UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of July 2021


Commission File Number: 000-55899

 

BANCO SANTANDER MÉXICO, S.A., INSTITUCIÓN DE BANCA MÚLTIPLE, GRUPO FINANCIERO SANTANDER MÉXICO

(Exact Name of Registrant as Specified in Its Charter)

 

Avenida Prolongación Paseo de la Reforma 500

Colonia Lomas de Santa Fe

Alcaldía Álvaro Obregón

01219, Ciudad de México

(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

 

Form 20-F

  Form 40-F  
 

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

 

Yes  
 
  No

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

 

Yes  
 
  No

 

 

 

 
 

 

BANCO SANTANDER MÉXICO, S.A., INSTITUCIÓN DE BANCA MÚLTIPLE, GRUPO FINANCIERO SANTANDER MÉXICO

 

TABLE OF CONTENTS

 

ITEM  
1. Second quarter 2021 earnings release of Banco Santander México, S.A., Institución De Banca Múltiple, Grupo Financiero Santander México
2. Second quarter 2021 earnings presentation of Banco Santander México, S.A., Institución De Banca Múltiple, Grupo Financiero Santander México

 

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

BANCO SANTANDER MÉXICO, S.A., INSTITUCIÓN DE BANCA MÚLTIPLE, GRUPO FINANCIERO SANTANDER MÉXICO

 

   
    By: /s/ Hector Chávez Lopez
      Name: Hector Chávez Lopez
      Title: Executive Director of Investor Relations

 

Date: July 30, 2021

 

 

 

 

 

Item 1

 

   

 

 

 

 

 
 

   

TABLE OF CONTENTS  
   
I. Key Highlights for the Quarter 2
   
II. CEO Message 3
   
III. Summary of 2Q21 Consolidated Results 3
   
IV. Analysis of 2Q21 Consolidated Results 11
   
V. Relevant Events, Transactions and Activities 26
   
VI. Awards and Recognitions 28
   
VII. Credit Ratings 29
   
VIII. 2Q21 Earnings Call Dial-In Information 30
   
IX. Analyst Coverage 30
   
X. Definition of Ratios 30
   
XI. Consolidated Financial Statements 34
   
XII. Notes to Consolidated Financial Statements 42
   
XIII. Special Accounting Criteria — Subsidiaries 174

 

Earnings Release | 2Q.2021

 

Banco Santander México

 
 1

 

 

 

 
 

 

Banco Santander México Reports Second Quarter 2021 Net Income of Ps.4,713 Million

 

-Mortgages and auto loans continued to perform extremely well, along with government loans, as we continue to grow above market and gain market share while maintaining conservative origination standards. While loan volumes in commercial loans still reflected difficult YoY comps, there was sequential growth in middle-market loans and seems like SMEs loans reached an inflection point. Performance was in line with market trend and soft demand conditions.

 

-Total deposits mix improved, driven by successful demand deposit attraction strategy. Meanwhile, total deposits also reflect difficult YoY comps, mainly in corporates, as their liquidity needs have normalized compared with year ago levels.

 

-Net income increased 11.4% YoY in 2Q21, mainly due to lower provisions, stable NII, solid growth in fees and strict cost discipline.

 

Mexico City – July 28th, 2021, Banco Santander México, S.A., Institución de Banca Múltiple, Grupo Financiero Santander México (NYSE: BSMX; BMV: BSMX), (“Banco Santander México” or “the Bank”), today announced financial results for the three-month and six-month periods ending June 30th, 2021.

 

Banco Santander México reported net income of Ps.4,713 million in 2Q21, representing increases of 11.4% YoY and 43.7% QoQ. On a cumulative basis, net income for the first half of the year, reached Ps.7,992 million, representing a 17.1% YoY decrease.

 

HIGHLIGHTS                        
Results (Million pesos)   2Q21 1Q21 2Q20   %QoQ %YoY   6M21 6M20   %YoY
Net interest income   15,770 15,585 15,931   1.2 (1.0)   31,355 32,827   (4.5)
Fee and commission, net   4,873 4,902 4,598   (0.6) 6.0   9,775 9,295   5.2
Core revenues   20,643 20,487 20,529   0.8 0.6   41,130 42,122   (2.4)
Provisions for loan losses   5,068 7,075 8,350   (28.4) (39.3)   12,143 13,515   (10.2)
Administrative and promotional expenses   9,955 9,894 9,599   0.6 3.7   19,849 19,384   2.4
Net income   4,713 3,279 4,230   43.7 11.4   7,992 9,644   (17.1)
Net income per share1   0.70 0.48 0.62   43.7 11.4   1.18 1.42   (17.1)
                         
Balance Sheet Data (Million pesos)   Jun-21 Mar-21 Jun-20   %QoQ %YoY   Jun-21 Jun-20   %YoY
Total assets   1,634,384 1,748,298 1,929,350   (6.5) (15.3)   1,634,384 1,929,350   (15.3)
Total loans   710,323 713,989 751,219   (0.5) (5.4)   710,323 751,219   (5.4)
Deposits   766,663 767,627 789,740   (0.1) (2.9)   766,663 789,740   (2.9)
Shareholders´ equity   159,941 159,654 146,536   0.2 9.1   159,941 146,536   9.1
                         
Key Ratios (%)   2Q21 1Q21 2Q20   bps QoQ bps YoY   6M21 6M20   bps YoY
Net interest margin   4.52 4.42 4.48   10 4   4.47 4.93   (46)
Net loans to deposits ratio   89.50 89.76 91.81   (26) (231)   89.50 91.81   (231)
ROAE   11.83 8.24 11.86   359 (3)   10.03 13.52   (349)
ROAA   1.08 0.73 1.01   35 7   0.92 1.15   (23)
Efficiency ratio   47.59 46.62 40.71   97 688   47.10 42.28   482
Capital ratio   18.91 19.73 16.69   (82) 222   18.91 16.69   222
NPLs ratio   2.87 2.91 2.51   (4) 36   2.87 2.51   36
Cost of Risk   2.75 3.15 3.14   (40) (39)   2.75 3.14   (39)
Coverage ratio   118.39 120.12 138.81   (173)   118.39 138.81  
                         
Operating Data   Jun-21 Mar-21 Jun-20   %QoQ %YoY   Jun-21 Jun-20   %YoY
Branches   1,039 1,007 1,050   3.2 (1.0)   1,039 1,050   (1.0)
Branches and offices2   1,352 1,352 1,406   0.0 (3.8)   1,352 1,406   (3.8)
ATMs   9,534 9,497 9,142   0.4 4.3   9,534 9,142   4.3
Customers   19,257,998 19,068,219 18,641,282   1.0 3.3   19,257,998 18,641,282   3.3
Employees   23,512 22,280 20,007   5.5 17.5   23,512 20,007   17.5

1)Accumulated EPS, net of treasury shares (compensation plan) and discontinued operations. Calculated by using weighted number of shares.

2)Includes cash desks (espacios select, box select and corner select) and SMEs business centers. Excluding brokerage house offices.

 

Earnings Release | 2Q.2021

 

Banco Santander México

 
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Héctor Grisi, Banco Santander México’s Executive President and CEO, commented: “This quarter’s bottom line exceeded 2Q20’s level by 11% and was 44% higher than in the previous quarter. Although the wide ranging impact of the pandemic continues to affect the comparability of our results, this quarter we delivered a solid performance across the main line items of our P&L: NII and commissions were slightly higher than last year’s levels, we maintained tight control of expenses, and cost of risk converged to pre-pandemic levels. Together, this resulted in an ROE of 11.83%, very similar to the second quarter of 2020 and it was achieved despite the excess capital we had accumulated due to the regulatory restriction imposed on dividend payments.

 

In terms of individual loans, we continue to deliver the best performance among Mexican banks, with growth close to 10% and with market share gains in both mortgage and auto loans. Additionally, it appears we have reached an inflection point in credit cards, as balances have started to show modest growth. In commercial loans, we still reported a relevant contraction of 14%. Practically 60% of this contraction is explained by the reduction in loans to large corporates, with borrowings growing strongly last year when businesses drew down their committed lines of credit as a precautionary measure. By contrast, middle market loans grew compared to previous quarters, and in SMEs we expect to see a better performance in the second half of the year since the entire portfolio is not bound by the support program and we now have a greater risk appetite.

 

Deposits contracted by almost 3%, but with differentiated behavior. We expanded Demand deposits by 8%, while Term deposits decreased 23%. This market dynamic resulted from the significant reduction in interest rates. It is noteworthy that both Demand and Term deposits from individuals performed better than corporates. The former is in line with our strategy to continue attracting and building scale among individuals.

 

We continue to benefit from the boost that the pandemic has given banking digitalization. Digital customers grew 11% over the year, with digital transactions now representing 41% of our total transactions, up from 30% a year ago. Although the pandemic and the economic environment are still challenging us, we are making additional headway with our strategy, by continuing to execute with focus and discipline and by keeping intact our ambition to offer the best customer banking experience in Mexico. To that end, we continue to work on strengthening customer loyalty, seeking to consistently improve the quality of service and increase customer satisfaction levels. Further, we have certain plans and launches scheduled for the second half of the year that will take advantage of new digital tools and processes with which we continue to build a stronger franchise and seize the many growth opportunities ahead of us.”

 

 

III. Summary of 2Q21 Consolidated Results

 

Loan portfolio

 

Banco Santander México’s total loan portfolio, as of June 2021, decreases 5.4% YoY, or Ps.40,896 million, to Ps.710,323 million, and 0.5%, or Ps.3,666 million, on a sequential basis.

 

During the quarter, the retail portfolio reflects solid performance, supported by mortgages and auto loans, while credit cards and personal loans remained weak. In addition, the commercial portfolio still faces a difficult comparison base as of June 2020, when companies drew on their committed lines of credit. As a result, the total loan portfolio contracted year over year.

 

Earnings Release | 2Q.2021

 

Banco Santander México

 
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Deposits

 

Deposits, which represent 83.3% of Banco Santander México’s total funding1, decreased 2.9% YoY in June 2021, reflecting unusually high comps since March 2020, when corporates drew their committed lines of credit and left that liquidity on the Bank’s balance sheet, meanwhile deposits remained flat sequentially. In turn, demand deposits increased 8.4% YoY, while time deposits decreased 23.3% YoY, as lower interest rates made customers favor short term liquidity and supported by the Banks efforts to improve funding mix. On a sequential basis, demand deposits increased 2.2% while time deposits decreased 5.6%. It is worth noting that demand deposits from individuals grew 8.6% YoY, supported by the Bank ongoing efforts to attract these types of deposits, while demand deposits from corporates increased 8.3% YoY.

 

In June 2021, demand deposits from individuals represented 33.8% of total demand deposits, compared with 33.7% in June 2020. Time deposits from individuals represented 40.9% of total time deposits, compared with 38.4% a year ago.

 

The loans-to-deposits ratio stood at 89.50% in June 2021, which compares to 91.81% in June 2020, and 89.76% in March 2021, maintaining a stable funding position.

 

 

Net income

 

Banco Santander México reported 2Q21 net income of Ps.4,713 million, representing increases of 11.4% YoY, and 43.7% QoQ, mainly due to lower provisions for loan losses, stable NII, solid growth in net commission and fee income and strict cost discipline. On a cumulative basis, net income for 6M21 reached Ps.7,992 million, representing a 17.1% YoY decrease.

 

 

 

1 Total funding includes: deposits, credit instruments issued, bank and other loans and subordinated credit notes.

Earnings Release | 2Q.2021

 

Banco Santander México

 
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Net income statement                      
Million pesos         % Variation         % Variation
  2Q21 1Q21 2Q20   QoQ YoY   6M21 6M20   21/20
Net interest income 15,770 15,585 15,931   1.2 (1.0)   31,355 32,827   (4.5)
Provisions for loan losses (5,068) (7,075) (8,350)   (28.4) (39.3)   (12,143) (13,515)   (10.2)
Net interest income after provisions for loan losses 10,702 8,510 7,581   25.8 41.2   19,212 19,312   (0.5)
Commission and fee income, net 4,873 4,902 4,598   (0.6) 6.0   9,775 9,295   5.2
Net gain (loss) on financial assets and liabilities 817 1,398 3,283   (41.6) (75.1)   2,215 4,166   (46.8)
Other operating income (542) (664) (232)   (18.4) 133.6   (1,206) (444)  
Administrative and promotional expenses (9,955) (9,894) (9,599)   0.6 3.7   (19,849) (19,384)   2.4
Operating income 5,895 4,252 5,631   38.6 4.7   10,147 12,945   (21.6)
Equity in results of associated companies 50 77 35   (35.1) 42.9   127 39  
Operating income before income taxes 5,945 4,329 5,666   37.3 4.9   10,274 12,984   (20.9)
Income taxes (net) (1,232) (1,050) (1,436)   17.3 (14.2)   (2,282) (3,340)   (31.7)
Net income 4,713 3,279 4,230   43.7 11.4   7,992 9,644   (17.1)
Effective tax rate (%) 20.72 24.26 25.34         22.21 25.72    

 

2Q21 vs 2Q20

 

The 11.4% year-on-year increase in net income was principally driven by:

 

i)A 39.3%, or Ps.3,282 million, decrease in provisions for loan losses, reflecting easier comps, as the Bank made special charge of loan loss provisions in 2Q20 to face the COVID-19 pandemic;

 

ii)A 6.0%, or Ps.275 million, increase in net commissions and fees, mainly due to increases in debit and credit card fees and insurance fees;

 

iii)A 14.2%, or Ps.204 million, decrease in income taxes, which resulted in a 20.72% effective tax rate for the quarter, compared to 25.34% in 2Q20; and

 

iv)A 42.9%, or Ps.15 million, increase in the results of associated companies due to the recognition of Elavon México investment.

 

The increase in net income was partially offset by:

 

i)A 75.1%, or Ps.2,466 million, decrease in net gains on financial assets and liabilities, due to a higher base in 2Q20, due to extraordinary gains related to the sale of certain securities to strengthen the Bank liquidity position;

 

ii)A 3.7%, or Ps.356 million, increase in administrative and promotional expenses, mainly due to increases in personnel expenses, depreciation and amortization and cash protection services, partly offset by decreases in other expenses and contributions to IPAB;

 

iii)A 133.6%, or Ps.310 million, increase in other operating expenses, mostly resulting from lower cancellation of liabilities and reserves, higher write-offs, a decrease in other operating income, higher premiums paid on

 

Earnings Release | 2Q.2021

 

Banco Santander México

 
 5

 

 

 

 
 

guarantees for the SMEs loan portfolio and higher legal expenses and costs related to portfolio recoveries; and

 

i)A 1.0%, or Ps.161 million, decrease in net interest income, reflecting lower interest rates and change in the loan portfolio mix.

 

6M21 vs 6M20

 

The 17.1% year-on-year decrease in net income was principally driven by:

 

i)A 46.8%, or Ps.1,951 million, decrease in net gains on financial assets and liabilities, mostly resulting of a higher base in 6M20, due to extraordinary gains related to the sale of certain securities to strengthen the Bank liquidity position;

 

ii)A 4.5%, or Ps.1,472 million, decrease in net interest income, reflecting lower interest rates and change in the loan portfolio mix;

 

iii)A Ps.762 million, increase in other operating expenses, mostly resulting from higher legal expenses and costs related to portfolio recoveries, lower profit from sale of foreclosed assets, a decrease in cancellation of liabilities and reserves, higher write-offs and higher premiums paid on guarantees for the SMEs loan portfolio; and

 

iv)A 2.4%, or Ps.465 million, increase in administrative and promotional expenses, mainly due to increases in personnel expenses, depreciation and amortization and technology services expenses, partly offset by decreases in other expenses, promotional and advertising expenses, leasehold expenses and taxes and duties.

 

The decrease in net income was partially offset by:

 

i)A 10.2%, or Ps.1,372 million, decrease in provisions for loan losses, reflecting easier comps, as the Bank made special charge of loan loss provisions during 6M20 to face the COVID-19 pandemic;

 

ii)A 31.7%, or Ps.1,058 million, decrease in income taxes, which resulted in a 22.21% effective tax rate in 6M21, compared to 25.72% in 6M20;

 

iii)A 5.2%, or Ps.480 million, increase in net commissions and fees, mainly due to increases in debit and credit card fees and insurance fees; and

 

iv)A Ps.88 million, increase in the results of associated companies due to the recognition of Elavon México investment

 

Gross operating income

 

Banco Santander México’s gross operating income for 2Q21 totaled Ps.21,460 million, representing decreases of 9.9% YoY, or Ps.2,352 million, and 1.9% QoQ, or Ps.425 million, due to a more normalized result in market related income, partially offset by a solid increase in net commissions and fees. Gross operating income for 6M21 amounted Ps.43,345 million, decreasing 6.4% YoY, or Ps.2,943 million.

 

Gross operating income is broken down as follows.

 

Breakdown gross operating Income (%)
          Variation (bps)         Variation (bps)
   2Q21 1Q21 2Q20   QoQ YoY   6M21 6M20   YoY
Net Interest Income 73.49 71.21 66.90   228 659   72.34 70.92   142
Net Commissions and Fees 22.71 22.40 19.31   31 340   22.55 20.08   247
Market related revenue 3.80 6.39 13.79   (259) (999)   5.11 9.00   (389)
Gross Operating Income* 100.00 100.00 100.00         100.00 100.00    

*Does not include other income

 

Earnings Release | 2Q.2021

 

Banco Santander México

 
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Return on average equity (ROAE)

 

ROAE for 2Q21 decreased 3 basis points to 11.83%, from 11.86% reported in 2Q20 and increased 359 basis points from 8.24% in 1Q21. For 6M21, ROAE stood at 10.03%, 349 basis points lower than the 13.52% reported in 6M20. The Bank is accumulating capital per regulator’s recommendation to limit the pay out dividend of 2019 and 2020 earnings.

 

 

Earnings Release | 2Q.2021

 

Banco Santander México

 
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Strategic initiatives and commercial actions

 

Banco Santander Mexico is one of the leading financial institutions in the country, focused on business transformation and innovation. The Bank's strategic priority is to become the best bank in customer experience, taking advantage of new tools and improving processes in order to accelerate technological transformation and digitalization, while increasing its capacity to improve the operating model and information security. Likewise, the Bank keeps strengthen its customer base to continue positioning itself as a market leader in value-added products to attract potential customers and increase loyalty.

 

The most relevant aspects of the second quarter are highlighted below:

 

ØThe Bank’s strategic priorities are complemented by a new range of products and services, which will allow to cater its customers more comprehensively.

 

§Samsung, Santander México and Mastercard, leading companies in their respective sectors, announced a joint venture seeking to improve users' banking experiences through Members Wallet , a digital wallet that integrates all Santander services into the Samsung ecosystem, such as security, financing, payments and inquiries of balance and movements. Likewise, it is complemented by a Samsung Members debit card, which offers exclusive benefits for customers. The card provides innovative, easy and secure payment experiences through functions such as the dynamic and unique security code for online purchases, an "Infoless" card to protect customer data, and contactless payment technology, among others. It is worth to mention that Samsung is the biggest seller of mobile phones in Mexico with more than 30% market share.

 

§In line with Santander Group’s strategy, Banco Santander México is working on the transformation of the collections and payments industry through “PagoNxt”. As part of this initiative, the bank re-launched its merchant business through GetNet México. Currently, GetNet México is the second largest merchant in POSs and affiliations in the market, and third in number of transactions processed through the acquirer. In this respect, the bank is developing new solutions to increase acceptance of the non-present card channel, adapting to the “new normality” and expecting to become the second most relevant player by the end of the year.

 

§The bank is working on a new credit card value proposition based on three main matters (i) security and digital experience (ii) personalization and (iii) social responsibility. This innovative product includes enhanced security features, a digital and integrated experience, zero annual fee, and the possibility of customize benefits on a tailor made model.

 

§Santander signed a commercial alliance with Farmacias del Ahorro chain to add its close to 1,500 establishments to the more than 28,500 service points that the bank currently has. These will allow the clients to make credit card payments or debit card deposits up to Ps. 20,000 per account per day at their nearest pharmacy, and the cost per operation will be 10 pesos. The incorporation of Farmacias del Ahorro as Santander's banking correspondent will complement the branch network by supporting financial inclusion, bringing banking services to unbanked and rural areas.

 

§Global Brands Magazine, a magazine specialized in news and surveys on the world's leading brands, identified Banco Santander México as a benchmark in the mortgage market in the country, Santander is the only bank in Mexico that offers an interest rate tailored made based on customer profile. As a result, the bank is one of the leading mortgage originators in the market.

 

§Santander México and the Business Center of Mexico City (COPARMEX CDMX by its acronym in Spanish) announced an alliance to benefit more than 5,000 associated companies with loans and other products, in order to support them in their growth and development with banking products and preferential rates. These loans can be requested in just 15 minutes in an agile, simple and completely digitally.

 

§Santander Asset Management México launched its second equity fund with environmental, social and governance criteria together with Robeco Institutional Asset Management (Robeco). The new ESG Global Equity Fund (SAM-RVG) has an international focus and invests in shares of companies around the world with high return on capital, attractive value, ESG criteria and where the performance of the company is prioritized before the region where it is located, which differentiates this product from other funds available in the country.

 

Earnings Release | 2Q.2021

 

Banco Santander México

 
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§This quarter, Santander moved up in the rankings and reached the 4th position in auto loans with 8.6% market share as of May. All this, thanks to the alliances that the bank has with Honda, Mazda, Tesla, Suzuki and Peugeot, together with Super Auto Santander platform that integrates the commercial and insurance offering in one place, allowing to offer an online pre-approval in less than 10 minutes, letting customers to have a brand-new car in less than 24 hours.

 

§The consolidation of the Hipoteca Online digital platform continued, being the only platform in Mexico that connects all processes from end to end. In the quarter, the platform processed 96% of operations digitally, which helped the Bank consolidate as the second leading mortgage originator in the market; around 57% of originations came through Hipoteca Plus, which helps to drive cross-selling products, and 41% through Hipoteca Free. Santander continues to be the only bank in Mexico that offers a tailored interest rate based on the client's profile.

 

§The Bank continues to increase the number of its digital and mobile clients by 11% and 14% YoY, respectively. Moreover, the ratio of loyal customers continues to grow, now loyal clients represent 40% of active clients (vs 35% in the second quarter of 2020). In addition, digital transactions now account for almost 42% of total transactions, increasing from 30% compared to June 2020. As of June 2021, 50% of product sales were made through digital channels, compared to 36% a year ago.

 

Customers
(Thousands)         % Variation
  Jun-21 Mar-21 Jun-20   QoQ YoY
Loyal Customers1 3,712 3,651 3,299   1.7 12.5
Digital Customers2 5,120 5,110 4,607   0.2 11.1
Mobile Customers3 4,846 4,824 4,270   0.4 13.5
1Loyal customers = Clients with non-zero balance and depending on the segment should have between two and four products and between three and ten transactions in the last 90 days.

2Digital customers = Clients with at least one digital transaction per month in SuperNet or SuperMóvil.

3Mobile customers = Clients using Supermóvil and/or Superwallet in the last 30 days.

 

 

Responsible Banking

 

Santander has a strong commitment to financial inclusion, poverty reduction, care for the environment and the comprehensive well-being of the communities in which it operates.

 

It has initiatives that promote education, entrepreneurship, gender equality and social well-being. In addition, it allocates a significant amount of human and material resources in support of these causes.

 

The Bank seeks to become a leading participant in contributing to the progress of people and companies in Mexico. On this regard, it works on two main challenges: New Business Environment and Inclusive and Sustainable Growth.

 

The objective of the New Business Environment is for Santander employees to feel in a responsible, simple, diverse and inclusive work environment, where leadership and commitment follow the Simple, Personal and Fair culture, while designing products focused on customers.

 

The goal to achieve an Inclusive and Sustainable Growth aims to invest in the Bank’s community, financially empowering people, supporting higher education through scholarships and leaving a minimal environmental footprint while incentivizing ESG products across all business units.

 

In 2018, the Group defined eleven commitments to fulfill in the coming years. For more details, please visit the Responsible Banking section in the investor relations website.

 

As a result of these efforts, Banco Santander Mexico has achieved the following recognitions:

 

Earnings Release | 2Q.2021

 

Banco Santander México

 
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§In July 2021, International Finance Magazine (IFM) recognized Santander as the Best Financial Inclusion Bank and as the Most Socially Responsible Bank in Mexico.

§In July 2021, Santander México qualified as one of the top 10 companies in the Ranking of Super Companies for Women 2021 by TOP Companies and Grupo Expansión.

§In July 2021, Santander Investment Banking México was recognized by Euromoney as the Best Investment Bank in the country.

§In May 2021, for second consecutive year, the Bank obtained the 9th place among +25 companies within the companies category with more than 3,000 employees of “The places where everyone wants to work”.

§In May 2021, Santander Mexico was recognized within a LinkedIn ranking of the 25 companies to develop a career in Mexico.

§In May 2021, Fintech Americas grants Platinum Innovation Award to Santander's “Card without numbers” by expanding the offer of safe, accessible and inclusive products.

§Santander México is the only bank in the country included in the S&P “Sustainability Yearbook 2021”.

§In 2021, Tuiio by Santander was recognized by the Mexico Global Pact office as an outstanding practice to end poverty in Mexico, one of the 17 Sustainable Development Goals proposed by the 2030 Agenda of the United Nations.

§In 2021, Laura Diez Barroso, Chairman of the Board of Directors of Santander México, was named as one of "The 100 most powerful women in business" by Expansión within the framework of International Women's Day. In addition, Mrs. Diez Barroso participated in the signing of the commitment of banking to reduce the gender gap in the financial system in Mexico.

§In 2020, it was included in the Dow Jones Sustainability Indices for its outstanding performance in sustainability in Latin America.

§Also in 2020, it was included as constituted on the new S&P/BMV Total Mexico ESG Index, that replaced the IPC Sustainability Index, of which the Bank was part for seven consecutive years since 2013.

§Included on the FTSE4Good Index since 2018.

§Santander Private Banking, Best Private Banking according to Euromoney since 2017.

§Member of the United Nations Global Compact since 2012.

§Santander Mexico holds an ISO 14001:2015 certification since 2004.

§It has a Responsible Banking recognition since 2004 by ESR (Empresa Socialmente Responsible by its acronym in Spanish).

 

These indexes and recognitions evaluate the Bank’s performance across economic, environmental and social issues.

 

 

             

 

These are only some examples of the Bank’s effort to become a more responsible bank. For further information about Banco Santander México as a Responsible Bank go to:

 

https://servicios.santander.com.mx/comprometidos/eng/index.php

 

Earnings Release | 2Q.2021

 

Banco Santander México

 
 10

 

 

 

 
 

IV. Analysis of 2Q21 Consolidated Results

(Amounts expressed in millions of pesos, except where otherwise stated)

 

Loan portfolio

 

The evolution of the loan portfolio showed a contraction in an annual basis, mainly in the commercial portfolio, which still faces a difficult comparison base as of June 2020, when companies drew on their committed lines of credit, while credit cards and personal loans remained weak, these contractions were partially offset by the solid performance shown in the retail portfolio, on the back of mortgages and auto loans.

 

Portfolio Breakdown
Million pesos     % Variation
  Jun-21 Mar-21 Jun-20    QoQ  YoY
Commercial 412,080 423,445 479,448   (2.7) (14.1)
Middle-market 198,573 194,004 214,557   2.4 (7.4)
Corporates 65,309 70,857 104,834   (7.8) (37.7)
SMEs 56,448 60,415 72,198   (6.6) (21.8)
Government & Financial Entities 91,750 98,169 87,859   (6.5) 4.4
             
Individuals 298,243 290,544 271,771   2.6 9.7
Consumer 115,591 113,294 112,992   2.0 2.3
     Credit cards 50,989 50,807 54,242   0.4 (6.0)
     Other consumer 64,602 62,487 58,750   3.4 10.0
Mortgages 182,652 177,250 158,779   3.0 15.0
Total 710,323 713,989 751,219   (0.5) (5.4)

Earnings Release | 2Q.2021

 

Banco Santander México

 
 11

 

 

 

 
 

 

Total loan portfolio declined 5.4% YoY, or Ps.40,896 million, to Ps.710,323 million in June 2021. On a sequential basis, total loan portfolio decreased 0.5%, or Ps.3,666 million.

 

The commercial loan portfolio is comprised of loans to business and commercial entities, as well as loans to government entities and financial institutions, and represented 58.0% of the total loan portfolio. Excluding loans to government entities and financial institutions, the commercial loan portfolio accounted for 45.1% of the total. Middle-market, Corporate and SME loans represented 28.0%, 9.2% and 7.9% of the total loan portfolio, respectively.

 

The individuals loan portfolio, comprised of mortgages, consumer and credit card loans, represented 42.0% of the total loan portfolio. Mortgage, consumer and credit card loans, represented 25.7%, 9.1% and 7.2% of the total loan portfolio, respectively.

 

Loan portfolio breakdown                
Million pesos                
  Jun-21 %   Mar-21 %   Jun-20 %
Performing loans                
Commercial 405,407 57.1   416,942 58.4   472,748 62.9
                 
Individuals 284,515 40.1   276,287 38.7   259,627 34.6
  Consumer 110,756 15.6   107,758 15.1   108,292 14.4
       Credit cards 48,339 6.8   47,641 6.7   51,628 6.9
       Other consumer 62,417 8.8   60,117 8.4   56,664 7.5
 Mortgages 173,759 24.5   168,529 23.6   151,335 20.1
Total performing loans 689,922 97.1   693,229 97.1   732,375 97.5
                 
Non-performing loans                
Commercial 6,673 0.9   6,503 0.9   6,700 0.9
                 
Individuals 13,728 1.9   14,257 2.0   12,144 1.6
 Consumer 4,835 0.7   5,536 0.8   4,700 0.6
     Credit cards 2,650 0.4   3,166 0.4   2,614 0.3
     Other consumer 2,185 0.3   2,370 0.3   2,086 0.3
 Mortgages 8,893 1.3   8,721 1.2   7,444 1.0
Total non-performing loans 20,401 2.9   20,760 2.9   18,844 2.5
                 
Total loan portfolio                
Commercial 412,080 58.0   423,445 59.3   479,448 63.8
                 
Individuals 298,243 42.0   290,544 40.7   271,771 36.2
Consumer 115,591 16.3   113,294 15.9   112,992 15.0
     Credit cards 50,989 7.2   50,807 7.1   54,242 7.2
     Other consumer 64,602 9.1   62,487 8.8   58,750 7.8
Mortgages 182,652 25.7   177,250 24.8   158,779 21.1
Total loan portfolio 710,323 100.0   713,989 100.0   751,219 100.0

 

As of June 2021, commercial loans decreased 14.1% YoY, or Ps.67,368 million, driven by corporate, middle-market, SMEs and financial institutions loans, which decreased 37.7% YoY, or Ps.39,526 million, 7.4% YoY, or Ps.15,983 million, 21.8% YoY, or Ps.15,751 million and 24.0% YoY, or Ps.3,142 million, respectively. Meanwhile, government entities loans increased 9.4% YoY, or Ps.7,033 million. Sequentially, commercial

 

Earnings Release | 2Q.2021

 

Banco Santander México

 
 12

 

 

 

 
 

loans decreased 2.7% or Ps.11,365 million. The YoY decrease still reflected the exceptionally high comps of 2020, when corporate and mid-market loans increased significantly in the first half of 2020. At the time, companies drew on their committed lines of credit in the face of uncertainty caused by the COVID-19 pandemic.

 

Mortgage loans continued showing robust growth, increasing 15.0% YoY, or Ps.23,873 million and 3.0%, or Ps.5,402 million sequentially. The “Hipoteca Plus” product remains a main driver behind this strong performance, accounting for 57% of total mortgage origination in the quarter, which also helps the Bank to increase cross-selling of other products, mainly insurance and credit cards, supporting fee income growth and build customer loyalty. In addition, the digital onboarding platform for mortgages, “Hipoteca Online”, has been key during the COVID-19 pandemic, as it helps streamline processes and eliminates the need to visit a branch. During 2Q21, 96% of the mortgages were processed through this digital platform. However, the total mortgage loan portfolio is still affected by the run-off of acquired portfolios, excluding this effect, the mortgage portfolio would have increased 19.8% YoY, almost twice as much as the market growth.

 

It is worth noting that auto loans showed a solid performance, increasing 4.0x in June 2021 with respect to June 2020 and a 24.7%, or Ps.2,678 million, sequentially. This was a result of the Bank alliances with leading automakers, the most recent addition being Honda, which is producing excellent results together with the alliances that already the Bank had with Mazda, Suzuki, Peugeot and Tesla, among others. According to the last information published by CNBV, as of May 2021, market share in this business was 8.5% vs. 2.0% a year ago.

 

Credit card loans contracted 6.0% YoY, or Ps.3,253 million, and increased 0.4% QoQ, or Ps.182 million, despite an average usage increase of 35% YoY, although a decrease of 3% QoQ, while, personal and payroll loans decreased 20.5% YoY, or Ps.3,830 million, and 1.5% YoY, or Ps.538 million, respectively, affected by weak demand conditions.

 

Total Deposits

 

Total deposits in June 2021 stood at Ps.766,663 million, a decrease of 2.9% YoY, or Ps.23,077 million, reflecting unusually high comps since March 2020, when corporates drew their credit lines and left that liquidity on the Bank’s balance sheet. On a sequential basis, total deposits remained flat. Demand deposits reached Ps.550,536 million, increasing 8.4% YoY, or Ps.42,571 million, while time deposits decreased 23.3% YoY, or Ps.65,648 million, as lower interest rates made customers favor short term liquidity and supported by the Banks efforts to improve funding mix. In turn, demand deposits increased 2.2%, or Ps.11,907 million, sequentially, while time deposits decreased 5.6% QoQ, or Ps.12,871 million. Deposits from individuals contracted 1.9% YoY, or Ps.5,183 million, and from corporates contracted 3.5% YoY, or Ps.17,894 million. The Bank continues working on the strategy focused on prioritizing individual deposits and foregoing certain expensive corporate deposits.

 

 

Earnings Release | 2Q.2021

 

Banco Santander México

 
 13

 

 

 

 
 

Net interest income

 

Net interest income                      
Million pesos         % Variation         % Variation
  2Q21 1Q21 2Q20   QoQ YoY   6M21 6M20   21/20
Interest on funds available 369 371 609   (0.5) (39.4)   740 1,326   (44.2)
Interest on margin accounts 64 61 104   4.9 (38.5)   125 274   (54.4)
Interest and yield on securities 5,735 6,243 6,217   (8.1) (7.8)   11,978 12,671   (5.5)
Interest and yield on loan portfolio – excluding credit cards 14,871 14,804 17,623   0.5 (15.6)   29,675 35,806   (17.1)
Interest and yield on loan portfolio related to credit cards 3,057 2,911 3,507   5.0 (12.8)   5,968 7,357   (18.9)
Commissions collected on loan originations 145 142 127   2.1 14.2   287 266   7.9
Interest and premium on sale and repurchase agreements and securities loans 857 567 1,196   51.1 (28.3)   1,424 2,530   (43.7)
Interest income 25,098 25,099 29,383   (0.0) (14.6)   50,197 60,230   (16.7)
                       
Daily average interest-earnings assets 1,395,784 1,410,705 1,423,671   (1.1) (2.0)   1,403,245 1,332,120   5.3
                       
Interest from customer deposits – demand deposits (1,869) (1,572) (2,583)   18.9 (27.6)   (3,441) (5,006)   (31.3)
Interest from customer deposits – time deposits (2,065) (2,352) (4,402)   (12.2) (53.1)   (4,417) (8,823)   (49.9)
Interest from credit instruments issued (1,177) (1,233) (1,256)   (4.5) (6.3)   (2,410) (2,055)   17.3
Interest on bank and other loans (484) (510) (946)   (5.1) (48.8)   (994) (1,976)   (49.7)
Interest on subordinated capital notes (411) (419) (478)   (1.9) (14.0)   (830) (891)   (6.8)
Interest and premium on sale and repurchase agreements and securities loans (3,322) (3,428) (3,787)   (3.1) (12.3)   (6,750) (8,652)   (22.0)
Interest expense (9,328) (9,514) (13,452)   (2.0) (30.7)   (18,842) (27,403)   (31.2)
                       
Daily average interest-bearing liabilities 1,250,767 1,265,176 1,269,580   (1.1) (1.5)   1,257,958 1,192,162   5.5
                       
Net interest income 15,770 15,585 15,931   1.2 (1.0)   31,355 32,827   (4.5)

 

Net interest income in 2Q21 totaled Ps.15,770 million, decreasing 1.0% YoY, or Ps.161 million, and increasing 1.2% QoQ, or Ps.185 million.

 

The 1.0% YoY decrease in net interest income resulted from the combination of:

 

i)A 14.6%, or Ps.4,825 million, decrease in interest income, to Ps.25,098 million, which resulted from the combined effect of a 105 basis points decrease in the average interest rate received and a 2.0%, or Ps.27,887 million, decrease in average interest-earning assets; and

 

Earnings Release | 2Q.2021

 

Banco Santander México

 
 14

 

 

 

 
 
ii)A 30.7%, or Ps.4,124 million, decrease in interest expense, to Ps.9,328 million, stemming from a 124 basis points decrease in the average interest rate paid and a 1.5%, or Ps.18,813 million, decrease in interest-bearing liabilities.

 

The net interest margin ratio (NIM), calculated using daily average interest-earning assets for 2Q21, stood at 4.52%, compared to 4.48% in 2Q20 and 4.42% in 1Q21. The increase in NIM mainly reflected a combination of lower contribution of loans to yielding assets and lower deposit cost. On a cumulative basis, NIM for 6M21 reached 4.47%, a decrease of 46 basis points from 6M20.

 

 

Interest Income

 

Total average interest earning assets in 2Q21 amounted to Ps.1,395,784 million, decreasing 2.0% YoY, or Ps.27,887 million, mainly driven by decreases of 7.9% YoY, or Ps.60,927 million, in the average loan portfolio, and a 58.8%, or Ps.27,333 million, in margin accounts, partly offset by a 12.1% growth, or Ps.49,958 million, in the average amount of investment in securities, by 5.2% growth, or Ps.6,007 million, in funds available, and by 5.4% increase, or Ps.4,408 million, in repurchase agreements. Banco Santander México’s interest earning assets are broken down as follows:

 

Average Assets (Interest-Earnings Assets)
Breakdown (%)          
  2Q20 3Q20 4Q20 1Q21 2Q21
Loan portfolio 53.9 51.6 49.2 49.7 50.6
Investment in securities 29.0 32.8 35.4 36.3 33.1
Funds available 8.2 8.4 8.8 8.1 8.8
Repurchase agreements 5.7 4.3 4.3 3.9 6.1
Margin accounts 3.3 3.0 2.3 2.0 1.4
Total 100.0 100.0 100.0 100.0 100.0

 

Banco Santander México’s interest income consists mainly of interest from the loan portfolio and commissions on loan originations, which in 2Q21 generated Ps.18,073 million and accounted for 72.0% of total interest income. The remaining interest income of Ps.7,025 million is broken down as follows: 22.8% from investment in securities, 3.4% from repurchase agreements, 1.5% from funds available, and 0.3% from margin accounts.

 

Interest income for 2Q21 decreased 14.6%, or Ps.4,285 million YoY, to Ps.25,098 million, reflecting lower interest income from total loan portfolio, investment in securities, repurchase agreements, funds available and margin accounts, which decreased 15.2%, or Ps.3,202 million, 7.8%, or Ps.482 million, 28.3%, or Ps.339 million, 39.4%, or Ps.240 million, and 38.5%, or Ps.40 million, respectively.

 

The average interest yield on interest-earning assets in 2Q21 stood at 7.11%, decreasing 105 basis points from 8.16% in 2Q20. Sequentially, the average interest yield on interest-earning assets remained flat, from 7.12% in 1Q21.

 

In 2Q21, the average interest rate on the total loan portfolio stood at 10.04%, a decrease of 85 basis points YoY, reflecting lower interest rates and change in the loan portfolio mix. Relative to 2Q20, the average reference rate (TIIE28) decreased 177 basis points. The average interest rate on the consumer loan portfolio stood at 22.80%, a decrease of 284 basis points YoY, while the yield of credit card loan portfolio stood at 23.68%, a decrease of 166 basis points YoY, the rate on the commercial loan portfolio stood at 6.71%, a decrease of 139 basis points YoY and the yield of the mortgage loan portfolio stood at 9.37%, an increase of 8 basis points YoY. The average interest rate on the investment in securities portfolio stood at 4.91%, decreasing 105 basis points YoY.

 

Earnings Release | 2Q.2021

 

Banco Santander México

 
 15

 

 

 

 
 

 

Interest income                      
Million Pesos 2Q21   2Q20   Var YoY
   Average Balance  Interest Yield (%)    Average Balance  Interest  Yield (%)    Average Balance Interest (%) Yield (bps)
Funds available 122,067 369 1.20   116,060 609 2.08   5.2 (39.4)    (88)
Margin accounts 19,114 64 1.32   46,447 104 0.89   (58.8) (38.5)    43
Investment in securities 462,289 5,735 4.91   412,331 6,217 5.96   12.1 (7.8)    (105)
Loan portfolio 706,727 17,928 10.04   767,654 21,130 10.89   (7.9) (15.2)    (85)
Commissions collected on loan originations 145   127   14.2    
Sale and repurchase agreements and securities loans 85,587 857 3.96   81,179 1,196 5.83   5.4 (28.3)    (187)
Interest income 1,395,784 25,098 7.11   1,423,671 29,383 8.16   (2.0) (14.6)    (105)

Interest income decline from the total loan portfolio was 15.2%, or Ps.3,202 million, which resulted from the combined effect of a 85 basis points decrease in the average interest rate, and a 7.9%, or Ps.60,927 million, decrease in average loan portfolio volume. The decrease in interest income from the loan portfolio resulted from the following YoY combined effects by product:

 

§Commercial: 17.0%, or Ps.84,984 million decrease, with a 6.71% interest yield, which decreased 139 bps;

§Credit Cards: 6.7%, or Ps.3,690 million decrease, with a 23.68% interest yield, which decreased 166 bps;

§Consumer: 9.1%, or Ps.5,234 million increase, with a 22.80% interest yield, which decreased 284 bps; and

§Mortgages: 14.5%, or Ps.22,513 million increase, with a 9.37% interest yield, which increased 8 bps.

 

Interest income from investment in securities decreased 7.8%, or Ps.482 million, which resulted from the combined effect of an increase of 12.1%, or Ps.49,958 million, in average volume, and a 105 basis points decrease in the average interest rate. Interest income from repurchase agreements decreased 28.3%, or Ps.339 million, which resulted from the increase of 5.4%, or Ps.4,408 million, in average volume, and a 187 basis points decrease in the average interest rate.

 

Interest expense

 

Total average interest-bearing liabilities amounted to Ps.1,250,767 million, decreasing 1.5% YoY, or Ps.18,813 million, and were driven by decreases of 25.7%, or Ps.82,840 million, in time deposits, 48.7%, or Ps.39,046 million, in bank and other loans, 7.7%, or Ps.6,385 million, in credit instruments issued, and 14.2%, or Ps.4,305 million, in subordinated capital notes. These decreases were partly offset by increases of 30.5%, or Ps.83,514 million, in repurchase agreements, and 6.3%, or Ps.30,249 million, in demand deposits.

 

Earnings Release | 2Q.2021

 

Banco Santander México

 
 16

 

 

 

 
 

Banco Santander México’s interest-bearing liabilities are broken down as follows:

 

Average liabilities (interest-bearing liabilities)
Breakdown (%)          
  2Q20 3Q20 4Q20 1Q21 2Q21
Demand deposits 37.7 37.9 37.1 37.9 40.7
Sale and repurchase agreements and securities loans 21.6 24.8 28.6 29.7 28.5
Time deposits 25.4 24.4 21.9 20.5 19.2
Credit instruments issued 6.6 6.9 6.3 6.4 6.2
Bank and other loans 6.3 3.8 4.0 3.4 3.3
Subordinated capital notes 2.4 2.2 2.1 2.1 2.1
Total 100.0 100.0 100.0 100.0 100.0

 

Banco Santander México’s interest expense consists mainly of interest paid on customer deposits and repurchase agreements, which in 2Q21 amounted to Ps.3,934 million and Ps.3,322 million, respectively, accounting for 42.2% and 35.6% of interest expenses. The remaining Ps.2,072 million was paid as follows: 12.6% on credit instruments issued, 5.2% on bank and other loans, and 4.4% on subordinated debentures.

 

Interest expense for 2Q21 decreased 30.7% YoY, or Ps.4,124 million, to Ps.9,328 million, mainly driven by lower interest expenses on time deposits, demand deposits, repurchase agreements and bank and other loans.

 

The average interest rate on interest-bearing liabilities decreased 124 basis points to 2.95% in 2Q21. For 2Q21, the average interest rate on the main sources of funding decreased YoY as follows:

 

§199 basis points in time deposits, at an average interest rate paid of 3.40%;

§179 basis points in repurchase agreements, at an average interest rate paid of 3.68%; and

§68 basis points in demand deposits, at an average interest rate paid of 1.45%.

 

 

Interest expense    
Million pesos 2Q21   2Q20    Var YoY
   Average Balance  Interest  Yield (%)    Average Balance  Interest  Yield (%)   Average Balance Interest (%) Yield (bps)
Demand deposits 509,339 1,869 1.45   479,090 2,583 2.13   6.3 (27.6) (68)
Time deposits 240,044 2,065 3.40   322,884 4,402 5.39   (25.7) (53.1) (199)
Credit instruments issued 77,064 1,177 6.04   83,449 1,256 5.95   (7.7) (6.3) 9
Bank and other loans 41,054 484 4.66   80,100 946 4.67   (48.7) (48.8) (1)
Subordinated capital notes 26,032 411 6.25   30,337 478 6.23   (14.2) (14.0) 2
Sale and repurchase agreements and securities loans 357,234 3,322 3.68   273,720 3,787 5.47   30.5 (12.3) (179)
Interest expense 1,250,767 9,328 2.95   1,269,580 13,452 4.19   (1.5) (30.7) (124)

Earnings Release | 2Q.2021

 

Banco Santander México

 
 17

 

 

 

 
 

Increases in retail deposits continue to reflect the Bank’s focus on driving profitability with a higher reliance on retail deposits. The average balance of demand deposits increased 6.3% YoY, or Ps.30,249 million, while the average balance of time deposits contracted 25.7% YoY, or Ps.82,840 million. Interest paid on demand deposits decreased 27.6% YoY, or Ps.714 million and interest paid on time deposits decreased 53.1% YoY, or Ps.2,337.

 

 

Provisions for loan losses and asset quality

 

During 2Q21, provisions for loan losses amounted to Ps.5,068 million, which represented a decrease of 39.3%, or Ps.3,282 million, YoY, and a 28.4%, or Ps.2,007 million, on a sequential basis, reflecting easier comps due to provisions for loan losses made in 1Q21, as some customers in the entertainment and retail sectors were affected by the COVID-19 pandemic, although remaining current, and to the additional provisions made in the 2Q20 to face the COVID-19 pandemic.

 

 

Loan Loss Reserves                      
Million pesos         % Variation         % Variation
  2Q21 1Q21 2Q20   QoQ YoY   6M21 6M20   YoY
Commercial 1,823 3,414 3,149   (46.6) (42.1)   5,237 3,933   33.2
Consumer 2,826 3,120 3,902   (9.4) (27.6)   5,946 7,073   (15.9)
Mortgages 419 541 1,299   (22.6) (67.7)   960 2,509   (61.7)
Total 5,068 7,075 8,350   (28.4) (39.3)   12,143 13,515   (10.1)

 

Cost of Risk (%)                  
          Variation (bps)         Variation (bps)
  2Q21 1Q21 2Q20   QoQ YoY   6M21 6M20   YoY
Commercial 1.63 1.85 1.49   (22) 14   1.63 1.49   14
Consumer 10.65 11.58 11.32   (93) (67)   10.65 11.32   (67)
Mortgages 0.36 0.90 1.93   (54) (157)   0.36 1.93   (157)
Total 2.75 3.15 3.14   (40) (39)   2.75 3.14   (39)

Earnings Release | 2Q.2021

 

Banco Santander México

 
 18

 

 

 

 
 

Non-performing loans as of June 2021 increased 8.3% YoY, or Ps.1,557 million, to Ps.20,401 million, and decreased Ps.359 million, or 1.7% on a sequential basis. The YoY increase in non-performing loans was due to increases of 19.5%, or Ps.1,449 million, in mortgage loans and 2.9%, or Ps.135 million, in consumer loans (including credit cards). These increases were partially offset by a decrease of 0.4%, or Ps.27 million, in commercial loans.

 

NPL ratio for the SMEs loan portfolio increased 126 basis points YoY and decreased 18 basis points sequentially, further affected by the economic environment. Commercial loans NPL ratio increased 22 basis points YoY and 8 basis points QoQ. At the same time, mortgage loans NPL ratio increased 18 basis points YoY and decreased 5 basis points QoQ. While consumer loan portfolio (including credit cards) NPL ratio increased 2 basis point YoY and decreased 71 basis points sequentially.

 

The breakdown of the non-performing loan portfolio is as follows: mortgage loans 43.6%, commercial loans 32.7% and consumer loans (including credit cards) 23.7%.

 

Non-Performing loan ratio (%)
          Variation (bps)
  Jun-21 Mar-21 Jun-20   QoQ YoY
Commercial 1.62 1.54 1.40   8 22
     SMEs 4.63 4.81 3.37   (18) 126
     Others 1.15 1.00 1.06   15 9
             
Individuals            
Consumer 4.18 4.89 4.16   (71) 2
     Credit Card 5.20 6.23 4.82   (103) 38
     Other consumer 3.38 3.79 3.55   (41) (17)
Mortgages 4.87 4.92 4.69   (5) 18
Total 2.87 2.91 2.51   (4) 36

 

The aforementioned variations in non-performing loans led to an NPL ratio of 2.87% in June 2021, increasing 36 basis points from 2.51% in June 2020, still reflecting the impact of the COVID-19 pandemic, and decreasing 4 basis points compared to the 2.91% reported in March 2021.

 

Finally, the coverage ratio for June 2021 stood at 118.39%, decreasing from 138.81% in June 2020 and from the 120.12% in March 2021.

 

 

Earnings Release | 2Q.2021

 

Banco Santander México

 
 19

 

 

 

 
 

Commission and fee income, net

 

Commission and fee income, net
Million pesos         % Variation         % Variation
  2Q21 1Q21 1Q20   QoQ YoY   6M21 6M20   21/20
Commission and fee income                  
Debit and credit card 2,291 2,235 1,983   2.5 15.5   4,526 4,259   6.3
Account management 658 650 641   1.2 2.7   1,308 1,289   1.5
Collection services 551 592 508   (6.9) 8.5   1,143 1,104   3.5
Investment funds 429 414 396   3.6 8.3   843 790   6.7
Insurance 1,471 1,285 1,369   14.5 7.5   2,756 2,600   6.0
Purchase-sale of securities and money market transactions 239 238 246   0.4 (2.8)   477 495   (3.6)
Checks trading 43 42 36   2.4 19.4   85 89   (4.5)
Foreign trade 408 394 388   3.6 5.2   802 787   1.9
Financial advisory services 343 435 435   (21.1) (21.1)   778 871   (10.7)
Other 229 250 186   (8.4) 23.1   479 412   16.3
Total 6,662 6,535 6,188   1.9 7.7   13,197 12,696   3.9
                       
Commission and fee expense                  
Debit and credit card (959) (785) (820)   22.2 17.0   (1,744) (1,815)   (3.9)
Investment funds (1) 0 0   100.0 100.0   (1) 0   100.0
Insurance (34) (37) (29)   (8.1) 17.2   (71) (61)   16.4
Purchase-sale of securities and money market transactions (41) (42) (56)   (2.4) (26.8)   (83) (95)   (12.6)
Checks trading (12) (11) (10)   9.1 20.0   (23) (21)   9.5
Financial advisory services 0 (7) (9)   (100.0) (100.0)   (7) (10)   (30.0)
Bank Correspondents (219) (216) (173)   1.4 26.6   (435) (381)   14.2
Other (523) (535) (493)   (2.2) 6.1   (1,058) (1,018)   3.9
Total (1,789) (1,633) (1,590)   9.6 12.5   (3,422) (3,401)   0.6
                       
Commission and fee income, net                
Debit and credit card 1,332 1,450 1,163   (8.1) 14.5   2,782 2,444   13.8
Account management 658 650 641   1.2 2.7   1,308 1,289   1.5
Collection services 551 592 508   (6.9) 8.5   1,143 1,104   3.5
Investment funds 428 414 396   3.4 8.1   842 790   6.6
Insurance 1,437 1,248 1,340   15.1 7.2   2,685 2,539   5.8
Purchase-sale of securities and money market transactions 198 196 190   1.0 4.2   394 400   (1.5)
Checks trading 31 31 26   0.0 19.2   62 68   (8.8)
Foreign trade 408 394 388   3.6 5.2   802 787   1.9
Financial advisory services 343 428 426   (19.9) (19.5)   771 861   (10.5)
Bank Correspondents (219) (216) (173)   1.4 26.6   (435) (381)   14.2
Other (294) (285) (307)   3.2 (4.2)   (579) (606)   (4.5)
                       
Total 4,873 4,902 4,598   (0.6) 6.0   9,775 9,295   5.2

Earnings Release | 2Q.2021

 

Banco Santander México

 
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In 2Q21, net commission and fee income totaled Ps.4,873 million, increasing 6.0% YoY, or Ps.275 million, and decreased 0.6% QoQ, or Ps.29 million. Commission and fee income increased 7.7% YoY, or Ps.474 million, to Ps.6,662 million in 2Q21, while commission and fee expense increased 12.5% YoY, or Ps.199 million, to Ps.1,789 million in 2Q21.

 

The main contributors to net commissions and fees were insurance fees, which accounted for 29.5% of the total, followed by credit and debit card fees, account management and collection services fees, which accounted for 27.3%, 13.5% and 11.3% of total commissions and fees, respectively.

 

Net commissions and fees            
Breakdown (%)            
  2Q21 1Q21 2Q20   6M21 6M20
Insurance 29.5 25.5 29.1   27.5 27.3
Credit cards 27.3 29.6 25.3   28.5 26.3
Account management 13.5 13.3 13.9   13.4 13.9
Collection services 11.3 12.1 11.1   11.7 11.9
Investment funds 8.8 8.4 8.6   8.6 8.5
Foreign trade 8.4 8.0 8.5   8.2 8.5
Financial advisory services 7.0 8.7 9.3   7.9 9.3
Purchase-sale of securities and money market transactions 4.1 4.0 4.1   4.0 4.3
Checks trading 0.6 0.6 0.6   0.6 0.7
Bank correspondents (4.5) (4.4) (3.8)   (4.5) (4.1)
Other (6.0) (5.8) (6.7)   (5.9) (6.6)
Total 100.0 100.0 100.0   100.0 100.0

 

Net commissions and fees were up 6.0% YoY, or Ps.275 million in 2Q21, mostly as a result of the following increases:

 

i)A 14.5%, or Ps.169 million, in debit and credit card fees, as the economy reopens and was reflected in credit card transactions;

 

ii)A 7.2%, or Ps.97 million, in insurance, driven by strong origination in mortgage and auto loans; and

 

iii)An 8.5%, or Ps.43 million, in collection and payments, and a 2.7%, or Ps.17 million, in account management.

 

These positive contributions to net commissions and fees were partly offset by:

 

i)A 19.5%, or Ps.83 million, decrease in financial advisory services, due to lower transactions.

 

On a cumulative basis, net commissions and fees amounted Ps.9,775 million in 6M21, reflecting a YoY increase of 5.2%, or Ps.480 million. Commission and fee income increased 3.9%, or Ps.501 million, while commission and fee expense increased 0.6%, or Ps.21 million.

 

Earnings Release | 2Q.2021

 

Banco Santander México

 
 21

 

 

 

 
 

Net gain (loss) on financial assets and liabilities

 

Net gain (loss) on financial assets and liabilities
Million pesos         % Variation         % Variation
  2Q21 1Q21 2Q20   QoQ YoY   6M21 6M20   21/20
Valuation                      
Foreign exchange 668 (1,218) (143)     (550) 2,599   (121.2)
Derivatives 1,055 2,999 (4,656)   (64.8) 122.7   4,054 (1,812)  
Equity securities (49) (73) 942   (32.9) (105.2)   (122) 21  
Debt instruments (1,373) (4,895) 6,307   (72.0) (121.8)   (6,268) 6,862  
Valuation result 301 (3,187) 2,450   109.4 (87.7)   (2,886) 7,670   (137.6)
                       
Purchase / sale of securities                      
Foreign exchange 330 2,301 1,109   (85.7) (70.2)   2,631 (3,023)  
Derivatives (17) 1,180 (53)   (101.4) 67.9   1,163 (902)  
Equity securities 40 166 (240)   (75.9) 116.7   206 (315)  
Debt instruments 163 938 17   (82.6)   1,101 736   49.6
Purchase -sale result 516 4,585 833   (88.7) (38.1)   5,101 (3,504)  
                       
Total 817 1,398 3,283   (41.6) (75.1)   2,215 4,166   (46.8)

 

In 2Q21, Banco Santander México reported a Ps.817 million net gain from financial assets and liabilities, which compares with a gain of Ps.3,283 million in 2Q20 and a gain of Ps.1,398 million in 1Q21. The YoY decrease in net gain from financial assets and liabilities, resulted from a higher base in 2Q20, due to extraordinary gains related to the sale of certain securities to strengthen the Bank liquidity position.

 

The Ps.817 million net gain from financial assets and liabilities in the quarter is mostly a result of:

 

i)A Ps.516 million purchase-sale gain, related to gains of Ps.330 million, Ps.163 million and Ps.40 million, in foreign exchange, debt instruments and equity securities, respectively. These gains were partly offset by a loss of Ps.17 million in derivatives; and

 

ii)A Ps.301 million valuation gain, which resulted from gains of Ps.1,055 million and Ps.668 million in derivatives and foreign exchange, respectively. These gains were partly offset by losses of Ps.1,373 million and Ps.49 million, in debt instruments and equity securities.

 

On a cumulative basis, net gain from financial assets and liabilities for the first half of the year, reached Ps.2,215 million, representing a decrease of 46.8% YoY, or Ps.1,951 million.

 

Earnings Release | 2Q.2021

 

Banco Santander México

 
 22

 

 

 

 
 

Other operating expense

 

Other operating expense 
Million pesos         % Variation         % Variation
  2Q21 1Q21 2Q20   QoQ YoY   6M21 6M20   21/20
                       
Cancellation of liabilities and reserves (20) 90 105   (122.2) (119.0)   70 201   (65.2)
Interest on personnel loans 47 47 67   0.0 (29.9)   94 140   (32.9)
Allowance for losses on foreclosed assets (9) (7) (8)   28.6 12.5   (16) (13)   23.1
Profit from sale of foreclosed assets 18 103 21   (82.5) (14.3)   121 296   (59.1)
Technical advisory and technology services 21 17 39   23.5 (46.2)   38 60   (36.7)
Portfolio recovery legal expenses and costs (239) (352) (206)   (32.1) 16.0   (591) (328)   80.2
Premiums paid on guarantees for SMEs loans portfolio (274) (321) (235)   (14.6) 16.6   (595) (533)   11.6
Write-offs and bankruptcies (175) (251) (124)   (30.3) 41.1   (426) (360)   18.3
Provision for legal and tax contingencies (53) (54) (77)   (1.9) (31.2)   (107) (168)   (36.3)
Others 142 64 186   121.9 (23.7)   206 261   (21.1)
                       
Total (542) (664) (232)   (18.4) 133.6   (1,206) (444)  

 

Other operating expenses in 2Q21 totaled Ps.542 million, higher from Ps.232 million in 2Q20 and down from Ps.664 million reported in 1Q21.

 

The Ps.310 million, YoY increase, in other operating expenses in 2Q21 was mainly driven by a decrease in cancellation of liabilities and reserves of 119.0%, or Ps.125 million, higher write-offs of 41.1%, or Ps.51 million, a decrease in other operating income of 23.7%, or Ps.44 million, higher premiums paid on guarantees for the SMEs loan portfolio of 16.6%, or Ps.39 million and higher legal expenses and costs related to portfolio recoveries of 16.0%, or Ps.33 million.

 

On a cumulative basis, other operating expenses for 6M21, reached Ps.1,206 million, representing a Ps.762 million YoY increase.

 

 

Administrative and promotional expenses

 

Administrative and promotional expenses consist of personnel costs, such as payroll and benefits, promotion and advertising expenses, and other general expenses. Personnel expenses consist mainly of salaries, social security contributions, bonuses and a long-term incentive plan for the Bank’s executives. Other general expenses are mainly related to technology and systems, administrative services - mainly outsourced in the areas of information technology - taxes and duties, professional fees, contributions to IPAB, rental of properties and hardware, advertising and communication, surveillance and cash courier services, and expenses related to maintenance, conservation and repair, among others.

 

Earnings Release | 2Q.2021

 

Banco Santander México

 
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Administrative and promotional expenses
Million pesos         % Variation         % Variation
  2Q21 1Q21 2Q20   QoQ YoY   6M21 6M20   21/20
Salaries and employee benefits 4,056 3,938 3,555   3.0 14.1   7,994 7,477   6.9
Credit card operation 47 52 57   (9.6) (17.5)   99 106   (6.6)
Professional fees 218 185 245   17.8 (11.0)   403 407   (1.0)
Leasehold 616 620 659   (0.6) (6.5)   1,236 1,309   (5.6)
Promotional and advertising expenses 165 147 205   12.2 (19.5)   312 420   (25.7)
Taxes and duties 542 588 494   (7.8) 9.7   1,130 1,193   (5.3)
Technology services (IT) 1,221 1,297 1,181   (5.9) 3.4   2,518 2,206   14.1
Depreciation and amortization 1,161 1,182 993   (1.8) 16.9   2,343 2,008   16.7
Contributions to IPAB 943 938 1,049   0.5 (10.1)   1,881 1,883   (0.1)
Cash protection 302 289 227   4.5 33.0   591 587   0.7
Others 684 658 934   4.0 (26.8)   1,342 1,788   (24.9)
                       
Total 9,955 9,894 9,599   0.6 3.7   19,849 19,384   2.4

 

Banco Santander México’s administrative and promotional expenses are broken down as follows:

 

Administrative and promotional expenses      
Breakdown (%)      
  2Q21 1Q21 2Q20   6M21 6M20
Personnel 40.7 39.8 37.0   40.3 38.6
Technology services (IT) 12.3 13.1 12.3   12.7 11.4
Depreciation and amortization 11.7 11.9 10.3   11.8 10.4
IPAB 9.5 9.5 10.9   9.5 9.7
Others 6.9 6.7 9.7   6.8 9.2
Leasehold 6.2 6.3 6.9   6.2 6.8
Taxes and duties 5.4 5.9 5.2   5.7 6.2
Cash protection 3.0 2.9 2.4   3.0 3.0
Professional fees 2.2 1.9 2.6   2.0 2.1
Promotional and advertising expenses 1.6 1.5 2.1   1.6 2.2
Credit card operation 0.5 0.5 0.6   0.4 0.4
Total 100.0 100.0 100.0   100.0 100.0

 

Administrative and promotional expenses in 2Q21 totaled Ps.9,955 million, compared to Ps.9,599 million in 2Q20 and Ps.9,894 million in 1Q21, increasing 3.7% YoY, or Ps.356 million and 0.6% QoQ, or Ps.61 million.

 

The 3.7% YoY, or Ps.356 million, increase in administrative and promotional expenses was mainly due to the following increases:

 

i)14.1%, or Ps.501 million, in salaries and employee benefits, mainly due to the reinforcement of certain critical business units such as auto, IT and cybersecurity;

 

ii)16.9%, or Ps.168 million, in depreciations and amortizations, mainly related to the Bank’s strategic initiatives; and

 

iii)33.0%, or Ps.75 million, in cash protection.

 

These increases were partly offset by the following decreases:

 

i)26.8%, or Ps.250 million, in other expenses; and

 

ii)10.1%, or Ps.106 million, in contributions to IPAB.

 

Earnings Release | 2Q.2021

 

Banco Santander México

 
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The efficiency ratio for the quarter increased 688 basis points YoY and 97 basis points QoQ to 47.59%.

 

The recurrence ratio for 2Q21 was 48.95%, up from 47.90% in 2Q20 and 49.55% reported in 1Q21.

 

On a cumulative basis, administrative and promotional expenses in 6M21 amounted Ps.19,849 million, reflecting an increase of 2.4%, or Ps.465 million. The efficiency ratio for the first half of the year increased 482 basis points YoY from 42.28% in 6M20 to 47.10% in 6M21.

 

 

Profit before taxes

 

Profit before taxes in 2Q21 was Ps.5,945 million, reflecting increases of 4.9%, or Ps.279 million, YoY, and 37.3%, or Ps.1,616 million, QoQ.

 

On a cumulative basis, profit before taxes for 6M21 amounted Ps.10,274 million, reflecting a YoY decrease of 20.9%, or Ps.2,710 million.

 

 

Income taxes

 

In 2Q21, Banco Santander México reported a tax expense of Ps.1,232 million compared to Ps.1,436 million in 2Q20 and Ps.1,050 million in 1Q21. The effective tax rate for the quarter was 20.72%, compared to 25.34% reported in 2Q20 and 24.26% in 1Q21.

 

On a cumulative basis, the effective tax rate for 6M21 stood at 22.21%, 351 basis points lower than the 25.72% for 6M20.

 

 

Earnings Release | 2Q.2021

 

Banco Santander México

 
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Capitalization and liquidity

 

Capitalization            
Million pesos   Jun-21   Mar-21   Jun-20
CET1   113,511   114,711   96,915
Tier 1   123,462   124,926   108,451
Tier 2   27,128   27,855   30,507
Total capital   150,590   152,782   138,958
             
Risk-weighted assets            
Credit risk   536,820   526,922   545,833
Credit, market and operational risk   796,432   774,368   832,610
             
Credit risk ratios:            
CET1 (%)   21.15   21.77   17.76
Tier 1 (%)   23.00   23.71   19.87
Tier 2 (%)   5.05   5.29   5.59
Capitalization ratio (%)   28.05   29.00   25.46
             
Total capital ratios:            
CET1 (%)   14.25   14.81   11.64
Tier 1 (%)   15.50   16.13   13.03
Tier 2 (%)   3.41   3.60   3.65
Capitalization ratio (%)   18.91   19.73   16.69

 

Banco Santander México’s capital ratio at June 2021 was 18.91%, compared to 16.69% and 19.73% at June 2020 and March 2021, respectively. The 18.91% capital ratio was comprised of 14.25% of fundamental capital (CET1), 1.25% of additional capital (AT1), and 3.41% of complementary capital (Tier 2).

 

As of May 2021, Banco Santander México was classified in Category 1, in accordance with Article 134 Bis of the Mexican Banking Law, and the Bank remains in this category per the preliminary results dated June 30th, 2021, which is the most recent available analysis.

 

Liquidity coverage ratio (LCR)

 

Pursuant to the regulatory requirements of Banxico and the Mexican National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores, or “CNBV”), the average Liquidity Coverage Ratio (LCR or CCL by its Spanish acronym) for 2Q21 was 315.99%, which compares to 211.33% in 2Q20 and 316.00% in 1Q21. (Please refer to note 24 of this report).

 

Leverage ratio

 

In accordance with CNBV regulatory requirements, effective June 14, 2016, the leverage ratio was 7.95% for June 2021, 7.61% for March 2021, 7.39% for December 2020, 6.82% for September 2020 and 6.53% for June 2020.

 

This ratio is defined by regulators and is calculated by dividing core capital (according to Article 2 Bis 6 (CUB)) by adjusted assets (according to Article 1, II (CUB)).

 

V.Relevant Events, Transactions and Activities

 

Relevant Events

 

Organizational changes within its corporate and investment banking segment

 

On June 14, 2021 Banco Santander México announced that Felipe García Ascencio was appointed as Deputy General Director of Corporate and Investment Banking, reporting to Héctor Grisi Checa, subject to corresponding regulatory authorizations.

 

General Ordinary and Extraordinary Shareholders’ Meetings

 

On June 09, 2021 Banco Santander México held its General Ordinary and Extraordinary Shareholders’ Meeting, at which, among others, the following resolutions were adopted:

 

Earnings Release | 2Q.2021

 

Banco Santander México

 
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§The payment of a cash dividend in the amount of Ps.3,054 million paid on June 18, 2021; such payment was made, at a rate of Ps.0.45, in proportion to the number of shares that each shareholder held as of the record date.

 

§Due to change in the intended conditions of the Tender Offer to become a voluntary tender offer and eliminating as a requirement the delisting, the discussion on the delisting was unnecessary and no resolution was adopted in this regard. Therefore, the shares of Banco Santander México will continue listed on the BMV and NYSE.

 

Banco Santander México informed that its Parent Company, issued a material fact announcement

 

On June 8, 2021, Banco Santander México announced that Banco Santander, S.A., its Parent Company, had issued a material fact, announcing its intention to launch a voluntary Tender Offer, instead of a mandatory delisting tender offer as previously announced. This announcement complemented the ones issued on March 26 and May 24, 2021, related to the intention to make a Tender Offer.

 

Banco Santander México was designated a Level III Domestic Systemically Important Financial Institution by the Mexican National Banking and Securities Commission for the sixth consecutive year

 

On May 27, 2021, Banco Santander México was designated a Level III Domestic Systemically Important Financial Institution by the Mexican National Banking and Securities Commission (CNBV), for the sixth consecutive year. The Bank already complies with this regulatory requirement.

 

 

Banco Santander México informed that its Parent Company, issued a material fact announcement

 

On May 24, 2021, Banco Santander México announced that Banco Santander, S.A., its Parent Company, had issued a material fact to announce that it has determined to, if the tender offer is launched, maintain the price of Ps.24 per share and the U.S. Dollar equivalent of Ps.120.00 per ADS, despite the payment of a dividend amounting to Ps.0.45 per share (Ps.2.25 per American Depositary Share). This announcement complemented the one issued on March 26, 2021, related to the intention to make a Tender Offer.

 

Call to the General Ordinary and Extraordinary Shareholders’ Meetings

 

On May 10, 2021 Banco Santander México called to its Annual General Ordinary and Extraordinary Shareholders’ Meetings that was held on June 9, 2021 at which, among other items, it would be discussed for approval the payment of a cash dividend and the delisting.

 

Annual General Ordinary and Special Shareholders’ Meetings

 

On April 29, 2021, Banco Santander México held its Annual General Ordinary and Special Shareholders’ Meetings, and approved among other items:

 

§The integration of the Board of Directors as indicated below:

 

Series “F” Independent Directors
Laura Renné Diez Barroso Azcárraga Chairwoman
Cesar Augusto Montemayor Zambrano Director  
Juan Ignacio Gallardo Thurlow Alternate Director
Guillermo Jorge Quiroz Abed Alternate Director
Alberto Torrado Martínez Alternate Director
Bárbara Garza Lagüera Gonda   Alternate Director
José Eduardo Carredano Fernández Alternate Director
Series “F” Non-Independent Directors
Héctor Blas Grisi Checa Director  
Magdalena Sofía Salarich Fernández de Valderrama Director  
Francisco Javier García-Carranza Benjumea Director  
Ángel Rivera Congosto Director  
Didier Mena Campos Director  
Rodrigo Brand de Lara Alternate Director
Emilio de Eusebio Sanz   Alternate Director

Earnings Release | 2Q.2021

 

Banco Santander México

 
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Series “B”Independent Directors
 Antonio Purón Mier y Terán Director  
 Fernando Benjamín Ruíz Sahagún Director  
 María de Lourdes Melgar Palacios Director  
 Esther Giménez-Salinas Colomer Director  
 Jesús Federico Reyes Heroles González Garza Alternate Director
 Rogelio Zambrano Lozano Alternate Director
 Joaquín Vargas Guajardo Alternate Director
 Guillermo Francisco Vogel Hinojosa Alternate Director

 

General Extraordinary Shareholders’ Meetings

 

On April 20, 2021 Banco Santander México held its General Extraordinary Shareholders’ Meeting, and approved the issuance of Capital Instruments up to an amount of USD $700 million. The issuance date and all the characteristics of the instrument may be modified as required by the financial authorities and considering the market conditions.

 

 

Relevant Transactions

 

The strategy to leverage the synergy between the Bank’s different business lines is reflected in the following operations that were closed this quarter with the collaboration between the Corporate & Investment Banking (SCIB) and Corporate & Institutional Banking.

 

§Coppel ESG Financing

 

Banco Santander México participated as Joint Bookrunner Administrative Agent and ESG Agent, along with three other banks, in the syndicated loan with sustainability features (ESG) for a total amount of Ps.40,000 million with a five-year term for Coppel, S.A. de C.V., a large retail store company in the country. The Bank's participation was for a total amount of Ps.10,000 million.

 

§Bio Pappel Financing

 

Banco Santander México participated as Mandated Lead Arranger in a syndicated loan for Bio Pappel, S.A.B. de C.V., the largest manufacturer of paper and paper products in Mexico and Latin America, for a total amount of $ 400 million dollars with a five-year term. The Bank's participation was for a total amount of $75 million dollars.

 

§Financing to AT&T

 

Banco Santander México participated as Arranger along with six other banks in the syndicated loan to AT&T México, a telecommunications services company, for a total amount of Ps.13,500 million with a three-year term. The Bank's participation was for a total amount of Ps.880 million.

 

Banco Santander México reaffirms its leadership in the letters of credit market with the following transaction:

 

§Import letters of credit to Orbia

 

Banco Santander México signed a contract for the issuance of import letters of credit for a total amount of $100 million dollars with Orbia Advance Corporation, S.A.B. de C.V. (Orbia), a Mexican company involved in a variety of industries such as infrastructure, chemical products, among others.

 

VI.Awards and Recognitions

 

Best Investment Bank by Euromoney magazine

 

On July 14, 2021 Santander Investment Banking Mexico was recognized for the first time as "Best Investment Bank" in the country by the prestigious Euromoney magazine as a result of its leadership, resilience and ability to provide comprehensive solutions in a changing and challenging environment.

 

Euromoney magazine, founded in 1969, is recognized worldwide as a leader in international banking and financial news and its Awards of Excellence date back to 1992.

 

Earnings Release | 2Q.2021

 

Banco Santander México

 
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Note: Please refer to Strategic Initiatives and Responsible Banking Sections of this Report to consult further awards and recognitions for Banco Santander México.

 

VII.Credit Ratings

 

On July 1st, 2021, Fitch Ratings affirmed all Banco Santander México credit ratings (see table below). The Outlook is Stable. On the same date, Fitch Ratings affirmed Santander Consumo and Santander Inclusión Financiera ratings (see table below).

 

Banco Santander México Fitch Ratings   Moody’s
Global scale      
Foreign currency      
Long term BBB+   Baa1
       
Short term F2   P-2
       
Local currency      
Long term BBB+   Baa1
       
Short Term F2   P-2
       
National scale      
Long term AAA(mex)   Aaa.mx
       
Short Term F1+(mex)   Mx-1
       
Rating viability (VR) bbb-   N/A
       
Support 2   N/A
       
Counterparty risk Assessments  (CR)      
Long Term N/A   A3 (cr)
     
Short Term N/A   P-2 (cr)
       
Standalone BCA N/A   baa2
       
Standalone Adjusted BCA N/A   baa1
       
Outlook Negative   Negative
       
International Issuances      
       
Tier 2 Subordinated Capital Notes due 2028 BBB-   Baa3 (hyb)
       
Long Term Senior Unsecured Global Notes due 2025 BBB+   Baa1
     
Long Term Senior Unsecured Global Notes due 2022 BBB+   Baa1
       
Perpetual Subordinated Non-Preferred Contingent Convertible Additional Tier 1 Capital Notes (AT1)      
Global Scale      
Foreign currency      
Long term BB   Ba1 (hyb)
Local currency      
Long term N/A   Ba1(hyb)
National scale      
Long term N/A   A1.mx (hyb)

 

Santander Consumo Fitch Ratings    
National Scale      
Long term AAA (mex)    
       
Short Term F1+ (mex)    
       
Outlook Stable    
       

Earnings Release | 2Q.2021

 

Banco Santander México

 
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Santander Inclusión Financiera Fitch Ratings    
National Scale      
Long term AAA (mex)    
       
Short Term F1+ (mex)    
       
Outlook Stable    
       

 

Notes: 

§BCA = Baseline Credit Assessment

§SR = Support Rating

§VR = Viability Rating

§SCP = Standalone Credit Profile

§CR= Counterparty Risk Assessments

 

N/A = Not applicable

 

VIII.2Q21 Earnings Call Dial-In Information

 

Date: Thursday, July, 29th, 2021
Time: 10:00 a.m. (MCT); 11:00 a.m. (US ET)
Dial-in Numbers: 1-855-327-6837 US & Canada 1-631-891-4304 International & Mexico
Access Code: Please ask for Santander México Earnings Call
Webcast: http://public.viavid.com/index.php?id=145735
Replay: Starting: Thursday, July 29th, 2021 at 2:00 p.m. (US ET)
  Ending: Thursday, August 5th, 2021 at 11:59 p.m. (US ET)
  ET Dial-in number: 1-844-512-2921 US & Canada; 1-412-317-6671 International & Mexico Access Code: 10015639

 

IX.Analyst Coverage

 

Bank of America Merrill Lynch, Barclays, BBVA, BTG Pactual, Citi, Credit Suisse, Goldman Sachs, GBM, HSBC, Invex, Itaú, JP Morgan, Morgan Stanley, Nau Securities, Signum Research, Scotiabank, UBS and Intercam.

 

https://www.santander.com.mx/ir/cobertura/

 

Santander México is covered by the above investment banks and research firms. Please note that any opinions, estimates or forecasts regarding the performance of Santander México issued by the research analysts of these firms reflect their own views, and therefore do not represent the opinions, estimates or forecasts of Santander México or its management. Although Santander México may refer to or distribute such statements, this does not imply that Santander México agrees with or endorses any information, conclusions or recommendations included therein.

 

 

X.Definition of Ratios

 

ROAE: Annualized net income divided by average equity

 

Efficiency: Annualized administrative and promotional expenses divided by annualized gross operating income (before administrative and promotional expenses and allowances).

 

Recurrency: Annualized net fees divided by annualized administrative and promotional expenses (net of amortizations and depreciations).

 

Earnings Release | 2Q.2021

 

Banco Santander México

 
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NIM: Financial margin divided by daily average interest earnings assets.

 

Cost of risk: Annualized provisions for loan losses divided by average loan portfolio

 

Note:

 

Annualized figures consider

 

·Quarterly ratio = 2Q21*4

 

·Average figures are calculated using 2Q20 and 2Q21

 

Earnings Release | 2Q.2021

 

Banco Santander México

 
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ABOUT BANCO SANTANDER MÉXICO (NYSE: BSMX; BMV: BSMX)

 

Banco Santander México, S.A., Institución de Banca Múltiple, Grupo Financiero Santander México (Banco Santander México), one of Mexico’s leading banking institutions, provides a wide range of financial and related services, including retail and commercial banking, financial advisory and other related investment activities. Banco Santander México offers a multichannel financial services platform focused on mid- to high-income individuals and small- to medium-sized enterprises, while also providing integrated financial services to larger multinational companies in Mexico. As of June 30th, 2021, Banco Santander México had total assets of Ps.1,634 billion under Mexican Banking GAAP and more than 19.2 million customers. Headquartered in Mexico City, the Company operates 1,352 branches and offices nationwide and has a total of 23,512 employees.

 

We, the undersigned under oath to tell the truth declare that, in the area of our corresponding functions, we prepared the information of Banco Santander México contained in this quarterly report, which to the best of our knowledge reasonably reflects its situation.

 

HÉCTOR B. GRISI CHECA   DIDIER MENA CAMPOS
Executive President and Chief Executive Officer   Chief Financial Officer
     
EMILIO DE EUSEBIO SAIZ JUAN CARLOS GARCÍA CONTRERAS JUAN RAMÓN JIMÉNEZ LORENZO
Deputy General Director Financial Accounting and Control Executive Director of Intervention Chief Audit Executive
     

The financial information presented in this report has been obtained from the non-audited financial statements prepared in accordance with accounting principles and regulations prescribed by the CNBV applicable to Credit Institution which are subject to the supervision of the CNBV on accounting procedures, published in the Federal Official Gazette on January 31st, 2011. The exchange rate used to convert foreign currency transactions US$ to Mexican pesos is Ps.19.9062

 

 

 

 

INVESTOR RELATIONS CONTACT

Héctor Chávez Lopez – Managing Director - IRO 

+ 52 (55) 5269-1925

hchavez@santander.com.mx

 

 

Investor Relations Team 

investor@santander.com.mx

 

www.santander.com.mx

 

Earnings Release | 2Q.2021

 

Banco Santander México

 
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LEGAL DISCLAIMER

 

Banco Santander México cautions that this presentation may contain forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements could be found in various places throughout this presentation and include, without limitation, statements regarding our intent, belief, targets or current expectations in connection with: asset growth and sources of funding; growth of our fee-based business; expansion of our distribution network; financing plans; competition; impact of regulation and the interpretation thereof; action to modify or revoke our banking license; exposure to market risks including interest rate risk, foreign exchange risk and equity price risk; exposure to credit risks including credit default risk and settlement risk; projected capital expenditures; capitalization requirements and level of reserves; investment in our information technology platform; liquidity; trends affecting the economy generally; and trends affecting our financial condition and our results of operations. While these forward-looking statements represent our judgment and future expectations concerning the development of our business, many important factors could cause actual results to differ substantially from those anticipated in forward-looking statements. These factors include, among other things: changes in capital markets in general that may affect policies or attitudes towards lending to Mexico or Mexican companies; changes in economic conditions, in Mexico in particular, in the United States or globally; the monetary, foreign exchange and interest rate policies of the Mexican Central Bank (Banco de México); inflation; deflation; unemployment; unanticipated turbulence in interest rates; movements in foreign exchange rates; movements in equity prices or other rates or prices; changes in Mexican and foreign policies, legislation and regulations; changes in requirements to make contributions to, for the receipt of support from programs organized by or requiring deposits to be made or assessments observed or imposed by, the Mexican government; changes in taxes and tax laws; competition, changes in competition and pricing environments; our inability to hedge certain risks economically; economic conditions that affect consumer spending and the ability of customers to comply with obligations; the adequacy of allowance for impairment losses and other losses; increased default by borrowers; our inability to successfully and effectively integrate acquisitions or to evaluate risks arising from asset acquisitions; technological changes; changes in consumer spending and saving habits; increased costs; unanticipated increases in financing and other costs or the inability to obtain additional debt or equity financing on attractive terms; changes in, or failure to comply with, banking regulations or their interpretation; and certain other risk factors included in our annual report on Form 20-F. The risk factors and other key factors that we have indicated in our past and future filings and reports, including those with the U.S. Securities and Exchange Commission, could adversely affect our business and financial performance. The words “believe,” “may,” “will,” “aim,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “forecast” and similar words are intended to identify forward-looking statements. You should not place undue reliance on such statements, which speak only as of the date they were made. We undertake no obligation to update publicly or to revise any forward-looking statements after we distribute this presentation because of new information, future events or other factors. In light of the risks and uncertainties described above, the future events and circumstances discussed herein might not occur and are not guarantees of future performance.

 

Note: The information contained in this presentation is not audited. Nevertheless, the consolidated accounts are prepared on the basis of the accounting principles and regulations prescribed by the Mexican National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores) for credit institutions, as amended (Mexican Banking GAAP). All figures presented are in millions of Mexican pesos, unless otherwise indicated. Historical figures are not adjusted by inflation.

 

Earnings Release | 2Q.2021

 

Banco Santander México

 
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XI.Consolidated Financial Statements

 

Banco Santander México

 

§  Consolidated balance sheet

 

§  Consolidated statement income

 

§  Consolidated statement of changes in stockholders’ equity

 

§  Consolidated statement of cash flows

 

The information contained in this report and the financial statements of the Bank subsidiaries may be consulted on the Internet website: www.santander.com.mx or through the following direct access:

 

http://www.santander.com.mx/ir/english/financial/quarterly.html

 

There is also information on Santander México on the CNBV website: https://www.gob.mx/cnbv

 

Earnings Release | 2Q.2021

 

Banco Santander México

 
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Consolidated balance sheet              
Million pesos              
  2021   2020
  Jun Mar   Dec Sep Jun Mar
Assets              
               
Funds available 113,843 97,483   94,802 83,502 85,658 113,427
               
Margin accounts 5,209 4,017   4,122 3,876 4,638 4,929
               
Investment in securities 458,685 558,857   575,415 552,369 540,938 368,394
Trading securities 122,957 204,194   208,089 173,679 175,739 116,232
Securities available for sale 324,353 343,332   356,039 367,422 353,978 241,000
Securities held to maturity 11,375 11,331   11,287 11,268 11,221 11,162
               
Debtors under sale and repurchase agreements 39,505 47,713   62,294 21,813 36,848 66,147
               
Derivatives 200,890 228,247   304,687 324,984 385,504 346,921
Trading purposes 193,024 218,097   296,381 315,071 376,412 334,082
Hedging purposes 7,866 10,150   8,306 9,913 9,092 12,839
               
Valuation adjustment for hedged financial assets 123 167   281 371 421 264
               
Performing loan portfolio              
Commercial loans 405,407 416,942   407,941 451,752 472,748 498,956
Commercial or business activity 313,657 318,773   324,825 360,463 384,891 405,260
Financial entities loans 9,943 10,549   10,082 11,020 13,083 17,103
Government entities loans 81,807 87,620   73,034 80,269 74,774 76,593
Consumer loans 110,756 107,758   108,173 110,421 108,292 111,592
Mortgage loans 173,759 168,529   165,015 157,765 151,335 148,494
Medium and residential 163,425 157,642   153,753 145,627 138,919 135,594
Social interest 5 6   6 8 24 29
Credits acquired from INFONAVIT or FOVISSSTE 10,329 10,881   11,256 12,130 12,392 12,871
Total performing loan portfolio 689,922 693,229   681,129 719,938 732,375 759,042
               
Non-performing loan portfolio              
Commercial loans 6,673 6,503   6,245 5,783 6,700 5,728
Commercial or business activity 6,673 6,503   6,245 5,781 6,698 5,728
Financial entities loans 0 0   0 2 2 0
Consumer loans 4,835 5,536   7,539 2,637 4,700 4,319
Mortgage loans 8,893 8,721   7,856 6,972 7,444 6,720
Medium and residential 7,119 6,805   6,079 5,516 5,864 5,095
Social interest 8 9   10 18 5 3
Credits acquired from INFONAVIT or FOVISSSTE 1,766 1,907   1,767 1,438 1,575 1,622
Total non-performing portfolio 20,401 20,760   21,640 15,392 18,844 16,767
Total loan portfolio 710,323 713,989   702,769 735,330 751,219 775,809
               
Allowance for loan losses (24,152) (24,937)   (25,291) (25,850) (26,157) (22,664)
Loan portfolio (net) 686,171 689,052   677,478 709,480 725,062 753,145
               
Acrrued income receivable from securitization transactions 0 151   160 158 155 154
Other receivables (net) 84,993 78,686   93,628 119,989 107,968 106,093
Foreclosed assets (net) 106 92   135 119 136 155
Property, furniture and fixtures (net) 11,868 12,045   12,376 10,746 10,185 10,343
Long-term investment in shares 2,182 1,168   1,091 1,012 913 359
Deferred taxes and deferred profit sharing (net) 19,432 19,675   19,225 20,766 21,560 21,849
Deferred charges, advance payments and intangibles 11,333 10,903   10,477 9,459 9,324 9,991
Other 44 42   42 40 40 39
               
Total assets 1,634,384 1,748,298   1,856,213 1,858,684 1,929,350 1,802,210

Earnings Release | 2Q.2021

 

Banco Santander México

 
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Consolidated balance sheet              
Million pesos              
  2021   2020
  Jun Mar   Dec Sep Jun Mar
Liabilities              
Deposits 840,840 848,345   845,107 862,618 880,490 861,518
Demand deposits 548,636 536,791   515,449 507,949 506,332 529,554
Time deposits – general public 178,069 183,904   195,736 199,815 223,703 216,206
Time deposits – money market 38,058 45,094   51,467 63,483 58,072 63,040
Credit instruments issued 74,177 80,718   80,663 89,634 90,750 51,178
Global Account uptake without movements 1,900 1,838   1,792 1,737 1,633 1,540
               
Bank and other loans 43,321 42,825   47,876 45,252 73,378 40,595
Demand loans 14,187 10,960   5,425 2,349 30,459 275
Short-term loans 14,895 17,793   18,338 18,904 18,972 16,973
Long-term loans 14,239 14,072   24,113 23,999 23,947 23,347
               
Creditors under sale and repurchase agreements 175,437 295,632   335,429 282,666 267,962 234,582
Collateral sold or pledged as guarantee 29,755 20,952   15,610 14,260 15,411 10,209
Repurchase 526 414   347 748 999 2,392
Securities loans 29,229 20,538   15,263 13,512 14,412 7,817
               
Derivatives 197,271 223,898   305,465 332,882 399,025 361,310
Trading purposes 187,373 211,768   286,511 308,571 371,702 336,580
Hedging purposes 9,898 12,130   18,954 24,311 27,323 24,730
               
Valuation adjustment of financial liabilities hedging (1) 0   0 2 4 3
               
Other payables 150,840 119,429   111,181 129,664 104,481 110,432
Employee profit sharing payable 211 437   359 279 226 424
Creditors from settlement of transactions 81,831 49,320   39,945 57,490 38,272 44,548
Payable for margin accounts 69 180   5 27 109 627
Payable for cash collateral received 21,836 18,883   23,053 24,917 26,471 23,230
Sundry creditors and other payables 46,893 50,609   47,819 46,951 39,403 41,603
               
Subordinated credit notes 36,186 36,757   36,182 39,814 41,957 42,218
               
Deferred revenues and other advances 794 806   492 51 106 302
               
Total liabilities 1,474,443 1,588,644   1,697,342 1,707,209 1,782,814 1,661,169
               
Paid-in capital 35,034 34,976   34,933 35,030 34,977 34,917
Capital stock 29,799 29,799   29,799 29,799 29,799 29,799
Share premium 5,235 5,177   5,134 5,231 5,178 5,118
               
Other capital 124,907 124,678   123,938 116,445 111,559 106,124
Capital reserves 26,940 25,446   25,446 25,446 25,446 23,845
Retained earnings 93,089 96,673   76,672 76,837 77,013 78,802
Result from valuation of available for sale securities, net (1,586) 563   3,632 1,276 1,516 (467)
Result from valuation of cash flow hedge instruments, net 19 159   (491) (820) (1,104) (527)
Cumulative effect of conversion 9 9   9 9 9 9
Adjustment employees pension fund (1,606) (1,488)   (1,523) (1,009) (1,001) (995)
Net income 7,992 3,279   20,154 14,674 9,644 5,414
Non-controlling interest 50 37   39 32 36 43
Total stockholders´equity 159,941 159,654   158,871 151,475 146,536 141,041
               
Total liabilities and stockholders´ equity 1,634,384 1,748,298   1,856,213 1,858,684 1,929,350 1,802,210

Earnings Release | 2Q.2021

 

Banco Santander México

 
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Consolidated balance sheet                
Million pesos                
    2021   2020
    Jun Mar   Dec Sep Jun Mar
Memorandum accounts                
                 
Contingent assets and liabilities   85 70   63 43 60 60
Credit commitments   245,992 243,137   249,138 233,900 241,991 239,348
Assets in trust or under mandate   192,877 192,050