1,059 1,234 1,126 1,231 1,588 Fair value of plan assets (13) (14) (15) - - Provisions - Provisions for pensions 1,046 1,220 1,111 - - Insurance plans linked to pensions - - - - - Group insurers - - - - - Other insurance entities - - - - -

The amount of the other long-term benefits was determined based on the work performed by independent actuaries using the following actuarial techniques:

1. Valuation method: projected unit credit method. 2. Actuarial assumptions used: unbiased and mutually compatible. Specifically, the most significant actuarial assumptions used in the calculations were as follows:

30/06/2020 31/12/2019

Annual discount rate 0.80% 0.80% Expected return on plan assets rate 0.80% 0.80% Mortality tables PEM/F 20012 PE2000 Col1 M/F Cumulative annual CPI growth 1% 1% Annual benefit increase rate Between 0% & 1.5% Between 0% & 1.5%

The discount rate used for the flows was determined by reference to high-quality corporate bonds. 3. The estimated retirement age of each employee is the first at which the employee is entitled to retire or the agreed-upon age, as appropriate.

The amounts recognised in the income statement in relation to the aforementioned defined benefit obligations are as follows:

Millions of euros 30/06/2020 31/12/2019 Current service cost - 1 Interest cost 5 14 Extraordinary charges - Actuarial (gains)/losses recognised in the year 3 4 Pre-retirement cost - 622 Other (2) (2) 6 639

The changes in the first half of 2020 and fiscal year 2019 in the present value of the accrued obligations for other long-term benefits were as follows:

Millions of euros 30/06/2020 31/12/2019 Present value of the obligations at beginning of the year 1,234 1,126 Current service cost - 1 Interest cost 5 14 Past service cost - - Pre-retirement cost - 622 Effect of curtailment/settlement (1) (2) Benefits paid (187) (565) Actuarial (gains)/losses 3 3 Other (1) 35 Present value of the obligations 1,053 1,234

The movement that has occurred, during the first half of 2020 and fiscal year 2019 years, in the fair value of plan assets, has been as follows:

Millions of euros 30/06/2020 31/12/2019

Fair value of plan assets at beginning of the year 14 15 Expected return on plan assets - - Benefits paid (1) (2) Employer contributions - - Employee contributions and other - - Actuarial gains / (losses) - - Present value of plan assets 13 13

Since January 1 there has been no movement in the current value of insurance contracts linked to pensions. iv. Sensitivity analysis

Any changes in the main assumptions could affect the calculation of the obligations. As of June 30, 2020, if the discount rate used had been decreased or increased by 50 basis points, there would have been an increase or decrease in the present value of the post-employment obligations of 5.50% and -5.02%, respectively, and an increase or decrease in the present value of the long-term obligations of 1.17% and -1.14%. These changes would be offset in part by increases or decreases in the fair value of the assets and insurance contracts linked to pensions.

d) Provisions for taxes and other legal contingencies and Other provisions

Provisions - Provisions for taxes and other legal contingencies and Provisions - Other provisions, which include, inter alia, provisions for restructuring costs and tax-related and non-tax-related proceedings, were estimated using prudent calculation procedures in keeping with the uncertainty inherent to the obligations covered. The definitive date of the outflow of resources embodying economic benefits for the Bank depends on each obligation. In certain cases, these obligations have no fixed settlement period and, in other cases, depend on the legal proceedings in progress.

The general policy of the Bank is to record provisions for tax and legal proceedings in which we assess the chances of loss to be probable and we do not record provisions when the chances of loss are possible or remote. We determine the amounts to be provided for as our best estimate of the expenditure required to settle the corresponding claim based, among other factors, on a case-by- case analysis of the facts and the legal opinion of internal and external counsel or by considering the historical average amount of the loss incurred in claims of the same nature. The definitive date of the outflow of resources embodying economic benefits for the Bank depends on each obligation. In certain cases, the obligations do not have a fixed settlement term, and, in others, they depend on legal proceedings in progress.

e) Litigation and other matters

i. Tax-related litigation

As of June 30, 2020, the main tax-related proceedings concerning the Bank were as follows: Banco Santander has appealed before European Courts the Decisions 2011/5/CE of 28 October 2009, and 2011/282/UE of 12 January 2011 of the European Commission, ruling that the deduction regulated pursuant to Article 12.5 of the Corporate Income Tax Law constituted illegal State aid. On November 2018 the General Court confirmed these Decisions but these judgements have been appealed at the Court of justice of the European Union. The dismissal of this appeal would not have effect on equity. At the date of approval of this interim balance there are other less significant tax litigation.

ii. Legal-related litigation

As of June 30, 2020, the main non-tax-related proceedings concerning the Bank were as follows: - Delforca: dispute arising from equity swaps entered by Gaesco (now Delforca 2008, S.A.) on shares of Real State Colonial, S.A. Banco Santander, S.A. is claiming to Delforca a total of EUR 66 million from the liquidation of the swaps. Mobiliaria Monesa, S.A. (Delforca’s parent company) has commenced a civil proceeding against the Bank claiming damages which, as of date have not been determined. The proceeding has been stayed because the jurisdiction of the Court has been challenged. Within insolvency proceedings before the Commercial Court, both Delforca and Mobiliaria Monesa have instigated a claim against the Bank seeking the recovery of EUR 56.8 million that the Bank received from the liquidation of the swap. The Bank has filed a claim against Delforca seeking the Bank's recognition of its right to receive the credit. As of June 30, 2020, the risk is considered remote. The Bank has not recognised any related to this process. - Floor clauses (“cláusulas suelo”): in consequence of the acquisition of Banco Popular Español, S.A.U, the Bank has been exposed to a material number of transactions with floor clauses. The so- called "floor clauses" or minimum clauses are those under which the borrower accepts a minimum interest rate to be paid to the lender, regardless of the applicable reference interest rate. Banco Popular Español, S.A.U. included "floor clauses" in certain asset transactions with customers. In relation to this type of clauses, and after several rulings made by the Court of Justice of the European Union and the Spanish Supreme Court, and the extrajudicial process established by the Spanish Royal Decree-Law 1/2017, of 2 January, Banco Popular Español, S.A.U. made extraordinary provisions that were updated in order to cover the effect of the potential return of the excess interest charged for the application of the floor clauses between the contract date of the corresponding mortgage loans and May 2013. The Bank considered that the maximum risk associated with the floor clauses applied in its contracts with consumers, in the most severe and not probable scenario, would amount to approximately EUR 900 million, as initially measured and without considering the returns performed. For this matter, after the purchase of Banco Popular Español, S.A.U., EUR 402 million provisions have been used by the Bank (EUR 238 million in 2017, EUR 119 million in 2018 and EUR 45 million in 2019, mainly for refunds as a result of the extrajudicial process mentioned above. As of June 30, 2020, the amount of the Bank's provisions in relation to this matter amounts to EUR 80 million (EUR 80 million in 2019). - Banco Popular´s acquisition: considering the declaration setting out the resolution of Banco Popular Español, S.A.U., the redemption and conversion of its capital instruments and the subsequent transfer to Banco Santander, S.A. of the shares resulting from this conversion in exercise of the resolution instrument involving the sale of the institution's business, in the application accordance with the single resolution framework regulation referred to in Note 3 of the 2019 individual Annual Report, some investors have filed claims against the EU’s Single Resolution Board decision, the FROB's resolution executed in accordance to the aforementioned decision, and claims have been filed and may be filed in the future against Banco Santander, S.A. or other Santander Group companies deriving from or related to the acquisition of Banco Popular Español, S.A.U.

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At this stage, it is not possible to foresee the total number of claims that could be filed by the former holders of shares and capital instruments (arising from the acquisition by investors of such shares and capital instruments of Banco Popular Español, S.A.U. prior to resolution, including in particular, without limitation, the shares acquired in the context of the capital increase with pre-emptive subscription rights carried out in 2016), and their economic implications (especially considering that the decision to resolve in application of the new regulation has no precedent, and that it may be possible that future claims do not specify a specific amount, put forward new legal interpretations or involve a large number of parties). The estimated cost of any compensation to shareholders and bondholders of Banco Popular recognised in 2017 amounted to EUR 680 million, of which EUR 535 million were applied to the commercial loyalty program. The provisions recorded are considered enough to cover the risks associated with the court claims currently being dealt with. However, if additional amounts must be paid for claims already raised with an undetermined economic interest or for new claims, this could have a significant adverse effect on the Santander Bank's results and financial situation. Likewise, the Central Court of Instruction 4 is currently conducting preliminary proceedings 42/2017, in which, amongst other things, is being investigated the following: (i) the accuracy of the prospectus for the capital increase with pre-emptive subscription rights carried out by Banco Popular in 2016; and (ii) the alleged manipulation of the share price of Banco Popular until the resolution of the bank, in June 2017. During the course of the proceedings, on 15 January 2019, the Spanish National Court, applying article 130.2 of the Spanish Criminal Code, declared the Bank the successor entity to Banco Popular Español, S.A.U. (following the merger of the Bank and Banco Popular Español, S.A.U. on 28 September 2018), and, as a result, determined that the Bank assumed the role of the party being investigated in the criminal proceeding. The decision was appealed and on 30 April 2019, the Spanish National Court ruled in favor of Banco Santander, S.A. declaring that Banco Santander, S.A. cannot inherit Banco Popular’s potential criminal liability. This ruling was appealed before the Supreme Court who have rejected the appeal. In this procedure, Banco Santander has the status of possible subsidiary civil liability. - German shares investigation: the Cologne Public Prosecution Office is conducting an investigation against the Bank, and other group entities based in UK - Santander UK plc, Santander Financial Services Plc and Cater Allen International Limited -, in relation to a particular type of tax dividend linked transactions known as cum-ex transactions. The Group is cooperating with the German authorities. According to the state of the investigations, the results and the effects for the Group, which may potentially include the imposition of financial penalties, cannot be anticipated. The Bank has not recognised any provisions in relation to the potential imposition of financial penalties. - IRPH Index: a portion of our Spanish mortgage loan portfolio bears interest at a rate indexed to the “Índice de Referencia de Préstamos Hipotecarios” known as “IRPH” which, at the time the contracts were entered into, served as reference rate for many mortgage loan agreements in Spain and was published by the Bank of Spain. Consumers in Spain have brought lawsuits against most of the Spanish banking sector alleging that the use and related disclosures of such rate did not comply with the transparency requirements of European regulation. On 14 December 2017, the Supreme Court of Spain ruled that these clauses were valid, as the IRPH is an official rate and therefore non-subject to transparency requirements. The matter was referred to the Court of Justice of the European Union through a preliminary ruling procedure. On 3 March 2020 the CJUE rendered its decision. The CJUE ruled that, being the IRPH a valid index, national courts are entitled to examine its use on each particular contract in order to verify whether the transparency requirements have been met. When carrying out the transparency control, national courts have to take into account all the circumstances surrounding the conclusion of the particular contract, including whether essential information relating to the calculation of that rate was easily accessible and the provision of data relating to past fluctuations of the index. Finally, about the effects of nullity of an IRPH index clause, the CJUE entitles national courts to substitute it with another statutory index, thus not declaring the nullity of the whole contact.

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While the uncertainty regarding the effects of the CJUE judgment remain, it is expected that national courts will follow the case-law set by the Spanish Supreme Court in 2017. Therefore, it is not possible still to estimate the potential exposure. Currently, the balance of the relevant mortgage loans held by us equals approximately EUR 3,254 million, which are referenced to “IRPH” and collected in the Group’s memory. - Banco Santander, S.A. has been sued in a legal proceeding in which the plaintiff alleges that a contract was concluded whereby he would be entrusted with the functions of CEO of the Bank. In the complaint, the claimant mainly requests a declaratory ruling that affirms the validity and conclusion of such contract and its enforcement together with the payment of certain amounts. If the main request is not granted, the claimant seeks compensation for a total amount of approximately EUR 112 million or, an alternative relief for other minor amounts. Banco Santander, S.A. has answered to the complaint. In this answer, it is stated that the conditions to which the appointment was subject to were not met and that the contract required by law was not concluded. The proceeding is ongoing. The Bank is subject to claims and, therefore, is party to certain legal proceedings incidental to the normal course of their business including those in connection with lending activities, relationships with employees and other commercial or tax matters. With the information available to it, the Bank considers that, as of June 30, 2020, it had reliably estimated the obligations associated with each proceeding and had recognised, where necessary, sufficient provisions to cover reasonably any liabilities that may arise as a result of these tax and legal risks. Subject to the qualifications made, it also believes that any liability arising from such claims and proceedings will not have, overall, a material adverse effect on the Bank’s business, financial position or results of operations.

iii. Administrative sanctions

In accordance with accounting regulations, it is reported that, during the first semester of fiscal year 2020, no firmly executive sanctions have been imposed on the Bank.

23. Tax matters

Pursuant to current legislation, the Consolidated Tax Group includes Banco Santander, S.A. (as the parent) and the Spanish subsidiaries that meet the requirements provided for in Spanish legislation regulating the taxation of the consolidated profits of corporate groups (as the controlled entities). This note explains the main variations in the fiscal situation that affect the balance sheet during the first six months of 2020. To a fully comprehension of the information included in this note, it must be read supported by Note 24 of Banco Santander’s Annual Report 2019.

a) Tax recognised in equity

The balance of the heading Fiscal assets of the balance sheets includes the debit balances with the Public Treasury corresponding to Taxes on Advance Profits; in turn, the balance of the Tax liabilities heading includes the liability corresponding to the different deferred taxes of the Bank.

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The following is a breakdown of the tax assets and liabilities as of June 30, 2020 and December 31, 2019:

Millions of euros 30/06/2020 31/12/2019

Tax assets: 9,860 12,331 Current 1,215 2,215 Deferred 8,645 10,116 Of which: Relating to pensions (*) 3,540 3,540 Relating to allowances for loan losses (*) 3,023 3,023 Relating to deductions and negative tax bases 380 2,064 Tax liabilities: 1,748 1,591 Of which. deferred tax liabilities 1,709 1,591

(*) Monetizable, not deducted from regulatory capital.

At the accounting closing date, deferred taxes, both assets and liabilities, are reviewed in order to verify if adjustments to them are necessary in accordance with the results of the analyses performed.

These analyses include all the positive and negative evidence of the recoverability of said assets, among others, (i) the results generated in previous years, (ii) projections of results, (iii) estimation of the reversal of the temporary differences according to their nature and (iv) period and limits established in the legislation in force for the recovery of the different deferred tax assets, concluding on the Bank's ability to recover its deferred tax assets recorded.

In accordance with these parameters, the Group carried out an analysis of the recoverability of the deferred tax assets recorded as of December 31, 2019, which supported their recoverability within a maximum period of 15 years, in the Consolidated Tax Group, which includes the Bank.

As of June 30, 2020, the Group has reassessed the capacity to generate future taxable profits in relation to the recoverability of the deferred tax assets registered in the main companies that comprise it. In Spain, it has been estimated that the changes in the key assumptions on which the projections of results of its Grupo Fiscal Consolidado (Spanish form of tax group) are based, derived from the impact of COVID-19 according to the circumstances described in note 1.c, in relation to the impairment of the Bank's holdings in subsidiaries, the Bank has recorded an impairment of EUR 1.632 million of deferred tax assets with a counterpart in the Income tax heading of the profit and loss account, maintaining the maximum recoverability period of the deferred tax assets registered as of June 30, 2020 in 15 years.

In Spain Royal Decree-Law 14/2013, of 29 November, confirmed by Law 27/2014, of 27 November, established a regime whereby certain deferred tax assets may continue to be computable as prudential capital, within the "Global regulatory framework for more resilient banks and banking systems" (known as the Basel III accords) and pursuant to the implementing regulations of these accords, namely, Regulation (EU) No 575/2013 and Directive 2013/36/EU, both of 26 June 2013 (henceforth "CRD IV").

Under prudential capital regulations, deferred tax assets that rely on future profitability to be realised should be deducted from regulatory capital while taking into consideration whether they arise from tax loss and tax credit carry forwards or temporary differences. The deferred tax assets in the latter category, including those arising from allowances for loan losses, allowances for foreclosed assets and provisions for pension and pre-retirement obligations, do not rely on future profitability since they may be converted into tax receivables in specific circumstances and, therefore, they are not deducted from regulatory capital (henceforth "monetizable tax assets").

In 2015 the regulations on monetizable tax assets were completed with the introduction of a financial contribution which involved the yearly payment of 1.5% for maintaining the right to monetise which will be applied to the portion of the deferred tax assets that qualify under the legal requirements as monetizable assets generated prior to 2016.

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b) Taxes passed on to equity

The Bank has passed on the following amounts to its net worth for the following items during the first six months of 2020 and during fiscal year 2019:

Millions of euros Amounts receivable/ (Amounts payable) 30/06/2020 31/12/2019

Loans – OCI 3 (2) Fixed-income securities - Available for sale 59 (218) Equity securities - Available for sale 94 (37) Cash flow hedges 31 35 Other valuation adjustments 12 96 199 (126) 24. Other comprehensive income

The balances of Other comprehensive income include the amounts, net of the related tax effect, of the adjustments to assets and liabilities recognised in equity. The amounts arising from subsidiaries are presented, on a line by line basis, in the appropriate items according to their nature.

Respect to items that may be reclassified to profit or loss, changes in other comprehensive income are included as follows: - Revaluation gains (losses): includes the amount of the income, net of the expenses incurred in the year, recognised directly in equity. The amounts recognised in equity in the year remain under this item, even if in the same year they are transferred to the income statement or to the initial carrying amount of the assets or liabilities or are reclassified to another line item.

- Amounts transferred to income statement: includes the amount of the revaluation gains and losses previously recognised in equity, even in the same year, which are recognised in the income statement.

- Amounts transferred to initial carrying amount of hedged items: includes the amount of the revaluation gains and losses previously recognised in equity, even in the same year, which are recognised in the initial carrying amount of assets or liabilities as a result of cash flow hedges.

- Other reclassifications: includes the amount of the transfers made in the year between the various valuation adjustment items.

The amounts of these items are recognised gross, presenting the corresponding tax effect is presented under a separate item.

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a) Breakdown of Other accumulated comprehensive income - Items that will not be reclassified in results and Items that can be classified in results

Millions of euros 30/06/2020 31/12/2019 Other accumulated comprehensive income (1,169) (340) Items that will not be reclassified in results (1,644) (1,024) Actuarial gains and losses on defined benefit pension plans (1,228) (1,197) Non-current assets held for sale - - Other recognized income and expense of investments in subsidiaries, joint ventures and associates - - Rest of valuation adjustments - - Changes in the fair value of equity instruments measured at fair value through other comprehensive income (423) 171 Ineffectiveness of fair value hedges of equity instruments measured at fair value with changes in other comprehensive income - - Changes in the fair value of equity instruments measured at fair value through other comprehensive income (hedged ítem) 162 44 Changes in the fair value of equity instruments measured at fair value through other comprehensive income (hedging instrument) (162) (44) Changes in the fair value of financial liabilities at fair value through profit or loss attributable to changes in credit risk 7 2 Items that can be classified in results 475 684 Hedges of net investments in foreign operations (effective portion) - - Exchange differences - - Cash flow hedges (effective portion) (118) (45) Changes in the fair value of debt instruments measured at fair value through changes in other comprehensive income 593 729 Hedging instruments (items not designated) - - Non-current assets held for sale - - Share in other income and expenses recognized in investments in joint ventures and associates - -

b) Other accumulated comprehensive income- Items not reclassified to profit or loss – Actuarial gains or (-) losses on defined benefit pension plans

Other comprehensive income – Items not reclassified to profit or loss – Actuarial gains or (-) losses on defined benefit pension plans include the actuarial gains and losses and the return on plan assets, less the administrative expenses and taxes inherent to the plan, and any change in the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability (asset).

The variation of this heading was EUR 30 million net of taxes (EUR 42 million gross) (See Note 22.c).

c) Other accumulated comprehensive income - Items that will not be reclassified in results - Changes in the fair value of equity instruments measured at fair value with changes in other comprehensive income

Includes the net amount of unrealised fair value changes of equity instruments at fair value with changes in other comprehensive income.

The following is a breakdown of the composition of the balance as of June 30, 2020 under "Other accumulated comprehensive income" - Items that will not be reclassified to profit or loss - Changes in the fair value of equity instruments measured at fair value with changes in other global result depending on the geographical origin of the issuer (See Note 7):

Millions of euros Millions of euros 30/06/2020 31/12/2019 Net Capital Net Capital gains Capital losses gains/losses Capital gains losses by gains/losses Fair by valuation by valuation by valuation Fair value by valuation valuation by valuation value

Equity instruments 333 (756) (423) 1,448 590 (419) 171 1,856

At the end of each fiscal year, the Bank carries out an evaluation of the existence or not of objective evidence that the instruments classified in the portfolio of financial assets at fair value with changes in other comprehensive income (debt securities and equity instruments) are deteriorated.

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This evaluation includes, but is not limited to the analysis of the following information: i) economic-financial situation of the issuer, existence of defaults or delays in payments, analysis of its solvency, evolution of its business, short-term projections, observed trend in its results and, where appropriate, in its dividend distribution policy; ii) information related to the market such as changes in the general economic situation, changes in the activity sector in which the issuer operates that may affect its payment capacity; iii) changes in the fair value of the security analysed, analysis of the origin of said changes -intrinsic or consequence of the situation of general uncertainty about the economy or the country- and iv) reports from independent analysts and forecasts and other market information Independent.

In the case of listed equity instruments, when analysing the changes in the fair value of the security analysed, the duration and significance of the drop in their price below the cost for the Bank is considered. As a general rule, the Bank considers a 40% drop in the value of the asset or for 18 months to be significant for these purposes. Notwithstanding the foregoing, it is worth mentioning that the Bank analyses one by one each of the securities that present impairments, monitoring the evolution of their price and proceeding to record an impairment as soon as it considers that the recoverable amount could be affected, although the indicated percentage and period of decline would not have been reached.

If, after carrying out the aforementioned analysis, the Bank considers that the presence of one or more of these factors affects the recovery of the cost of the asset, an impairment loss is recognized in the income statement for the amount of the capital loss recorded in the heading Other accumulated comprehensive income from equity. Likewise, in those cases in which the Bank does not have the intention and/or capacity to maintain the investment for a period enough to recover the cost, the instrument is impaired to its fair value.

As of June 30, 2020, there are no losses recorded under the heading Other accumulated comprehensive income - Items that can be reclassified into results - Financial assets available for sale originating from equity instruments.

As of June 30, 2020, the losses recorded in Other accumulated comprehensive income - Items that can be reclassified into results - Financial assets available for sale originating from Securities representing debt over twelve months are not significant. d) Other accumulated comprehensive income -Items that may be reclassified to profit or loss - Hedging derivatives – Cash flow hedges (Effective portion)

Other comprehensive income – Items that may be reclassified to profit or loss - Cash flow hedges includes the gains or losses attributable to hedging instruments that qualify as effective hedges. These amounts will remain under this heading until they are recognised in the income statement in the periods in which the hedged items affect it (See Note 31). e) Other accumulated comprehensive income - Items that may be reclassified to profit or loss – Changes in the fair value of debt instruments measured at fair value with changes in other comprehensive income

Includes the net amount of unrealised changes in the fair value of assets classified as Items than can be reclassified in results –Changes in the fair value of debt instruments measured at fair value with changes in other comprehensive income (See Note 6).

Below is a breakdown of the balance composition as of June 30, 2020 and December 31, 2019 of Other accumulated global income - Items that can be reclassified in results - Changes in the fair value of the instruments of debt valued at fair value with changes in other comprehensive income depending on the type of instrument:

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Millions of euros 30/06/2020 31/12/2019 Net Revaluation Revaluation revaluation Fair Revaluation Revaluation Net revaluation Fair gains losses gains/(losses) value gains losses gains/(losses) value Debt instruments 639 (46) 593 15,961 747 (18) 729 26,306

Since January 1, 2018, with the entry into force of Circular 4/2017, the Bank makes an estimate of the expected losses on debt instruments valued at fair value with changes in other comprehensive income.

25. Shareholders’ equity

Shareholders' equity during the first half of the 2020 financial year has suffered a decrease of EUR 7,127 million. The variation was mainly due to negative results for the year amounting to EUR 6,811 million, a decrease of EUR 214 million due to the interests of the CCPs (See Note 20), losses on the sale of equity instruments in the portfolio at fair value with changes in other accumulated comprehensive income of EUR 82 million and other items of EUR 21 million.

The following notes show relevant information on the heading Own funds and its movement during the first half of fiscal year 2020.

26. Issued capital

On 10 September 2019, a capital increase of EUR 191 million was carried out with the issuance of 381,540,640 shares (2.35% of the Bank's share capital), to meet the takeover bid for 16.69% of the share capital of Banco Santander México. S.A.

Therefore, the Bank’s new capital consists of EUR 8,309 million in 2019, represented by 16,618,114,582 shares of EUR 0.50 of nominal value each one and all of them from a unique class and series. As of June 30, 2020, the composition of capital is the same as that existing at the end of the previous year.

The Bank's shares are listed on the Spanish Stock Market Interconnection System and on the New York, London, Mexico and Warsaw Stock Exchanges, and all of them have the same features and rights. Santander shares are listed on the London Stock Exchange under Crest Depository Interest (CDI's), each CDI representing one Bank's share. They are also listed on the New York Stock Exchange under American Depositary Receipts (BDRs), each BDR representing one share.

As of June 30, 2020, the only holders that appeared in the Bank's shareholder register with a stake greater than 3% State Street Bank and Trust Company (13.04%), The Bank of New York Mellon Corporation (8.15%), Chase Nominees Limited (8.01%), EC Nominees Limited (3.17%) and BNP Paribas (3.68%).

However, the Bank understands that said participations are held in custody on behalf of third parties, without any of them having, as far as the Bank is aware, a participation greater than 3% in the capital or in the voting rights of the Bank.

As of June 30, 2020, neither the Bank´s shareholders registry nor the CNMV's registry showed any shareholder resident in a tax heaven with a shareholding of 1% or higher of the share capital (which is the other threshold applicable under Spanish regulations).

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27. Share premium

Share premium includes the amount paid up by the Bank's shareholders in capital issues in excess of the par value.

The Spanish Limited Liability Companies Law expressly permits the use of the share premium account balance to increase capital at the entities at which it is recognised and does not establish any specific restrictions as to its use.

The increased produced in 2019 is a consequence of the increase of EUR 1,491 million to cope with the capital increase for the acquisition of Banco Santander México, S.A. (Institución de Banca Múltiple, Grupo Financiero Santander México) shares on September 10, 2019.

Also, in 2019, and an amount of EUR 38 million was transferred from the Share premium account to the Legal reserve.

As of June 30, 2020, the Share Premium figure is the same as that existing as of December 31, 2019 (EUR 52,446 million).

28. Accumulated retained earnings

a) Definitions

The balance of Equity - Accumulated gains and Other reserves includes the net amount of the accumulated results (profits or losses) recognised in previous years through the income statement which in the profit distribution were allocated in equity, the expenses of own equity instrument issues, the differences between the amount for which the treasury shares are sold and their acquisition price, as well as the net amount of the results accumulated in previous years, generated by the result of non-current assets held for sale, recognised through the income statement.

b) Breakdown

The detail of Shareholders' Equity - Reserves as of June 30, 2020 and December 31, 2019 is as follows:

Millions of euros 30/06/2020 31/12/2019

Legal reserve 1,662 1,662 Voluntary reserve 9,074 5,533 Reserve for amortised capital 11 11 Reserve for treasury shares 559 878 Other reserves (887) (887) 10,418 7,197

i. Legal reserve

Under the Consolidated Spanish Limited Liability Companies Law, 10% of net profit for each year must be transferred to the legal reserve. These transfers must be made until the balance of this reserve reaches 20% of the share capital. The legal reserve can be used to increase share capital up to that the remaining legal reserve balance does not fall below 10% of the increased share capital amount.

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ii. Voluntary Reserve

During the first half of fiscal year 2020 there was an increase of EUR 3,540 million in voluntary reserves, corresponding to the 2019 profit pending application of EUR 3,530 million, an increase of EUR 319 million due to the release of reserves for treasury shares, a decrease of EUR 214 million due to interest from PPCC (See Note 20), losses on the sale of equity instruments in the portfolio at fair value with changes in accumulated other comprehensive income of EUR 82 million with a decrease of EUR 13 million for other items.

iii.Reserve for treasury shares

Pursuant to the Consolidated Spanish Limited Liability Companies Law, a restricted reserve has been recognised for an amount equal to the carrying amount of the Bank shares owned by subsidiaries. The balance of this reserve will become unrestricted when the circumstances that made it necessary to record it cease to exist. Additionally, this reserve covers the outstanding balance of loans granted by the Group secured by Bank shares and the amount equivalent to loans granted by Group companies to third parties for the acquisition of treasury shares plus the own treasury shares amount.

iv. Other reserves

During the first half of the fiscal year 2020 there has been no relevant change.

29. Other equity instruments and own shares

a) Equity instruments issued not capital and other equity instruments

It includes the amount corresponding to compound financial instruments with the nature of equity, the increase in equity due to personnel remuneration, and other concepts not recorded in other equity items.

On July 13, 2017, Banco Santander and Banco Popular Español, S.A. (henceforth "Banco Popular") announced that they had decided to launch a commercial action with the aim of building up the loyalty of retail customers in their networks affected by the resolution of Banco Popular (henceforth the "Loyalty Action").

By virtue of the Loyalty Action, customers meeting certain conditions and affected by the resolution of Banco Popular could receive, without any payment on their part, marketable securities issued by Banco Santander for a nominal amount equivalent to the investment in shares or in certain subordinated obligations of Banco Popular (with certain limits) of which they were holders on the date of the resolution of Banco Popular. In order to take advantage of such action, it was necessary for the customer to waive legal action against the Group.

The Loyalty Action would be carried out through the delivery to the customer of contingently redeemable perpetual debentures (henceforth "Loyalty Bonds") of Banco Santander, S.A. The Loyalty Bonds would accrue a discretionary, non-cumulative cash coupon, payable by quarters due.

This issue was made by Banco Santander, S.A. on September 8, 2017 for a nominal amount of EUR 981 million, fully subscribed by Banco Popular Español, S.A. As of June 30, 2020, the cost recorded under the heading Equity instruments issued other than capital in the Bank's balance amounted to EUR 611 million (EUR 598 million in 2019).

The Loyalty Bonds are perpetual securities; however, they may be redeemed in full at the discretion of Banco Santander, S.A., with the prior authorisation of the European Central Bank, on any of the coupon payment dates after seven years from their issue.

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b) Own shares

Shareholders' equity - Own shares includes the amount of own equity instruments held by the Bank.

Transactions involving own equity instruments, including their issuance and cancellation, are recognised directly in equity, and no profit or loss may be recognised on these transactions. The costs of any transaction involving own equity instruments are deducted directly from equity, net of any related tax effect.

The Bank’s shares owned by the consolidated companies accounted for 0.150% of issued share capital as of June 30, 2020 (0.051% in 2019).

The average purchase price of the Bank’s shares in the first half of 2020 was EUR 2.70 per share and the average selling price was EUR 2.77 per share.

30. Memorandum items

Memorandum items relates to balances representing rights, obligations and other legal situations that in the future may have an impact on net assets, as well as any other balances needed to reflect all transactions although they may not impinge on its net assets.

a) Guarantees and contingent commitments

Contingent liabilities include all transactions under which an entity guarantees the obligations of a third party and which result from financial guarantees granted by the entity or from other types of contract. Contingent commitments include those irrevocable commitments that could give rise to the recognition of financial assets. The detail is as follows:

Millions of euros 30/06/2020 31/12/2019 Loans commitment granted 90,639 85,840 Available in lines of credit 90,525 83,977 Deposits in the future 114 1,863

Financial guarantees granted 9,727 9,474 Financial guarantees 206 207 Credit derivatives sold 9,521 9,267

Other commitments granted 64,364 52,460 Irrevocable documentary credits 1,953 1,981 Other guarantees and guarantees granted 24,087 23,107 Other 38,324 27,372 Total guarantees and contingent commitments 164,730 147,774

The breakdown as of June 30, 2020 of the exposures and allowance (See Note 22) for off-balance impairment under Bank of Spain Circular 4/2017 is EUR 162,308 million and EUR 71 million in phase 1, EUR 1,944 million and EUR 34 million in phase 2 and EUR 478 million and EUR 48 million in phase 3, respectively. In addition, the breakdown as of December 31, 2019 of the exposures and the allowance was EUR 145,574 million and EUR 75 million in phase 1, EUR 1,497 million and EUR 20 million in phase 2 and EUR 703 million and EUR 85 million in phase 3, respectively.

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A significant portion of these guarantees will expire without any payment obligation materialising for the consolidated entities and, therefore, the aggregate balance of these commitments cannot be considered as an actual future need for financing or liquidity to be provided by the Bank to third parties.

Income from guarantee instruments is recognised under Fee and commission income in the income statements and is calculated by applying the rate established in the related contract to the nominal amount of the guarantee.

i. Granted loan commitments

Firm commitments of grating of credit under predefined terms and conditions, except for those that comply with the definition of derivatives as these can be settled in cash or through the delivery of issuance of another financial instrument. They include stand-by credit lines and long-term deposits.

ii. Granted financial guarantees

Financial guarantees include irrevocable commitments could lead to the recognition of financial assets. The granted financial guarantees and its breakdown is as follows:

Millions of euros 30/06/2020 31/12/2019

Granted loan commitments 90,639 85,840 Available in credit lines 90,525 83,977 Future deposits 114 1,863

iii. Other granted commitments

Other contingent liabilities include all commitments that could give rise to the recognition of financial assets not included in the above items, such as technical guarantees and guarantees for the import and export of goods and services.

The detail is as follows:

Millions of euros 30/06/2020 31/12/2019

Other commitments granted 64,364 52 , 460 Irrevocable documentary credits 1,953 1,981 Other guarantees and guarantees lent 24,087 23,107 Other commitments 38,324 27,372 Of which: Subscribed values with pending disbursement 3 4 Conventional procurement contracts assets 22,706 6,530 Other contingent commitments 15,615 20,838

b) Other information

i. Assets advanced as collateral

In addition to the advanced assets as collateral, there were certain assets owned by the Bank that secured transactions performed by it or by third parties, as well as various liabilities and contingent liabilities assumed by the Bank, with respect to which the transferee has the right, by contract or by custom, to transfer them again or to pledge them.

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The carrying value of the Bank's financial assets pledged as security for these liabilities, contingent liabilities and similar items was as follows:

Millions of euros 30/06/2020 31/12/2019

Financial assets held for trading 8,793 21,192 Of which: Public debt Public Sector Agencies 2,353 611 Fix rent instruments 1,555 14,702 Equity instruments 4,885 5,879

Non-trading financial assets mandatorily at fair value through profit or 392 224 loss Financial assets designated at fair value through profit or loss 9,691 4,783 Financial assets at fair value through other comprehensive income 3,238 5,329 Financial assets at amortised cost 5,726 2,640 27,840 34,168

31. Hedging derivatives

The Group, within its financial risk management strategy, and in order to reduce asymmetries in the accounting treatment of its operations, enters into hedging derivatives on interest, exchange rate, credit risk or variation of stock prices, depending on the nature of the risk covered.

Based on its objective, the Group classifies its hedges in the following categories:

- Cash flow hedges: cover the exposure to the variation of the cash flows associated with an asset, liability or a highly probable forecast transaction. This cover the variable-rate issues in foreign currencies, fixed-rate issues in non-local currency, variable-rate interbank financing and variable-rate assets (bonds, commercial loans, mortgages, etc.).

- Fair value hedges: cover the exposure to the variation in the fair value of assets or liabilities, attributable to an identified and hedged risk. This covers the interest risk of assets or liabilities (bonds, loans, bills, issues, deposits, etc.) with coupons or fixed interest rates, interests in entities, issues in foreign currencies and deposits or other fixed rate liabilities.

- Hedging of net investments abroad: cover the exchange rate risk of the investments in subsidiaries domiciled in a country outside the Euro zone.

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The detail of the hedging derivatives of Banco Santander, S.A. according to the type of hedge, the risk they cover and the product, can be found in the following table:

Millions of euros 30/06/2020 Carrying amount Balance items Changes in fair value Notional value Assets Liabilities used for calculating hedge ineffectiveness

Fair value hedges 46,450 2,674 (926) 497 Interest rate risk 33,817 2,157 (730) 619 Hedging derivatives Interest rate swap 33,069 2,136 (718) 618 Hedging derivatives Inflation swap - - - - Hedging derivatives Swaption 51 11 (11) - Hedging derivatives Floor 697 10 (1) 1 Hedging derivatives Exchange rate risk 7,590 202 (7) (161) Fx forward 7,590 202 (7) (161) Hedging derivatives Interest rate and exchange rate risk 4,721 313 (186) 34 Interest rate swap 432 7 (1) - Hedging derivatives Call money swap - - - - Currency coverage 4,289 306 (185) 34 Hedging derivatives Inflation risk Call money swap - - - - Currency swap - - - - Credit risk 322 3 (3) 5 Exchange swaps for non-payment 322 3 (3) 5 Hedging derivatives

Cash flow hedges 42,228 95 (246) (104) Interest rate risk 37,235 19 (142) (101) Interest rate swap 30,000 19 (21) 4 Hedging derivatives Futures 7,235 - (121) (105) Hedging derivatives Interest rate and exchange rate risk 4,993 76 (104) (3) Currency swap 4,993 76 (104) (3) Hedging derivatives Net investment hedges abroad 17,886 1,739 (123) - Exchange rate risk 17,886 1,739 (123) - Fx forward 17,886 1,739 (123) - Hedging derivatives (1,295 393 106,564 4,508 )

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Millions of euros 31/12/2019 Carrying amount Changes in fair value used for Balance items Notional calculating Value Assets Liabilities hedge ineffectiveness

Fair value hedges 41,791 1,865 (831) (248) Interest rate risk 28,445 1,571 (609) (231) Equity swap - - - - Interest rate future - - - - Interest rate swap 28,179 1,550 (600) (208) Hedging derivatives Call money swap - - - - Currency swap - - - - Inflation swap 55 4 - - Hedging derivatives Swaption 51 9 (9) - Hedging derivatives Necklace - - - - Floor 160 8 - (23) Hedging derivatives Exchange rate risk 8,891 49 (42) (35) Fx forward 8,891 49 (42) (35) Hedging derivatives Interest rate and exchange rate risk 4,197 245 (174) 23 Interest rate swap 3,328 235 (173) 15 Hedging derivatives Call money swap - - - - Currency coverage 869 10 (1) 8 Hedging derivatives Inflation risk - - - - Call money swap - - - - Currency swap - - - - Credit risk 258 - (6) (5) Exchange swaps for non-payment 258 - (6) (5) Hedging derivatives Cash flow hedges 23,831 112 (447) (9) Interest rate risk 18,861 33 (48) (3) FX forward - - - - Future interest rate - - - - Interest rate swap - - - 13 Hedging derivatives Currency swap - - - - Floor - - - - Futures 18,861 33 (48) (16) Hedging derivatives Interest rate and exchange rate risk 4,970 79 (399) (6) Interest rate swap - - - - Currency swap 4,970 79 (399) (6) Hedging derivatives Inflation risk - - - - Fx forward - - - - Currency swap - - - - Equity risk - - - - Option - - - - Other risks - - - - Future and RF term c / v - - - - Net investment hedges abroad 23,384 249 (766) - Exchange rate risk 23,384 249 (766) - Fx forward 23,384 249 (766) - Hedging derivatives 89,006 2,226 (2,044) (257)

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Banco Santander, S.A. covers the risks of its balance in a variety of ways. On the one hand, documented as fair value hedges, it covers the interest rate, foreign currency and credit risk of fixed-income portfolios at a fixed rate (REPOs are included in this category). Resulting, in an exposure to changes in their fair value due to variations in market conditions based on the various risks hedged, which has an impact on the Bank's income statement. To mitigate these risks, the Bank contracts derivatives, mainly Interest rate Swaps, Cap&Floors, Forex Forward and Credit Default Swaps.

On the other hand, the interest and exchange rate risk of loans granted to corporate clients at a fixed rate is generally covered. Those coverages are carried out through Interest Rate Swaps and Cross Currency Swaps and Exchange Rate Derivatives (Forex Swaps and Forex Forward).

In addition, the Bank manages the interest and exchange risk of debt issues in their various categories (issuing covered bonds, perpetual, subordinated and senior bond) and in different currencies, denominated at fixed rates, and therefore subject to changes in their fair value. These issues are covered through Interest Rate Swaps and Cross Currency Swaps, Cross Currency Swaps or a combination of both by applying differentiated fair value hedging strategies for interest rate risk and cash flow hedging strategies to cover foreign exchange risk.

The Bank's methodology for measuring the effectiveness of this type of coverage is based on comparing the markets value of the hedged items (based on the objective risk of the hedge) and of the hedging instruments in order to analyse whether the changes in the market value of the hedged items are offset by the market value of the hedging instruments, there by mitigating the hedged risk. Prospectively, the same analysis is performed, measuring the theoretical market values in the event of parallel variations in the market curves of a positive basis point.

There is a macro-coverage of structured loans in which the interest rate risk of fixed rate loans (mortgage, personal or with other guarantees) granted to legal entities of commercial or corporate banking and Wealth clients in the medium/long term is covered. This hedge is instrumented as a macro hedge of FV being the hedging instruments Interest Rate Swap and Cap & Floors. In the event of total or partial cancellation or early amortization, the client is obliged to pay/receive the cost/income of the cancellation of the interest rate risk coverage that the Bank manages.

Regarding cash flow hedges, the objective is to hedge the cash flow exposure to changes in interest rates and exchange rates.

For retrospective purposes, all cash flows generated by the structure (hedged item and hedging instrument) are compared to measure effectiveness. The objective is to obtain a synthetic hedge resulting from the application of the hedging instrument. The total discounted cash flows obtained are compared with the target set for the calculation of potential ineffectiveness. Any risk component not associated with the target risk covered is excluded from the calculation. For other hedges, it will be considered that the objective set is that the amount of flows generated by the hedged item is equal to or greater than those generated by the hedging instrument. For this, the flows generated by the instrument or, set of instruments, at each moment of observation are analysed and compared with those generated by the hedging instrument. It is considered that it is not necessary to reflect any inefficiency if the amount of the flows of the hedged item is equal to or greater than those of the hedging derivative.

For prospective purposes, the cash flows of the structure are calculated by shifting the curve by one basis point. As in the retrospective test, the calculation of the flows will consider the time factor. The measurement of effectiveness is identical to that of the retrospective test, using the new flows based on the new curve-shift scenario applied to both the hedged item and the hedging instrument.

Another method for the prospective test is that the cash flows of the structure will be calculated during the life of the hedge by analysing their sufficiency.

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Also, there is a macro-hedging of Cash Flows, in order to actively manage the risk-free interest rate risk (excluding credit risk) of a part of Banco Santander's stock of variable-rate Assets, through of the contracting of interest rate derivatives for which the bank exchanges interest flows at a variable rate for others at a fixed rate agreed at the time of contracting the operations. Those items in which their cash flows are exposed to interest rate risk have been designated as items affected by the Macro coverage, specifically the mortgages of the Banco Santander Network at a variable rate referenced to Euribor 12 Months or Mortgage Euribor, with annual renewal of rates, classified as healthy risk and not securitized. The hedged position affects the Macro-Hedging of Cash Flows at the current moment is EUR 30,000 million.

Regarding net foreign investments hedges, basically, they are allocated in Banco Santander, S.A. The Group assumes, as a priority objective in risk management, to minimize – up to a determined limit set up by the responsible for the financial management of the Group- the impact on the calculation of the capital ratio of their permanent investments included within the consolidation perimeter of the Group, and whose shares are legally named in a different currency than the holding has. For this purpose, financial instruments (generally derivatives) on exchange rates are hired, that allow mitigating the impact on the capital ratio of changes in the forward exchange rate. The Group hedges the risk, mainly, for the following currencies: BRL, CLP, MXN, CAD, COP, GBP, CHF, USD and PLN.

The instruments used to hedge the risk of these investments are Forex Swaps, Forex Forward and buys/sells of spot currencies.

In the case of this type of hedge, the ineffectiveness scenarios are considered to be of low probability, given that the hedging instrument is designated considering the determined position and the spot rate at which it is found.

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Additionally, the profile information of maturities and the price/average rate for Banco Santander, S.A. is shown:

30/06/2020 Millions of euros One to three Three months to One year to five More than five Up to one month Total months one year years years Fair value hedges 1,296 2,375 7,399 21,948 13,432 46,450 Interest rate risk Interest rate instruments Nominal - 6 2.665 18,914 12,232 33,817 Average fixed interest rate (%) GBP - - - 1.43 4.07 Average fixed interest rate (%) EUR 5.66 2.62 0.63 0.85 2.95 Average fixed interest rate (%) CHF - - - 0.83 0.40 Average fixed interest rate (%) JPY - - - 0.46 - Average fixed interest rate (%) USD - - 2.05 3.07 3.85 Exchange rate risk Exchange rate instruments Nominal 1,272 1,951 4,367 - - 7,590 GBP / EUR average exchange rate - 0.90 0.88 - - USD / EUR average exchange rate 1.10 1.02 1.09 - - USD / CLP average exchange rate - - - - - CNY / EUR average exchange rate 7.81 7.84 7.93 - - SAR / EUR average exchange rate 4.18 4.23 - - - Interest rate and exchange risk Instruments of exchange rate and interest Nominal 24 418 358 2,721 1,200 4,721 Average fixed interest rate (%) AUD / EUR - - - 4.00 4.66 Average fixed interest rate (%) CZK / EUR - - - 0.86 - Average fixed interest rate (%) EUR / COP - 6.16 - - - Average fixed interest rate (%) RON / EUR - - - 4.85 - Average fixed interest rate (%) HKD / EUR - - 2.52 2.58 - Average fixed interest rate (%) JPY / EUR - - 0.54 0.66 1.28 Average fixed interest rate (%) NOK / EUR - - - - 3.61 Average fixed interest rate (%) CHF / EUR - - - - 1.24 Average fixed interest rate (%) USD / COP 5.75 6.06 7.30 7.69 7.31 AUD / EUR average exchange rate - - - 1.4989 1.5080 CZK / EUR average exchange rate - - - 25.4070 26.0300 EUR / GBP average exchange rate - 1.1280 - - - EUR / COP average exchange rate - - - 0.8909 - HKD / EUR average exchange rate - 0.0003 - - - JPY / EUR average exchange rate - - 8.7185 8.7820 - MXN / EUR average exchange rate - - 130.4700 132.4608 125.8830 NOK / EUR average exchange rate - - - 14.6962 - RON / EUR average exchange rate - - - - 9.6059 CHF / EUR average exchange rate - - - 4.7271 - USD / COP average exchange rate - - - 1.0924 1.1053 USD / MXN average exchange rate 0.0003 0.0003 0.0003 0.0003 0.0003 Credit risk - - 0.0520 - - Credit Risk Instruments Nominal - - 9 313 - 322

Cash flow hedges: - - 15,494 26,523 211 42,228 Interest rate and exchange rate risk Interest rate and exchange instruments Nominal - - 330 4,452 211 4,993 EUR/GBP average exchange rate - - 1.0900 1.1000 - EUR/USD average exchange rate - - - 0.8800 - AUD/EUR average exchange rate - - - 1.6200 - JPY/EUR average exchange rate - - - 120.5700 - CHF/EUR average exchange rate - - - - 1.1000 Interest rate risk Interest Rate Swaps - - 30,000 Nominal - - 12,000 18,000 - Fixed average interest rate (%) EUR - - (0.26) (0.23) - Bond Forward Instruments Nominal - - 3.164 4.071 - 7.235

Net investment hedges abroad 2,422 2,138 11,431 1,895 - 17,886 Exchange rate risk Exchange rate instruments Nominal 2,422 2,138 11,431 1,895 - 17,886 BRL / EUR average exchange rate 5.18 4.75 5.11 - - CLP / EUR average exchange rate 847.68 833.71 827.96 895.40 - COP / EUR average exchange rate - - 4,332.91 - - GBP / EUR average exchange rate 0.87 0.92 0.93 - - MXN / EUR average exchange rate 23.45 23.20 24.51 - - PLN / EUR average exchange rate 4.41 4.38 4.43 4.32 - Total 3,718 4,513 34,324 50,366 13,643 106,564

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31/12/2019 Millions of euros Three months to one One year to five Up to one month One to three months More than five years Total year years Fair value hedges 233 4,311 6,529 19,550 11,168 41,791 Interest rate risk Interest rate instruments Nominal 8 106 1,406 16,707 10,219 28,446 Average fixed interest rate (%) GBP - - - 1.43 6.82 Average fixed interest rate (%) EUR 5.30 2.41 3.20 0.79 2.58 Average fixed interest rate (%) CHF - - - 0.80 0.40 Average fixed interest rate (%) JPY - - - 0.46 - Average fixed interest rate (%) USD - - 2.05 3.12 3.93 Exchange rate risk Exchange rate instruments Nominal 211 3,903 4,777 - - 8,891 GBP / EUR average exchange rate - 0.86 0.87 - - USD / EUR average exchange rate - 1.12 1.12 - - USD / CLP average exchange rate 747.72 747.90 746.70 - - CNY / EUR average exchange rate - 7.91 8.01 - - SAR / EUR average exchange rate 4.16 4.18 - - - Interest rate and exchange risk Instruments of exchange rate and interest Nominal 14 289 346 2,599 949 4,197 Average fixed interest rate (%) AUD / EUR - - - 4.00 4.66 Average fixed interest rate (%) CZK / EUR - - - 0.86 - Average fixed interest rate (%) EUR / COP - - 6.16 - - Average fixed interest rate (%) RON / EUR - - - 4.85 - Average fixed interest rate (%) HKD / EUR - - 2.52 2.58 - Average fixed interest rate (%) JPY / EUR - - 0.54 0.66 1.28 Average fixed interest rate (%) NOK / EUR - - - - 3.61 Average fixed interest rate (%) CHF / EUR - - - - 1.24 Average fixed interest rate (%) USD / COP 7.54 - 5.67 7.62 7.22 AUD / EUR average exchange rate - - - 1.50 1.51 CZK / EUR average exchange rate - - - 25.41 26.03 EUR / GBP average exchange rate - 1.17 - - - EUR / COP average exchange rate - - 0.0003 - - HKD / EUR average exchange rate - - 8.72 8.78 - JPY / EUR average exchange rate - - 130.47 132.46 125.88 MXN / EUR average exchange rate - - - 14.70 - NOK / EUR average exchange rate - - - - 9.61 RON / EUR average exchange rate - - - 4.73 - CHF / EUR average exchange rate - - - 1.09 1.11 USD / COP average exchange rate 0.0003 - 0.0003 0.0003 0.0003 USD / MXN average exchange rate - - - 0.52 - Credit risk Credit Risk Instruments Nominal - 13 - 244 - 257

Cash flow hedges: 11,626 - 2,145 9,853 207 23,831 Interest rate and exchange rate risk Interest rate and exchange instruments Nominal - - 353 4,410 207 4,970 Interest rate risk Bond Forward Instruments Nominal 11,626 - 1,792 5,443 - 18.861

Net investment hedges abroad 2,592 3.838 13,595 3,359 - 23,384 Exchange rate risk Exchange rate instruments Nominal 2,592 3,838 13,595 3,359 - 23,384 BRL / EUR average exchange rate 4.59 4.74 4.74 4.88 - CLP / EUR average exchange rate 822.13 822.32 811.64 824.36 - COP / EUR average exchange rate - - 3.828.61 - - GBP / EUR average exchange rate 0.89 0.91 0.94 - - MAD / EUR average exchange rate - 10.77 10.87 - - MXN / EUR average exchange rate 23.49 23.10 23.27 - - PLN / EUR average exchange rate 4.37 4.38 4.39 - - Total 14.451 8.149 22.269 32.762 11.375 89.006

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The following table contains details of the hedged exposures covered by Banco Santander, S.A. hedging strategies of June 30, 2020 and December 31, 2019:

30/06/2020 Millions of euros Cumulative amount of fair value Cash flow hedge reserve / foreign Amount in books of the item covered adjustments on the covered line Change in the fair currency conversion value of the item covered for Coverage Discontinuos Assets Liabilities Assets Liabilities inefficiency continues coverage assessment

Fair value hedges 19,052 21,601 315 (1,706) (657) - - Interest rate risk 10,640 18,849 263 (1,614) (613) - - Deposits 5,164 - 309 - 47 - - Bonds 3,052 18,849 (67) (1,614) (657) - - Repo 2,424 - 21 - (3) - - Fixed income securities loans ------Exchange rate risk 6,634 - 39 - - - - Deposits 835 - 22 - - - - Bonds 5,770 - 17 - 3 - - Liquidity lines 29 - - - (3) - - Interest rate and exchange rate risk 1,505 2,752 13 (92) (39) - - Deposits 631 - 13 - 9 - - Bonds - 2,657 - (89) (43) - - Repo 874 95 - (3) (5) - - Credit risk 273 - - - (5) - - Bonds 273 - - - (5) - -

Cash flow hedges 124 (131) (36) Interest rate risk 124 (122) (36) Deposits 4 (2) 9 Bonds 120 (120) (45) Interest rate and exchange rate risk - (9) - Deposits - (9) - Bonds - - - 19,052 21,601 315 (1,706) (533) (131) (36)

31/12/2019 Millions of euros Cumulative amount of fair value Cash flow hedge reserve / foreign Amount in books of the item covered adjustments on the covered line Change in the fair currency conversion value of the item covered for Coverage Discontinuos Assets Liabilities Assets Liabilities inefficiency continues coverage assessment

Fair value hedges 13,342 (22,474) 502 (1,216) 198 - - Interest rate risk 4,304 (19,753) 461 (1,169) 184 - - Deposits 1,300 - 281 - 28 - - Bonds 1,043 (19,753) 149 (1,169) 152 - - Repo 1,936 - 29 - 4 - - Fixed income securities loans 25 - 2 - - - - Exchange rate risk 7,612 - 40 - 35 - - Deposits 1,912 - 22 - 14 - - Bonds 5,643 - 15 - 18 - - Liquidity lines 57 - 3 - 3 - - Interest rate and exchange rate risk 1,173 (2,721) (5) (47) (26) - - Deposits 363 - - - 1 - - Bonds - (2,621) - (49) (23) - - Repo 810 (100) (5) 2 (4) - - Credit risk 253 - 6 - 5 - - Bonds 253 - 6 - 5 - - - - Cash flow hedges 17 (23) (42) Interest rate risk 16 (16) (42) Deposits - - 14 Bonds 16 (16) (56) Interest rate and exchange rate risk 1 (7) - Deposits 2 (7) - Bonds (1) - - 13,342 (22,474) 502 (1,216) 215 (23) (42)

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The cumulative amount of adjustments of the fair value hedging instruments that remain in the balance for covered items that are no longer adjusted by profit and loss of coverage as of June 30, 2020 is EUR 179 million (EUR 204 million in 2019).

The following table contains information regarding the effectiveness of the hedging relationships designated by Banco Santander, S.A. as well as the impacts on profit or loss and other comprehensive income as of June 30, 2020 and December 31, 2019:

30/06/2020 Millions of euros

Reclassified amount of reserves to PL

Line of the Line of the Earnings / (losses) Coverage Covered income statement Covered transaction income statement recognized in Other inefficiency transaction that includes that affects the income that includes accumulated global recognized in the that will not ineffective statement reclassified income income statement occur coverage amounts

Fair value hedges - 7 - - Interest rate risk - 9 - - Deposits - 2 ROF - - Financial bonds - 10 ROF - - Corporative repo - (3) ROF - - Exchange rate risk - - - - Deposits - - ROF - - Bonds - - ROF - - Interest rate and exchange rate - (2) - - risk Deposits - (4) ROF - - Bonds - (1) ROF - -

Financial repo - 3 ROF - -

Cash flow hedges (104) - - 22 Interest rate risk (100) - - (5) Deposits (7) - ROF - (5) MARGEN Bonds (93) - ROF - - MARGEN Interest rate and exchange rate risk (4) - - 27 Deposits (4) - ROF - 27 MARGEN (104) 7 - 22

31/12/2019 Millions of euros

Reclassified amount of reserves to PL Line of the Line of the Earnings / (losses) Coverage Covered income statement Covered transaction income statement recognized in Other inefficiency transaction that includes that affects the income that includes accumulated global recognized in the that will not ineffective statement reclassified income income statement occur coverage amounts

Fair value hedges - (50) - - Interest rate risk - (48) - - Deposits - (15) ROF - - Financial bonds - (32) ROF - - Loans of fixed income securities - (1) ROF - - Exchange rate risk - (1) - - Deposits - 1 ROF - - Bonds - (2) ROF - - Interest rate and exchange rate - (1) - - risk Deposits - 1 ROF - - Bonds - (2) ROF - - - Cash flow hedges (117) - - 88 Interest rate risk (112) - - 67 Deposits (13) - ROF - (10) MARGEN Bonds (99) - ROF - 77 MARGEN Interest rate and exchange rate risk (5) - - 21 Deposits (5) - ROF - 21 MARGEN (117) (50) - 88

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The following table shows a reconciliation of each component of equity and an analysis of other comprehensive income in relation to hedge accounting for Banco Santander, S.A.:

Millons of euros 30/06/2020 Balance at the end of the previous year (45) Amount recognized in Other accumulated global income Cash flow hedges (104) Interest rate risk (104) Changes in equity due to discharge at P&G 22 Remains of equity movements (126) Taxes 31 Balance at June 30, 2020 (118)

32. Off-balance-sheet funds under management

As of June 30, 2020, the Bank held off balance sheet funds under management, namely investment funds and assets under management, amounting to EUR 78,888 million (EUR 76,477 million in 2019).

Also, as of June 30, 2020, the funds marketed but not held under management amounted to EUR 18,159 million (EUR 26,248 million in 2019).

33. Other disclosures

a) Residual maturity periods and average interest rates The detail, by maturity, of the balances of certain items in the balances as of June 30, 2020 and December 31, 2019 is as follows:

30/06/2020 Average Millons of euros interest rate One Up to One to Three year to More On one three months to five than five demand month months one year years years Total

Assets Cash. cash balances at central banks and other demand deposits 55,362 - - - - - 55,362 0.06% Financial assets at fair value with changes in other comprehensive income Representative values of debt - 570 275 156 2,475 12,485 15,961 1.36% Financial assets at amortized cost Representative values of debt - 119 236 144 1,405 11,334 13,238 3.79% Loans and advances Central banks - 20 - - - - 20 0.0% Credit institutions 16,174 2,304 4,310 11,252 4,831 599 39,471 0.49% Customer 22,828 13,202 12,076 35,795 75,089 106,418 265,408 2.06% 94,364 16,216 16,898 47,347 83,801 130,835 389,460 Liabilities Financial liabilities at amortized cost Deposits Central banks 30 2,368 927 1,476 56,530 - 61,331 (0.93%) Credit institutions 28,910 10,598 5,665 4,802 5,462 1,369 56,806 0.48% Customer 239,280 9,284 5,414 11,162 5,454 814 271,408 0.01% Debt securities issued - 3,110 4,964 13,668 31,969 43,205 96,916 1.49% Other financial liabilities 6,780 4,134 128 477 1,151 1,720 14,390 N/A 275,001 29,494 17,099 31,585 100,565 47,108 500,851 Difference (assets less liabilities) (180,637) (13,278) (201) 15,762 (16,764) 83,727 (111,391)

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31/12/2019 Average Millons of euros interest rate One to Three One year On Up to one three months to to five More than demand month months one year years five years Total

Assets Cash. cash balances at central banks and other demand deposits 32,471 - - - - - 32,471 (0.29%) Financial assets at fair value with changes in other comprehensive income Representative values of debt - 1,229 786 590 3,055 20,646 26,306 1.85% Financial assets at amortized cost Representative values of debt - 98 206 209 1,335 12,680 14,528 3.27% Loans and advances Central banks - 20 - 2 - - 22 0.00% Credit institutions 13,097 4,734 2,343 8,100 5,875 598 34,747 0.22% Customer 21,332 14,529 26,931 21,125 49,199 106,882 239,998 2.09% 66,900 20,610 30,266 30,026 59,464 140,806 348,072 Liabilities Financial liabilities at amortized cost Deposits Central banks 95 454 64 19,277 17,006 - 36,896 (0.40%) Credit institutions 27,285 12,196 1,977 2,495 5,867 1,360 51,180 1.12% Customer 217,441 5,415 4,687 13,393 6,435 3,150 250,521 0.20% Debt securities issued - 3,478 8,045 9,338 28,086 38,620 87,567 2.16% Other financial liabilities 5,616 1,655 241 43 1,491 1,808 10,854 N/A 250,437 23,198 15,014 44,546 58,885 44,938 437,018 Difference (assets less liabilities) (183,537) (2,588) 15,252 (14,520) 579 95,868 (88,946) b) Equivalent euro value of assets and liabilities

The detail of the main foreign currency balances in the balances as of June 30, 2020 and December 31, 2019, based on the nature of the related items, is as follows.

Equivalent value in EUR million

30/06/2020 31/12/2019 Assets Cash and balances at central banks and other deposits on demand 9,547 7,534 Financial assets held for trading 40,017 35,271 Non-trading financial assets mandatorily at fair value through profit or loss 732 15,062 Financial assets designated at fair value through profit or loss 16,779 14,529 Financial assets at fair value through other comprehensive income 4,764 5,494 Financial assets at amortised cost 71,933 62,272 Hedging derivatives 1,411 750 Changes in the fair value of hedged items in portfolio hedges of interest rate risk - - Investments 38,806 44,011 Tangible assets 28 34 Intangible assets 4 4 Tax assets 12 5 Other assets 1,497 994 Non-current assets held-for-sale - - 185,530 185,960 Liabilities Financial liabilities held for trading 36,900 27,801 Financial liabilities designated at fair value through profit or loss 16,706 12,773 Financial liabilities at amortised cost 89,239 67,989 Hedging derivatives 419 325 Changes in the fair value of hedged items in portfolio hedges of interest risk rate - - Provisions 70 68 Tax liabilities - - Refundable equity on demand - - Other liabilities 159 587 143,493 109,543

Likewise, under the heading Financial assets at fair value with changes in other comprehensive income, there are certain equity instruments of companies that are not listed on organized markets for an amount of EUR 95 million as of June 30, 2020 which were recorded at cost, because its fair value cannot be estimated reliably enough because it is based on significant unobservable inputs.

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c) Fair value of financial assets and liabilities not measured at fair value

Financial assets are measured at fair value in the accompanying balances, except for loans and receivables under a business model whose objective is to collect the flows of principal and interest, equity instruments whose market value cannot be estimated reliably and derivatives that have these instruments as their underlying and are settled by delivery thereof.

Similarly, financial liabilities -except for financial liabilities held for trading, those measured at fair value and derivatives having equity instruments whose market value cannot be estimated reliably as their underlying- are measured at amortised cost in the related balances.

The following is a comparison between the value of the Group's financial instruments valued using other criteria rather than fair value and their corresponding fair value as of June 30, 2020:

Financial assets and liabilities measured at other than fair value

The fair value of financial instruments measured at amortised cost as of June 30, 2020 was as follows:

a. The fair value of debt securities is 5.69% higher than the carrying amount. b. The fair value of the loans and advances is 0.74% lower than the carrying amount. c. The fair value of Deposits is 0.07% less than the carrying amount. d. The fair value of Marketable debt securities is 3.46% greater than the carrying amount.

Set forth below are the main valuation methods and inputs used in the estimates made as of June 30, 2020 to determine the fair values of the financial assets and liabilities recognised at cost detailed above:

- Loans and receivables: The fair value has been estimated using the present cost method, the estimation has considered factors such as the expected maturity of the portfolio, market interest rates, spreads of new concession of operations, or market spreads – if these were available.

- Held to maturity portfolio: The fair value has been determined based on market prices for those instruments.

- Financial liabilities at amortised cost:

i. The fair value of deposits at Central Banks has been assimilated to their carrying amount because they are mainly short-term balances.

ii. Credit Institutions: Fair value has been obtained using the present value technique by applying interest rates and market spreads.

iii. Customer deposits: Fair value has been estimated using the present value technique. The estimation has considered factors such as the expected maturity of the operations and the current financing cost of the Group in similar operations.

iv. Marketable debt securities: Fair value has been determined based on market prices for these instruments, when available, or using the present value technique, by applying interest rates and market spreads.

Additionally, the fair value of Cash, Cash Balances at central banks and other deposits on demand has been assimilated to it carrying amount, mainly because of short-term balances.

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34. Risk management

Due to COVID-19, as mentioned in Note 1.c, the Bank has updated its accounting estimates and risk management in order to incorporate the prospective macroeconomic environment.

a) Cornerstones of the risk function Our risk principles are mandatory and must always be followed. They consider regulatory requirements and market best practices. They are the following:

1. A strong risk culture (Risk Pro), as part of ‘The Santander Way’, which is followed by all employees, covers all risks and promotes socially responsible management that contributes to Santander’s long-term sustainability.

2. All employees are responsible for managing risk. They must be aware of, and understand, the risks generated in their day-to-day activities, avoiding risks where the impacts are unknown or exceed the Group’s risk appetite limits.

3. Engagement of senior management, ensuring consistent management and control of risk through their conduct, actions and communication. They also promote our risk culture and assess its degree of implementation, overseeing that the risk profile is kept within the levels defined by our risk appetite.

4. Independence of the risk management and control functions, consistent with the three lines of defence model.

5. A forward-looking and comprehensive approach to risk management and control across all businesses and risk types.

6. Complete and timely information management, enabling risks to be appropriately identified, assessed, managed and reported to the corresponding level.

These principles, combined with a series of tools and processes that are embedded in the Group’s strategic planning, such as our risk appetite statement, risk profile assessment, scenario analysis, and our risk reporting structure, annual planning and budget process, provide a holistic control structure for the entire Group.

1. Main risks of the group´s financial instruments The main risk categories in which the Group has its most significant current and/or potential exposures, thus facilitating the identification thereof, includes the following:

- Credit risk: risk of financial loss arising from the default or credit quality deterioration of a customer or other third party, to which the Santander Group has either directly provided credit or for which it has assumed a contractual obligation.

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- Market risk: risk incurred as a result of changes in market factors that affect the value of positions in the trading book.

- Liquidity risk: is the risk that the Group does not have the liquid financial resources to meet its obligations when they fall due or can only obtain them at high cost.

- Structural Risk: is the risk arising from the management of different balance items, not only in the banking book but also in relation to insurance and pension activities. It includes the risk of the Group not having an adequate amount or quality of capital to meet its internal business objectives, regulatory requirements or market expectations.

- Operational risk: is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events, including conduct risk.

- Regulatory Compliance Risk: risk of non-compliance with legal and regulatory requirements as well as supervisors’ expectations, which may result in legal or regulatory sanctions, including fines or other financial implications.

- Model Risk: is the risk of loss arising from inaccurate predictions, causing a sub-optimal decision, or from a model being implemented or used inappropriately.

- Reputational Risk: the risk of current or potential negative economic impact to the Bank due to damage to its perception on the part of employees, customers, shareholders/investors and the wider community.

- Strategic Risk: is the risk of loss or damage arising from strategic decisions or their poor implementation that impact the medium- and long-term interests of our key stakeholders, or from an inability to adapt to external developments.

In addition, climate-change related risk drivers - whether physical or transition-led - have been identified as factors that could aggravate the existing risks in the medium and long term.

The classification of risks is critical to ensure an effective risk management and control. All identified risks should be therefore referenced to the risk categories in order to organise their management, control and related information.

2. Risk governance The Group has a robust risk governance structure, aimed at ensuring the effective control of its risk profile in accordance with the risk appetite defined by the board of directors.

The board of directors is responsible for approving the general framework for risk management and control, including tax risks.

This governance structure is underpinned by the distribution of roles among the three lines of defence, a robust structure of committees and a strong relationship between the Group and its subsidiaries. All supported by our Group-wide risk culture, Risk Pro.

2.1 Lines of defence At Santander, we follow a three lines of defence model to ensure effective risk management and control:

- First line: Businesses and all other functions that originate risks make up the first line of defence. These functions must ensure that these risks are aligned with the approved risk appetite and associated limits. Any unit that originates risk has primary responsibility for the management of that risk.

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- Second line: Risk and Compliance & Conduct functions. Their role is to provide independent oversight and challenge to the risk management activities performed by the first line of defence. These functions ensure that risks are managed in accordance with the risk appetite defined by the board and promote a strong risk culture throughout the organisation - Third line: The Internal Audit function. which regularly assesses policies, methodologies and procedures to ensure they are appropriate and effectively implemented for the management and control of all risks.

The Risk, Compliance and Conduct and Internal Audit functions are separate and independent and have direct access to the board of directors and its committees.

2.2 Risk committee structure

The board of directors is responsible for risk management and control and particularly, for approving and periodically reviewing the risk appetite and the risk framework, as well as for promoting a strong risk culture across the whole organisation. In order to conduct these tasks, the board has the support of different committees, this is the case of the risk supervision, regulation and compliance committee and the Group’s executive committee, which have specific risk related responsibilities.

The Group Chief Risk Officer (Group CRO) is responsible for the oversight of all risks and for challenging and advising the business lines on how they manage risks, with direct access and reporting to the board risk committee as well as to the board of directors.

Other bodies that make up the highest level of risk governance, with authority delegated by the board of directors, are the executive risk committee and the risk control committee, details of which are provided below:

- Executive risk committee (ERC) This committee is responsible for risk management, within the authorities delegated by the board. The committee makes risk taking decisions at the highest level, ensuring that they are within the established risk appetite limits for the Group.

Chair: CEO.

Composition: nominated executive directors and other Group senior management, Risk, Finance and Compliance & Conduct functions, among others, are represented. The Group CRO has the power of veto over the committee’s decisions.

- Risk control committee (RCC) This committee is responsible for risk control, determining whether the risks originated by the business lines are managed within our risk appetite limits and providing a holistic view of all risks. This includes the identification and monitoring of both current and emerging risks and evaluating their impact on the Group's risk profile.

Chair: Group CRO.

Composition: senior management members from the Risk, Compliance & Conduct, Finance, Accounting and Management Control functions are represented among others. Senior members of the Risk function (CROs) from the Group’s subsidiaries regularly take part to report their own risk profiles.

Additionally, each risk factor has its own fora and/or regular meetings to manage and control the risks under their scope. Among others, they have the following responsibilities:

- Advise the Group CRO and the risk control committee that risks are being managed in accordance with the Group’s risk appetite.

- Carry out regular monitoring of each risk factor.

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- Oversee the measures adopted to comply with the expectations of the supervisors and internal and external auditors.

For certain matters, the Group may establish specific additional governance. For example:

- Following the UK’s decision to leave the EU, the Group and Santander UK set up steering committees and separate working groups to: i) monitor the Brexit process; ii) develop contingency plans; and iii) escalate and take decisions to minimise potential impacts on our business and customers.

- In order to steer and supervise the review process of the interest rate benchmarks (which include among others EONIA, LIBOR and EURIBOR, with specific solutions for each of them: EONIA will be discontinued on January 2022, LIBOR is likely to cease in December 2021, while EURIBOR will remain as a compliant benchmark), the Group established the IBOR steering group. This group is responsible for driving the project's strategic direction and take the required decisions to ensure a correct transition across all Santander businesses and entities. The IBOR steering group operates in accordance with the methodology defined by the Group's Execution Project Office and is chaired by the project's global sponsor, the global head of SCIB, with the additional support of eight senior executives.

2.3 The Group's relationship with subsidiaries regarding risk management In all our subsidiaries, the risk management and control model are aligned with the frameworks established by the Group’s board of directors. The local units adhere to them through their respective boards and adapt them to their own market conditions and regulation.

In order to conduct the review of the aggregated oversight of all risks, the Group exercises a validation and challenge role about the management policies of the subsidiaries and transactions.

This creates a common risk management and control model across the Group.

The ‘Group-subsidiary governance model and good governance practices for subsidiaries’ sets up regular interaction and functional reporting by each local CRO to the Group CRO, as well as the latter’s participation in the appointments process, target setting and local CRO’s evaluation and remuneration, in order to ensure that risks are effectively controlled.

To strengthen the relationship between the Group and its subsidiaries, various initiatives have been implemented in order to develop an advanced risk management model across the Group:

- Promoting collaboration to accelerate the sharing of best practices, strengthen existing processes and accelerate innovation.

- Talent identification in the risk teams, developing international mobility through the global risk talent programme.

- Risk Subject Matter Experts: leveraging on our “best in class” experts across the Group.

- Peer review: constructive review of specific matters within the risk function, performed by experts from different subsidiaries.

3. Management processes and tools To ensure that an effective risk management and control is carried out, the Group has defined several key processes that rely on a series of tools, which are described as follows:

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3.1 Risk appetite and structure of limits Santander defines the risk appetite as the amount and type of risks that are considered prudent to assume for implementing our business strategy, so that the Group can maintain its ordinary activity in the event of unexpected circumstances. When establishing the risk appetite, adverse scenarios that could have a negative impact on capital and liquidity levels, profitability and/or the share price are considered.

The risk appetite statement (RAS) is annually set by the board for the entire Group. Additionally, the boards of our subsidiaries also set their own risk appetite on an annual basis, aligned and embedded within the Group’s consolidated statement. Each subsidiary's statement is then further cascaded down in the form of management limits and policies by risk type, portfolio and activity segment.

Santander risk appetite principles The following principles govern the Group’s risk appetite in all its subsidiaries:

• Responsibility of the board and of senior management. The board is responsible for setting the risk appetite and for monitoring compliance with its requirements.

• Holistic risk view (enterprise wide risk), risk profile back testing and challenge. The risk appetite must consider all significant risks and facilitate an aggregate view of the risk profile using quantitative metrics and qualitative indicators.

• Forward-looking view. The risk appetite must consider the desirable risk profile for the short and medium term, considering both the most plausible circumstances and adverse/stress scenarios.

• Embedding and alignment with strategic and business plans. The risk appetite is an integral part of the strategic and business planning, which is embedded in the daily management through the transfer of the aggregated limits to those set at portfolio level, unit or business line, as well as through the key risk appetite processes.

• Coherence across the various subsidiaries and a common risk language throughout the Group. Each subsidiary's risk appetite must be coherent with that of the Group.

• Periodic review, back testing and adoption of best practices and regulatory requirements. Monitoring and control mechanisms are established to ensure the risk profile is maintained, and the necessary corrective and mitigating actions are taken in the event of non-compliance.

Limits structures, monitoring and control Risk appetite is expressed through qualitative statements and quantitative limits structured around 5 main axes:

- Results volatility:

Maximum loss that the Group is willing to accept under a scenario of acute stress.

- Solvency

a) Minimum capital position that the Group is willing to accept under a scenario of acute stress.

b) Maximum leverage the Group is willing to accept under a scenario of acute stress.

- Liquidity

a) Minimum structural liquidity position.

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b) Minimum liquidity horizon position that the Group is willing to accept under a scenario of acute stress.

c) Minimum liquidity coverage position.

- Concentration:

a) Concentration in single names, sectors and portfolios.

b) Concentration in non-investment grade counterparties.

c) Concentration in large exposures.

- Non-financial risks

a) Qualitative non-financial risk indicators:

▪ Fraud

▪ Technological

▪ Security and cyber-risk

▪ Reputational

▪ Others

b) Maximum operational risk losses.

c) Maximum risk profile.

Compliance with risk appetite limits is regularly monitored. Specialised control functions report the appropriateness of the risk profile to the board and its committees on a monthly basis.

Linkage between the risk appetite limits and those of the business units and portfolios is a key element for making the risk appetite an effective risk management tool. The management policies and structure of limits used to manage the different categories and types of risk are directly related to the principles and limits defined in the risk appetite statement.

3.2 Risk profile assessment (RPA) The Group carries out the identification and assessment of the different risks that is exposed to, involving the different lines of defence, establishing management standards that not only meet regulatory requirements but also reflect best practices in the market, and reinforce our risk culture.

The results of these risk identification and assessment (RIA) exercises are integrated to evaluate the Group risk profile through the risk profile assessment (RPA). This exercise analyses the development of risks and identifies areas for improvement:

- Risk performance, enabling the understanding of residual risk by risk type through a set of metrics and indicators calibrated using international standards.

- Control environment assessment, measuring the degree of implementation of the target operating model, as part of our advanced risk management.

- Forward-looking analysis, based on stress metrics and identification and/or assessment of the main threats to the strategic plan (Top risks), enabling specific action plans to be put in place to mitigate potential impacts and their monitoring.

Based on the periodic identification and assessment exercises for the different risks, as of June 2020 the Group maintains a solid medium-low risk profile.

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In 2020, improvements were centred on three main areas: i) reviewing the control environment standards, ii) risk performance indicators and their alignment with risk appetite metrics, and iii) enhancing the perimeter by integrating reputational risk as a cross layer in the risk profile assessment and strengthening the business performance area by enriching capital metrics.

3.3 Scenario analysis Another fundamental tool that is used by the Group to ensure an effective risk management and control is the analysis of potential impacts triggered by different scenarios related to the environment in which the Group operates. These scenarios are expressed both in terms of macroeconomic variables, as well as other variables that may affect our risk profile.

This is usually known as “scenario analysis”, which is a robust and useful tool for risk management at all levels. It enables the Group to assess its resilience under stressed conditions and the identification of possible mitigating actions to be implemented in case the projected scenarios start to materialise. Its ultimate objective is to reinforce the stability of income, capital and liquidity.

In this respect, the role of our Research and Public Policy team in terms of the generation of the different scenarios as well as the strict governance and control processes that these exercises are subject to, including their analysis and review by the senior management as well as the different divisions involved, including Internal Audit, are fundamental to ensure their quality.

The robustness and consistency of the scenario analysis exercises are based on the following pillars:

- Development and integration of models that estimate the future performance of metrics (such as credit losses), based on historic information that can be internal to the Group and/or external from the market, as well as on simulation techniques.

- Challenge and back testing of model results to ensure their quality.

- Inclusion of expert judgement and deep knowledge of our different portfolios.

- Robust governance of the whole process, covering models, scenarios, assumptions and results rationale, as well as their impact in terms of management actions to be taken.

The application of these pillars in the European Banking Authority (EBA) stress test exercise that is executed and reported biennially, has enabled Santander to satisfactorily meet the defined quantitative and qualitative requirements, contributing to the excellent results obtained by the Group.

Applications of scenario analysis The EBA guidelines establish that scenario analysis should be integrated in the Group’s risk management framework and management processes. This requires a forward-looking view in terms of risk management and capital and liquidity strategic planning.

Scenario analysis is included in the Group’s risk framework, ensuring that any impact affecting its solvency or liquidity can be rapidly identified and addressed. With this objective in mind, a systematic review of the exposure to different types of risks is included, not only under the baseline scenario but also under various simulated adverse scenarios.

The Group has a map of uses in place to strengthen their alignment across the different risk types, and to facilitate the continuous improvement of such uses. An additional fundamental goal is to reinforce the integration and synergies between the different regulatory and internal exercises.

Scenario analysis forms an integral part of several key Group processes:

- Regulatory uses: exercises conducted under the European regulatory guidelines or those of each local supervisor in those geographies where the Group operates.

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- Internal capital adequacy assessment (ICAAP) and liquidity assessment (ILAAP) in which, while the regulators define certain requirements, the Group develops its own methodology to assess its capital and liquidity levels under different stress scenarios to support planning and the effective management of these two critical aspects.

- Risk appetite. This includes stressed metrics for which the Group defines maximum levels of losses (or minimum liquidity levels) that should not be exceeded. These exercises are related to those conducted for capital and liquidity, although they have different frequencies and present different granularity levels.

- Climate change scenario analysis: the objective is to provide a scenario-based assessment of those risks and opportunities related to climate change. It is currently focused on the wholesale portfolio as a pilot.

- Recurrent risk management in different processes/exercises:

a) Budget and strategic planning process, in the development of commercial risk approval policies, in the global risk assessment for senior management or in specific analysis regarding activity profiles or portfolios.

Identification of Top risks on the basis of a systematic process to identify and assess all the risks which the Group is exposed to, The Top risks are selected and a macroeconomic or idiosyncratic scenario is associated with each one, to assess their impact on the Group.

b) Recovery plan which drown upannually to establish the available tools the Group will have, to survive in the event of an extremely severe financial crisis. The plan sets out a series of financial and macroeconomic stress scenarios, with differing degrees of severity that include idiosyncratic and/or systemic events.

c) IFRS 9 since 1 January 2018 the processes, models and scenario analysis methodology are included in the new regulatory provision requirements.

3.4 Risk Reporting Structure (RRS) The reporting model of the Group continues to be enhanced after the simplification and optimisation of processes, the quality controls implemented and the strengthening of our effective communication to senior management. Furthermore, the overall view of all risks has been consolidated, based on complete, precise and recurring information allowing the Group’s senior management to assess the risk profile and decide accordingly.

The risk reporting of the Group taxonomy contains three types of reports that are released on a monthly basis: the Group risk report (which is distributed to senior management), the subsidiaries risk reports, and the reports on each of the risk factors identified in the Group’s risk framework.

This taxonomy is characterised by the following:

a) All risk factors included in the Group’s risk framework are covered.

b) Balance between data, analysis and qualitative comments is maintained throughout the reports, including forward-looking measures, risk appetite information, limits and emerging risks.

c) The holistic view is combined with a deeper analysis of each risk factor and geographic area and region.

d) A homogenous structure and criteria, as each subsidiary may define its own reports following local standards. Therefore, a consolidated view is provided to enable the analysis of all risks based on common definitions.

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e) All the metrics reported follow RDA criteria, ensuring the quality and consistency of the data included in all risk reports. b) Credit risk

1. Introduction to the credit risk treatment In Santander, credit risk is defined as the risk that a financial loss will be incurred arising from the default or credit quality deterioration of a customer or other third party, with whom the Group has assumed a contractual obligation, including providing credit, that may therefore not be fulfilled.

2. Portfolio overview Banco Santander, S.A. reaches a total gross exposure of EUR 311,624 million under the heading Financial assets at amortized cost (See Notes 5 and 9) and of EUR 90,639 million under the heading of Loan commitments granted in off-balance sheet exposures (See Note 30). Impairment losses amount to EUR 6,725 million and EUR 153 million, respectively (the figure for impairment losses on off-balance- sheet exposures includes the coverage of financial guarantees and other commitments granted in addition to the aforementioned loan commitments).

Residential mortgage portfolio Residential mortgages in Spain amounted to EUR 59,784 million (2019: EUR 60,557 million), 99.38% of which have a mortgage guarantee (2019: 99.49%).

30/06/2020 Millions of euros Gross amount Of which: Non-performing Home purchase loans to families 59,784 2,596 Without mortgage guarantee 368 52 With mortgage guarantee 59,416 2,544

31/12/2019 Millions of euros Gross amount Of which: Non-performing

Home purchase loans to families 60,557 2,581 Without mortgage guarantee 306 14 With mortgage guarantee 60,251 2,567

The mortgage portfolio for the acquisition of homes in Spain is characterised by its medium-low risk profile, which limits expectations of any potential additional impairment:

• Principal is repaid on all mortgages from the start.

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• Early repayment is common, so the average life of the transaction is well below that of the contract.

• High quality of collateral concentrated almost exclusively in financing for first homes.

• The 86% of the portfolio has an LTV below 80%, calculated as total risk/latest available house appraisal.

Breakdown of the credit with mortgage guarantee to households for house acquisition, according to the percentage that the total risk represents on the amount of the latest available valuation (loan to value).

30/06/2020 Loan to value ratio More than 60% More than 80% Less than or More than 40% More than Millions of euros and less than and less than or Total equal to 40% and less than 60% 100% 80% equal to 100% Gross amount 15,666 18,105 17,399 5,189 3,057 59,416 Of which: Watchlist/ Non-performing 220 290 408 425 1,202 2,544

31/12/2019 Loan to value ratio More than 60% More than 80% Less than or More than 40% More than Millions of euros and less than and less than or Total equal to 40% and less than 60% 100% 80% equal to 100% Gross amount 15,871 18,225 17,610 5,190 3,355 60,251 Of which: Watchlist/ Non-performing 223 290 410 427 1,218 2,568

Businesses portfolio Credit risk assumed directly with SMEs and Corporates amounts to EUR 134,508 million, representing the main lending segment at Santander Spain with 63% of the total. Most of the portfolio corresponds to customers who have been assigned a credit analyst to monitor them continuously throughout the risk cycle.

The portfolio is highly diversified without no significant concentrations by sector of activity.

The NPL ratio for this portfolio stood at 7.31% in June 2020. Tthe NPL ratio fell by 21 bp compared to December 2019.

Real estate activity The real estate unit (UAI) in Spain has been consolidated within Santander Spain. We should differentiate between the part of the portfolio resulting from the past financial crisis and the new business that is identified as viable. In both cases, Santander has specialized teams that are not only part of the Risk function but that supplement the management of this exposure and cover the whole life cycle of these transactions: commercial management, legal treatment and eventually and collections and recoveries.

The NPL ratio of this portfolio ended at 7.74% (compared with 9.63% at December 2019) and to the sharp reduction in lending in this segment. The coverage ratio of the real estate doubtful exposure in Spain stands at 34.03% (35.31% in 2019).

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30/06/2020 Banco Santander, S.A. Excess of gross exposure over Millions of euros Gross amount Specific allowance maximum recoverable amount Financing for construction and property development recognized by the Group's credit institutions (including land) (business in 3,076 376 (95) Spain) Of which: Watchlist/ Non-performing 238 25 (81)

Memorandum items: Written-off assets 924 - -

Memorandum items 30/06/2020 Millions of euros Book value Banco Santander, S. A. Total loans and advances to customers excluding the public sector (business in Spain) (Book value) 237,015 Total assets (Total business) (Book value) 685,540 Impairment and provisions for normal classified exposures (business in Spain) 1,094

31/12/2019 Banco Santander, S.A. Excess of gross exposure over Millions of euros Gross amount Specific allowance maximum recoverable amount Financing for construction and property development recognized by the Group's credit institutions (including land) (business in 2,970 438 115 Spain) Of which: Watchlist/ Non-performing 286 87 101

Memorandum items: Written-off assets 963 - -

Memorandum items 31/12/2019 Millions of euros Book value Banco Santander, S. A. Total loans and advances to customers excluding the public sector (business in Spain) (Book value) 218,747 Total assets (Total business) (Book value) 609,916 Impairment and provisions for normal classified exposures (business in Spain) 941

At year-end, the concentration of this portfolio was as follows:

30/06/2020 Millions of euros Loans: Gross amount 1. Without mortgage guarantee 148 2. With mortgage guarantee 2,928 2.1 Completed buildings 1,706 2.1.1 Residential 1,004 2.1.2 Other 702 2.2 Buildings and other constructions under 1,116 construction 2.2.1 Residential 1,054 2.2.2 Other 62 2.3 Land 106 2.3.1 Developed consolidated land 65 2.3.2 Other land 41 Total 3,076

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31/12/2019 Millions of euros Loans: Gross amount 1. Without mortgage guarantee 146 2. With mortgage guarantee 2,824 2.1 Completed buildings 1,566 2.1.1 Residential 919 2.1.2 Other 647 2.2 Buildings and other constructions under 1,098 construction 2.2.1 Residential 1,053 2.2.2 Other 45 2.3 Land 160 2.3.1 Developed consolidated land 109 2.3.2 Other land 51 Total 2,970

Policies and strategies in place for the management of these risks

The policies in force for the management of this portfolio are periodically reviewed and approved by Santander’s senior management.

As has already been disclosed in this section, the Group’s anticipatory management of these risks enabled it to significantly reduce its exposure, and it has a granular, geographically diversified portfolio in which the financing of second residences accounts for a very small proportion of the total.

Mortgage lending on non-urban land represents a low percentage of mortgage exposure to land, while the remainder relates to land already classified as urban or approved for development.

The significant reduction of exposure in the case of residential financing projects in which the construction work has already been completed was based on various actions. As well as the specialised marketing channels already in existence, campaigns were carried out with the support of specific teams of managers for this function who, in the case of the Santander network, were directly supervised by the recoveries business area. These campaigns, which involved the direct management of the projects with property developers and purchasers, reducing sale prices and adapting the lending conditions to the buyers’ needs, enabled loans already in force to be subrogated. These subrogations enable the Group to diversify its risk in a business segment that displays a clearly lower non-performing loans ratio.

In the case of construction-phase projects that are experiencing difficulties of any kind, the policy adopted is to ensure completion of the construction work to obtain completed buildings that can be sold in the market. To achieve this aim, the projects are analysed on a case-by- case basis in order to adopt the most effective series of measures for each case (structured payments to suppliers to ensure completion of the work, specific schedules for drawing down amounts, etc.).

For the new post-crisis real estate business production, the admission processes are managed by specialized teams that work in direct coordination with the commercial teams, with clearly defined policies and criteria:

a) Property developers with a robust solvency profile and a proven track record in the market. b) Medium-high level projects, conducting to contracted demand and significant cities. c) Strict criteria regarding the specific parameters of the transactions: exclusive financing for the construction cost, high percentages of accredited sales, principal residence financing, etc. d) Support of financing of government-subsidised housing, with accredited sales percentages.

e) Restricted financing of land purchases dealt with exceptional nature.

In addition to the permanent control performed by its risk monitoring teams, the Group has a specialist technical unit that monitors and controls this portfolio with regard to the stage of completion of construction work, planning compliance and sales control, and validates and controls progress billing payments.

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Santander has created a set of specific tools for this function. All mortgage distributions, amounts drawn down of any kind, changes made to the grace periods, etc., are authorised on a centralised basis.

Foreclosed properties

As of June 30, 2020, the net balance of these assets amounted to EUR 1,343 million (gross amount: EUR 1,965 million; recognised allowance: EUR 622 million, of which EUR 411 million related to impairment after the foreclosure date).

The following table shows the detail of the assets foreclosed by the businesses in Spain as of June 30, 2020:

30/06/2020 Gross carrying Impairment of Of which: impairment losses on assets Net book Millions of euros amount accumulated value since time of foreclosure value Property assets arising from financing provided to construction and property development companies 1,049 344 234 705 Of which: Completed buildings 972 334 228 638 Residential 174 50 35 124 Other 798 284 193 514 Buildings under construction - - - - Residential - - - - Other - - - - Land 77 10 6 67 Developed land 62 8 5 54 Other land 15 2 1 13 Property assets from home purchase mortgage loans to households 732 219 139 513 Other foreclosed property assets 184 59 38 125 Total property assets 1,965 622 411 1,343

In recent years, the Group has considered foreclosure to be a more efficient method for resolving cases of default than legal proceedings. The Group initially recognises foreclosed assets at the lower of the carrying amount of the debt (net of provisions) and the fair value of the foreclosed asset (less estimated costs to sell). After initial recognition, the assets are measured at the lower of fair value (less costs to sell) and the amount initially recognised.

The fair value of this type of assets is determined by the Group's directors based on evidence obtained from qualified valuers or evidence of recent transactions.

The management of real estate assets on the balance is carried out through companies specializing in the sale of real estate that is complemented by the structure of the commercial network. The sale is realised with levels of price reduction in line with the market situation.

The gross movement in foreclosed properties were as follows:

Millions of euros 30/06/2020 31/12/2019 Gross additions 105 306 Disposals (75) (1,687) Difference 30 (1,381)

3. Other credit risk aspects

3.1 Credit risk by activity in the financial markets This section covers credit risk generated in treasury activities with customers, mainly with credit institutions. Transactions are undertaken through money market financial products with different financial institutions and through counterparty risk products which serve the Group’s customer’s needs.

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According to regulation (EU) 575/2013, counterparty credit risk is the risk that a client in a transaction could default before the definitive settlement of the cash flows of the transaction. It includes the following types of transactions: derivative instruments, transactions with repurchase commitment, stock and commodities lending, transactions with deferred settlement and financing of guarantees.

There are two methodologies for measuring this exposure: (i) mark-to-market (MtM) methodology (replacement value of derivatives) plus potential future exposure (add-on) and (ii) the calculation of exposure using Monte Carlo simulation for some countries and products. The capital at risk or unexpected loss is also calculated, i.e. the loss which, once the expected loss has been subtracted, constitutes the economic capital, net of guarantees and recoveries.

After markets close, exposures are re-calculated by adjusting all transactions to their new time frame, adapting the potential future exposure and applying mitigation measures (netting, collateral, etc.), so that the exposures can be controlled directly against the limits approved by senior management. Risk control is performed through an integrated system and in real time, enabling the exposure limit available with any counterparty, product and maturity and in any of Santander’s subsidiaries to be known at any time.

3.2 Concentration risk Concentration risk control is a vital part of management. The Group continuously monitors the degree of concentration of its credit risk portfolios using various criteria: geographic areas and countries, economic sectors and groups of customers.

The board, via the risk appetite framework, determines the maximum levels of concentration.

In line with these maximum levels and limits, the executive risk committee establishes the risk policies and reviews the appropriate exposure levels for the effective management of the degree of concentration in Santander’s credit risk portfolios.

The Group must adhere to the regulation on large risks contained in the CRR, according to which the exposure contracted by an entity with a customer or group of associated customers will be considered a large exposure when its value is equal to or greater than 10% of eligible capital. In addition, in order to limit large exposures, no entity may assume exposures exceeding 25% of its eligible capital with a single customer or group of associated customers, having factored in the credit risk reduction effect contained in the regulation.

At the end of June, after applying risk mitigation techniques, no group reaches the above-mentioned thresholds.

The detail, by activity and geographical area of the Group's risk concentration as of June 30, 2020 is as follows:

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Millions of euros 30/06/2020 (*) Total Spain Other EU countries America Resto of the world Central banks and Credit institutions 231,632 75,240 71,858 37,599 46,935 Public sector 37,703 27,147 4,028 2,477 4,051 Of which: Central government 27,293 16,824 4,028 2,390 4,051 Other central government 10,410 10,323 - 87 -

Other financial institutions (financial business activity) 148,692 39,898 39,451 36,984 32,359 Non-financial companies and individual entrepreneurs (non-financial business activity) (broken down by purpose) 207,391 132,479 26,456 23,447 25,009 Of which: Construction and property development 2,790 2,770 18 1 1 Civil engineering construction 4,353 2,910 521 748 174 Large companies 141,855 70,008 25,326 22,409 24,113 SMEs and individual entrepreneurs 58,393 56,791 591 290 721 Households – other (broken down by purpose) 77,925 76,510 315 363 737 Of which: Residential 60,649 59,525 256 210 657 Consumer loans 9,237 9,199 5 14 18 Other purposes 8,039 7,786 54 139 62 Total 703,343 351,274 142,108 100,870 109,091

(*) For the purposes of this table, the definition of risk includes the following items in the public balance: Loans and advances to credit institutions, Loans and advances to Central Banks, Loans and advances to Customers, Debt Instruments, Equity Instruments, trading Derivatives, Hedging derivatives, Investments and financial guarantees given.

3.3 Sovereign risk and exposure to other public sector entities

Sovereign risk is the risk contracted in transactions with a central bank, including the regulatory cash reserve requirement, issuer risk with the Treasury (public debt portfolio) and the risk arising from transactions with public institutions with the following features: their funds only come from the state’s budget income and activities are of a non-commercial nature.

These historic Group criteria differ in some respects from those applied by the European Banking Authority (EBA) in its regular stress test exercises. The main differences are that the EBA’s criterion does not include deposits with central banks, exposures with insurance companies, indirect exposures via guarantees and other instruments. On the other hand, the EBA does include public administrations in general, including regional and local bodies, not only the central state sector.

Over the past few years, total exposure to sovereign risk has remained aligned with the regulatory requirements and strategic reasons that support the management of this portfolio.

The movements observed in the different countries exposure is therefore explained by the Group's liquidity management strategy and the hedging of interest and exchange rates risks. Santander has a diversified international exposure among different countries with diverse macroeconomic perspectives and thus, dissimilar growth, interest and exchange rates scenarios.

Regarding the deterioration measurement of these exposures, the Group has evaluated methodologies and criteria in accordance with the IFRS 9 general criteria, integrating common processes, systems, tools and data that are used both for accounting purposes and for capital adequacy.

When estimating the expected losses, the Group applies its own credit risk models for the valuation of financial instruments belonging to Santander Corporate & Investment Banking portfolios.

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Regarding the methodology and parameters development for this segment, it should be noted that the PD model incorporates forward-looking information as well as the current credit quality indicator (rating). As for the LGD, two approaches are given depending on the existence of guarantees. The LGD secured approach (severity based on guarantees) is based on the estimate made by analysts and aligned with the general framework proposed for individualised analysis by discounting cash flows. In the case of unsecured LGD (estimated severity without guarantee base), due to the low number of observations collected in recent decades, it is not possible to reflect a forward-looking vision or PiT (Point in Time) and therefore a prudent value is estimated in line with industry practices.

In case of sovereign risk issued in the official currency of the issuing country or in which the issuer has the 100% guarantee of the issuing country of the currency, the few default cases existing over the last decades only reflect the possibility if a potential unexpected loss that is still not modellable due to its scarcity. Consequently, for this type of sovereign risk, the expected loss is considered irrelevant in consistency with unexpected loss.

The exposure in the table below is disclosed following the latest amendments of the EBA regulatory reporting framework that came into effect during 2019:

Millions of euros 30/06/2020 Portfolio 31/12/2019 Financial assets held Financial assets at Non-trading for trading and fair value through Financial financial assets Loans to Total net direct Total net direct Country Financial assets other assets at mandatorily at fair customers exposure exposure designated as FV with comprehensive amortized cost value through (**) changes in results income profit or loss Spain 7,180 10,328 994 - 10,374 25,217 35,366 Portugal 224 4,184 648 - 4,078 8,649 8,689 Italy 220 920 1,455 - 19 2,422 2,735 Ireland ------Total 7,624 15,432 3,097 - 14,471 36,288 136,377

(*) Information prepared under EBA standards. Also, there are government debt instruments on insurance companies balance sheets amounting to EUR 14,926 million (of which EUR 13,132 million, EUR 1,300 million, EUR 482 million and EUR 12 million relate to Spain, Portugal, Italy and Ireland, respectively) and off-balance-sheet exposure other than derivatives – contingent liabilities and commitments– amounting to EUR 4,526 million (of which EUR 3,996 million, EUR 242 million and EUR 288 million to Spain, Portugal and Italy, respectively). (**) Presented without considering the valuation adjustments recognised (EUR 16 million). (***) "Other than CDSs" refers to the exposure to derivatives based on the location of the counterparty, irrespective of the location of the underlying. “CDSs” refers to the exposure to CDSs based on the location of the underlying.

4. Credit risk management

Our credit risk management process consists of identifying, analysing, controlling and deciding on the credit risk incurred by the Group. It considers a holistic view of the credit risk cycle including the transaction, customer and portfolio views. Both business and risk areas, together with the senior management participate in the management and control process.

Credit risk identification is a key component for the active management and effective control of the Group. The identification and classification of external and internal risks in each business allows corrective and mitigating measures to be adopted in the event they are needed. This is achieved through the following processes.

4.1 Planning Planning allows business targets to be set and specific action plans defined, within the risk appetite framework established by the Group.

Strategic commercial plans (SCPs) are one of our management and control tools for the Group’s credit portfolios. SCPs are prepared jointly by the business and risk areas, and define the commercial strategies, risk policies, measures and infrastructure required. These factors are considered as a whole, ensuring a holistic view of the portfolios.

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The integration of SCPs at management level provides an updated view of the credit portfolio quality, enabling credit risk to be measured, and internal controls executed alongside the periodic monitoring of strategy, the early detection of deviations and significant changes in the risk and potential impact, as well as defining corrective actions where necessary.

SCPs are approved and monitored by senior management in each entity before review and validation at Group level.

The SCPs are aligned with the Group´s risk appetite as well as the capital objectives of the subsidiaries.

4.2 Risk assessment and credit rating process In order to analyse a customer’s capacity to meet their contractual commitments with the Bank, the Group uses valuation and parameter estimation models in each of the segments where it operates.

The credit quality valuation models applied are based on credit rating drivers, which are monitored and controlled to calibrate and adjust the decisions and ratings they assign. Depending on the segment, drivers may be:

• Rating: resulting from the application of mathematical algorithms incorporating a quantitative model based on balance ratios or macroeconomic variables, and a qualitative module supplemented by the credit analyst’s expert judgement. It is used for the SCIB, commercial banking, institutions and SMEs (those who are treated on an individual basis) segments.

• Scoring: an automatic assessment system for credit applications. It automatically assigns an individual score to the customer for subsequent decision-making, generally in the retail and smaller SMEs segments.

Parameter estimation models are obtained through internal econometric models based on the portfolios’ historical defaults and losses for which they are developed. They are also used to calculate economic and regulatory capital and the portfolio’s IFRS 9 provision.

Periodic model monitoring and evaluation is carried out, assessing among other factors, the appropriateness of usage, predictive capacity, performance and granularity. In addition, policy compliance is also monitored.

The resulting ratings are regularly reviewed, incorporating the latest available financial information as well as other relevant data. The depth and frequency of the reviews are increased in the case of customers who require a more detailed monitoring or have automatic warnings in the risk management systems.

4.3 Credit risk mitigation techniques Generally, from a risk acceptance standpoint, the criteria are linked to the borrower’s payment capacity for the financial obligations - although this does not inhibit imply an impediment to requiring collateral or personal guarantees in addition.

Payment capacity is assessed based on the funds or net cash flows from the customer´s businesses or income, excluding guarantors or assets pledged as collateral. These guarantors or assets are always to be considered, when evaluating the approval of the transaction, as a secondary method of recovery in the event the first channel fails.

In general, a guarantee is defined as a reinforcement measure added to a credit transaction with the purpose of mitigating the loss due to a breach of the payment obligation.

At Santander, we apply several credit risk mitigation techniques on the basis, among other factors, of the type of customer and product. Some are inherent to specific transactions (e.g. real estate guarantees) while others apply to a series of transactions (e.g. derivatives netting and collateral). The different mitigation techniques can be grouped into personal guarantees, guarantees in the form of credit derivatives or collateral.

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4.4 Definition of limits, pre-classifications and preapprovals The connection between the Group’s credit risk appetite and credit portfolios management and control is implemented through the SCPs, which define the portfolio and origination limits to predict the portfolio’s risk profile. The cascading down of the Group’s risk appetite, strengthens the controls over our credit portfolios.

We have processes that determine the risk that the Group is able to assume with each customer. These limits are jointly set by the business and risk areas and must be approved by the executive risk committee (or delegated committees) and reflect the expected results of the business in terms of risk- return.

There are different limit models depending on the segment:

• Large corporate groups: we use a pre-classification model based on a system for measuring and monitoring economic capital. The result is the level of risk that the Group is willing to assume with a customer/group, in terms of capital at risk, nominal CAP, and maximum tenors according to the type of transaction, in the case of financial entities, limits are managed through credit equivalent risk (CER). It includes the actual and expected risk with a customer based on its usual transactions, always within the limits defined in the risk appetite statement and established credit policies.

• Corporates and institutions that meet certain requirements (deep knowledge, rating, etc.): a more simplified pre-classification model is used, with an internal limit that establishes a reference point in the level of risk to be assumed with the customer. The criteria will include, among others, repayment capacity, overall indebtedness, and the distribution of the banking pool.

In both cases, transactions over certain thresholds or with specific characteristics might require the approval of a senior credit analyst or committee.

For individual customers and SMEs with low turnover, large volumes of credit transactions are managed with the use of automatic decision models to classify the customer/transaction.

4.5 Scenario analysis Scenario analysis is used in credit portfolio management as an evolution of the portfolio analysis. It enriches the understanding of the portfolio performance under different macroeconomic conditions and allows management strategies to be anticipated and defined in order to avoid future deviations from the established plans and targets.

The approach taken about scenario analysis consists of simulating the impact of alternative scenarios in the portfolio credit parameters (PD, LGD) and the associated expected credit losses. The results of this analysis are compared with the portfolio’s credit profile indicators to identify the most appropriate measures that could be developed to guide the required management actions.

Scenario analysis is integrated into credit management portfolio activities and in the SCPs.

4.6 Monitoring Business performance is monitored on a regular basis by comparing performance with established plans. This is a key risk management activity.

All customers are monitored on an ongoing, holistic manner that enables the early detection of events that may have an impact on the customer’s credit rating. Monitoring is carried out through an ongoing review of all customers, assigning a monitoring classification, establishing pre-defined actions associated to each classification and executing specific measures (pre-defined or ad-hoc) to correct any deviations that could have a negative effect for the Group.

This monitoring process takes into consideration the transaction forecasts and characteristics throughout its entire life. It also takes into consideration any variations that may have occurred in the classification and suitability since the time of the review.

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Monitoring is carried out by local and global Risk teams, backed up by Internal audit. It is based on customer segmentation:

• In the SCIB segment, monitoring, in the first instance, is a direct function of both the business manager and the risk analyst, who maintain direct relationship with the customer and manage the portfolio. This guarantees an up-to- date view of the customer’s credit quality is always available and allows us to anticipate situations of concern and take the necessary actions.

• For commercial banking, institutions and SMEs with a credit analyst assigned, the function consists of identifying and tracking customers that require closer monitoring, reviewing ratings and continuously analysing relevant indicators.

• For individual customers, businesses and smaller SMEs monitoring is carried out through automatic alerts, in order to detect shifts in the performance of the portfolio.

The Group performs the monitoring process through the Santander Customer Assessment Note (SCAN), which was implemented in the Group’s subsidiaries in 2019.

The Group’s SCAN system aims to establish the level of monitoring, policies and specific actions for all individual customers, based on their credit quality and particular circumstances. Each customer is assigned a level of monitoring, and specific risk management actions, on a dynamic basis, with a specific manager appointed and agreed monitoring frequency.

In addition to customer credit quality monitoring, Santander establishes the control procedures needed to analyse portfolios and performance, as well as any possible deviations regarding planning or approved alert levels.

Portfolio analysis systematically controls the evolution of credit risk with regard to budgets, limits and benchmarks, assessing the impacts of future situations, both exogenous and resulting from strategic decisions, to establish actions to keep the risk portfolio profile and volumes within the parameters set by the Group within its risk appetite.

4.7 Recovery and collections management Recovery activity is a significant component in the Group’s risk management and control. This function is carried out by the Recoveries area, which defines a global strategy and an enterprise-wide focus for recovery management.

The Group has a recovery management operating model that sets the guidelines and general policies of action to be applied, considering the local environment.

During 2019, this model has been updated to incorporate new regulatory requirements established in the EBA guidelines on managing the volume of non-performing loans, refinancing and restructuring.

The Recoveries area directly manages customers, where value creation is based on effective and efficient collection management. New digital channels are becoming increasingly important in recovery management.

The diverse features of Santander´s customers make segmentation necessary in order to manage recoveries effectively. Mass management of large groups of customers with similar profiles and products is conducted through processes with a high technological and digital component, while personalised management focuses on customers who, because of their profile, require a specific manager and more customised management.

Recovery management is divided into four phases: in arrears, non-performing loans recoveries, write- offs recoveries and management of foreclosed assets.

The management scope for the Recovery function includes non-productive assets (NPAs), corresponding to the forborne portfolios, NPLs, written-off loans and foreclosed assets, where the Group may use mechanisms to rapidly reduce the volume of these assets, such as the sale of portfolios or foreclosed assets.

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In the written-off loans category, debt instruments are included (past due or otherwise) the recovery of which, after an individualised analysis, is considered remote, due to the severe and unrecoverable impairment of the solvency of the transaction or the customer. Classification in this category involves the full or partial cancellation of the gross carrying amount of the loan and its derecognition. This does not mean that the Group will suspend negotiations or legal proceedings to recover the amounts.

In those geographies with a significant exposure to real estate risk, the Group has efficient sales management instruments to maximise recovery and optimise the existing stock in the balance.

4.8 Forborne loan portfolio The Group has an internal forbearance policy, which acts as a reference for the different transpositions in all local subsidiaries and shares the principles established by the regulation and the applicable supervisory expectations. This year, the policy was updated to include the EBA Guidelines on the management of non-performing and forborne exposures.

This policy defines forbearance as the modification of the payment conditions of a transaction to allow a customer who is experiencing financial difficulties (current or foreseeable), to fulfil their payment obligations.

In addition, this policy sets rigorous criteria for the evaluation, classification and monitoring of such transactions, ensuring the strictest possible care and diligence in their approval and monitoring. Therefore, the forborne transaction must be focused on recovery of the amounts due and the payment obligations adapted to the customer’s current position and, in addition, losses must be recognised as soon as possible if any amounts are deemed irrecoverable.

Forbearance may never be used to delay the immediate recognition of losses or to hinder the appropriate recognition of risk of default.

Further, the policy defines the classification criteria for forborne transactions in order to ensure that any risks are suitably recognised, bearing in mind that they must remain classified as non-performing or watchlist for an appropriate period to ensure reasonable certainty that repayment capacity can be recovered.

The forborne portfolio stood at EUR 14,768 million at the end of June 2020. In terms of credit quality, 65% of the loans are classified as non-performing loans, with average coverage of 33% (22% of the total portfolio).

The Bank's level of redirections decreased by 2% in June 2020 compared to December 2019.

The following terms are used in Bank of Spain Circular 4/2017 of Bank of Spain with the meanings specified:

- Refinancing transaction: transaction that is granted or used, for reasons relating to current or foreseeable financial difficulties of the borrower, to repay one or more of the transactions granted to it, or through which the payments on such transactions are brought fully or partially up to date, in order to enable the borrowers of the cancelled or refinanced transactions to repay their debt (principal and interest) because they are unable, or might foreseeably become unable, to comply with the conditions thereof in due time and form.

- Restructured transaction: transaction with respect to which, for economic or legal reasons relating to current or foreseeable financial difficulties of the borrower, the financial terms and conditions are modified in order to facilitate the payment of the debt (principal and interest) because the borrower is unable, or might foreseeably become unable, to comply with the aforementioned terms and conditions in due time and form, even if such modification is envisaged in the agreement.

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CURRENT REFINANCING AND RESTRUCTURING BALANCES

Amounts in millions of euros, except number of operations that are in units. 30/06/2020 Total Of which: Non-performing/Doubtful Without real guarantee With real guarantee Without real guarantee With real guarantee Impairment of Maximum amount of the actual Impairment of Maximum amount of the actual accumulated value collateral that can be accumulated value collateral that can be considered or accumulated considered. or accumulated Number of Gross Number of Gross Real estate Rest of real losses in fair value Number of Number of Real estate Rest of real losses in fair value transactions amount transactions amount guarantee guarantees due to credit risk transactions Gross amount transactions Gross amount guarantee guarantees due to credit risk Credit entities ------Public sector 32 22 14 8 5 - (1) 7 1 9 3 3 - -

Other financial institutions and: individual shareholder 236 26 188 139 34 1 (29) 111 22 124 100 20 - (27)

Non-financial institutions and individual shareholder 28.764 1.797 29.754 8.041 5.027 97 (2.479) 16.192 1.310 23.285 5.174 3.064 56 (2.263)

Of which: Financing for constructions and property development 27 2 524 334 251 - (78) 24 2 339 (197) 120 - (72) Other warehouses 28.933 389 41.753 4.345 3.225 14 (1.038) 10.241 168 27.556 2.882 1.912 2 (937) Total 57.965 2.234 71.709 12.533 8.291 112 (3.547) 26.551 1.500 50.974 8.159 4.999 58 (3.227) Financing classified as non-current assets and disposable groups of items that have been classified as held for sale ------

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The transactions presented in the foregoing tables were classified as of June 30, 2020 by nature, as follows:

- Non-performing: Operations that rest on an inadequate payment scheme will be classified within the non-performing category, regardless they include contract clauses that delay the repayment of the operation throughout regular payments or present amounts written off the balance for being considered irrecoverable.

- Performing: Operations not classifiable as non-performing will be classified within this category. Operations will also be classified as normal if they have been reclassified from the non-performing category for complying with the specific criteria detailed below:

a) A period of a year must have expired from the refinancing or restructuring date.

b) The owner must have paid for the accrued amounts of the capital and interests, thus reducing the rearranged capital amount, from the date when the restructuring of refinancing operation was formalised.

c) The owner must not have any other operation with amounts past due by more than 90 days on the date of the reclassification to the normal risk category. c) Trading market risk, structural and liquidity risk

1. Activities subject to market risk and types of market risk The perimeter of activities subject to market risk involves transactions where patrimonial risk is assumed as a consequence of variations in market factors. Thus, they include trading risks and also structural risks, which are also affected by market shifts. This risk arises from changes in risk factors - interest rates, inflation rates, exchange rates, stock prices, credit spreads, commodity prices and the volatility of each of these elements - as well as liquidity risk of the various products and markets in which the Group operates, and balance liquidity risk:

- Interest rate risk is the possibility that changes in interest rates could adversely affect the value of a financial instrument, a portfolio or the Group as a whole. It affects loans, deposits, debt securities, most assets and liabilities in the trading books and derivatives, among others.

- Inflation rate risk originates from potential changes in inflation rates that could adversely affect the value of a financial instrument, a portfolio or the Group as a whole. It affects instruments such as loans, debt securities and derivatives, where the return is linked to future inflation values or to a change in the current rate.

- Exchange rate risk is defined as the sensitivity to potential movements in exchange rates of a position’s value that is denominated in a different currency than the base currency. Hence, a long or open position in a foreign currency may produce a loss if that currency depreciates against the base currency. Among the exposures affected by this risk are the Group’s investments in subsidiaries in non-euro currencies, as well as any transactions in foreign currency. - Equity risk is the sensitivity of the value of positions in equities to adverse movements in market prices or expectations of future dividends. Among other instruments, this affects positions in shares, stock market indices, convertible bonds and derivatives using shares as the underlying asset (put, call, equity swaps, etc.).

- Credit spread risk is the risk or sensitivity of the value of positions in fixed income securities or in credit derivatives to movements in credit spread curves or in recovery rates associated with issuers and specific types of debt. The spread is the difference between financial instruments listed with a margin over other benchmark instruments, mainly the interest rate risk of Government bonds and interbank interest rates.

- Commodities price risk is the risk derived from the effect of potential changes in commodities prices. The Group’s exposure to this risk is not significant and mainly comes from our customers’ derivative transactions on commodities.

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- Volatility risk is the risk or sensitivity of the value of a portfolio to changes in the volatility of risk factors: interest rates, exchange rates, shares, credit spreads and commodities. This risk is incurred by all financial instruments where volatility is a variable in the valuation model. The most significant case is the financial options portfolio.

This risk is incurred in financial instruments that have volatility as a variable in their valuation model. The most significant case is the portfolios of financial options.

All these market risks can be partly or fully mitigated by using options, futures, forwards and swaps.

Additionally, there are other types of market risk, the coverage of which is more complex. For example:

- Correlation risk. Sensitivity of the portfolio to changes in the relationship between risk factors (correlation), either of the same type (for example, two exchange rates) or different types (for example, an interest rate and the price of a commodity).

- Market liquidity risk. This risk arises when a Group subsidiary or the Group as a whole cannot reverse or close a position in time without having an impact on the market price or the transaction cost. Market liquidity risk can be caused by a reduction in the number of market makers or institutional investors, the execution of a large volume of transactions, or market instability. Additionally, this risk could increase depending on how the different exposures are distributed among certain products and currencies.

- Pre-payment or cancellation risk. Some on-balance sheet instruments (such as mortgages or deposits) may have associated options that allow the holder to buy, sell it or otherwise alter its future cash flows. This may result in mismatches arising in the balance, which maypose a risk since cash flows may have to be reinvested at an interest rate that is potentially lower (assets) or higher (liabilities).

- Underwriting risk. This is the consequence of an entity’s involvement in the underwriting or placement of securities or other types of debt, when the entity assumes the risk of having to partially acquire the issued securities when the placement has not been taken up in full by potential buyers.

In addition to the above market risks, balance liquidity risk must also be considered. Unlike market liquidity risk, balance liquidity risk is defined as the possibility of not meeting payment obligations on time or doing so at an excessive cost. Among the losses caused by this risk are losses due to forced sales of assets or margin impacts due to the mismatch between expected cash inflows and outflows.

Pension and actuarial risks also depend on potential shifts in market factors.

2. Trading market risk management The establishment of trading market risk limits is a dynamic process that responds to the level of risk appetite established by the Group. This process is part of the annual limits plan, which is promoted by the Group's senior management, and involves all the entities that comprise it.

The standard methodology Santander Group applies to trading activities is Value at Risk (VaR), which measures the maximum expected loss with a certain confidence level and time frame.

The standard for historic simulation is a confidence level of 99% and a time frame of one day. Statistical adjustments are applied enabling the most recent developments affecting the levels of risk assumed to be incorporated efficiently and on a timely manner. A time frame of two years or at least 520 days from the reference date of the VaR calculation is used. Two figures are calculated every day: one applying an exponential decay factor that accords less weight to the observations furthest away in time and another with the same weight for all observations. The higher of the two is reported as the VaR.

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3. Structural balance risks

Methodologies

a) Structural interest rate risk The Group analyses the sensitivity of its equity value and net interest income to changes in interest rates as well as its different sources and sub-types of risk. These sensitivities measure the impact of changes in interest rates on the value of a financial instrument, a portfolio or the Group as a whole, as well as the impact on the profitability structure over the given time horizon for which NII is calculated.

Taking into consideration the balance-sheet interest rate position and the market situation and outlook, the necessary financial actions are adopted to align this position with that defined by the Group. These measures can range from opening positions in markets to the definition of the interest rate characteristics of our commercialized products.

The metrics used by the Group to control interest rate risk in these activities are the repricing gap, sensitivity of net interest margin and market value of equity to changes in interest rates, the duration of capital and value at risk (VaR) for economic capital calculation purposes.

b) Structural exchange-rate risk/hedging of results These activities are monitored via position measurements, VaR and results, on a daily basis.

c) Structural equity risk These activities are monitored via position measurements, VaR and results, on a monthly basis.

4. Liquidity risk

Structural liquidity management aims to fund the Group’s recurring activity optimizing maturities and costs. while avoiding taking on undesired liquidity risks.

Santander’s liquidity management is based on the following principles:

- Decentralized liquidity model.

- Medium- and long-term (M/LT) funding needs must be covered by medium- and long-term instruments.

- High contribution from customer deposits due to the retail nature of the balance.

- Diversification of wholesale funding sources by instruments/investors, markets/currencies and maturities.

- Limited recourse to short-term funding.

- Availability of enough liquidity reserves, including standing facilities/discount windows at central banks to be used in adverse situations.

- Compliance with regulatory liquidity requirements both at Group and subsidiary level, as a new factor conditioning management.

The effective application of these principles by all institutions comprising the Group required the development of a unique management framework built upon three essential pillars:

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- A solid organisational and governance model that ensures the involvement of the subsidiaries’ senior management in decision-taking and its integration into the Group’s global strategy. The decision-making process for all structural risks, including liquidity and funding risk, is carried out by Local Asset and Liability Committees (ALCO) in coordination with the Global ALCO. - This is the body empowered by Banco Santander’s board in accordance with the corporate Asset and Liability Management (ALM) framework.

This governance model has been reinforced as it has been included within the Santander Risk Appetite Framework. This framework meets the demands of regulators and market players emanating from the financial crisis to strengthen banks’ risk management and control systems.

The Group’s liquidity risk management processes are contained within a conservative risk appetite framework established in each geographic area in accordance with its commercial strategy. This risk appetite establishes the limits within which the subsidiaries can operate in order to achieve their strategic objectives.

- In-depth balance analysis and measurement of liquidity risk, supporting decision-taking and its control. The objective is to ensure the Group maintains adequate liquidity levels necessary to cover its short- and long-term needs with stable funding sources, optimising the impact of their costs on the income statement.

- Management adapted in practice to the liquidity needs of each business. Every year, based on business needs, a liquidity plan is developed which seeks to achieve:

a) a solid balance structure, with a diversified presence in the wholesale markets;

b) the use of liquidity buffers and limited encumbrance of assets;

c) compliance with both regulatory metrics and other metrics included in each entity’s risk appetite statement.

Over the course of the year, all dimensions of the plan are monitored.

The Group continues developing the ILAAP (Internal Liquidity Adequacy Assessment Process), an internal self-assessment of liquidity adequacy which must be integrated into the Group’s other risk management and strategic processes. It focuses on both quantitative and qualitative matters and is used as an input to the SREP (Supervisory Review and Evaluation Process). The ILAAP evaluates the liquidity position both in ordinary and stressed scenarios. d) Capital risk Capital risk, the second line of defence, independently challenges the business or first line activities mainly through the following processes:

- Supervision of capital planning and adequacy exercises through a review of the main components affecting the capital ratios.

- Ongoing supervision of measurement of the Group’s regulatory capital by identifying the key metrics for the calculation, setting tolerance levels for identified metrics and reviewing their consumption and the consistency of the calculations, including single transactions with an impact on capital.

- Review and challenge of the execution of those capital actions proposed in line with capital planning and risk appetite. Through this function it is intended to carry out a complete and periodic monitoring of capital risk, checking the adequate coverage and capital adequacy according to the Group's risk profile. The Group commands a sound solvency position, above the levels required by regulators and by the European Central bank.

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As of June 30, 2020, at a consolidated level, the Group must maintain a minimum capital ratio of 8.86% of CET1 fully loaded (4.50% being the requirement for Pillar I, 0.84% the requirement for Pillar II, 2.50% the requirement for capital conservation buffer, 1% the requirement for G-SIB and 0.02% the requirement for the countercyclical capital buffer).

Additionally, the Santander Group must maintain a minimum capital ratio of 10.65% of Tier 1 fully loaded, as well as a minimum total ratio of 13.02% fully loaded.

Regulatory capital As of June 30, 2020, the Group has a regulatory CET1 capital ratio of 11.84% and a total ratio of 15.48%.

The following table shows the Phase-in capital coefficients and a detail of the eligible internal resources of the Group:

30/06/2020 31/12/2019 Capital coefficients Level 1 ordinary eligible capital (millions of euros) 67,192 70,497 Level 1 additional eligible capital (millions of euros) 9,284 9,039 Level 2 eligible capital (millions of euros) 11,361 11,531 Risk-weighted assets (millions of euros) 567,446 605,244 Level 1 ordinary capital coefficient (CET 1) 11,84% 11,65% Level 1 additional capital coefficient (AT1) 1,64% 1,49% Level 1 capital coefficient (TIER1) 13,48% 13,14% Level 2 capital coefficient (TIER 2) 2,00% 1,91% Total capital coefficient 15,48% 15,05%

Leverage ratio The leverage ratio has been defined within the regulatory framework of Basel III as a measure of the capital required by financial institutions not sensitive to risk. The Group performs the calculation as stipulated in CRD IV and its subsequent amendment in EU Regulation No. 573/2013 of 17 January 2015, which was aimed at harmonising calculation criteria with those specified in the BCBS “Basel III leverage ratio framework” and “Disclosure requirements” documents.

This ratio is calculated as Tier 1 capital divided by leverage exposure. Exposure is calculated as the sum of the following items: - Accounting assets, excluding derivatives and items treated as deductions from Tier 1 capital (for example, the balance of loans is included, but not that of goodwill).

- Off-balance-sheet items (mainly guarantees, unused credit limits granted and documentary credits) weighted using credit conversion factors.

- Inclusion of net value of derivatives (gains and losses are netted with the same counterparty, minus collaterals if they comply with certain criteria) plus a charge for the future potential exposure.

- A charge for the potential risk of security funding transactions.

- Lastly, it includes a charge for the risk of credit derivative swaps (CDS).

With the publication of Regulation (EU) 2019/876 of 20 May, 2019, amending Regulation (EU) No. 575/2013 as regards the leverage ratio, the final calibration of the ratio is set at 3% for all entities and, for systemic entities G-SIBs, an additional surcharge is also established which will be 50% of the cushion ratio applicable to the EISM. In addition, modifications are included in its calculation, including the exclusion of certain exposures from the total exposure measure: public loans, transfer loans and officially guaranteed export credits.

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Banks will have to implement the final definition of the leverage ratio by June 2021 and comply with the new calibration of the ratio (the surcharge for G-SIBs) from January 2022.

Millions of euros 30/06/2020 31/12/2019 Leverage Level 1 Capital 76.476 79.536 Exposure 1.588.446 1.544.614 Leverage Ratio 4,81% 5.15%

Global systemically important banks The Group is one of 30 banks designated as global systemically important banks (G-SIBs).

The designation as a systemically important entity is based on the measurement set by regulators (the FSB and BCBS), based on 5 criteria (size, cross-jurisdictional activity, interconnectedness with other financial institutions, substitutability and complexity).

This definition means it has to fulfil certain additional requirements, which consist mainly of a capital buffer (1%), in TLAC requirements (total loss absorbing capacity), that we have to publish relevant information more frequently than other banks, greater regulatory requirements for internal control bodies, special supervision and drawing up of special reports to be submitted to supervisors.

The fact that Grupo Santander has to comply with these requirements makes it a more solid bank than its domestic rivals.

150

Appendix I

Subsidiaries of Banco Santander, S.A. (1)

% Partic. Del Porcentaje de Derechos de Voto Millones de Euros (a) Banco Sociedad Domicilio Directa Indirecta Año 2019 Año 2018 Actividad Capital + Reservas Resultados Netos Importe en Libros 2 & 3 Triton Limited Reino Unido 0,00% 100,00% 100,00% 100,00% INMOBILIARIA 63 7 12 A & L CF (Guernsey) Limited Guernsey 0,00% 100,00% 100,00% 100,00% LEASING 0 1 0 A & L CF June (2) Limited Reino Unido 0,00% 100,00% 100,00% 100,00% LEASING 0 0 0 A & L CF June (3) Limited Reino Unido 0,00% 100,00% 100,00% 100,00% LEASING 8 -1 0 A & L CF March (5) Limited Reino Unido 0,00% 100,00% 100,00% 100,00% LEASING 0 0 0 A & L CF September (4) Limited Reino Unido 0,00% 100,00% 100,00% 100,00% LEASING 23 0 0 Abbey Business Services (India) Private Limited India 0,00% 100,00% 100,00% 100,00% SOCIEDAD DE CARTERA 0 0 0 Abbey Covered Bonds (Holdings) Limited Reino Unido - (b) - - TITULIZACIÓN 0 0 0 Abbey Covered Bonds (LM) Limited Reino Unido 0,00% 100,00% 100,00% 100,00% TITULIZACIÓN 0 0 0 Abbey Covered Bonds LLP Reino Unido - (b) - - TITULIZACIÓN -269 277 0 Abbey National Beta Investments Limited Reino Unido 0,00% 100,00% 100,00% 100,00% FINANCIERA 0 0 0 Abbey National Business Office Equipment Leasing Limited Reino Unido 0,00% 100,00% 100,00% 100,00% LEASING 0 0 0 Abbey National International Limited Jersey 0,00% 100,00% 100,00% 100,00% BANCA 5 0 7 Abbey National Nominees Limited Reino Unido 0,00% 100,00% 100,00% 100,00% SOCIEDAD DE VALORES 0 0 0 Abbey National PLP (UK) Limited Reino Unido 0,00% 100,00% 100,00% 100,00% FINANCIERA 0 0 0 Abbey National Property Investments Reino Unido 0,00% 100,00% 100,00% 100,00% FINANCIERA 554 6 163 Abbey National Treasury Services Investments Limited Reino Unido 0,00% 100,00% 100,00% 100,00% FINANCIERA 0 0 0 Abbey National Treasury Services Overseas Holdings Reino Unido 0,00% 100,00% 100,00% 100,00% SOCIEDAD DE CARTERA 1 0 0 Abbey National UK Investments Reino Unido 0,00% 100,00% 100,00% 100,00% FINANCIERA 0 0 0 Abbey Stockbrokers (Nominees) Limited Reino Unido 0,00% 100,00% 100,00% 100,00% SOCIEDAD DE VALORES 0 0 0 Abbey Stockbrokers Limited Reino Unido 0,00% 100,00% 100,00% 100,00% SOCIEDAD DE VALORES 0 0 0 Ablasa Participaciones, S.L. España 18,94% 81,06% 100,00% 100,00% SOCIEDAD DE CARTERA 445 -109 697 Administración de Bancos Latinoamericanos Santander, S.L. España 24,11% 75,89% 100,00% 100,00% SOCIEDAD DE CARTERA 2.532 -11 1.863 Aevis Europa, S.L. España 96,34% 0,00% 96,34% 96,34% TARJETAS 1 0 1 AFB SAM Holdings, S.L. España 1,00% 99,00% 100,00% 100,00% SOCIEDAD DE CARTERA 0 0 0 Afisa S.A. Chile 0,00% 100,00% 100,00% 100,00% GESTORA DE FONDOS 4 0 4 ALIL Services Limited Isla de Man 0,00% 100,00% 100,00% 100,00% SERVICIOS 4 0 4 Aliseda Real Estate, S.A. España 100,00% 0,00% 100,00% 100,00% INMOBILIARIA 30 -48 4 Aljardi SGPS, Lda. Portugal 0,00% 100,00% 100,00% 100,00% SOCIEDAD DE CARTERA 1.204 -2 1.148 Alliance & Leicester Cash Solutions Limited Reino Unido 0,00% 100,00% 100,00% 100,00% FINANCIERA 0 0 0 Alliance & Leicester Commercial Bank Limited Reino Unido 0,00% 100,00% 100,00% 100,00% FINANCIERA 0 0 0 Alliance & Leicester Investments (Derivatives) Limited Reino Unido 0,00% 100,00% 100,00% 100,00% FINANCIERA 0 0 0 Alliance & Leicester Investments (No.2) Limited Reino Unido 0,00% 100,00% 100,00% 100,00% FINANCIERA 0 0 0 Alliance & Leicester Investments Limited Reino Unido 0,00% 100,00% 100,00% 100,00% FINANCIERA 0 0 0 Alliance & Leicester Limited Reino Unido 0,00% 100,00% 100,00% 100,00% FINANCIERA 0 0 0 Alliance & Leicester Personal Finance Limited Reino Unido 0,00% 100,00% 100,00% 100,00% FINANCIERA -239 0 0 Allianz Popular Asset Management, S.G.I.I.C., S.A. España ------Allianz Popular Pensiones, E.G.F.P., S.A. España ------Allianz Popular, S.L. (consolidado) España 40,00% 0,00% 40,00% 40,00% SEGUROS 2.749 80 76 Altamira Santander Real Estate, S.A. España 100,00% 0,00% 100,00% 100,00% INMOBILIARIA -61 -55 0 Amazonia Trade Limited Reino Unido 100,00% 0,00% 100,00% 100,00% SOCIEDAD DE CARTERA 0 0 0 AN (123) Limited Reino Unido 0,00% 100,00% 100,00% 100,00% SOCIEDAD DE CARTERA 0 0 0 Andaluza de Inversiones, S.A. España 0,00% 100,00% 100,00% 100,00% SOCIEDAD DE CARTERA 92 0 27 ANITCO Limited Reino Unido 0,00% 100,00% 100,00% 100,00% SOCIEDAD DE CARTERA 0 0 0 Aquanima Brasil Ltda. Brasil 0,00% 100,00% 100,00% 100,00% COMERCIO ELECTRÓNICO 3 0 0 Aquanima Chile S.A. Chile 0,00% 100,00% 100,00% 100,00% SERVICIOS 3 0 0

151

Subsidiaries of Banco Santander, S.A. (1)

% Partic. Del Porcentaje de Derechos de Voto Millones de Euros (a) Banco Sociedad Domicilio Directa Indirecta Año 2019 Año 2018 Actividad Capital + Reservas Resultados Netos Importe en Libros Aquanima México S. de R.L. de C.V. México 0,00% 100,00% 100,00% 100,00% COMERCIO ELECTRÓNICO 2 0 2 Aquanima S.A. Argentina 0,00% 100,00% 100,00% 100,00% SERVICIOS 0 0 0 Arcaz - Sociedade Imobiliária Portuguesa, Lda. Portugal 0,00% 99,91% 100,00% 100,00% SIN ACTIVIDAD 3 0 0 Argenline S.A. Uruguay 0,00% 100,00% 100,00% 100,00% FINANCIERA 0 0 0 Asto Digital Limited Reino Unido 0,00% 100,00% 100,00% 100,00% FINANCIERA 45 -16 30 Athena Corporation Limited Reino Unido 0,00% 100,00% 100,00% 100,00% SERVICIOS FINANCIEROS -1 -2 1 Atlantes Azor No. 1 Portugal - (b) - - TITULIZACIÓN 0 0 0 Atlantes Azor No. 2 Portugal - (b) - - TITULIZACIÓN 0 0 0 Atlantes Mortgage No. 2 Portugal - (b) - - TITULIZACIÓN 0 0 0 Atlantes Mortgage No. 3 Portugal - (b) - - TITULIZACIÓN 0 0 0 Atlantes Mortgage No. 4 Portugal - (b) - - TITULIZACIÓN 0 0 0 Atlantes Mortgage No. 5 Portugal - (b) - - TITULIZACIÓN 0 0 0 Atlantes Mortgage No. 7 Portugal - (b) - - TITULIZACIÓN 0 0 0 Atual Serviços de Recuperação de Créditos e Meios Digitais S.A. Brasil 0,00% 89,93% 100,00% 100,00% SERVICIOS FINANCIEROS 291 6 263 Auto ABS Belgium Loans 2019, SA/NV Bélgica - (b) - - TITULIZACIÓN 4 0 0 Auto ABS DFP Master Compartment France 2013 Francia - (b) - - TITULIZACIÓN 0 0 0 Auto ABS French Lease Master Compartiment 2016 Francia - (b) - - TITULIZACIÓN 0 0 0 Auto ABS French Leases 2018 Francia - (b) - - TITULIZACIÓN 0 0 0 Auto ABS French Loans Master Francia - (b) - - TITULIZACIÓN 0 0 0 Auto ABS French LT Leases Master Francia - (b) - - TITULIZACIÓN 0 0 0 Auto ABS Italian Balloon 2019-1 S.R.L. Italia - (b) - - TITULIZACIÓN 0 0 0 Auto ABS Italian Loans 2018-1 S.R.L. Italia - (b) - - TITULIZACIÓN 0 0 0 Auto ABS Spanish Loans 2016, Fondo de Titulización España - (b) - - TITULIZACIÓN 0 0 0 Auto ABS Spanish Loans 2018-1, Fondo de Titulización España - (b) - - TITULIZACIÓN 0 0 0 Auto ABS Swiss Leases 2013 Gmbh Suiza - (b) - - TITULIZACIÓN 0 0 0 Auto ABS UK Loans 2017 Holdings Limited Reino Unido - (b) - - TITULIZACIÓN 0 0 0 Auto ABS UK Loans 2017 Plc Reino Unido - (b) - - TITULIZACIÓN 0 -1 0 Auto ABS UK Loans 2019 Holdings Limited Reino Unido - (b) - - TITULIZACIÓN 0 0 0 Auto ABS UK Loans 2019 Plc Reino Unido - (b) - - TITULIZACIÓN 0 -1 0 Auto ABS UK Loans Holdings Limited Reino Unido - (b) - - TITULIZACIÓN 0 0 0 Auto ABS UK Loans PLC Reino Unido - (b) - - TITULIZACIÓN -5 -7 0 Autodescuento, S.L. España 0,00% 93,89% 93,89% - COMPRAVENTA DE VEHÍCULOS 1 0 18 Auttar HUT Processamento de Dados Ltda. Brasil 0,00% 89,93% 100,00% 100,00% SERVICIOS TECNOLÓGICOS 4 1 4 Aviación Antares, A.I.E. España 99,99% 0,01% 100,00% 100,00% RENTING 49 6 28 Aviación Británica, A.I.E. España 99,99% 0,01% 100,00% 100,00% RENTING 15 4 6 Aviación Centaurus, A.I.E. España 99,99% 0,01% 100,00% 100,00% RENTING 39 3 25 Aviación Comillas, S.L. Unipersonal España 100,00% 0,00% 100,00% 100,00% RENTING 8 0 8 Aviación Intercontinental, A.I.E. España 99,97% 0,03% 100,00% 100,00% RENTING 82 -1 63 Aviación Laredo, S.L. España 99,00% 1,00% 100,00% 100,00% TRANSPORTE AÉREO 4 0 3 Aviación Oyambre, S.L. Unipersonal España 100,00% 0,00% 100,00% 100,00% RENTING 1 0 1 Aviación Real, A.I.E. España 99,99% 0,01% 100,00% 100,00% RENTING 11 2 11 Aviación Santillana, S.L. España 99,00% 1,00% 100,00% 100,00% RENTING 3 0 2 Aviación Suances, S.L. España 99,00% 1,00% 100,00% 100,00% TRANSPORTE AÉREO 5 0 3 Aviación Tritón, A.I.E. España 99,99% 0,01% 100,00% 100,00% RENTING 29 3 19 Aymoré Crédito, Financiamento e Investimento S.A. Brasil 0,00% 89,93% 100,00% 100,00% FINANCIERA 72 135 42

152

Subsidiaries of Banco Santander, S.A. (1)

Porcentaje de % Partic. Del Banco Millones de Euros (a) Derechos de Voto Capital Importe Año Año Resultados Sociedad Domicilio Directa Indirecta Actividad + en 2019 2018 Netos Reservas Libros Azor Mortgages PLC Irlanda ------Banca PSA Italia S.p.A. Italia 0,00% 50,00% 50,00% 50,00% BANCA 387 55 153 Banco Bandepe S.A. Brasil 0,00% 89,93% 100,00% 100,00% BANCA 1.115 54 1.051 Banco de Albacete, S.A. España 100,00% 0,00% 100,00% 100,00% BANCA 14 0 9 Banco de Asunción, S.A. en liquidación voluntaria Paraguay 0,00% 99,33% 99,33% 99,33% BANCA 0 0 0 Banco Hyundai Capital Brasil S.A. Brasil 0,00% 44,97% 50,00% 50,00% BANCA 67 -1 30 Banco Madesant - Sociedade Unipessoal, S.A. Portugal 0,00% 100,00% 100,00% 100,00% BANCA 1.085 -2 1.083 Banco Olé Bonsucesso Consignado S.A. Brasil 0,00% 53,96% 60,00% 60,00% BANCA 229 113 197 Banco PSA Finance Brasil S.A. Brasil 0,00% 44,97% 50,00% 50,00% BANCA 51 7 26 Banco Santander - Chile Chile 0,00% 67,12% 67,18% 67,18% BANCA 3.553 653 3.168 Banco Santander (Brasil) S.A. Brasil 13,95% 75,99% 90,52% 90,44% BANCA 12.313 3.120 10.170 Banco Santander (México), S.A., Institución de Banca Múltiple, Grupo Financiero Santander México como Fiduciaria del Fideicomiso 100740 México 0,00% 91,76% 100,00% 100,00% FINANCIERA 101 17 109 Banco Santander (México), S.A., Institución de Banca Múltiple, Grupo Financiero Santander México como Fiduciaria del Fideicomiso 2002114 México 0,00% 92,65% 100,00% 100,00% SOCIEDAD DE CARTERA 8 0 8 Banco Santander (México), S.A., Institución de Banca Múltiple, Grupo Financiero Santander México como Fiduciaria del Fideicomiso GFSSLPT México 0,00% 92,66% 100,00% 100,00% FINANCIERA 11 1 11 Banco Santander Consumer Portugal, S.A. Portugal 0,00% 100,00% 100,00% 100,00% BANCA 172 13 128 Banco Santander de Negocios Colombia S.A. Colombia 0,00% 100,00% 100,00% 100,00% BANCA 120 2 117 Banco Santander International Estados Unidos 0,00% 100,00% 100,00% 100,00% BANCA 969 109 1.078 Banco Santander International SA Suiza 0,00% 100,00% 100,00% 100,00% BANCA 1.034 26 791 Banco Santander México, S.A., Institución de Banca Múltiple, Grupo Financiero Santander México México 16,68% 75,08% 91,77% 75,17% BANCA 5.519 1.002 6.586 Banco Santander Perú S.A. Perú 99,00% 1,00% 100,00% 100,00% BANCA 189 29 121 Banco Santander Puerto Rico Puerto Rico 0,00% 100,00% 100,00% 100,00% BANCA 864 59 923 Banco Santander Río S.A. Argentina 0,00% 99,30% 99,25% 99,25% BANCA 619 337 418 Banco Santander S.A. Uruguay 97,75% 2,25% 100,00% 100,00% BANCA 339 98 191 Banco Santander Totta, S.A. Portugal 0,00% 99,86% 99,96% 99,96% BANCA 2.998 500 3.415 Bansa Santander S.A. Chile 0,00% 100,00% 100,00% 100,00% INMOBILIARIA 24 -1 23 BEN Benefícios e Serviços S.A. Brasil 0,00% 89,93% 100,00% 100,00% SERVICIOS DE PAGOS 20 -4 14 Bilkreditt 6 Designated Activity Company Irlanda - (b) - - TITULIZACIÓN 0 0 0 Bilkreditt 7 Designated Activity Company Irlanda - (b) - - TITULIZACIÓN 0 0 0 Bosan Participações S.A. Brasil ------BPE Financiaciones, S.A. España 90,00% 10,00% 100,00% 100,00% FINANCIERA 1 0 1 BRS Investments S.A. Argentina 0,00% 100,00% 100,00% 100,00% FINANCIERA 25 2 41 Caja de Emisiones con Garantía de Anualidades Debidas por el Estado, S.A. España 62,87% 0,00% 62,87% 62,87% FINANCIERA 0 0 0 Cántabra de Inversiones, S.A. España 100,00% 0,00% 100,00% 100,00% SOCIEDAD DE CARTERA 42 15 31 Cántabro Catalana de Inversiones, S.A. España 100,00% 0,00% 100,00% 100,00% SOCIEDAD DE CARTERA 315 0 267 Canyon Multifamily Impact Fund IV LLC Estados Unidos 0,00% 98,00% 98,00% - INMOBILIARIA - - - Capital Street Delaware LP Estados Unidos 0,00% 100,00% 100,00% 100,00% SOCIEDAD DE CARTERA 0 0 0 Capital Street Holdings, LLC Estados Unidos 0,00% 100,00% 100,00% 100,00% SOCIEDAD DE CARTERA 14 0 14 Capital Street REIT Holdings, LLC Estados Unidos 0,00% 100,00% 100,00% 100,00% SOCIEDAD DE CARTERA 1.194 25 1.219 Capital Street S.A. Luxemburgo 0,00% 100,00% 100,00% 100,00% FINANCIERA 0 0 0 Carfax (Guernsey) Limited Guernsey 0,00% 100,00% 100,00% 100,00% CORREDURÍA DE SEGUROS 0 0 0 Carfinco Financial Group Inc. Canadá 96,42% 0,00% 96,42% 96,42% SOCIEDAD DE CARTERA 62 0 68 Carfinco Inc. Canadá 0,00% 96,42% 100,00% 100,00% FINANCIERA 51 5 45 Casa de Bolsa Santander, S.A. de C.V., Grupo Financiero Santander México México 0,00% 99,97% 99,97% 99,97% SOCIEDAD DE VALORES 56 3 59 Cater Allen Holdings Limited Reino Unido 0,00% 100,00% 100,00% 100,00% SOCIEDAD DE CARTERA 0 0 0 Cater Allen International Limited Reino Unido 0,00% 100,00% 100,00% 100,00% SOCIEDAD DE VALORES 0 0 0

153

Subsidiaries of Banco Santander, S.A. (1)

% Partic. Del Porcentaje de Derechos de Voto Millones de Euros (a) Banco Sociedad Domicilio Directa Indirecta Año 2019 Año 2018 Actividad Capital + Reservas Resultados Netos Importe en Libros Cater Allen Limited Reino Unido 0,00% 100,00% 100,00% 100,00% BANCA 581 61 262 Cater Allen Lloyd's Holdings Limited Reino Unido 0,00% 100,00% 100,00% 100,00% SOCIEDAD DE CARTERA 0 0 0 Cater Allen Syndicate Management Limited Reino Unido 0,00% 100,00% 100,00% 100,00% SERVICIOS DE ASESORAMIENTO 0 0 0 CCAP Auto Lease Ltd. Estados Unidos 0,00% 72,40% 100,00% 100,00% LEASING 1 -59 0 Centro de Capacitación Santander, A.C. México 0,00% 91,76% 100,00% 100,00% INSTITUTO SIN FINES DE LUCRO 1 0 1 Certidesa, S.L. España 0,00% 100,00% 100,00% 100,00% ARRENDAMIENTO DE AERONAVES -60 -7 0 Chrysler Capital Auto Funding I LLC Estados Unidos 0,00% 72,40% 100,00% 100,00% FINANCIERA 15 7 0 Chrysler Capital Auto Funding II LLC Estados Unidos 0,00% 72,40% 100,00% 100,00% FINANCIERA 7 -2 0 Chrysler Capital Auto Receivables LLC Estados Unidos 0,00% 72,40% 100,00% 100,00% FINANCIERA 0 0 0 Chrysler Capital Auto Receivables Trust 2016-A Estados Unidos - (b) - - TITULIZACIÓN -25 14 0 Chrysler Capital Master Auto Receivables Funding 2 LLC Estados Unidos 0,00% 72,40% 100,00% 100,00% FINANCIERA -66 -106 0 Chrysler Capital Master Auto Receivables Funding 4 LLC Estados Unidos 0,00% 72,40% 100,00% - FINANCIERA 0 35 0 Chrysler Capital Master Auto Receivables Funding LLC Estados Unidos 0,00% 72,40% 100,00% 100,00% FINANCIERA -44 0 0 Cobranza Amigable, S.A.P.I. de C.V. México 0,00% 85,00% 100,00% 39,74% SERVICIOS DE COBROS 4 0 4 Compagnie Generale de Credit Aux Particuliers - Credipar S.A. Francia 0,00% 50,00% 100,00% 100,00% BANCA 363 87 428 Compagnie Pour la Location de Vehicules - CLV Francia 0,00% 50,00% 100,00% 100,00% FINANCIERA 20 5 26 Comunidad Laboral Trabajando Argentina S.A. Argentina 0,00% 100,00% 100,00% 100,00% SERVICIOS 0 0 0 Comunidad Laboral Trabajando Iberica, S.L. Unipersonal España 0,00% 100,00% 100,00% 100,00% SERVICIOS 0 0 0 Consulteam Consultores de Gestão, Lda. Portugal 86,28% 13,72% 100,00% 100,00% INMOBILIARIA 0 0 0 Consumer Lending Receivables LLC Estados Unidos 0,00% 72,40% 100,00% 100,00% TITULIZACIÓN 0 0 0 Crawfall S.A. Uruguay 100,00% 0,00% 100,00% 100,00% SERVICIOS 0 0 0 Crediperto Promotora de Vendas e Cobrança Ltda. Brasil 0,00% 53,96% 100,00% 100,00% FINANCIERA 2 0 1 Darep Designated Activity Company Irlanda 100,00% 0,00% 100,00% 100,00% REASEGUROS 9 0 7 Decarome, S.A.P.I. de C.V. México 0,00% 100,00% 100,00% - FINANCIERA 0 0 0 Deva Capital Advisory Company, S.L. España 0,00% 100,00% 100,00% - SERVICIOS DE ASESORAMIENTO 1 0 1 Deva Capital Holding Company, S.L. España 100,00% 0,00% 100,00% - SOCIEDAD DE CARTERA 55 0 55 Deva Capital Investment Company, S.L. España 0,00% 100,00% 100,00% - SOCIEDAD DE CARTERA 0 0 0 Deva Capital Management Company, S.L. España 0,00% 100,00% 100,00% - SERVICIOS DE ASESORAMIENTO 9 -1 9 Deva Capital Servicer Company, S.L. España 0,00% 100,00% 100,00% - SOCIEDAD DE CARTERA 46 5 46 Digital Procurement Holdings N.V. Holanda 0,00% 100,00% 100,00% 100,00% SOCIEDAD DE CARTERA 5 0 1 Diners Club Spain, S.A. España 75,00% 0,00% 75,00% 75,00% TARJETAS 10 2 9 Dirección Estratega, S.C. México 0,00% 100,00% 100,00% 100,00% SERVICIOS 0 0 0 Dirgenfin, S.L., en liquidación España 0,00% 100,00% 100,00% 100,00% PROMOCIÓN INMOBILIARIA -10 0 0 Drive Auto Receivables Trust 2015-D Estados Unidos - (b) - - TITULIZACIÓN -5 11 0 Drive Auto Receivables Trust 2016-A Estados Unidos - (b) - - TITULIZACIÓN -16 9 0 Drive Auto Receivables Trust 2016-B Estados Unidos - (b) - - TITULIZACIÓN -23 19 0 Drive Auto Receivables Trust 2016-C Estados Unidos - (b) - - TITULIZACIÓN -14 28 0 Drive Auto Receivables Trust 2017-1 Estados Unidos - (b) - - TITULIZACIÓN -28 34 0 Drive Auto Receivables Trust 2017-2 Estados Unidos - (b) - - TITULIZACIÓN -19 32 0 Drive Auto Receivables Trust 2017-3 Estados Unidos - (b) - - TITULIZACIÓN -32 52 0 Drive Auto Receivables Trust 2017-A Estados Unidos - (b) - - TITULIZACIÓN -25 26 0 Drive Auto Receivables Trust 2017-B Estados Unidos - (b) - - TITULIZACIÓN -18 29 0 Drive Auto Receivables Trust 2018-1 Estados Unidos - (b) - - TITULIZACIÓN -35 48 0 Drive Auto Receivables Trust 2018-2 Estados Unidos - (b) - - TITULIZACIÓN -83 66 0 Drive Auto Receivables Trust 2018-3 Estados Unidos - (b) - - TITULIZACIÓN -98 59 0

154

Subsidiaries of Banco Santander, S.A. (1)

% Partic. Del Porcentaje de Derechos de Voto Millones de Euros (a) Banco Sociedad Domicilio Directa Indirecta Año 2019 Año 2018 Actividad Capital + Reservas Resultados Netos Importe en Libros Drive Auto Receivables Trust 2018-4 Estados Unidos - (b) - - TITULIZACIÓN -118 74 0 Drive Auto Receivables Trust 2018-5 Estados Unidos - (b) - - TITULIZACIÓN -108 -59 0 Drive Auto Receivables Trust 2019-1 Estados Unidos - (b) - - TITULIZACIÓN 0 -31 0 Drive Auto Receivables Trust 2019-2 Estados Unidos - (b) - - TITULIZACIÓN 0 -45 0 Drive Auto Receivables Trust 2019-3 Estados Unidos - (b) - - TITULIZACIÓN 0 -67 0 Drive Auto Receivables Trust 2019-4 Estados Unidos - (b) - - TITULIZACIÓN 0 -87 0 Drive Auto Receivables Trust 2020-1 Estados Unidos - (b) - - SIN ACTIVIDAD 0 0 0 Drive Auto Receivables Trust 2020-2 Estados Unidos ------Drive Auto Receivables Trust 2020-3 Estados Unidos ------EDT FTPYME Pastor 3 Fondo de Titulización de Activos España - (b) - - TITULIZACIÓN 0 0 0 Electrolyser, S.A. de C.V. México 0,00% 91,76% 100,00% 100,00% SERVICIOS 0 0 0 Entidad de Desarrollo a la Pequeña y Micro Empresa Santander Consumo Perú S.A. Perú 100,00% 0,00% 100,00% 55,00% FINANCIERA 24 4 27 Erestone S.A.S. Francia 0,00% 90,00% 90,00% 90,00% INMOBILIARIA 1 0 1 Esfera Fidelidade S.A. Brasil 0,00% 89,93% 100,00% 100,00% SERVICIOS 2 21 21 Evidence Previdência S.A. Brasil 0,00% 89,93% 100,00% 100,00% SEGUROS 153 27 162 Financeira El Corte Inglés, Portugal, S.F.C., S.A. Portugal 0,00% 51,00% 100,00% 100,00% FINANCIERA 9 1 4 Financiera El Corte Inglés, E.F.C., S.A. España 0,00% 51,00% 51,00% 51,00% FINANCIERA 214 76 140 Finsantusa, S.L. Unipersonal España 0,00% 100,00% 100,00% 100,00% SOCIEDAD DE CARTERA 3.776 -7 1.020 First National Motor Business Limited Reino Unido 0,00% 100,00% 100,00% 100,00% LEASING 0 0 0 First National Motor Contracts Limited Reino Unido 0,00% 100,00% 100,00% 100,00% LEASING 0 0 0 First National Motor Facilities Limited Reino Unido 0,00% 100,00% 100,00% 100,00% LEASING 0 0 0 First National Motor Finance Limited Reino Unido 0,00% 100,00% 100,00% 100,00% SERVICIOS DE ASESORAMIENTO 0 0 0 First National Motor Leasing Limited Reino Unido 0,00% 100,00% 100,00% 100,00% LEASING 0 0 0 First National Motor plc Reino Unido 0,00% 100,00% 100,00% 100,00% LEASING 0 0 0 First National Tricity Finance Limited Reino Unido 0,00% 100,00% 100,00% 100,00% FINANCIERA 6 0 6 Fondation Holding Auto ABS Belgium Loans Bélgica - (b) - - TITULIZACIÓN 0 0 0 Fondo de Titulización de Activos RMBS Santander 1 España - (b) - - TITULIZACIÓN 0 0 0 Fondo de Titulización de Activos RMBS Santander 2 España - (b) - - TITULIZACIÓN 0 0 0 Fondo de Titulización de Activos RMBS Santander 3 España - (b) - - TITULIZACIÓN 0 0 0 Fondo de Titulización de Activos Santander Consumer Spain Auto 2014-1 España - (b) - - TITULIZACIÓN 0 0 0 Fondo de Titulización de Activos Santander Hipotecario 7 España - (b) - - TITULIZACIÓN 0 0 0 Fondo de Titulización de Activos Santander Hipotecario 8 España - (b) - - TITULIZACIÓN 0 0 0 Fondo de Titulización de Activos Santander Hipotecario 9 España - (b) - - TITULIZACIÓN 0 0 0 Fondo de Titulización PYMES Santander 13 España - (b) - - TITULIZACIÓN 0 0 0 Fondo de Titulización PYMES Santander 14 España - (b) - - TITULIZACIÓN 0 0 0 Fondo de Titulización PYMES Santander 15 España - (b) - - TITULIZACIÓN 0 0 0 Fondo de Titulización RMBS Santander 4 España - (b) - - TITULIZACIÓN 0 0 0 Fondo de Titulización RMBS Santander 5 España - (b) - - TITULIZACIÓN 0 0 0 Fondo de Titulización Santander Consumer Spain Auto 2016-1 España - (b) - - TITULIZACIÓN 0 0 0 Fondo de Titulización Santander Consumer Spain Auto 2016-2 España - (b) - - TITULIZACIÓN 0 0 0 Fondo de Titulización Santander Consumo 2 España - (b) - - TITULIZACIÓN 0 0 0 Fondo de Titulización Santander Financiación 1 España - (b) - - TITULIZACIÓN 0 0 0 Fondos Santander, S.A. Administradora de Fondos de Inversión (en liquidación) Uruguay 0,00% 100,00% 100,00% 100,00% GESTORA DE FONDOS 0 0 0 Forso Finance OY Finlandia ------Forso Nordic AB Suecia ------

155

Subsidiaries of Banco Santander, S.A. (1)

% Partic. Del Porcentaje de Derechos de Millones de Euros (a) Banco Voto Capital + Resultados Importe en Sociedad Domicilio Directa Indirecta Año 2019 Año 2018 Actividad Reservas Netos Libros Fortensky Trading, Ltd. Irlanda 0,00% 100,00% 100,00% 100,00% FINANCIERA 0 0 0 Fosse (Master Issuer) Holdings Limited Reino Unido - (b) - - TITULIZACIÓN 0 0 0 Fosse Funding (No.1) Limited Reino Unido 0,00% 100,00% 100,00% 100,00% TITULIZACIÓN -6 -125 0 Fosse Master Issuer PLC Reino Unido 0,00% 100,00% 100,00% 100,00% TITULIZACIÓN 2 3 0 Fosse PECOH Limited Reino Unido - (b) - - TITULIZACIÓN 0 0 0 Fosse Trustee (UK) Limited Reino Unido 0,00% 100,00% 100,00% 100,00% TITULIZACIÓN 0 0 0 FTPYME Banesto 2, Fondo de Titulización de Activos España - (b) - - TITULIZACIÓN 0 0 0 Fundo de Investimento em Direitos Creditórios Atacado- Não Padronizado Brasil - (b) - - FONDO DE INVERSIÓN 204 -5 0 Fundo de Investimentos em Direitos Creditórios Multisegmentos NPL Ipanema V – Não padronizado Brasil - (b) - - FONDO DE INVERSIÓN 0 0 0 Fundo de Investimentos em Direitos Creditórios Multisegmentos NPL Ipanema VI – Não padronizado Brasil - (b) - - FONDO DE INVERSIÓN 45 1 0 Gamma, Sociedade Financeira de Titularização de Créditos, S.A. Portugal 0,00% 99,86% 100,00% 100,00% TITULIZACIÓN 7 0 8 GC FTPYME Pastor 4 Fondo de Titulización de Activos España - (b) - - TITULIZACIÓN 0 0 0 Gesban México Servicios Administrativos Globales, S.A. de C.V. México 0,00% 100,00% 100,00% 100,00% SERVICIOS 1 0 0 Gesban Santander Servicios Profesionales Contables Limitada Chile 0,00% 100,00% 100,00% 100,00% SERVICIOS CONTABLES 1 0 0 Gesban Servicios Administrativos Globales, S.L. España 99,99% 0,01% 100,00% 100,00% SERVICIOS 4 0 1 Gesban UK Limited Reino Unido 0,00% 100,00% 100,00% 100,00% SERVICIOS DE COBROS Y PAGOS 1 0 0 Gestión de Instalaciones Fotovoltaicas, S.L. Unipersonal España 0,00% 100,00% 100,00% 100,00% EXPLOTACIÓN DE ENERGÍA ELÉCTRICA 1 0 0 Gestión de Inversiones JILT, S.A. España 35,00% 65,00% 100,00% 100,00% INMOBILIARIA 4 0 5 Gestora de Procesos S.A. en liquidación Perú 0,00% 100,00% 100,00% 100,00% SOCIEDAD DE CARTERA 0 0 0 Getnet Adquirência e Serviços para Meios de Pagamento S.A. Brasil 0,00% 89,93% 100,00% 88,50% SERVICIOS DE PAGOS 449 130 520 Global Diomedes, S.L. Sociedad Unipersonal España 0,00% 100,00% 100,00% - SOCIEDAD DE CARTERA 0 0 0 Golden Bar (Securitisation) S.r.l. Italia - (b) - - TITULIZACIÓN 0 0 0 Golden Bar Stand Alone 2015-1 Italia - (b) - - TITULIZACIÓN 0 0 0 Golden Bar Stand Alone 2016-1 Italia - (b) - - TITULIZACIÓN 0 0 0 Golden Bar Stand Alone 2018-1 Italia - (b) - - TITULIZACIÓN 0 0 0 Golden Bar Stand Alone 2019-1 Italia - (b) - - TITULIZACIÓN 0 0 0 Golden Bar Stand Alone 2020-1 Italia ------Grupo Empresarial Santander, S.L. España 99,11% 0,89% 100,00% 100,00% SOCIEDAD DE CARTERA 2.938 546 2.934 Grupo Financiero Santander México, S.A. de C.V. México 100,00% 0,00% 100,00% 100,00% SOCIEDAD DE CARTERA 4.387 561 4.363 GTS El Centro Equity Holdings, LLC Estados Unidos 0,00% 57,40% 57,40% 56,88% SOCIEDAD DE CARTERA 31 -1 29 GTS El Centro Project Holdings, LLC Estados Unidos 0,00% 57,40% 100,00% 100,00% SOCIEDAD DE CARTERA 31 -1 17 Guaranty Car, S.A. Unipersonal España 0,00% 100,00% 100,00% 100,00% AUTOMOCIÓN 2 1 2 Hipototta No. 4 FTC Portugal - (b) - - TITULIZACIÓN -50 -1 0 Hipototta No. 4 plc Irlanda - (b) - - TITULIZACIÓN -4 -1 0 Hipototta No. 5 FTC Portugal - (b) - - TITULIZACIÓN -42 -1 0 Hipototta No. 5 plc Irlanda - (b) - - TITULIZACIÓN -7 4 0 Hipototta No.13 Portugal - (b) - - TITULIZACIÓN 0 0 0 Hispamer Renting, S.A. Unipersonal España 0,00% 100,00% 100,00% 100,00% RENTING 1 0 1 Holbah II Limited Bahamas 0,00% 100,00% 100,00% 100,00% SOCIEDAD DE CARTERA 102 302 530 Holbah Santander, S.L. Unipersonal España 0,00% 100,00% 100,00% 100,00% SOCIEDAD DE CARTERA 60 12 747 Holmes Funding Limited Reino Unido 0,00% 100,00% 100,00% 100,00% TITULIZACIÓN -39 28 0 Holmes Holdings Limited Reino Unido - (b) - - TITULIZACIÓN 0 0 0 Holmes Master Issuer plc Reino Unido 0,00% 100,00% 100,00% 100,00% TITULIZACIÓN -5 -2 0 Holmes Trustees Limited Reino Unido 0,00% 100,00% 100,00% 100,00% TITULIZACIÓN 0 0 0 Holneth B.V. Holanda 0,00% 100,00% 100,00% 100,00% SOCIEDAD DE CARTERA 9 1.841 9

156

Subsidiaries of Banco Santander, S.A. (1)

% Partic. Del Porcentaje de Derechos de Voto Millones de Euros (a) Banco Sociedad Domicilio Directa Indirecta Año 2019 Año 2018 Actividad Capital + Reservas Resultados Netos Importe en Libros HQ Mobile Limited Reino Unido 0,00% 100,00% 100,00% 100,00% TECNOLOGíAS INTERNET 1 0 10 Hyundai Capital Bank Europe GmbH Alemania 0,00% 51,00% 51,00% - BANCA 219 -17 134 Ibérica de Compras Corporativas, S.L. España 97,17% 2,83% 100,00% 100,00% COMERCIO ELECTRÓNICO 6 0 6 Independence Community Bank Corp. Estados Unidos 0,00% 100,00% 100,00% 100,00% SOCIEDAD DE CARTERA 3.853 41 3.894 Inmo Francia 2, S.A. España 100,00% 0,00% 100,00% 100,00% SOCIEDAD DE CARTERA 53 0 53 Inmobiliaria Viagracia, S.A. España 100,00% 0,00% 100,00% 100,00% INMOBILIARIA 92 2 93 Insurance Funding Solutions Limited Reino Unido 0,00% 100,00% 100,00% 100,00% FINANCIERA 0 0 0 Interfinance Holanda B.V. Holanda 100,00% 0,00% 100,00% 100,00% SOCIEDAD DE CARTERA 0 0 0 Intermediacion y Servicios Tecnológicos, S.A. España 99,50% 0,50% 100,00% 100,00% SERVICIOS 2 0 2 Inversiones Capital Global, S.A. Unipersonal España 100,00% 0,00% 100,00% 100,00% SOCIEDAD DE CARTERA 147 -1 159 Inversiones Marítimas del Mediterráneo, S.A. España 0,00% 100,00% 100,00% 100,00% SIN ACTIVIDAD 29 -26 0 Isla de los Buques, S.A. España 99,98% 0,02% 100,00% 100,00% FINANCIERA 1 0 1 Klare Corredora de Seguros S.A. Chile 0,00% 33,63% 50,10% - CORREDURÍA DE SEGUROS 10 -1 3 Landcompany 2020, S.L. España 16,20% 83,80% 100,00% - GESTIÓN INMOBILIARIA 1.677 -12 1.664 Langton Funding (No.1) Limited Reino Unido 0,00% 100,00% 100,00% 100,00% TITULIZACIÓN -66 39 0 Langton Mortgages Trustee (UK) Limited Reino Unido 0,00% 100,00% 100,00% 100,00% TITULIZACIÓN 0 0 0 Langton PECOH Limited Reino Unido - (b) - - TITULIZACIÓN 0 0 0 Langton Securities (2008-1) plc Reino Unido 0,00% 100,00% 100,00% 100,00% TITULIZACIÓN 1 0 0 Langton Securities (2010-1) PLC Reino Unido 0,00% 100,00% 100,00% 100,00% TITULIZACIÓN 1 0 0 Langton Securities (2010-2) PLC Reino Unido 0,00% 100,00% 100,00% 100,00% TITULIZACIÓN 0 0 0 Langton Securities Holdings Limited Reino Unido - (b) - - TITULIZACIÓN 0 0 0 Laparanza, S.A. España 61,59% 0,00% 61,59% 61,59% EXPLOTACIÓN AGRÍCOLA Y GANADERA 28 0 16 Liquidity Limited Reino Unido 0,00% 100,00% 100,00% 100,00% FACTORING 0 0 0 Luri 1, S.A., en liquidación España 46,00% 0,00% 46,00% 36,00% INMOBILIARIA -2 2 0 Luri 6, S.A. Unipersonal España 100,00% 0,00% 100,00% 100,00% INVERSIÓN INMOBILIARIA 1.305 77 1.418 MAC No. 1 Limited Reino Unido - (b) - - SOCIEDAD DE CREDITOS HIPOTECARIOS 0 0 0 Master Red Europa, S.L. España 96,34% 0,00% 96,34% 96,34% TARJETAS 1 0 1 Mata Alta, S.L. España 0,00% 61,59% 100,00% 100,00% INMOBILIARIA 0 0 0 Merciver, S.L. España 99,90% 0,10% 100,00% 100,00% ASESORAMIENTO FINANCIERO 1 0 1 Mercury Trade Finance Solutions, S.A. de C.V. México ------Mercury Trade Finance Solutions, S.L. España ------Mercury Trade Finance Solutions, S.p.A. Chile ------Merlion Aviation One Designated Activity Company Irlanda - (b) - - RENTING 19 4 0 Moneybit, S.L. España 100,00% 0,00% 100,00% 100,00% SERVICIOS 2 0 2 Mortgage Engine Limited Reino Unido 0,00% 100,00% 100,00% 100,00% SERVICIOS FINANCIEROS -1 -2 0 Motor 2015-1 Holdings Limited Reino Unido - (b) - - TITULIZACIÓN 0 0 0 Motor 2016-1 Holdings Limited Reino Unido - (b) - - TITULIZACIÓN 0 0 0 Motor 2016-1 PLC Reino Unido 0,00% 100,00% 100,00% 100,00% TITULIZACIÓN 0 0 0 Motor 2017-1 Holdings Limited Reino Unido - (b) - - TITULIZACIÓN 0 0 0 Motor 2017-1 PLC Reino Unido 0,00% 100,00% 100,00% 100,00% TITULIZACIÓN -2 -4 0 Motor Securities 2018-1 Designated Activity Company Irlanda - (b) - - TITULIZACIÓN 0 0 0 Multiplica SpA Chile 0,00% 100,00% 100,00% - SERVICIOS DE PAGOS 5 0 5 Naviera Mirambel, S.L. España 0,00% 100,00% 100,00% 100,00% FINANCIERA 0 0 0 Naviera Trans Gas, A.I.E. España 99,99% 0,01% 100,00% 100,00% RENTING 17 4 52 Naviera Trans Iron, S.L. España 100,00% 0,00% 100,00% 100,00% LEASING 23 1 21

157

Subsidiaries of Banco Santander, S.A. (1)

% Partic. Del Porcentaje de Derechos de Voto Millones de Euros (a) Banco Sociedad Domicilio Directa Indirecta Año 2019 Año 2018 Actividad Capital + Reservas Resultados Netos Importe en Libros Naviera Trans Ore, A.I.E. España 99,99% 0,01% 100,00% 100,00% RENTING 22 2 17 Naviera Trans Wind, S.L. España 99,99% 0,01% 100,00% 100,00% RENTING 3 0 3 Naviera Transcantábrica, S.L. España 100,00% 0,00% 100,00% 100,00% LEASING 4 1 4 Naviera Transchem, S.L. Unipersonal España 100,00% 0,00% 100,00% 100,00% LEASING 1 0 1 Newcomar, S.L., en liquidación España 40,00% 40,00% 80,00% 80,00% INMOBILIARIA 1 0 0 Norbest AS Noruega 7,94% 92,06% 100,00% 100,00% INVERSIÓN MOBILIARIA 93 -1 93 Novimovest – Fundo de Investimento Imobiliário Portugal 0,00% 78,63% 78,74% 79,76% FONDO DE INVERSIÓN 298 6 238 NW Services CO. Estados Unidos 0,00% 100,00% 100,00% 100,00% COMERCIO ELECTRÓNICO 5 1 2 Open Bank, S.A. España 100,00% 0,00% 100,00% 100,00% BANCA 216 1 221 Open Digital Market, S.L. España 0,00% 100,00% 100,00% 100,00% SERVICIOS 0 0 0 Open Digital Services, S.L. España 99,97% 0,03% 100,00% 100,00% SERVICIOS 122 -98 34 Operadora de Carteras Gamma, S.A.P.I. de C.V. México 100,00% 0,00% 100,00% 100,00% SOCIEDAD DE CARTERA 7 1 0 Optimal Investment Services SA Suiza 100,00% 0,00% 100,00% 100,00% GESTORA DE FONDOS 24 1 25 Optimal Multiadvisors Ireland Plc / Optimal Strategic US Equity Ireland Euro Fund Irlanda 0,00% 57,20% 54,10% 51,25% GESTORA DE FONDOS 4 0 0 Optimal Multiadvisors Ireland Plc / Optimal Strategic US Equity Ireland US Dollar Fund Irlanda 0,00% 44,08% 51,57% 51,57% GESTORA DE FONDOS 5 0 0 Optimal Multiadvisors Ltd / Optimal Strategic US Equity Series (consolidado) Bahamas 0,00% 56,18% 56,78% 56,34% GESTORA DE FONDOS 46 0 0 PagoFX Europe S.A. Bélgica 0,00% 100,00% 100,00% - SERVICIOS DE PAGOS 1 0 1 PagoFX HoldCo, S.L. España 100,00% 0,00% 100,00% - SERVICIOS DE PAGOS 16 -4 16 PagoFX UK Ltd Reino Unido 0,00% 100,00% 100,00% - SERVICIOS DE PAGOS 2 0 2 Parasant SA Suiza 100,00% 0,00% 100,00% 100,00% SOCIEDAD DE CARTERA 1.047 -1 917 PBD Germany Auto 2018 UG (Haftungsbeschränkt) Alemania - (b) - - TITULIZACIÓN 0 0 0 PBD Germany Auto Lease Master 2019 Luxemburgo - (b) - - TITULIZACIÓN 0 5 0 PBE Companies, LLC Estados Unidos 0,00% 100,00% 100,00% 100,00% INMOBILIARIA 112 -1 111 PECOH Limited Reino Unido 0,00% 100,00% 100,00% 100,00% TITULIZACIÓN 0 0 0 Pereda Gestión, S.A. España 99,99% 0,01% 100,00% 100,00% SOCIEDAD DE CARTERA 42 2 4 Phoenix C1 Aviation Designated Activity Company Irlanda - (b) - - RENTING 5 3 0 PI Distribuidora de Títulos e Valores Mobiliários S.A. Brasil 0,00% 89,93% 100,00% 100,00% LEASING 80 -8 65 Pingham International, S.A. Uruguay 0,00% 100,00% 100,00% 100,00% SERVICIOS 0 0 0 Popular Seguros - Companhia de Seguros S.A. Portugal 0,00% 99,91% 100,00% 100,00% SEGUROS 9 1 7 Popular Vida 2020, Compañía de Seguros y Reaseguros, S.A.U. España ------Portal Universia Argentina S.A. Argentina 0,00% 75,75% 75,75% 75,75% INTERNET 0 0 0 Portal Universia Portugal, Prestação de Serviços de Informática, S.A. Portugal 0,00% 100,00% 100,00% 100,00% INTERNET 0 0 0 Prime 16 – Fundo de Investimentos Imobiliário Brasil 0,00% 89,93% 100,00% 100,00% FONDO DE INVERSIÓN 72 -13 50 PSA Bank Deutschland GmbH Alemania 0,00% 50,00% 50,00% 50,00% BANCA 471 46 229 PSA Banque France Francia 0,00% 50,00% 50,00% 50,00% BANCA 1.093 140 463 PSA Consumer Finance Polska Sp. z o.o. Polonia 0,00% 40,24% 100,00% 100,00% FINANCIERA 1 1 0 PSA Finance Belux S.A. Bélgica 0,00% 50,00% 50,00% 50,00% FINANCIERA 109 15 42 PSA Finance Polska Sp. z o.o. Polonia 0,00% 40,24% 50,00% 50,00% FINANCIERA 34 4 11 PSA Finance Suisse, S.A. Suiza 0,00% 50,00% 100,00% 100,00% LEASING 38 20 15 PSA Finance UK Limited Reino Unido 0,00% 50,00% 50,00% 50,00% FINANCIERA 338 55 129 PSA Financial Services Nederland B.V. Holanda 0,00% 50,00% 50,00% 50,00% FINANCIERA 73 15 20 PSA Financial Services Spain, E.F.C., S.A. España 0,00% 50,00% 50,00% 50,00% FINANCIERA 416 72 174 PSA Renting Italia S.p.A. Italia 0,00% 50,00% 100,00% 100,00% RENTING 6 4 3 PSRT 2018-A Estados Unidos - (b) - - TITULIZACIÓN 59 24 0 PSRT 2019-A Estados Unidos - (b) - - TITULIZACIÓN 0 43 0

158

Subsidiaries of Banco Santander, S.A. (1)

% Partic. Del Porcentaje de Derechos de Millones de Euros (a) Banco Voto Capital + Resultados Importe en Sociedad Domicilio Directa Indirecta Año 2019 Año 2018 Actividad Reservas Netos Libros Punta Lima Wind Farm, LLC Estados Unidos 0,00% 100,00% 100,00% - EXPLOTACIÓN DE ENERGÍA ELÉCTRICA 0 0 0 Punta Lima, LLC Estados Unidos 0,00% 100,00% 100,00% 100,00% LEASING 60 -11 49 Recovery Team, S.L. Unipersonal España 100,00% 0,00% 100,00% 100,00% FINANCIERA 14 -1 16 Retop S.A. Uruguay 100,00% 0,00% 100,00% 100,00% FINANCIERA 10 19 63 Return Capital Serviços de Recuperação de Créditos S.A. Brasil 0,00% 89,93% 100,00% 70,00% SERVICIOS DE COBROS -2 2 0 Return Gestão de Recursos S.A. Brasil 0,00% 89,93% 100,00% 100,00% GESTORA DE FONDOS 0 0 0 Riobank International (Uruguay) SAIFE Uruguay 0,00% 100,00% 100,00% 100,00% BANCA 0 0 0 Roc Aviation One Designated Activity Company Irlanda - (b) - - RENTING -2 0 0 Roc Shipping One Designated Activity Company Irlanda - (b) - - RENTING -3 -1 0 Rojo Entretenimento S.A. Brasil 0,00% 85,08% 94,60% 94,60% SERVICIOS 29 1 25 SAM Asset Management, S.A. de C.V., Sociedad Operadora de Fondos de Inversión México 0,00% 100,00% 100,00% 100,00% GESTORA DE FONDOS 4 20 161 SAM Brasil Participações S.A. Brasil 1,00% 99,00% 100,00% 100,00% SOCIEDAD DE CARTERA 35 2 37 SAM Investment Holdings Limited Jersey 92,37% 7,62% 100,00% 100,00% SOCIEDAD DE CARTERA 1.087 224 1.306 SAM UK Investment Holdings Limited Reino Unido 92,37% 7,63% 100,00% 100,00% SOCIEDAD DE CARTERA -114 121 6 Sancap Investimentos e Participações S.A. Brasil 0,00% 89,93% 100,00% 100,00% SOCIEDAD DE CARTERA 200 60 207 Santander (CF Trustee Property Nominee) Limited Reino Unido 0,00% 100,00% 100,00% 100,00% SERVICIOS 0 0 0 Santander (CF Trustee) Limited Reino Unido - (b) - 100,00% GESTORA DE PATRIMONIOS 0 0 0 Santander (UK) Group Pension Schemes Trustees Limited Reino Unido 0,00% 100,00% 100,00% 100,00% GESTORA DE PATRIMONIOS 0 0 0 Santander Ahorro Inmobiliario 1, S.A. España 98,53% 0,00% 98,53% 98,53% ALQUILER INMOBILIARIO 1 0 1 Santander Ahorro Inmobiliario 2, S.A. España 99,91% 0,00% 99,91% 99,91% ALQUILER INMOBILIARIO 1 0 1 Santander Alternatives SICAV RAIF Luxemburgo ------Santander Asesorías Financieras Limitada Chile 0,00% 67,44% 100,00% 100,00% SOCIEDAD DE VALORES 60 1 41 Santander Asset Finance (December) Limited Reino Unido 0,00% 100,00% 100,00% 100,00% LEASING 66 2 0 Santander Asset Finance plc Reino Unido 0,00% 100,00% 100,00% 100,00% LEASING 247 24 171 Santander Asset Management - S.G.O.I.C., S.A. Portugal 100,00% 0,00% 100,00% 100,00% GESTORA DE FONDOS 2 1 3 Santander Asset Management Chile S.A. Chile 0,01% 99,94% 100,00% 100,00% INVERSIÓN MOBILIARIA -6 0 0 Santander Asset Management Luxembourg, S.A. Luxemburgo 0,00% 100,00% 100,00% 100,00% GESTORA DE FONDOS 5 1 0 Santander Asset Management S.A. Administradora General de Fondos Chile 0,00% 100,00% 100,00% 100,00% GESTORA DE FONDOS 14 11 132 Santander Asset Management UK Holdings Limited Reino Unido 0,00% 100,00% 100,00% 100,00% SOCIEDAD DE CARTERA 193 18 186 Santander Asset Management UK Limited Reino Unido 0,00% 100,00% 100,00% 100,00% GESTIÓN DE FONDOS Y CARTERAS 39 16 201 Santander Asset Management, LLC Puerto Rico 0,00% 100,00% 100,00% 100,00% GESTORA 5 3 9 Santander Asset Management, S.A., S.G.I.I.C. España 0,00% 100,00% 100,00% 100,00% GESTORA DE FONDOS 32 61 167 Santander Back-Offices Globales Mayoristas, S.A. España 100,00% 0,00% 100,00% 100,00% SERVICIOS 4 2 1 Santander Banca de Inversión Colombia, S.A.S. Colombia 0,00% 100,00% 100,00% 100,00% SERVICIOS FINANCIEROS 1 1 1 Santander BanCorp Puerto Rico 0,00% 100,00% 100,00% 100,00% SOCIEDAD DE CARTERA 1.014 66 1.078 Santander Bank & Trust Ltd. Bahamas 0,00% 100,00% 100,00% 100,00% BANCA 109 2 22 Santander Bank Polska S.A. Polonia 67,47% 0,00% 67,47% 67,47% BANCA 5.183 497 4.386 Santander Bank, National Association Estados Unidos 0,00% 100,00% 100,00% 100,00% BANCA 11.960 218 12.176 Santander Brasil Administradora de Consórcio Ltda. Brasil 0,00% 89,93% 100,00% 100,00% SERVICIOS 49 45 85 Santander Brasil Asset Management Distribuidora de Títulos e Valores Mobiliários S.A. Brasil 0,00% 100,00% 100,00% 100,00% INVERSIÓN MOBILIARIA 34 2 36 Santander Brasil Gestão de Recursos Ltda. Brasil 0,00% 100,00% 100,00% 100,00% INVERSIÓN INMOBILIARIA 455 80 576 Santander Brasil Tecnologia S.A. Brasil 0,00% 89,93% 100,00% 100,00% SERVICIOS INFORMÁTICOS 28 3 27 Santander Brasil, EFC, S.A. España 0,00% 89,93% 100,00% 100,00% FINANCIERA 775 7 706 Santander Capital Desarrollo, SGEIC, S.A. Unipersonal España 100,00% 0,00% 100,00% 100,00% SOCIEDAD DE CAPITAL RIESGO 10 -1 8 Santander Capital Structuring, S.A. de C.V. México 0,00% 100,00% 100,00% 100,00% COMERCIO 11 1 0

159

Subsidiaries of Banco Santander, S.A. (1)

% Partic. Del Porcentaje de Derechos de Voto Millones de Euros (a) Banco Sociedad Domicilio Directa Indirecta Año 2019 Año 2018 Actividad Capital + Reservas Resultados Netos Importe en Libros Santander Capitalização S.A. Brasil 0,00% 89,93% 100,00% 100,00% SEGUROS 42 34 68 Santander Cards Ireland Limited Irlanda 0,00% 100,00% 100,00% 100,00% TARJETAS -8 0 0 Santander Cards Limited Reino Unido 0,00% 100,00% 100,00% 100,00% TARJETAS 98 1 99 Santander Cards UK Limited Reino Unido 0,00% 100,00% 100,00% 100,00% FINANCIERA 155 4 113 Santander Chile Holding S.A. Chile 22,11% 77,72% 99,84% 99,84% SOCIEDAD DE CARTERA 1.399 232 1.366 Santander Consulting (Beijing) Co., Ltd. China 0,00% 100,00% 100,00% 100,00% ASESORAMIENTO 8 0 4 Santander Consumer (UK) plc Reino Unido 0,00% 100,00% 100,00% 100,00% FINANCIERA 620 100 306 Santander Consumer Auto Receivables Funding 2013-B2 LLC Estados Unidos 0,00% 72,40% 100,00% 100,00% FINANCIERA 37 -177 0 Santander Consumer Auto Receivables Funding 2013-B3 LLC Estados Unidos 0,00% 72,40% 100,00% 100,00% FINANCIERA -13 54 0 Santander Consumer Auto Receivables Funding 2015-L4 LLC Estados Unidos 0,00% 72,40% 100,00% 100,00% FINANCIERA 81 18 0 Santander Consumer Auto Receivables Funding 2016-B4 LLC Estados Unidos 0,00% 72,40% 100,00% 100,00% FINANCIERA -5 8 0 Santander Consumer Auto Receivables Funding 2018-L1 LLC Estados Unidos 0,00% 72,40% 100,00% 100,00% FINANCIERA 72 27 0 Santander Consumer Auto Receivables Funding 2018-L2 LLC Estados Unidos 0,00% 72,40% 100,00% 100,00% FINANCIERA 20 10 0 Santander Consumer Auto Receivables Funding 2018-L3 LLC Estados Unidos 0,00% 72,40% 100,00% 100,00% FINANCIERA 29 11 0 Santander Consumer Auto Receivables Funding 2018-L4 LLC Estados Unidos 0,00% 72,40% 100,00% 100,00% FINANCIERA 24 12 0 Santander Consumer Auto Receivables Funding 2018-L5 LLC Estados Unidos 0,00% 72,40% 100,00% 100,00% FINANCIERA 19 9 0 Santander Consumer Auto Receivables Funding 2019-B1 LLC Estados Unidos 0,00% 72,40% 100,00% - FINANCIERA 0 -103 0 Santander Consumer Auto Receivables Funding 2019-L2 LLC Estados Unidos 0,00% 72,40% 100,00% - FINANCIERA 0 38 0 Santander Consumer Auto Receivables Funding 2019-L3 LLC Estados Unidos 0,00% 72,40% 100,00% - FINANCIERA 0 28 0 Santander Consumer Auto Receivables Funding 2020-B1 LLC Estados Unidos ------Santander Consumer Auto Receivables Funding 2020-B2 LLC Estados Unidos ------Santander Consumer Auto Receivables Funding 2020-L1 LLC Estados Unidos ------Santander Consumer Auto Receivables Funding 2020-L2 LLC Estados Unidos ------Santander Consumer Auto Receivables Grantor Trust 2020-A Estados Unidos ------Santander Consumer Auto Receivables Trust 2020-A Estados Unidos ------Santander Consumer Bank AG Alemania 0,00% 100,00% 100,00% 100,00% BANCA 3.063 454 4.820 Santander Consumer Bank AS Noruega 0,00% 100,00% 100,00% 100,00% BANCA 2.077 300 2.021 Santander Consumer Bank GmbH Austria 0,00% 100,00% 100,00% 100,00% BANCA 355 51 363 Santander Consumer Bank S.A. Polonia 0,00% 80,48% 100,00% 100,00% BANCA 641 120 509 Santander Consumer Bank S.A. Bélgica 0,00% 100,00% 100,00% 100,00% BANCA 1.167 16 1.170 Santander Consumer Bank S.p.A. Italia 0,00% 100,00% 100,00% 100,00% BANCA 816 81 603 Santander Consumer Banque S.A. Francia 0,00% 100,00% 100,00% 100,00% BANCA 495 37 492 Santander Consumer Credit Services Limited Reino Unido 0,00% 100,00% 100,00% 100,00% FINANCIERA -37 -1 0 Santander Consumer Finance Benelux B.V. Holanda 0,00% 100,00% 100,00% 100,00% FINANCIERA 132 14 190 Santander Consumer Finance Global Services, S.L. España 0,00% 100,00% 100,00% 100,00% INFORMÁTICA 5 1 5 Santander Consumer Finance Limitada Chile 49,00% 34,23% 100,00% 51,00% FINANCIERA 47 15 33 Santander Consumer Finance Oy Finlandia 0,00% 100,00% 100,00% 100,00% FINANCIERA 211 42 130 Santander Consumer Finance, S.A. España 100,00% 0,00% 100,00% 100,00% BANCA 9.869 508 8.825 Santander Consumer Finanse Sp. z o.o. Polonia 0,00% 80,48% 100,00% 100,00% SERVICIOS 15 0 12 Santander Consumer Holding Austria GmbH Austria 0,00% 100,00% 100,00% 100,00% SOCIEDAD DE CARTERA 364 25 518 Santander Consumer Holding GmbH Alemania 0,00% 100,00% 100,00% 100,00% SOCIEDAD DE CARTERA 4.926 278 5.827 Santander Consumer International Puerto Rico LLC Puerto Rico 0,00% 72,40% 100,00% 100,00% SERVICIOS 8 1 6 Santander Consumer Leasing GmbH Alemania 0,00% 100,00% 100,00% 100,00% LEASING 20 54 101 Santander Consumer Mediación Operador de Banca-Seguros Vinculado, S.L. España 0,00% 94,61% 100,00% 100,00% MEDIACION DE SEGUROS 1 0 0 Santander Consumer Multirent Sp. z o.o. Polonia 0,00% 80,48% 100,00% 100,00% LEASING 25 1 5

160

Subsidiaries of Banco Santander, S.A. (1)

% Partic. Del Banco Porcentaje de Derechos de Voto Millones de Euros (a) Sociedad Domicilio Directa Indirecta Año 2019 Año 2018 Actividad Capital + Reservas Resultados Netos Importe en Libros Santander Consumer Operations Services GmbH Alemania 0,00% 100,00% 100,00% 100,00% SERVICIOS 9 1 18 Santander Consumer Receivables 10 LLC Estados Unidos 0,00% 72,40% 100,00% 100,00% FINANCIERA 753 8 0 Santander Consumer Receivables 11 LLC Estados Unidos 0,00% 72,40% 100,00% 100,00% FINANCIERA 236 108 0 Santander Consumer Receivables 3 LLC Estados Unidos 0,00% 72,40% 100,00% 100,00% FINANCIERA 279 -22 0 Santander Consumer Receivables 7 LLC Estados Unidos 0,00% 72,40% 100,00% 100,00% FINANCIERA 375 64 0 Santander Consumer Receivables Funding LLC Estados Unidos 0,00% 72,40% 100,00% 100,00% FINANCIERA 0 0 0 Santander Consumer Renting, S.L. España 0,00% 100,00% 100,00% 100,00% LEASING 37 1 39 Santander Consumer S.A. Argentina 0,00% 99,97% 100,00% 100,00% SERVICIOS DE ASESORAMIENTO 0 0 0 Santander Consumer S.A.S. Colombia 0,00% 100,00% 100,00% 100,00% ASESORAMIENTO FINANCIERO 1 0 1 Santander Consumer Services GmbH Austria 0,00% 100,00% 100,00% 100,00% SERVICIOS 0 0 0 Santander Consumer Services, S.A. Portugal 0,00% 100,00% 100,00% 100,00% FINANCIERA 8 2 5 Santander Consumer Spain Auto 2019-1, Fondo de Titulación España - (b) - - TITULIZACIÓN 0 0 0 Santander Consumer Technology Services GmbH Alemania 0,00% 100,00% 100,00% 100,00% SERVICIOS INFORMÁTICOS 14 1 22 Santander Consumer USA Holdings Inc. Estados Unidos 0,00% 72,40% 72,40% 69,71% SOCIEDAD DE CARTERA 5.630 885 5.318 Santander Consumer USA Inc. Estados Unidos 0,00% 72,40% 100,00% 100,00% FINANCIERA 4.861 198 3.663 Santander Consumer, EFC, S.A. España 0,00% 100,00% 100,00% 100,00% FINANCIERA 522 102 505 Santander Consumo 3, F.T. España ------Santander Consumo, S.A. de C.V., S.O.F.O.M., E.R., Grupo Financiero Santander México México 0,00% 91,76% 100,00% 100,00% TARJETAS 798 205 921 Santander Corredora de Seguros Limitada Chile 0,00% 67,20% 100,00% 100,00% CORREDURÍA DE SEGUROS 81 3 56 Santander Corredores de Bolsa Limitada Chile 0,00% 83,23% 100,00% 100,00% SOCIEDAD DE VALORES 52 1 45 Santander Corretora de Câmbio e Valores Mobiliários S.A. Brasil 0,00% 89,93% 100,00% 100,00% SOCIEDAD DE VALORES 121 22 129 Santander Corretora de Seguros, Investimentos e Serviços S.A. Brasil 0,00% 89,93% 100,00% 100,00% SOCIEDAD DE CARTERA 570 100 599 Santander de Titulización S.G.F.T., S.A. España 81,00% 19,00% 100,00% 100,00% GESTORA DE FONDOS 5 2 2 Santander Digital Assets, S.L. España 0,00% 100,00% 100,00% - SERVICIOS INFORMÁTICOS 21 -6 14 Santander Digital Businesses, S.L. España 99,97% 0,03% 100,00% 100,00% SOCIEDAD DE CARTERA 96 -15 96 Santander Drive Auto Receivables LLC Estados Unidos 0,00% 72,40% 100,00% 100,00% FINANCIERA 0 0 0 Santander Drive Auto Receivables Trust 2015-4 Estados Unidos - (b) - - TITULIZACIÓN 53 17 0 Santander Drive Auto Receivables Trust 2015-5 Estados Unidos - (b) - - TITULIZACIÓN 52 15 0 Santander Drive Auto Receivables Trust 2016-1 Estados Unidos - (b) - - TITULIZACIÓN 30 18 0 Santander Drive Auto Receivables Trust 2016-2 Estados Unidos - (b) - - TITULIZACIÓN 35 24 0 Santander Drive Auto Receivables Trust 2016-3 Estados Unidos - (b) - - TITULIZACIÓN 32 35 0 Santander Drive Auto Receivables Trust 2017-1 Estados Unidos - (b) - - TITULIZACIÓN 5 32 0 Santander Drive Auto Receivables Trust 2017-2 Estados Unidos - (b) - - TITULIZACIÓN -4 42 0 Santander Drive Auto Receivables Trust 2017-3 Estados Unidos - (b) - - TITULIZACIÓN -14 42 0 Santander Drive Auto Receivables Trust 2018-1 Estados Unidos - (b) - - TITULIZACIÓN -41 55 0 Santander Drive Auto Receivables Trust 2018-2 Estados Unidos - (b) - - TITULIZACIÓN -59 52 0 Santander Drive Auto Receivables Trust 2018-3 Estados Unidos - (b) - - TITULIZACIÓN -71 50 0 Santander Drive Auto Receivables Trust 2018-4 Estados Unidos - (b) - - TITULIZACIÓN -67 54 0 Santander Drive Auto Receivables Trust 2018-5 Estados Unidos - (b) - - TITULIZACIÓN -90 69 0 Santander Drive Auto Receivables Trust 2019-1 Estados Unidos - (b) - - TITULIZACIÓN 0 -33 0 Santander Drive Auto Receivables Trust 2019-2 Estados Unidos - (b) - - TITULIZACIÓN 0 -45 0 Santander Drive Auto Receivables Trust 2019-3 Estados Unidos - (b) - - TITULIZACIÓN 0 -73 0 Santander Drive Auto Receivables Trust 2019-4 Estados Unidos - (b) - - SIN ACTIVIDAD 0 0 0 Santander Drive Auto Receivables Trust 2020-1 Estados Unidos ------Santander Drive Auto Receivables Trust 2020-2 Estados Unidos ------

161

Subsidiaries of Banco Santander, S.A. (1)

% Partic. Del Porcentaje de Derechos de Millones de Euros (a) Banco Voto Capital + Resultados Importe en Sociedad Domicilio Directa Indirecta Año 2019 Año 2018 Actividad Reservas Netos Libros Santander Energías Renovables I, S.C.R., S.A. España 59,66% 0,00% 59,66% 59,66% SOCIEDAD DE CAPITAL RIESGO 16 0 9 Santander Equity Investments Limited Reino Unido 0,00% 100,00% 100,00% 100,00% FINANCIERA 54 -3 47 Santander España Merchant Services, Entidad de Pago, S.L. Unipersonal España 100,00% 0,00% 100,00% 100,00% SERVICIOS DE PAGOS 213 5 185 Santander España Servicios Legales y de Cumplimiento, S.L. España 99,97% 0,03% 100,00% - SERVICIOS 8 0 8 Santander Estates Limited Reino Unido 0,00% 100,00% 100,00% 100,00% INMOBILIARIA 4 -1 0 Santander F24 S.A. Polonia 0,00% 67,47% 100,00% 100,00% FINANCIERA 0 0 0 Santander Facility Management España, S.L. España 94,33% 5,67% 100,00% 100,00% INMOBILIARIA 414 0 393 Santander Factoring S.A. Chile 0,00% 99,84% 100,00% 100,00% FACTORING 41 1 42 Santander Factoring Sp. z o.o. Polonia 0,00% 67,47% 100,00% 100,00% SERVICIOS FINANCIEROS 18 5 1 Santander Factoring y Confirming, S.A., E.F.C. España 100,00% 0,00% 100,00% 100,00% FACTORING 155 59 126 Santander FI Hedge Strategies Irlanda 0,00% 89,93% 100,00% 100,00% SOCIEDAD DE INVERSIÓN 216 -106 99 Santander Finance 2012-1 LLC Estados Unidos 0,00% 100,00% 100,00% 100,00% SERVICIOS FINANCIEROS 2 0 3 Santander Financial Exchanges Limited Reino Unido 100,00% 0,00% 100,00% 100,00% FINANCIERA 0 0 0 Santander Financial Services plc Reino Unido 0,00% 100,00% 100,00% 100,00% BANCA 383 -8 396 Santander Financial Services, Inc. Puerto Rico 0,00% 100,00% 100,00% 100,00% FINANCIERA 259 -3 256 Santander Finanse Sp. z o.o. Polonia 0,00% 67,47% 100,00% 100,00% SERVICIOS FINANCIEROS 53 6 21 Santander Fintech Limited Reino Unido 100,00% 0,00% 100,00% 100,00% FINANCIERA 187 14 117 Santander Fundo de Investimento SBAC Referenciado di Crédito Privado Brasil 0,00% 87,83% 100,00% 100,00% FONDO DE INVERSIÓN 1.094 59 1.051 Santander Gestión de Recaudación y Cobranzas Ltda. Chile 0,00% 99,84% 100,00% 100,00% SERVICIOS FINANCIEROS 5 1 6 Santander Global Consumer Finance Limited Reino Unido 0,00% 100,00% 100,00% 100,00% FINANCIERA 7 0 7 Santander Global Facilities, S.A. de C.V. México 100,00% 0,00% 100,00% 100,00% GESTIÓN INMOBILIARIA 103 22 124 Santander Global Facilities, S.L. España 100,00% 0,00% 100,00% 100,00% INMOBILIARIA 244 -8 250 Santander Global Operations, S.A. España 100,00% 0,00% 100,00% 100,00% SERVICIOS 34 18 24 Santander Global Property, S.L. España 97,34% 2,66% 100,00% 100,00% INVERSIÓN MOBILIARIA 253 0 253 Santander Global Services S.A. Uruguay 0,00% 100,00% 100,00% 100,00% SERVICIOS 0 0 0 Santander Global Sport, S.A. España 100,00% 0,00% 100,00% 100,00% EXPLOTACION DEPORTIVA 29 -6 23 Santander Global Technology Brasil Ltda. Brasil 0,00% 100,00% 100,00% 100,00% SERVICIOS TECNOLÓGICOS 3 0 1 Santander Global Technology Chile Limitada Chile 0,00% 100,00% 100,00% 100,00% SERVICIOS INFORMÁTICOS 25 1 20 Santander Global Technology, S.L. España 100,00% 0,00% 100,00% 100,00% SERVICIOS INFORMÁTICOS 399 38 346 Santander Global Trade Platform Solutions, S.L. España 0,00% 100,00% 100,00% - SERVICIOS TECNOLÓGICOS 26 -2 24 Santander Guarantee Company Reino Unido 0,00% 100,00% 100,00% 100,00% LEASING 5 0 3 Santander Hipotecario 1 Fondo de Titulización de Activos España - (b) - - TITULIZACIÓN 0 0 0 Santander Hipotecario 2 Fondo de Titulización de Activos España - (b) - - TITULIZACIÓN 0 0 0 Santander Hipotecario 3 Fondo de Titulización de Activos España - (b) - - TITULIZACIÓN 0 0 0 Santander Holding Imobiliária S.A. Brasil 0,00% 89,93% 100,00% 100,00% INMOBILIARIA 62 0 56 Santander Holding Internacional, S.A. España 99,95% 0,05% 100,00% 100,00% SOCIEDAD DE CARTERA 2.551 2.075 2.399 Santander Holdings USA, Inc. Estados Unidos 100,00% 0,00% 100,00% 100,00% SOCIEDAD DE CARTERA 18.806 670 12.532 Santander Inclusión Financiera, S.A. de C.V., S.O.F.O.M., E.R., Grupo Financiero Santander México México 0,00% 91,76% 100,00% 100,00% FINANCIERA 18 -9 9 Santander Insurance Agency, Inc. Puerto Rico 0,00% 100,00% 100,00% 100,00% CORREDURÍA DE SEGUROS 8 1 8 Santander Insurance Agency, U.S., LLC Estados Unidos 0,00% 100,00% 100,00% 100,00% SEGUROS 1 0 1 Santander Insurance Services UK Limited Reino Unido 100,00% 0,00% 100,00% 100,00% GESTORA DE PATRIMONIOS 42 1 43 Santander Intermediación Correduría de Seguros, S.A. España 100,00% 0,00% 100,00% 100,00% CORREDURÍA DE SEGUROS 21 1 18 Santander International Products, Plc. Irlanda 99,99% 0,01% 100,00% 100,00% FINANCIERA 1 0 0 Santander Inversiones S.A. Chile 0,00% 100,00% 100,00% 100,00% SOCIEDAD DE CARTERA 1.546 184 1.032 Santander Investment Bank Limited Bahamas 0,00% 100,00% 100,00% 100,00% BANCA 579 -3 529

162

Subsidiaries of Banco Santander, S.A. (1)

% Partic. Del Porcentaje de Derechos de Voto Millones de Euros (a) Banco Sociedad Domicilio Directa Indirecta Año 2019 Año 2018 Actividad Capital + Reservas Resultados Netos Importe en Libros Santander Investment Chile Limitada Chile 0,00% 100,00% 100,00% 100,00% FINANCIERA 522 14 321 Santander Investment I, S.A. España 100,00% 0,00% 100,00% 100,00% SOCIEDAD DE CARTERA 219 -1 27 Santander Investment Securities Inc. Estados Unidos 0,00% 100,00% 100,00% 100,00% SOCIEDAD DE VALORES 424 25 449 Santander Investment, S.A. España 100,00% 0,00% 100,00% 100,00% BANCA 251 1.184 256 Santander Inwestycje Sp. z o.o. Polonia 0,00% 67,47% 100,00% 100,00% SOCIEDAD DE VALORES 10 0 7 Santander ISA Managers Limited Reino Unido 0,00% 100,00% 100,00% 100,00% GESTIÓN DE FONDOS Y CARTERAS 23 7 6 Santander Lease, S.A., E.F.C. España 100,00% 0,00% 100,00% 100,00% LEASING 43 12 51 Santander Leasing Poland Securitization 01 Designated Activity Company Irlanda - (b) - - TITULIZACIÓN 0 0 0 Santander Leasing S.A. Polonia 0,00% 67,47% 100,00% 100,00% LEASING 135 5 30 Santander Leasing S.A. Arrendamento Mercantil Brasil 0,00% 89,93% 99,99% 99,99% LEASING 1.266 10 1.148 Santander Leasing, LLC Estados Unidos 0,00% 100,00% 100,00% 100,00% LEASING 7 -6 0 Santander Lending Limited Reino Unido 0,00% 100,00% 100,00% 100,00% SOCIEDAD DE CREDITOS HIPOTECARIOS 238 5 242 Santander Mediación Operador de Banca-Seguros Vinculado, S.A. España 100,00% 0,00% 100,00% 100,00% MEDIACION DE SEGUROS 4 0 3 Santander Merchant Platform Operations, S.A. de C.V. México ------Santander Merchant Platform Services, S.A. de C.V. México ------Santander Merchant Platform Solutions Brasil Ltda. Brasil 0,00% 100,00% 100,00% 100,00% SERVICIOS TECNOLÓGICOS 1 0 1 Santander Merchant Platform Solutions México, S.A. de C.V. México ------Santander Merchant Platform Solutions S.A. Argentina ------Santander Merchant Platform Solutions, S.L. España 100,00% 0,00% 100,00% 100,00% SOCIEDAD DE CARTERA 25 -7 25 Santander Merchant S.A. Argentina 0,00% 100,00% 100,00% 100,00% FINANCIERA 0 0 2 Santander Mortgage Holdings Limited Reino Unido 0,00% 100,00% 100,00% 100,00% SERVICIOS FINANCIEROS 0 0 0 Santander Operaciones España, S.L. España 100,00% 0,00% 100,00% 100,00% SERVICIOS 32 -17 11 Santander Paraty Qif PLC Irlanda 0,00% 89,93% 100,00% 100,00% FONDO DE INVERSIÓN 216 -106 99 Santander Pensiones, S.A., E.G.F.P. España 0,00% 100,00% 100,00% 100,00% GESTORA DE FONDOS DE PENSIONES 19 20 118 Santander Pensões - Sociedade Gestora de Fundos de Pensões, S.A. Portugal 100,00% 0,00% 100,00% 100,00% GESTORA DE FONDOS DE PENSIONES 3 0 3 Santander Prime Auto Issuance Notes 2018-A Designated Activity Company Irlanda - (b) - - TITULIZACIÓN -29 7 0 Santander Prime Auto Issuance Notes 2018-B Designated Activity Company Irlanda - (b) - - TITULIZACIÓN -17 5 0 Santander Prime Auto Issuance Notes 2018-C Designated Activity Company Irlanda - (b) - - TITULIZACIÓN -4 2 0 Santander Prime Auto Issuance Notes 2018-D Designated Activity Company Irlanda - (b) - - TITULIZACIÓN -7 -10 0 Santander Prime Auto Issuance Notes 2018-E Designated Activity Company Irlanda - (b) - - TITULIZACIÓN -2 0 0 Santander Private Banking Gestión, S.A., S.G.I.I.C. España 100,00% 0,00% 100,00% 100,00% GESTORA DE FONDOS 31 11 35 Santander Private Banking s.p.a. in Liquidazione Italia 100,00% 0,00% 100,00% 100,00% FINANCIERA 33 -1 32 Santander Private Banking UK Limited Reino Unido 0,00% 100,00% 100,00% 100,00% INMOBILIARIA 300 0 409 Santander Private Real Estate Advisory & Management, S.A. España 99,99% 0,01% 100,00% 100,00% INMOBILIARIA 5 0 4 Santander Private Real Estate Advisory, S.A. España 100,00% 0,00% 100,00% 100,00% INMOBILIARIA 12 1 13 Santander Real Estate, S.A. España 100,00% 0,00% 100,00% 100,00% INMOBILIARIA 1 0 1 Santander Retail Auto Lease Funding LLC Estados Unidos 0,00% 72,40% 100,00% 100,00% TITULIZACIÓN 0 0 0 Santander Retail Auto Lease Trust 2017-A Estados Unidos - (b) - - TITULIZACIÓN 73 45 0 Santander Retail Auto Lease Trust 2018-A Estados Unidos - (b) - - TITULIZACIÓN 60 29 0 Santander Retail Auto Lease Trust 2019-A Estados Unidos - (b) - - TITULIZACIÓN 0 41 0 Santander Retail Auto Lease Trust 2019-B Estados Unidos - (b) - - TITULIZACIÓN 0 28 0 Santander Retail Auto Lease Trust 2019-C Estados Unidos - (b) - - TITULIZACIÓN 0 30 0 Santander Retail Auto Lease Trust 2020-A Estados Unidos ------Santander Retail Auto Lease Trust 2020-B Estados Unidos ------Santander Revolving Auto Loan Trust 2019-A Estados Unidos - (b) - - TITULIZACIÓN 0 -87 0

163

Subsidiaries of Banco Santander, S.A. (1)

% Partic. Del Porcentaje de Millones de Euros (a) Banco Derechos de Voto Capital + Resultados Importe en Sociedad Domicilio Directa Indirecta Año 2019 Año 2018 Actividad Reservas Netos Libros Santander Revolving Auto Loan Trust 2020-A Estados Unidos ------Santander Río Asset Management Gerente de Fondos Comunes de Inversión S.A. Argentina 0,00% 100,00% 100,00% 100,00% GESTORA DE FONDOS 3 3 3 Santander Río Trust S.A. Argentina 0,00% 99,97% 100,00% 100,00% SERVICIOS 0 0 0 Santander Río Valores S.A. Argentina 0,00% 99,34% 100,00% 100,00% SOCIEDAD DE VALORES 3 0 3 Santander S.A. Sociedad Securitizadora Chile 0,00% 67,24% 100,00% 100,00% GESTORA DE FONDOS 1 0 0 Santander Secretariat Services Limited Reino Unido 0,00% 100,00% 100,00% 100,00% SOCIEDAD DE CARTERA 0 0 0 Santander Securities LLC Estados Unidos 0,00% 100,00% 100,00% 100,00% SOCIEDAD DE VALORES 125 -77 48 Santander Seguros y Reaseguros, Compañía Aseguradora, S.A. España 100,00% 0,00% 100,00% 100,00% SEGUROS 1.139 146 1.188 Santander Servicios Corporativos, S.A. de C.V. México 0,00% 91,77% 100,00% 100,00% SERVICIOS 6 1 6 Santander Servicios Especializados, S.A. de C.V. México 0,00% 91,77% 100,00% 100,00% SERVICIOS FINANCIEROS 2 0 2 Santander Technology USA, LLC Estados Unidos 0,00% 100,00% 100,00% 100,00% SERVICIOS INFORMÁTICOS 111 -18 93 Santander Tecnología Argentina S.A. Argentina 0,00% 99,34% 100,00% 100,00% SERVICIOS INFORMÁTICOS 2 2 2 Santander Tecnologia e Inovação Ltda. Brasil 0,00% 53,96% 100,00% 100,00% SERVICIOS INFORMÁTICOS 1 0 1 Santander Tecnología España, S.L. España 100,00% 0,00% 100,00% 100,00% SERVICIOS INFORMÁTICOS 35 -2 35 Santander Tecnología México, S.A. de C.V. México 0,00% 91,76% 100,00% 100,00% SERVICIOS INFORMÁTICOS 41 3 40 Santander Totta Seguros, Companhia de Seguros de Vida, S.A. Portugal 0,00% 99,91% 100,00% 100,00% SEGUROS 115 26 47 Santander Totta, SGPS, S.A. Portugal 0,00% 99,91% 99,91% 99,90% SOCIEDAD DE CARTERA 3.430 436 3.923 Santander Towarzystwo Funduszy Inwestycyjnych S.A. Polonia 50,00% 33,74% 100,00% 100,00% GESTORA DE FONDOS 4 41 39 Santander Trade Services Limited Hong-Kong 0,00% 100,00% 100,00% 100,00% SIN ACTIVIDAD 18 0 16 Santander UK Foundation Limited Reino Unido - (b) - - SERVICIOS DE CARIDAD 0 0 0 Santander UK Group Holdings plc Reino Unido 77,67% 22,33% 100,00% 100,00% FINANCIERA 15.413 528 19.948 Santander UK Investments Reino Unido 100,00% 0,00% 100,00% 100,00% FINANCIERA 52 0 47 Santander UK Operations Limited Reino Unido 0,00% 100,00% 100,00% 100,00% SERVICIOS 21 3 17 Santander UK plc Reino Unido 0,00% 100,00% 100,00% 100,00% BANCA 16.821 395 15.542 Santander UK Technology Limited Reino Unido 0,00% 100,00% 100,00% 100,00% SERVICIOS INFORMÁTICOS 17 11 7 Santander Vivienda, S.A. de C.V., S.O.F.O.M., E.R., Grupo Financiero Santander México México 0,00% 91,76% 100,00% 100,00% FINANCIERA 373 31 371 Santander Vivienda, S.A. de C.V., S.O.F.O.M., E.R., Grupo Financiero Santander México como Fiduciaria del Fideicomiso Bursa México - (b) - - TITULIZACIÓN 10 -2 0 Santander Wealth Management International SA Suiza 0,00% 100,00% 100,00% - GESTORA DE PATRIMONIOS 0 0 0 Santusa Holding, S.L. España 69,76% 30,24% 100,00% 100,00% SOCIEDAD DE CARTERA 7.650 -118 6.503 SC Austria Finance 2013-1 S.A. Luxemburgo - (b) - - TITULIZACIÓN 0 0 0 SC Germany Auto 2014-2 UG (haftungsbeschränkt) Alemania - (b) - - TITULIZACIÓN 0 0 0 SC Germany Auto 2016-1 UG (haftungsbeschränkt) Alemania - (b) - - TITULIZACIÓN 0 0 0 SC Germany Auto 2016-2 UG (haftungsbeschränkt) Alemania - (b) - - TITULIZACIÓN 0 0 0 SC Germany Auto 2017-1 UG (haftungsbeschränkt) Alemania - (b) - - TITULIZACIÓN 0 0 0 SC Germany Auto 2018-1 UG (haftungsbeschränkt) Alemania - (b) - - TITULIZACIÓN 0 0 0 SC Germany Auto 2019-1 UG (haftungsbeschränkt) Alemania - (b) - - TITULIZACIÓN 0 0 0 SC Germany Consumer 2014-1 UG (haftungsbeschränkt) Alemania - (b) - - TITULIZACIÓN 0 0 0 SC Germany Consumer 2015-1 UG (haftungsbeschränkt) Alemania - (b) - - TITULIZACIÓN 0 0 0 SC Germany Consumer 2016-1 UG (haftungsbeschränkt) Alemania - (b) - - TITULIZACIÓN 0 0 0 SC Germany Consumer 2017-1 UG (haftungsbeschränkt) Alemania - (b) - - TITULIZACIÓN 0 0 0 SC Germany Consumer 2018-1 UG (haftungsbeschränkt) Alemania - (b) - - TITULIZACIÓN 0 0 0 SC Germany Mobility 2019-1 UG (haftungsbeschränkt) Alemania - (b) - - TITULIZACIÓN 0 0 0 SC Germany Vehicles 2013-1 UG (haftungsbeschränkt) Alemania - (b) - - TITULIZACIÓN 0 0 0 SC Germany Vehicles 2015-1 UG (haftungsbeschränkt) Alemania - (b) - - TITULIZACIÓN 0 0 0 SC Poland Consumer 15-1 Sp. z.o.o. Polonia - (b) - - TITULIZACIÓN 0 0 0

164

Subsidiaries of Banco Santander, S.A. (1)

% Partic. Del Porcentaje de Derechos de Voto Millones de Euros (a) Banco Sociedad Domicilio Directa Indirecta Año 2019 Año 2018 Actividad Capital + Reservas Resultados Netos Importe en Libros SC Poland Consumer 16-1 Sp. z o.o. Polonia - (b) - - TITULIZACIÓN 0 0 0 SCF Ajoneuvohallinto I Limited Irlanda - (b) - - TITULIZACIÓN 0 0 0 SCF Ajoneuvohallinto II Limited Irlanda - (b) - - TITULIZACIÓN 0 0 0 SCF Ajoneuvohallinto KIMI VI Limited Irlanda - (b) - - TITULIZACIÓN 0 0 0 SCF Ajoneuvohallinto VII Limited Irlanda - (b) - - TITULIZACIÓN 0 0 0 SCF Ajoneuvohallinto VIII Limited Irlanda - (b) - - TITULIZACIÓN 0 0 0 SCF Eastside Locks GP Limited Reino Unido 0,00% 100,00% 100,00% 100,00% GESTIÓN INMOBILIARIA 0 0 0 SCF Rahoituspalvelut I Designated Activity Company Irlanda - (b) - - TITULIZACIÓN 0 0 0 SCF Rahoituspalvelut II Designated Activity Company Irlanda - (b) - - TITULIZACIÓN 0 0 0 SCF Rahoituspalvelut KIMI VI Designated Activity Company Irlanda - (b) - - TITULIZACIÓN 0 0 0 SCF Rahoituspalvelut VII Designated Activity Company Irlanda - (b) - - TITULIZACIÓN -1 0 0 SCF Rahoituspalvelut VIII Designated Activity Company Irlanda - (b) - - TITULIZACIÓN 2 0 0 Secucor Finance 2013-I Designated Activity Company Irlanda - (b) - - TITULIZACIÓN 0 0 0 Services and Promotions Delaware Corp. Estados Unidos 0,00% 100,00% 100,00% 100,00% SOCIEDAD DE CARTERA 63 2 66 Services and Promotions Miami LLC Estados Unidos 0,00% 100,00% 100,00% 100,00% INMOBILIARIA 54 3 58 Servicio de Alarmas Controladas por Ordenador, S.A. España 99,99% 0,01% 100,00% 100,00% SEGURIDAD 1 0 1 Servicios Corporativos Seguros Serfin, S.A. de C.V. México 0,00% 85,30% 100,00% 100,00% SERVICIOS 0 0 0 Servicios de Cobranza, Recuperación y Seguimiento, S.A. de C.V. México 0,00% 85,00% 85,00% 85,00% FINANCIERA 33 3 7 Sheppards Moneybrokers Limited Reino Unido 0,00% 100,00% 100,00% 100,00% SERVICIOS DE ASESORAMIENTO 0 0 0 Shiloh III Wind Project, LLC Estados Unidos 0,00% 100,00% 100,00% 100,00% EXPLOTACIÓN DE ENERGÍA ELÉCTRICA 313 8 321 SMPS Merchant Platform Solutions México, S.A de C.V México ------Sociedad Integral de Valoraciones Automatizadas, S.A. España 100,00% 0,00% 100,00% 100,00% TASACIONES 1 1 1 Socur S.A. Uruguay 100,00% 0,00% 100,00% 100,00% FINANCIERA 34 23 59 Sol Orchard Imperial 1 LLC Estados Unidos 0,00% 57,40% 100,00% 100,00% EXPLOTACIÓN DE ENERGÍA ELÉCTRICA 31 -1 33 Solarlaser Limited Reino Unido 0,00% 100,00% 100,00% 100,00% INMOBILIARIA 0 0 0 Sovereign Community Development Company Estados Unidos 0,00% 100,00% 100,00% 100,00% SOCIEDAD DE CARTERA 38 1 39 Sovereign Delaware Investment Corporation Estados Unidos 0,00% 100,00% 100,00% 100,00% SOCIEDAD DE CARTERA 130 3 133 Sovereign Lease Holdings, LLC Estados Unidos 0,00% 100,00% 100,00% 100,00% SERVICIOS FINANCIEROS 210 7 217 Sovereign REIT Holdings, Inc. Estados Unidos 0,00% 100,00% 100,00% 100,00% SOCIEDAD DE CARTERA 7.298 167 7.465 Sovereign Spirit Limited Bermudas 0,00% 100,00% 100,00% 100,00% LEASING 0 0 0 Sterrebeeck B.V. Holanda 100,00% 0,00% 100,00% 100,00% SOCIEDAD DE CARTERA 4.124 1.090 11.291 Suleyado 2003, S.L. Unipersonal España 0,00% 100,00% 100,00% 100,00% INVERSIÓN MOBILIARIA 23 6 28 Summer Empreendimentos Ltda. Brasil ------Super Pagamentos e Administração de Meios Eletrônicos S.A. Brasil 0,00% 89,93% 100,00% 100,00% SERVICIOS DE PAGOS 8 1 11 Superdigital Holding Company, S.L. España 0,00% 100,00% 100,00% 100,00% SOCIEDAD DE CARTERA 14 -2 12 Suzuki Servicios Financieros, S.L. España 0,00% 51,00% 51,00% 51,00% INTERMEDIACIÓN 6 1 0 Svensk Autofinans WH 1 Designated Activity Company Irlanda - (b) - - TITULIZACIÓN 0 0 0 Swesant SA Suiza 0,00% 100,00% 100,00% 100,00% SOCIEDAD DE CARTERA 2 8 0 Taxagest Sociedade Gestora de Participações Sociais, S.A. Portugal 0,00% 99,86% 100,00% 100,00% SOCIEDAD DE CARTERA 56 0 0 Teatinos Siglo XXI Inversiones S.A. Chile 50,00% 50,00% 100,00% 100,00% SOCIEDAD DE CARTERA 3.026 258 2.484 The Alliance & Leicester Corporation Limited Reino Unido 0,00% 100,00% 100,00% 100,00% INMOBILIARIA 14 0 14 The Best Specialty Coffee, S.L. Unipersonal España 100,00% 0,00% 100,00% 100,00% RESTAURACIÓN 1 0 0 Tikgi Aviation One Designated Activity Company Irlanda - (b) - - RENTING -1 -1 0 Time Retail Finance Limited Reino Unido 0,00% 100,00% 100,00% 100,00% SERVICIOS 0 0 0 TIM-SCB JV S.p.A. Italia ------

165

Subsidiaries of Banco Santander, S.A. (1)

% Partic. Del Porcentaje de Derechos de Voto Millones de Euros (a) Banco Sociedad Domicilio Directa Indirecta Año 2019 Año 2018 Actividad Capital + Reservas Resultados Netos Importe en Libros Tonopah Solar I, LLC Estados Unidos 0,00% 100,00% 100,00% 100,00% SOCIEDAD DE CARTERA 5 0 5 TOPSAM, S.A de C.V. México 0,00% 100,00% 100,00% 100,00% GESTORA DE FONDOS 2 0 1 Toque Fale Serviços de Telemarketing Ltda. Brasil 0,00% 89,93% 100,00% 100,00% TELEMARKETING 1 -1 0 Tornquist Asesores de Seguros S.A. Argentina 0,00% 99,99% 99,99% 99,99% SERVICIOS DE ASESORAMIENTO 0 0 0 Totta (Ireland), PLC Irlanda 0,00% 99,86% 100,00% 100,00% FINANCIERA 455 11 450 Totta Urbe - Empresa de Administração e Construções, S.A. Portugal 0,00% 99,86% 100,00% 100,00% INMOBILIARIA 125 6 100 Trabajando.com Colombia Consultoría S.A.S. Colombia 0,00% 100,00% 100,00% 100,00% SERVICIOS 0 0 0 Trabajando.com México, S.A. de C.V. México 0,00% 99,87% 99,87% 100,00% SERVICIOS 0 0 0 Trabajando.com Perú S.A.C. Perú 0,00% 100,00% 100,00% 100,00% SERVICIOS 0 0 0 Trabalhando.com Brasil Consultoria Ltda. Brasil 0,00% 100,00% 100,00% 100,00% SERVICIOS 0 0 0 Trabalhandopontocom Portugal, Sociedade Unipessoal, Lda - Em Liquidação Portugal 0,00% 100,00% 100,00% 100,00% SERVICIOS 0 0 0 Trade Maps 3 Hong Kong Limited Hong-Kong - (b) - - TITULIZACIÓN 0 0 0 Trade Maps 3 Ireland Limited Irlanda - (b) - - TITULIZACIÓN 0 0 0 Trans Rotor Limited Reino Unido 100,00% 0,00% 100,00% 100,00% RENTING 8 -1 5 Transolver Finance EFC, S.A. España 0,00% 51,00% 51,00% 51,00% LEASING 53 7 17 Tresmares Santander Direct Lending, SICC, S.A. España ------Tuttle and Son Limited Reino Unido 0,00% 100,00% 100,00% 100,00% SERVICIOS DE COBROS Y PAGOS 0 0 0 Universia Brasil S.A. Brasil 0,00% 100,00% 100,00% 100,00% INTERNET 0 0 0 Universia Chile S.A. Chile 0,00% 86,84% 86,84% 86,84% INTERNET 0 0 1 Universia Colombia S.A.S. Colombia 0,00% 100,00% 100,00% 100,00% INTERNET 0 0 0 Universia España Red de Universidades, S.A. España 0,00% 89,45% 89,45% 89,45% INTERNET 2 0 2 Universia Holding, S.L. España 100,00% 0,00% 100,00% 100,00% SOCIEDAD DE CARTERA 19 -5 18 Universia México, S.A. de C.V. México 0,00% 100,00% 100,00% 100,00% INTERNET 0 0 0 Universia Perú, S.A. Perú 0,00% 99,73% 99,73% 96,51% INTERNET 0 0 0 Universia Uruguay, S.A. Uruguay 0,00% 100,00% 100,00% 100,00% INTERNET 0 0 0 W.N.P.H. Gestão e Investimentos Sociedade Unipessoal, S.A. Portugal 0,00% 100,00% 100,00% 100,00% GESTIÓN DE CARTERAS 0 0 0 Wallcesa, S.A. España 100,00% 0,00% 100,00% 100,00% SERVICIOS FINANCIEROS -941 6 0 Wave Holdco, S.L. España 0,00% 100,00% 100,00% 100,00% SOCIEDAD DE CARTERA 45 -14 31 Waypoint Insurance Group, Inc. Estados Unidos 0,00% 100,00% 100,00% 100,00% SOCIEDAD DE CARTERA 9 0 9 WIM Servicios Corporativos, S.A. de C.V. México 0,00% 100,00% 100,00% 100,00% ASESORAMIENTO 0 0 0 WTW Shipping Designated Activity Company Irlanda 100,00% 0,00% 100,00% 100,00% LEASING 12 1 9

(a) Amount according to the books of each company referred to December 31, 2019 and published in the annual accounts for the year 2019. The interim dividends that have been made during th e year have not been considered, if applicable. In the carrying amount (net cost of provision), the Group's stake has been applied to the figure of each of the holding companies, without considering the impairment of goodwill made in the consolidation proc ess. The data of foreign companies appear converted to euros at the year-end exchange rate.

(1) Companies issuing shares and preference shares are listed in annex III. together with other relevant information.

166

Appendix II

Societies of which the Group owns more than 5%, entities associated with Grupo Santander and jointly controlled entities

Porcentaje de % Partic. Del Banco Millones de Euros (a) Derechos de Voto Capital Año Año Resultados Sociedad Domicilio Directa Indirecta Actividad Clase de Sociedad Activo + 2019 2018 Netos Reservas Abra 1 Limited Islas Caimán - (h) - - LEASING Negocios Conjuntos - - - Administrador Financiero de Transantiago S.A. Chile 0,00% 13,42% 20,00% 20,00% SERVICIOS DE COBROS Y PAGOS Asociada 74 21 2 Aegon Santander Portugal Não Vida - Companhia de Seguros, S.A. Portugal 0,00% 48,95% 49,00% 49,00% SEGUROS Negocios Conjuntos 44 17 5 Aegon Santander Portugal Vida - Companhia de Seguros Vida, S.A. Portugal 0,00% 48,95% 49,00% 49,00% SEGUROS Negocios Conjuntos 115 20 12 Aeroplan - Sociedade Construtora de Aeroportos, Lda. Portugal 0,00% 19,97% 20,00% 20,00% SIN ACTIVIDAD - 0 0 0 Aguas de Fuensanta, S.A. España 36,78% 0,00% 36,78% 36,78% ALIMENTACIÓN Asociada 24 -7 0 Alcuter 2, S.L. España 37,23% 0,00% 37,23% 37,23% SERVICIOS TÉCNICOS - - - - Altamira Asset Management, S.A. España 0,00% 15,00% 15,00% - INMOBILIARIA - 580 110 24 Apolo Fundo de Investimento em Direitos Creditórios Brasil 0,00% 29,98% 33,33% - FONDO DE INVERSIÓN Negocios Conjuntos 1.778 1.744 34 Arena Communications Network, S.L. (consolidado) España 20,00% 0,00% 20,00% 20,00% PUBLICIDAD Asociada 289 96 3 Attijariwafa Bank Société Anonyme (consolidado) Marruecos 0,00% 5,11% 5,11% 5,11% BANCA - 47.488 4.073 627 Autopistas del Sol S.A. Argentina 0,00% 14,17% 14,17% 14,17% CONCESIÓN DE AUTOPISTAS - 244 19 115 Aviva Powszechne Towarzystwo Emerytalne Aviva Santander S.A. Polonia 0,00% 6,75% 10,00% 10,00% GESTORA DE FONDOS DE PENSIONES - 118 109 29 Aviva Towarzystwo Ubezpieczeń na Życie S.A. Polonia 0,00% 6,75% 10,00% 10,00% SEGUROS - 3.508 316 138 Banco RCI Brasil S.A. Brasil 0,00% 35,88% 39,89% 39,89% BANCA Negocios Conjuntos 2.988 234 57 Banco S3 México, S.A., Institución de Banca Múltiple México 0,00% 50,00% 50,00% 100,00% BANCA Negocios Conjuntos 139 62 6 Bank of Beijing Consumer Finance Company China 0,00% 20,00% 20,00% 20,00% FINANCIERA Asociada 875 99 4 Bank of Shanghai Co., Ltd. (consolidado) China 6,54% 0,00% 6,54% 6,50% BANCA - 259.289 18.375 2.310 CACEIS (consolidado) Francia 0,00% 30,50% 30,50% - SERVICIOS DE CUSTODIA Asociada 88.015 3.811 159 Câmara Interbancária de Pagamentos - CIP Brasil 0,00% 15,84% 17,61% 17,61% SERVICIOS DE COBROS Y PAGOS - 120 53 22 Cantabria Capital, SGEIC, S.A. España 50,00% 0,00% 50,00% 50,00% GESTORA DE CAPITAL RIESGO Asociada 0 0 0 CCPT - ComprarCasa, Rede Serviços Imobiliários, S.A. Portugal 0,00% 49,98% 49,98% 49,98% SERVICIOS INMOBILIARIOS Negocios Conjuntos 0 0 0 Centro de Compensación Automatizado S.A. Chile 0,00% 22,37% 33,33% 33,33% SERVICIOS DE COBROS Y PAGOS Asociada 10 7 1 Centro para el Desarrollo, Investigación y Aplicación de Nuevas Tecnologías, S.A. España 0,00% 49,00% 49,00% 49,00% TECNOLOGÍA Asociada 3 2 0 CNP Santander Insurance Europe Designated Activity Company Irlanda 49,00% 0,00% 49,00% 49,00% CORREDURÍA DE SEGUROS Asociada 940 132 33 CNP Santander Insurance Life Designated Activity Company Irlanda 49,00% 0,00% 49,00% 49,00% CORREDURÍA DE SEGUROS Asociada 1.425 181 50 CNP Santander Insurance Services Ireland Limited Irlanda 49,00% 0,00% 49,00% 49,00% SERVICIOS Asociada 29 3 1 Comder Contraparte Central S.A Chile 0,00% 8,36% 12,45% 11,23% SERVICIOS FINANCIEROS Asociada 101 13 1 Companhia Promotora UCI Brasil 0,00% 25,00% 25,00% 25,00% SERVICIOS FINANCIEROS Negocios Conjuntos 1 -1 0 Compañia Española de Financiación de Desarrollo, Cofides, S.A., SME España 20,18% 0,00% 20,18% 20,18% FINANCIERA - 137 124 9 Compañía Española de Seguros de Crédito a la Exportación, S.A., Compañía de Seguros y Reaseguros España 23,33% 0,55% 23,88% 23,88% SEGUROS DE CRÉDITO - 865 356 35 (consolidado) Compañía Española de Viviendas en Alquiler, S.A. España 24,07% 0,00% 24,07% 24,07% INMOBILIARIA Asociada 493 299 28 Compañía para los Desarrollos Inmobiliarios de la Ciudad de Hispalis, S.L., en liquidación España 21,98% 0,00% 21,98% 21,98% PROMOCIÓN INMOBILIARIA - 38 -324 0 Condesa Tubos, S.L. España 36,21% 0,00% 36,21% 36,21% SERVICIOS - 96 26 -1 Corkfoc Cortiças, S.A. Portugal 0,00% 27,55% 27,58% 27,58% INDUSTRIA DEL CORCHO - 3 20 0 Corridor Texas Holdings LLC (consolidado) Estados Unidos 0,00% 33,60% 33,60% 29,47% SOCIEDAD DE CARTERA - 207 194 -5 Ebury Partners Limited (consolidado) Reino Unido 6,39% 0,00% 6,39% - SERVICIOS DE PAGOS - 294 39 -22 Eko Energy Sp. z o.o Polonia 0,00% 13,12% 21,99% 22,00% EXPLOTACIÓN DE ENERGÍA ELÉCTRICA - 0 21 -21 Euro Automatic Cash Entidad de Pago, S.L. España 50,00% 0,00% 50,00% 50,00% SERVICIOS DE PAGOS Asociada 72 57 0 FAFER- Empreendimentos Urbanísticos e de Construção, S.A. Portugal 0,00% 36,57% 36,62% 36,62% INMOBILIARIA - 0 1 0 Federal Home Loan Bank of Pittsburgh Estados Unidos 0,00% 9,38% 9,38% 6,33% BANCA - 95.680 4.477 309 Federal Reserve Bank of Boston Estados Unidos 0,00% 23,56% 23,56% 30,09% BANCA - 94.001 1.581 -80 Fondo de Titulización de Activos UCI 11 España - (h) - - TITULIZACIÓN Negocios Conjuntos 164 0 0 Fondo de Titulización de Activos UCI 14 España - (h) - - TITULIZACIÓN Negocios Conjuntos 439 0 0 Fondo de Titulización de Activos UCI 15 España - (h) - - TITULIZACIÓN Negocios Conjuntos 526 0 0 Fondo de Titulización de Activos UCI 16 España - (h) - - TITULIZACIÓN Negocios Conjuntos 744 0 0 Fondo de Titulización de Activos UCI 17 España - (h) - - TITULIZACIÓN Negocios Conjuntos 629 0 0 Fondo de Titulización de Activos, RMBS Prado I España - (h) - - TITULIZACIÓN Negocios Conjuntos 343 0 0 Fondo de Titulización Hipotecaria UCI 10 España - (h) - - TITULIZACIÓN Negocios Conjuntos 95 0 0 Fondo de Titulización Hipotecaria UCI 12 España - (h) - - TITULIZACIÓN Negocios Conjuntos 236 0 0 167

Societies of which the Group owns more than 5%, entities associated with Grupo Santander and jointly controlled entities

Porcentaje de Derechos % Partic. Del Banco Millones de Euros (a) de Voto Capital + Resultados Sociedad Domicilio Directa Indirecta Año 2019 Año 2018 Actividad Clase de Sociedad Activo Reservas Netos Fondo de Titulización Structured Covered Bonds UCI España - (h) - - TITULIZACIÓN Negocios Conjuntos 501 0 0 Fondo de Titulización, RMBS Prado II España - (h) - - TITULIZACIÓN Negocios Conjuntos 419 0 0 Fondo de Titulización, RMBS Prado III España - (h) - - TITULIZACIÓN Negocios Conjuntos 347 0 0 Fondo de Titulización, RMBS Prado IV España - (h) - - TITULIZACIÓN Negocios Conjuntos 344 0 0 Fondo de Titulización, RMBS Prado V España - (h) - - TITULIZACIÓN Negocios Conjuntos 370 0 0 Fondo de Titulización, RMBS Prado VI España - (h) - - TITULIZACIÓN Negocios Conjuntos 401 0 0 Fortune Auto Finance Co., Ltd China 0,00% 50,00% 50,00% 50,00% FINANCIERA Negocios Conjuntos 2.441 270 41 Friedrichstrasse, S.L. España 35,00% 0,00% 35,00% 35,00% INMOBILIARIA Asociada 0 0 0 Gestora de Inteligência de Crédito S.A. Brasil 0,00% 17,99% 20,00% 20,00% SERVICIOS DE COBROS Negocios Conjuntos 117 69 -16 Gire S.A. Argentina 0,00% 57,92% 58,33% 58,33% SERVICIOS DE COBROS Y PAGOS Asociada 126 24 16 HCUK Auto Funding 2017-1 Ltd Reino Unido - (h) - - TITULIZACIÓN Negocios Conjuntos 0 0 0 HCUK Auto Funding 2017-2 Ltd Reino Unido - (h) - - TITULIZACIÓN Negocios Conjuntos 823 0 0 Healthy Neighborhoods Equity Fund I LP Estados Unidos 0,00% 22,37% 22,37% 22,37% INMOBILIARIA - 16 17 -1 Hyundai Capital UK Limited Reino Unido 0,00% 50,01% 50,01% 50,01% FINANCIERA Negocios Conjuntos 3.920 201 70 Hyundai Corretora de Seguros Ltda. Brasil 0,00% 44,97% 50,00% - CORREDURÍA DE SEGUROS Negocios Conjuntos 0 0 0 Imperial Holding S.C.A. Luxemburgo 0,00% 36,36% 36,36% 36,36% INVERSIÓN MOBILIARIA - 0 -112 0 Imperial Management S.à r.l. Luxemburgo 0,00% 40,20% 40,20% 40,20% SOCIEDAD DE CARTERA - 0 0 0 Indice Iberoamericano de Investigación y Conocimiento, A.I.E. España 0,00% 51,00% 51,00% 51,00% SISTEMA DE INFORMACIÓN Negocios Conjuntos 2 -4 -1 Inmoalemania Gestión de Activos Inmobiliarios, S.A. España 0,00% 20,00% 20,00% 20,00% SOCIEDAD DE CARTERA - 1 2 0 Innohub S.A.P.I. de C.V. México 0,00% 20,00% 20,00% - SERVICIOS INFORMÁTICOS Asociada 5 5 0 Inverlur Aguilas I, S.L. España 0,00% 50,00% 50,00% 50,00% INMOBILIARIA Negocios Conjuntos 0 0 0 Inverlur Aguilas II, S.L. España 0,00% 50,00% 50,00% 50,00% INMOBILIARIA Negocios Conjuntos 1 1 -1 Inversiones en Resorts Mediterráneos, S.L. España 0,00% 43,28% 43,28% 43,28% INMOBILIARIA Asociada 0 -3 0 Inversiones Ibersuizas, S.A. España 25,42% 0,00% 25,42% 25,42% SOCIEDAD DE CAPITAL RIESGO - 23 21 2 Inversiones ZS América Dos Ltda Chile 0,00% 49,00% 49,00% 49,00% INVERSIÓN MOBILIARIA E INMOBILIARIA Asociada 306 306 51 Inversiones ZS América SpA Chile 0,00% 49,00% 49,00% 49,00% INVERSIÓN MOBILIARIA E INMOBILIARIA Asociada 390 383 48 J.C. Flowers I L.P. Estados Unidos 0,00% 10,60% 0,00% 4,99% SOCIEDAD DE CARTERA - 2 3 -1 J.C. Flowers II-A L.P. Canadá 0,00% 69,40% 4,43% 4,43% SOCIEDAD DE CARTERA - 31 41 -10 JCF AIV P L.P. Canadá 0,00% 7,67% 4,99% 4,99% SOCIEDAD DE CARTERA - 83 69 14 JCF BIN II-A Mauritania 0,00% 69,52% 4,43% 4,43% SOCIEDAD DE CARTERA - 0 1 -1 Jupiter III L.P. Canadá 0,00% 96,45% 4,99% 4,99% SOCIEDAD DE CARTERA - 89 133 -43 Loop Gestão de Pátios S.A. Brasil 0,00% 32,11% 35,70% 35,70% SERVICIOS A EMPRESAS Negocios Conjuntos 9 5 -1 Luri 3, S.A. España 10,00% 0,00% 10,00% 10,00% INMOBILIARIA Negocios Conjuntos 0 0 0 Lusimovest Fundo de Investimento Imobiliário Portugal 0,00% 25,73% 25,77% 25,77% FONDO DE INVERSIÓN Asociada 106 100 0 Massachusetts Business Development Corp. (consolidado) Estados Unidos 0,00% 21,60% 21,60% 21,60% FINANCIERA - 67 8 1 MB Capital Fund IV, LLC Estados Unidos 0,00% 21,51% 21,51% 23,94% FINANCIERA - 18 17 1 Merlin Properties, SOCIMI, S.A. (consolidado) España 16,99% 5,80% 22,78% 22,48% INMOBILIARIA Asociada 12.573 5.547 855 Metrovacesa, S.A. (consolidado) España 31,94% 17,52% 49,46% 49,40% PROMOCIÓN INMOBILIARIA Asociada 2.594 2.393 -9 New PEL S.à r.l. Luxemburgo 0,00% 7,67% 0,00% 0,00% SOCIEDAD DE CARTERA - 68 45 0 NIB Special Investors IV-A LP Canadá 0,00% 99,49% 4,99% 4,99% SOCIEDAD DE CARTERA - 23 28 -6 NIB Special Investors IV-B LP Canadá 0,00% 91,89% 4,99% 4,99% SOCIEDAD DE CARTERA - 6 8 -2 Niuco 15, S.L. España 37,23% 0,00% 37,23% 37,23% SERVICIOS TÉCNICOS - - - - Norchem Holdings e Negócios S.A. Brasil 0,00% 19,56% 29,00% 29,00% SOCIEDAD DE CARTERA Asociada 28 21 1 Norchem Participações e Consultoria S.A. Brasil 0,00% 44,97% 50,00% 50,00% SOCIEDAD DE VALORES Negocios Conjuntos 15 9 0 Nowotna Farma Wiatrowa Sp. z o.o Polonia 0,00% 12,96% 21,73% 21,73% EXPLOTACIÓN DE ENERGÍA ELÉCTRICA - 99 11 5 Odc Ambievo Tecnologia e Inovacao Ambiental, Industria e Comercio de Insumos Naturais S.A. Brasil 0,00% 18,16% 20,19% 20,19% TECNOLOGÍA - 4 4 0

168

Societies of which the Group owns more than 5%, entities associated with Grupo Santander and jointly controlled entities

Porcentaje de Derechos de % Partic. Del Banco Millones de Euros (a) Voto Capital + Resultados Sociedad Domicilio Directa Indirecta Año 2019 Año 2018 Actividad Clase de Sociedad Activo Reservas Netos Operadora de Activos Beta, S.A. de C.V. México 0,00% 49,99% 49,99% 49,99% FINANCIERA Asociada 0 0 0 Parque Solar Páramo, S.L. España 92,00% 0,00% 25,00% 25,00% EXPLOTACIÓN DE ENERGÍA ELÉCTRICA Negocios Conjuntos 26 1 0 Payever GmbH Alemania 0,00% 10,00% 10,00% 10,00% SOFTWARE Asociada 2 1 0 POLFUND - Fundusz Poręczeń Kredytowych S.A. Polonia 0,00% 33,74% 50,00% 50,00% GESTORA Asociada 27 21 0 Procapital - Investimentos Imobiliários, S.A. Portugal 0,00% 39,96% 40,00% 40,00% INMOBILIARIA - 4 13 0 Project Quasar Investments 2017, S.L. (consolidado) España 49,00% 0,00% 49,00% 49,00% SOCIEDAD DE CARTERA Asociada 9.928 3.930 -714 Promontoria Manzana, S.A. España 20,00% 0,00% 20,00% - SOCIEDAD DE CARTERA Asociada 1.126 353 -34 PSA Corretora de Seguros e Serviços Ltda. Brasil 0,00% 44,97% 50,00% 50,00% SEGUROS Negocios Conjuntos 1 0 0 PSA Insurance Europe Limited Malta 0,00% 50,00% 50,00% 50,00% SEGUROS Negocios Conjuntos 194 71 15 PSA Life Insurance Europe Limited Malta 0,00% 50,00% 50,00% 50,00% SEGUROS Negocios Conjuntos 93 10 11 PSA UK Number 1 plc Reino Unido 0,00% 50,00% 50,00% 50,00% LEASING Asociada 5 5 0 Redbanc S.A. Chile 0,00% 22,44% 33,43% 33,43% SERVICIOS Asociada 28 10 0 Redsys Servicios de Procesamiento, S.L. (consolidado) España 20,00% 0,08% 20,08% 20,08% TARJETAS Asociada 124 60 9 Retama Real Estate, S.A. España 0,00% 50,00% 50,00% 50,00% SERVICIOS Negocios Conjuntos 41 -41 -2 Rías Redbanc S.A. Uruguay 0,00% 25,00% 25,00% 25,00% SERVICIOS - 3 1 0 RMBS Green Belem I Portugal ------Santander Assurance Solutions, S.A. España ------Santander Auto S.A. Brasil 0,00% 44,97% 50,00% 50,00% SEGUROS Asociada 8 6 -1 Santander Aviva Towarzystwo Ubezpieczeń na Życie S.A. Polonia 0,00% 33,06% 49,00% 49,00% SEGUROS Asociada 296 15 16 Santander Aviva Towarzystwo Ubezpieczeń S.A. Polonia 0,00% 33,06% 49,00% 49,00% SEGUROS Asociada 120 37 16 Santander Caceis Brasil Distribuidora de Títulos e Valores Mobiliários S.A. Brasil 0,00% 50,00% 50,00% 100,00% INVERSIÓN MOBILIARIA Negocios Conjuntos 222 172 23 Santander Caceis Brasil Participações S.A. Brasil 0,00% 50,00% 50,00% 100,00% SOCIEDAD DE CARTERA Negocios Conjuntos 198 175 22 Santander Caceis Colombia S.A. Sociedad Fiduciaria Colombia 0,00% 50,00% 50,00% 100,00% FINANCIERA Negocios Conjuntos 8 9 -1 Santander Generales Seguros y Reaseguros, S.A. España 0,00% 49,00% 49,00% 49,00% SEGUROS Negocios Conjuntos 405 63 17 Santander Mapfre Seguros y Reaseguros, S.A. España 0,00% 49,99% 49,99% 100,00% SIN ACTIVIDAD Asociada 24 21 -2 Santander Securities Services Latam Holding , S.L. España 0,00% 50,00% 50,00% - SOCIEDAD DE CARTERA Negocios Conjuntos 715 706 9 Santander Securities Services Latam Holding 2, S.L. España 0,00% 50,00% 50,00% - SOCIEDAD DE CARTERA Negocios Conjuntos 2 2 0 Santander Vida Seguros y Reaseguros, S.A. España 0,00% 49,00% 49,00% 49,00% SEGUROS Negocios Conjuntos 412 89 48 Saturn Japan II Sub C.V. Holanda 0,00% 69,30% 0,00% 0,00% SOCIEDAD DE CARTERA - 25 37 -11 Saturn Japan III Sub C.V. Holanda 0,00% 72,72% 0,00% 0,00% SOCIEDAD DE CARTERA - 119 176 -57 Sepacon 31, S.L. España 37,23% 0,00% 37,23% 37,23% SERVICIOS TÉCNICOS - - - - Servicios de Infraestructura de Mercado OTC S.A Chile 0,00% 8,37% 12,48% 11,25% SERVICIOS Asociada 18 14 1 SIBS-SGPS, S.A. Portugal 0,00% 16,54% 16,56% 16,56% GESTORA DE CARTERAS - 135 63 13 Siguler Guff SBIC Fund LP Estados Unidos 0,00% 20,00% 20,00% - FONDO DE INVERSIÓN - - - - Sistema de Tarjetas y Medios de Pago, S.A. España 18,11% 0,00% 18,11% 18,11% MEDIOS DE PAGO Asociada 352 4 0 Sistemas Técnicos de Encofrados, S.A. (consolidado) España 27,15% 0,00% 27,15% 27,15% MATERIALES DE CONSTRUCCIÓN - 78 2 6 Sociedad Conjunta para la Emisión y Gestión de Medios de Pago, E.F.C., S.A. España 42,50% 0,00% 42,50% 42,50% SERVICIOS DE PAGOS Negocios Conjuntos 117 31 2 Sociedad de Garantía Recíproca de Santander, S.G.R. España 25,50% 0,23% 25,73% 25,73% SERVICIOS FINANCIEROS - 17 11 0 Sociedad de Gestión de Activos Procedentes de la Reestructuración Bancaria, S.A. España 22,21% 0,00% 22,21% 22,21% SERVICIOS FINANCIEROS - 35.324 2.055 -878 Sociedad Española de Sistemas de Pago, S.A. España 21,32% 0,00% 21,32% 22,24% SERVICIOS DE PAGOS - 10 7 1 Sociedad Interbancaria de Depósitos de Valores S.A. Chile 0,00% 19,66% 29,29% 29,29% DEPÓSITO DE VALORES Asociada 6 5 1 Solar Maritime Designated Activity Company Irlanda - (h) - - LEASING Negocios Conjuntos 27 0 0 Stephens Ranch Wind Energy Holdco LLC (consolidado) Estados Unidos 0,00% 21,30% 21,30% 28,80% EXPLOTACIÓN DE ENERGÍA ELÉCTRICA - 241 241 -6 Syntheo Limited Reino Unido 0,00% 50,00% 50,00% 50,00% SERVICIOS DE PAGOS Negocios Conjuntos 1 0 0 Tbforte Segurança e Transporte de Valores Ltda. Brasil 0,00% 17,82% 19,81% 19,81% SEGURIDAD Asociada 110 73 -5 Tbnet Comércio, Locação e Administração Ltda. Brasil 0,00% 17,82% 19,81% 19,81% TELECOMUNICACIONES Asociada 73 76 -5 Tecnologia Bancária S.A. Brasil 0,00% 17,82% 19,81% 19,81% CAJEROS AUTOMÁTICOS Asociada 458 101 10 Teka Industrial, S.A. (consolidado) España 0,00% 9,42% 9,42% 9,42% ELECTRODOMÉSTICOS - 579 163 5 Tonopah Solar Energy Holdings I, LLC (consolidado) Estados Unidos 0,00% 26,80% 26,80% 26,80% SOCIEDAD DE CARTERA Negocios Conjuntos 504 153 -71 Trabajando.com Chile S.A. Chile 0,00% 33,33% 33,33% 33,33% SERVICIOS Asociada 1 -2 1 Transbank S.A. Chile 0,00% 16,78% 25,00% 25,00% TARJETAS Asociada 1.440 83 7 Tresmares Growth Fund II, SCR, S.A. España ------Tresmares Growth Fund III, SCR, S.A. España ------U.C.I., S.A. España 50,00% 0,00% 50,00% 50,00% SOCIEDAD DE CARTERA Negocios Conjuntos 370 68 -2

169

Societies of which the Group owns more than 5%, entities associated with Grupo Santander and jointly controlled entities

Porcentaje de % Partic. Del Banco Millones de Euros (a) Derechos de Voto Año Capital + Resultados Sociedad Domicilio Directa Indirecta Año 2019 Actividad Clase de Sociedad Activo 2018 Reservas Netos UCI Hellas Credit and Loan Receivables Servicing Company S.A. Grecia 0,00% 50,00% 50,00% 50,00% SERVICIOS FINANCIEROS Negocios Conjuntos 1 0 0 UCI Holding Brasil Ltda Brasil 0,00% 50,00% 50,00% 50,00% SOCIEDAD DE CARTERA Negocios Conjuntos 2 -1 0 UCI Mediação de Seguros Unipessoal, Lda. Portugal 0,00% 50,00% 50,00% 50,00% CORREDURÍA DE SEGUROS Negocios Conjuntos 0 0 0 UCI Servicios para Profesionales Inmobiliarios, S.A. España 0,00% 50,00% 50,00% 50,00% SERVICIOS INMOBILIARIOS Negocios Conjuntos 1 0 0 Unicre-Instituição Financeira de Crédito, S.A. Portugal 0,00% 21,83% 21,86% 21,86% FINANCIERA Asociada 398 80 16 Unión de Créditos Inmobiliarios, S.A., EFC España 0,00% 50,00% 50,00% 50,00% SOCIEDAD DE CREDITOS HIPOTECARIOS Negocios Conjuntos 12.742 441 15 Uro Property Holdings SOCIMI, S.A. España 14,95% 7,82% 22,77% 14,95% INMOBILIARIA - 1.572 245 12 VCFS Germany GmbH Alemania 0,00% 50,00% 50,00% 50,00% MARKETING Negocios Conjuntos 0 0 0 Venda de Veículos Fundo de Investimento em Direitos Creditórios Brasil - (h) - - TITULIZACIÓN Negocios Conjuntos 140 129 11 Webmotors S.A. Brasil 0,00% 62,95% 70,00% 70,00% SERVICIOS Negocios Conjuntos 54 26 14 Zurich Santander Brasil Seguros e Previdência S.A. Brasil 0,00% 48,79% 48,79% 48,79% SEGUROS Asociada 14.567 680 236 Zurich Santander Brasil Seguros S.A. Brasil 0,00% 48,79% 48,79% 48,79% SEGUROS Asociada 190 -1 40 Zurich Santander Holding (Spain), S.L. España 0,00% 49,00% 49,00% 49,00% SOCIEDAD DE CARTERA Asociada 940 936 175 Zurich Santander Holding Dos (Spain), S.L. España 0,00% 49,00% 49,00% 49,00% SOCIEDAD DE CARTERA Asociada 385 384 108 Zurich Santander Insurance América, S.L. España 49,00% 0,00% 49,00% 49,00% SOCIEDAD DE CARTERA Asociada 1.493 1.510 298 Zurich Santander Seguros Argentina S.A. Argentina 0,00% 49,00% 49,00% 49,00% SEGUROS Asociada 27 3 8 Zurich Santander Seguros de Vida Chile S.A. Chile 0,00% 49,00% 49,00% 49,00% SEGUROS Asociada 253 34 44 Zurich Santander Seguros Generales Chile S.A. Chile 0,00% 49,00% 49,00% 49,00% SEGUROS Asociada 209 35 13 Zurich Santander Seguros México, S.A. México 0,00% 49,00% 49,00% 49,00% SEGUROS Asociada 660 43 121 Zurich Santander Seguros Uruguay S.A. Uruguay 0,00% 49,00% 49,00% 49,00% SEGUROS Asociada 25 10 6

(a) Amount according to the books of each company referred to December 31, 2019 and published in the annual accounts for the year 2019. The interim dividends that have been ma de during the year have not been considered, if applicable. In the carrying amount (net cost of provision), the Group's stake has been applied to the figure of each of the holding companies, without considering the impairment of goodwill made in the consolidation process. The data of foreign companies appear converted to euros at the year-end exchange rate.

170

Appendix III

Issuing subsidiaries of shares and preference shares

% of ownership held by the Bank Million of euros (a)

Company Location Direct Indirect Activity Capital Reserves Capital of preferred Net results

Emisora Santander Spain. S.A. Unipersonal Spain 100.00% 0.00% Finance company 2 0 0 0

Santander UK (Structured Solutions) Limited United Kingdom 0.00% 100.00% Finance company 0 0 0 0

Sovereign Real Estate Investment Trust United States 0.00% 100.00% Finance company 5,084 (3,215) 80 31

(a) Amount according to the books of each company referred to December 31, 2019 and published in the annual accounts for the year 2019. The interim dividends that have been made during the year have not been considered, if applicable. In the carrying amount (net cost of provision), the Group's stake has been applied to the figure of each of the holding companies, without considering the impairment of goodwill made in the consolidation process. The data of foreign companies appear converted to euros at the year-end exchange rate.

171