Annual Proposal Report 2019 Let’s continue working for a better world #TheRightWay santander.pt SantanderSantander Totta SGPS, Totta, SA SGPS 1 Santander Totta, SGPS, SA Table of Indicators 3 Message from the Chief Executive Officer 4 Customers and Distribution Network 5 Corporate culture, awards, distinctions and other 7 relevant facts in 2019 Sustainability policy 14 Activity and Results Business Framework 18 Major risks and uncertainties for 2020 24 Business Areas 25 Business support areas 30 Economic and financial information 34 Relevant facts after the close of the period and the 41 outlook for 2020 Risk Management 43 Credit, and counterparty risk 44 Balance-sheet risk 46 This report was approved by the Market risk 47 Operational risk 48 Board of Directors on April 21, Compliance and reputation risk 49 2020 Proposal for the Appropriation of Net Income 51 Additional Information 52 Corporate Governance Report 56 Financial statements, notes to the accounts and reports and opinions Consolidated financial statements 61 Notes to the consolidated financial statements 66 Reports and opinions on the consolidated business 227 Santander Totta, SGPS, SA Rua do Ouro, 88 – 1100-063 Lisbon Share Capital: €1,972,962,079.58 Registered at the Lisbon Registry of Companies under number single registration and VAT number 507 096 851 SantanderLEI: 5493005RLLC1P7VSVC58. Totta SGPS, SA 2 TABLE OF INDICATORS BALANCE SHEET AND RESULTS (million euro) 2019 2018 Var. Total Net Assets 56,083 55,028 +1.9% Loans and advances to customers (net) 1 39,349 39,644 -0.7% Customers' Resources 42,420 39,980 +6.1% Total shareholders' equity 4,264 4,172 +2.2% Net Interest Income 855.7 866.3 -1.2% Net Fees and Other Income 381.0 382.9 -0.5% Net Income from Banking Activities 1,344.5 1,259.5 +6.8% Net Operating Income 740.0 633.5 +16.8% Income before taxes and non-controlling interests* 739.8 673.8 +9.8% Consolidated net income attributable to the shareholders of ST, SGPS 527.3 500.0 +5.5% RATIOS 2019 2018 Var. ROE 12.7% 12.4% +0.3 p.p. ROA 0.9% 0.9% +0.0 p.p. Efficiency ratio 45.0% 49.7% -4.7 p.p. CET I ratio** 15.0% 14.0% +1.0 p.p. Tier I ratio** 18.3% 17.0% +1.3 p.p. Capital ratio** 18.6% 17.1% +1.5 p.p. Non-Performing Exposure Ratio 3.3% 4.2% -0.9 p.p. Non-Performing Exposure coverage ratio 53.1% 51.0% +2.1 p.p. Cost of credit (0.02%) 0.01% -0.02 p.p. Loans-to-deposits ratio (tranformation ratio) 112.1% 118.8% -6.7 p.p. RATING 2019 2018 FitchRatings BBB+ BBB+ Moody´s Baa3 Baa3 Standard & Poor´s BBB BBB- DBRS A A Other Data 2019 2018 Var. Employees 6,226 6,476 -250 Employees in Portugal 6,188 6,437 -249 Branches 542 572 -30 Total Branches and Corporate Centers in Portugal 532 562 -30 * Excludes non-recurrent results ** Fully implemented with results net of payout *** Headcount criteria 1 Includes other balances receivable at amortised cost Note: For the purposes of greater comparability of the information, at 2018 values, a reallocation of the corrections of assets and liabilities included in hedging operations that affected some balance sheet items, namely credit and total assets and liabilities, was made. Likewise, some accounting concepts were relocated between different items in the 2018 profit and loss account, for greater comparability with the 2019 accounts, which is shown in the table "Impact, by concept, of the reclassifications in 2018", in the " Economic and financial information "(p. 35). Santander Totta SGPS, SA 3 MESSAGE FROM THE CHIEF EXECUTIVE OFFICER We offer our employees the best working For all this we are proud of belonging to conditions, because we know that our Santander Portugal. team comprises the best professionals of Postscript the sector. We again obtained confirmation by Great Place to Work that The beginning of 2020 was unexpectedly we are the best bank to work for in marked by the calamity caused by the Portugal. Covid-19 disease, which caused an emergency in public health and in the We have invested over €7 million in our Portuguese and international economy. Community. We support 330 associations connected with education, protection of In this connection, in March we suffered minors, financial literacy, health, the loss of António Vieira Monteiro disability, social inclusion and care for the (Chairman of the Board of Directors), who elderly, with a direct impact on more than was decisive for the success of Banco Dear Stakeholders, 28,000 beneficiaries. Santander in Portugal and left us a legacy Santander Portugal ended 2019 with a of competence, rigour and independence. We ensured our sustainability, delivering net income of €527 million, the largest of value to our shareholders, with a RoE of Santander Portugal will rise to any its history. Net income from banking 13.8%, above the cost of capital. challenge brought by 2020. And our activities grew by 7%, efficiency ratio determination will also be our tribute to amounted to 45%, and the cost of risk The quality and strength of our Bank are António Vieira Monteiro. was very subdued. recognized. We received the distinction as "Best Bank in Portugal" by Euromoney, We supported the development of The Banker and Global Finance. We were Pedro Castro e Almeida Portuguese households and companies: considered the "Bank with Best we have a 19% market share of new Reputation" by Marktest, OnStrategy and mortgage-loan production and of loans to Merco. We have the best ratings of businesses (average for the year) and, on Portuguese banking, often better than a daily basis, we have developed those of the Portuguese Republic. technological solutions to provide our customers with faster, intuitive and This is our permanent commitment, we simple access to our services. want to do things the right way, always acting in a Simple, Personal and Fair way. Santander Totta SGPS, SA 4 CUSTOMERS AND THE BANK’S DISTRIBUTION NETWORK Conventional Network Work Cafe • Individuals & Business Branches 475 • In Lisbon, Coimbra and Espinho • Private Centres: 8 • Focus on customer service • Business centres: 22 • Cafeteria, reading and co-work area • Large Corporate and Institutional: Centres 4 • Support rooms 512 2 Money Club Smart Red 17 1 • Nova SBE University • Areas differentiated by segment: Full • Space 100% dedicated to students Concept, Agile and Basic • Focus on customer service: self-banking, 3 multi-channel, availability Channels • NetBanco (Individuals and Companies) • ATM Park 2,100 “Próximo” Branch • Available Apps 4 • 100% digital • Monitoring by remote/digital manager Customer Centre Several areas of analysis indicated by customers 10 projects through various analysis methods More than 100 participants, including customers, non-customers and employees Differentiated products and focus on customer experience as customer-base growth factors Active Customers Main Bank Customers Digital Customers 1,709k 778k 775k +1.0% +2.6% +5.6% Ongoing Digital 45% of digital customers transformation, focusing on 35% of sales via digital channels simplification and provision of million transactions via digital channels (monthly average). digital solutions 4.5 Santander Totta SGPS, SA 5 Optimization of work methods and simplification of internal processes, allowing better customer experience. Process Simplification Products and Services Agile workplace - New physical work spaces, aiming CrediSimples – On-line contracting of personal to enhance the collaborative capabilities through a loans accounted for 21% of total credit granted. methodology of interdisciplinary work teams. CrediSimples Business – Immediate contracting RPA (Robotic Process Automation) – Task of loans through NetBanco Empresas involved automation using robotics as leverage. 3,500 transactions in 2019. 35 processes automated via robotics Santander Wallet – Functionality that allows 7,500 more daily tasks with great impact on the payments to be made around the world, using the improvement of processes, operational risk Bank’s App through a QR Code or contactless reduction and operational control. technology. Mortgage Loan Platform – Mortgage loan Service that allows instantaneous contracting process integrated with all those involved: One Pay FX – international transfers to be made in an easy, fast, Reduction of the average contracting time using secure manner at no cost. the App by about 50%. Opening of the platform to Tied Credit Open Banking – Possibility of consulting balances Intermediaries (ICV), with road shows in the and movements of accounts with other banks and country. making SEPA transfers from those accounts. Improvement of customer satisfaction levels (NPS of 63%).1 ‘Dedicated’ IBAN for Companies – Solution allowing precise identification of who makes the transfers, enabling automatic reconciliation. Mais Simples Mais Rápido e Próximo Mais Eficiente Mais Transparente 1- Net Promoter Score Metric (9 + 10 - ≤5 classifications) Santander Totta SGPS, SA 6 CORPORATE CULTURE, AWARDS, DISTINCTIONS AND OTHER RELEVANT FACTS IN 2019 Corporate culture, business model and strategy Our purpose Our aim as a bank Our how To help people and businesses To be the best open financial- Everything we do should be prosper services platform, by acting Simple I Personal I Fair responsibly and earning the lasting loyalty of our people, customers, shareholders and communities. The SPF culture is based on our eight corporate behaviours... Show Trully Talk Keep respect listen straight promisses Actively Bring Support Embrace collaborate passion people change ... and a strong risk culture Santander Totta SGPS, SA 7 Our approach “By delivering on our purpose, and helping people and businesses prosper, we grow as a business and we can help society address its challenges too. Economic progress and social progress go together. The value created by our business is shared - to the benefit of all. Communities are best served by corporations that have aligned their goals to serve the long term goals of society.” Ana Botín By being responsible we build loyalty Our corporate culture: Santander Way Santander Way reflects our mission, our vision and our way of working.