SOLID PERFORMANCE2012 ANNUAL REPORT

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www.santander.com.mx

CONTACTS AND INVESTOR INFORMATION

Grupo Financiero Santander méxico corporate HeadquartersAvenida Prolongación Paseo de la Reforma 500 colonia Lomas de Santa Fe Delegación Álvaro Obregón c.P. 01219 méxico, D.F.Tel: +52 (55) 5257 8000

investor and Shareholder RelationsGerardo Freire AlvaradoExecutive Director investor and Shareholder Relations Tel: +52 (55) 5257 8000 Ext.16320

investorsE-mail: investor@santander.com.mx www.santander.com.mx/ir/principal/ index.html

Shareholders Tel: +52 (55) 5249 4452 y 5249 4453 E-mail: accionistas@santander.com.mx www.santander.com.mx/accionistas/ principal/index.html

institutional Relationships and communication Rodrigo Brand de LaraDeputy Director General institutional Relationships and communication Tel: +52 (55) 5257 8128

Depositary BankJPmorgan chase Bank, N.A. 1 chase manhattan Plaza, Floor 58 New York, NY, 10005-1401United States of America Attention: ADR Administration Tel: (212) 552 3724 Fax: (212) 552 6650

Legal counsel

DAViS PoLK New York450 Lexington Avenue New York, NY 10017 United States of America Tel: (212) 450 4000Fax: (212) 701 5800

RiTcH mUELLER, S.c. Blvd. manuel Ávila camacho 24, piso 20, Lomas de chapultepec c.P. 11000 méxico D.F.Tel: +52 (55) 9178 7000 Fax: +52 (55) 9178 7095

independent Auditors

DELoiTTE Paseo de la Reforma 489, piso 6 colonia cuauhtémocc.P. 06500 méxico D.F.Tel: +52 (55) 5080 6000 Fax: +52 (55) 5080 6001

design: www.signi.com.mx

Grupo Financiero Santander México, S.A.B. de C.V. (Santander México) is one of Mexico’s leading financial groups and a subsidiary of Banco Santander, headquartered in Madrid, Spain. It provides a wide range of financial and related services, including retail and commercial banking, securities brokerage, financial advisory services and other related investment activities. Santander México offers a multi-channel financial services platform focused on mid- to high-income individuals and small- to medium-sized enterprises, while also providing integrated financial services to larger multi-national companies in Mexico. As of December 31, 2012, Santander México had total assets of Ps. 750.3 billion and more than 10 million customers. Headquartered in Mexico City, the Company operates 954 branches and 216 points of sale nationwide, and has a total of 13,385 employees.

coNTENTS

2 Letter to shareholders 4 Solid financial performance 7 Solid performance supported by our

experience 11 Solid performance delivering results today 15 Solid performance with prospects for a

better future 19 Solid performance embracing social

responsibility22 Operating summary

24 management’s discussion and

analysis of results 28 corporate Governance 29 Senior management 30 Directory of Board members 32 Grupo Santander 32 Geographic diversification 34 Business model 35 international recognition 36 consolidated financial statements

ViSioNSantander is a large international financial group. its main business is retail banking, through which it offers comprehensive solutions to satisfy the full range of its clients’ financial needs, while providing high value for its shareholders. To achieve this, the Group maintains a leading presence in ten main markets, where it operates through subsidiaries with autonomous capital and liquidity, to which it provides global business policies and corporate organizational and technological capacity.

VALUESDynamism: We stay in the lead, with the agility to discover and take advantage of business opportunities before our competitors, and the flexibility to adapt quickly to changes in our markets.

Strength: Our solid balance sheet and prudent risk management are the best guarantees of our capacity to grow and generate long-term value for our shareholders.

Leadership: Our mission is leadership in all the markets where we are present. We have the best people working for us, in client-focused, results-oriented teams.

innovation: We are continually seeking new products and services that can meet the growing needs of our clients while increasing returns faster than our competitors.

Quality service and customer satisfaction: clients are the center of Banco Santander’s business model. We are a bank for their ideas. We want to understand their needs, respond with innovative solutions, and build lasting, long-term relationships based on trust.

Professional ethics and sustainability: in addition to complying with laws, codes of conduct and internal regulations, all the professionals at Santander work with the utmost transparency and honesty. in performing their duties, they share the bank’s commitment to the economic, social and environmental progress of the communities where we are present.

printing: artes gráficas panorama

clima neutralnatureOffice.com | MX-100-490360

Impreso

At Santander México, we provide our more than 10 million clients innovative, high-quality products

and services, specifically designed for each business segment. We have proven our strength and

experience by delivering excellent results for more than 60 years. In 2012, the Group proved its

reputation for trust in Mexico by placing 24.9% of its capital stock in a public offering that totaled

4.21 billion dollars. With this transaction, Santander became the only Mexican bank registered with

the SEC and listed on the New York Stock Exchange (NYSE), which translates into the adoption of

the best international practices in the field of accountability and corporate governance.

2012 ANNUAL REPORT

2

LETTER TO OUR SHAREHOLDERS

Dear shareholders,

In September 2012, when I welcomed you as shareholders of Grupo Financiero Santander México, I expressed this Group’s conviction that confidence is built on the experience of the past, a solid present, and expectations of a better future. With this 2012 Annual Report, the first since our successful stock offering in Mexico and on international markets, we intend to prove that we are worthy of this trust.

With the solid experience of more than 60 years in Mexico, we have built an institution with a long-term vision, committed to this country’s growth. Today, we are Mexico’s third largest financial group in terms of net profits and serve over 10 million clients through our 954 branches and 216 points of sale across the country. We have constructed a robust, agile, efficient and innovative retail banking franchise, the results of which are reflected in this report.

Although there were signs of recovery in the Mexican economy in 2012, it was also a year that tested our capacity to remain at the forefront of growth. Santander México reported net earnings of Ps.17.8 billion, representing a return on average equity (ROAE) of 19.1%.

Through a strategic focus on our key segments, particularly retail banking, we were able to attain double-digit growth in 2012, supported by an efficient infrastructure and diversified channels to contact our clients. For example, our loan portfolio to small- and mid-sized businesses grew 77%; mortgages for middle- and high-income homes grew by almost 12%; the credit card portfolio, more than 30%; and consumer credits in excess of 20%. This attests to Santander México’s diversified portfolio and undisputed strength in retail banking.

Prudent operation of the bank and a stringent credit scoring model and ongoing monitoring of the quality of our loan once again brought us the strongest portfolio in the system, accompanied by a capitalization ratio of 14.78% and an efficiency ratio of 39.49%, among the best in the Mexican banking industry.

Looking to the future, we intend to firmly pursue our growth strategy. As the Chairman of the Board of Banco Santander, Emilio Botín, has said, we have a serious commitment to continue growing in Mexico and expanding our infrastructure in the years ahead.

Besides being a leader in the banking business, Santander México is firmly committed to social issues, which it expresses through various corporate social responsibility initiatives. Among these are programs that demonstrate our staunch support for higher education in Mexico through Santander Universidades and Universia, and our active involvement in efforts like Unicef, Bécalos, Fundación Vivienda, Reforestamos México and the trust Por los Niños de México.

■ Backed by a solid experience,

we are today Mexico’s third

largest financial group in terms

of net profits. We have 954

branches and 216 points of sale

across the country, and we serve

over 10 million clients.

3

The figures presented in this report confirm that we are a robust institution with solid generation of recurring profits and a clear view of our future, based on our proven experience and the strength of our Group around the world.

During the successful stock offering by Grupo Financiero Santander México, we promised that our actions would bear fruit. This report is proof of our commitment, and of the sound decision you all made in placing your trust in our institution.

Thank you for your support and your confidence.

Marcos Martínez Gavica

Executive President and CEO

2012 ANNUAL REPORT

4

SOLID FINANCIAL PERFORMANCE

■ “Our operating performance in 2012 was solid. We achieved a robust growth while maintaining our asset quality and continuing to operate the business efficiently. This growth was achieved through a careful close focus on prudent risk management which, together with our efficiency-oriented philosophy, has made Santander México one of the most profitable franchises in the country.” – Marcos Martínez

2012

33,892

12,203

46,095

9,445

20,236

17,822

2.6

350,683

362,452

97,827

5.0%

93.6%

19.1%

2.3%

39.5%

14.8%

1.74%

190.1%

954

4,946

10,013,228

13,385

2011

28,806

10,232

39,038

6,556

18,111

18,682

2.0

313,673

309,194

88,479

5.1%

97.8%

21.9%

2.6%

44.2%

14.8%

1.69%

210.5%

944

4,689

9,310,681

12,395

Variation

17.7%

19.3%

18.1%

44.1%

11.7%

-4.6%

28.6%

11.8%

17.2%

10.6%

bps

(2.6)

(427.1)

(273.2)

(31.7)

(469.3)

(5.0)

4.3

(2,046.1)

1.0%

5.5%

7.5%

8%

RESULTS (Millions of pesos)

Net interest income

Commissions and fees (net)

Core revenues

Allowance for loan losses

SG&A expense

Net income

EPS 1

BALANCE SHEET

Loan portfolio

Deposits 2

Shareholders’ equity

KEY RATIOS

Net interest margin (NIM)

Net portfolio / deposits

ROAE

ROAA

Efficiency

Capitalization ratio

NPL loan coverage

Total portfolio coverage

OPERATING INFORMATION

Branches

ATMs

Clients

Employees

1 Not including treasury stock or discontinued operations2 Demand + time deposits

5

NET INTEREST INCOMEMillions of pesos

20112010 2012/20112012

33,892

28,806 26,289

+17.7%

LOAN PORTFOLIOMillions of pesos

20112010 2012/20112012

350,683

313,673

227,556

+11.8%

COMMISSIONS AND FEES (NET)Millions of pesos

20112010 2012/20112012

12,203

10,232 9,414

+19.3%

DEPOSITS 2

Millions of pesos

20112010 2012/20112012

362,452

309,194 276,849

+17.2%

ROAE%

19.1

21.9

17.7

-273.2 bps20112010 2012/20112012

CAPITALIZATION%

14.814.8

15.6

-5 bps20112010 2012/20112012

With the experience of solid performance, together with best industry practices and an unwavering commitment to our clients and to Mexico, Santander México has the support of Grupo Santander, whose strategy of international diversification and expansion endows it with unique strength.

2012

13,385

2011

12,395

2010

11,828

7

SOLID PERFORMANCE SUPPORTED BY OUR EXPERIENCE

■ For more than 60 years, Santander México has been a pillar of the Mexican banking system. With the synergies created with Grupo Santander, one of the largest and most efficient international banking groups in the world, and its experienced management team, Santander has expanded its presence, keeping pace with Mexico’s growth.

For more than

60 years, Santander México has been a pillar of the Mexican banking system.

EmployeesNumber

2012

10,013

2011

9,310

2010

9,099

2012 ANNUAL REPORT

8

Banco Santander first entered in Mexico in 1950, when it opened a representa-tive office. By steadily expanding through mergers and acquisitions, Santander has become a leading Mexican retail banking franchise that transmits its corporate values to clients, sharehold-ers, employees and society at large.

Today, we offer a platform of financial services aimed mainly at the middle- and high-income segments of the market, as well as small and mid-sized enterprises. We also provide compre-hensive financial services to Mexico’s major multinational firms. With assets totaling Ps.750.30 billion, we serve more than 10 million clients through 954 branches and 216 points of sale throughout the country, with the sup-port of 13,385 employees.

We are a Financial Group that operates autonomously with our own manage-ment model, board of directors, inves-tor relations and corporate governance policies, and we are also independent in terms of capital, liquidity and financ-ing. However, the backing of Grupo

Santander generates synergies that provide important competitive advan-tages, among them:

• Adoption of best global practices in risk management, internal control, auditing, systems and operations.

• Access to a wide range of products and services.

• Access to multinational clients seeking exposure to the Mexican market, as well as Mexican multinationals seeking expansion in other countries.

• Optimization of available resources, including the management and experience of the Group’s affiliates, and the training of employees through professional advancement programs.

Thus, under the management of a seasoned team of professionals who are respected throughout the national and international banking systems,

SOLID PERFORMANCE BASED ON OUR EXPERIENCE

ClientsThousands

9

and with the support of a board of directors with members of various nationalities and areas of activity, we guarantee a solid business strategy that confirms continually strong re-sults over time.

These qualities made it possible for Santander México to be the first Mexican bank to be listed on both the Mexican Stock Exchange (BMV) and New York Stock Exchange (NYSE), thus expanding its base of sharehold-ers and investors. With the participa-tion of close to 10,000 investors throughout the world, the placement of 24.9% of the capital stock of Grupo Financiero Santander México was the largest transaction in the his-tory of the Mexican stock market, and

in 2012 the largest on the NYSE and the third largest in the world.

The success of that offering earned “best offering of the year” recogni-tion from prestigious international publications like International Financ-ing Review and LatinFinance.

Total assets

Ps.750 billionserving more than 10 million clients in 954 branches and 216 points of sale throughout Mexico.

Our results demonstrate why today our brand is synonymous with strength, dynamism and leadership. We combine innovation, efficiency, and an a growth-focused retail model while maintaining close attention to asset quality.

2012

351

2011

314

2010

228

11

SOLID PERFORMANCE DELIVERING RESULTS TODAY

■ A clear focus on commercial banking, the segment contributing the fastest-growing area of our results, and an innovative array of products and services aimed primarily at the most profitable segments of the market, are the strategies that sustain our performance and give us a distinct advantage over our competitors.

Best Private Banking

2012in Latin America and Best Bank in Mexico 2012, by Euromoney.

Loan portfolioBillions of pesos

2012 ANNUAL REPORT

12

Delivering solid results today to make Santander México the best banking choice in the country is the motivation for all we do. Because the retail banking segment is our largest source of revenues, we have clear strategies for serving this market. This is founded on a detailed categorization of our client base, which

allows us to offer a wide range of prod-ucts, specialized channels and service models that exactly match their needs.

At Santander México we pay special attention to our Premier and preferred clients, where our efforts to provide them with innovative products and services have been rewarded with solid growth and continuing leadership.

Each of our Premier clients is assigned a representative who is familiar with his or her individual needs and can recommend the ideal financial and in-vestment services. More than 439,000 Premier clients receive personalized attention at one of our 69 Select branches, exclusive offices in a com-fortable, private setting.

In addition to the best credit cards, we offer this select group of clients other products and services, such as the Santander Premier Mortgage, a product unprecedented in this country’s financial history, which offers a fixed rate of 9.9%; Elite Funds, whose diversification and personalized management model

are totally new to the mutual fund market, and at the moment offered only by Santander; and the Intelligent Mortgage, which offers a floating rate of 9% for the first time, and a contrac-tual rate cap of 12%.

In 2012, SuperNet—the service through which we offer efficient online banking services and additional products—handled an average of 34.7 million transactions a month, a 13% increase in volume over 2011.

SuperMóvil, a platform for mobile banking launched in May, has proven to be a useful alternative for the 80,000 clients who are active in the system, handling an average of 3.1 million monthly transactions since

SOLID PERFORMANCE DELIVERING RESULTS TODAY

SuperNet

34.7 million monthly transactions on average, the most efficient channel for accessing bank services.

13

its launch. Our clients awarded this platform a score of 4.5 out of 5.0 points, the highest rating for this type of service among our peers.

As part of our strategy of strengthen-ing channels for offering products and services, we have continued the alli-

ance signed with Telecomm in 2011, which gives us access to an additional 1,582 branches. In 2012 transaction volume grew by 57%, to more than 140,000 transactions a month.

We also signed an agreement with Oxxo convenience store chain which, starting in the first quarter of 2013, expands our reach to 10,800 addi-tional locations where our clients can make deposits and credit card pay-ments. Therefore, Santander México has thus been able to build a leading presence in the market, supported by a committed team of professionals with a clear dedication for service and attention to excellence, as well as by new technologies that enable us to explore alternative channels for offer-

ing banking products and services in efficient new ways.

Recognizing our corporate excel-lence and the adoption of successful business strategies in the segments we serve, well-known international magazines like Euromoney and The

Banker named us Best Bank in Mexico in 2012, and Best Private Bank in Latin America. Additionally, Euromoney magazine named Santander Best Bank in the World in 2012.

Santander Premier Mortgage

9.9% fixed rate, a product unprecedented in Mexican mortgage history.

Loan portfolio

Ps.351 billionproof of our solid performance in lending activity.

Mexico’s strong economic prospects, fueled by the vigorous growth of domestic demand and incentives for jobs and investment, combined with a gradual recovery of the global economy, provide a solid platform on which Santander can support its prospects for a better future.

2012

954

2011

944

2010

949

15

SOLID PERFORMANCE WITH PROSPECTS FOR A BETTER FUTURE

■ Three factors that promise strong growth, primarily in retail banking, are a stable economy and favorable environment for the Mexican banking industry, our focus on small and mid-sized enterprises, a segment which is developing rapidly in this country, as well as an underserved banking market.

Extensive multichannel network

954branches, 216 points of sale, 4,946 ATMs and two customer service centers.

BranchesNumber

2012 ANNUAL REPORT

16

The Mexican economy is healthy: ex-panding at a rate of 3.9% in real terms, with average inflation of 3.5%, and a currency that appreciated 7% against the dollar over the course of the year. This strength provides, excellent potential for a broader more inclusive customer reach and an increasing depth of bank

services to accompany the future devel-opment of the economy and of Mexican families. Additionally, the economy has a solid financial system, with ample liquidity and good asset quality ratios. In this context, Santander México has further strengthened its franchise by developing the key fastest-growing segments within retail banking through tailor-made value offerings and main-taining closer ties with existing clients.

During the past year, we strengthened our commitment to small and mid-sized businesses (known in Mexico as Pymes). This is a key sector for Mexico’s eco-nomic and social development, because they are an important source of jobs, an essential component of economic activ-ity, and have a positive effect on com-

munities. Santander México has made a name for itself as Mexico’s leading small and mid-sized enterprises bank, with a clear and differentiated model of service and lending.

Our involvement in this market compris-es a wide range of products, including

the Cuenta Santander Pyme, a checking account ideal for businesses to manage their accounts payable and receivable; the Súper Crédito Negocio, designed for lending to individuals with regis-tered business activity who need loans for financing their businesses’ working capital; and the Súper CETE Pyme, an investment option designed to meet a small enterprises’ need for security, availability and attractive yields.

At Santander México we are the un-disputed leaders in this business, and were recognized by Mexico’s national development Bank, Nacional Financiera, in its annual recognitions to financial intermediaries, with three awards in the Government Suppliers, Small Taxpayers and Guarantees categories.

SOLID PERFORMANCE WITH PROSPECTS FOR A BETTER FUTURE

Fx onlinea new channel for companies to handle foreign exchange transactions.

17

We are aware of the opportunities that exist for Mexico to increase the breadth of its financial system to incor-porate other segments, specifically the expected growth in the economically ac-tive population, an underserved banking market (total lending to GDP) and a solid financial indicator that will mean more bank customers in the future. At Santander México, we have designed a strategy to offer middle- and high-in-come individuals a full range of products: consumer credit, mortgages, a variety of insurance and credit card products.

In consumer credits, this year we launched “Beneficios 24x7,” a pioneer program with special promotions and rewards for clients who have this type of loan account and make timely payments.

In the insurance business, we ended 2012 with more than 5.1 million current policies. We consolidated this multichannel business by transforming the Internet into a major distribution channel for auto insurance with more than 15,000 policies sold online. We backed this offer in ATMs with the

launch of two new products, Auto Fácil and Vida Fácil. We also have a unique module by which clients can compare and purchase auto insurance called Autocompara, the only one of its kind in the market, making us the number one bank in Mexico with more than 31,000 policies sold every month.

We were also the clear leader in the credit card business in 2012. We placed 932,702 new cards—a 30% growth in our portfolio and 37% in-crease in billing compared to 2011—in a number of card products: Santander FlexCard, Uni Santander K, Santander Light and Zero. The Santander Twist platform was one of our biggest successes, offering our cardholders attractive special offers. We also made

our card issue platform more efficient, and can now provide a client with a new card at any one of our branches in less than 10 minutes.

At the close of 2012 our extensive multichannel network included 954 bank branches and 216 points of

sale, 4,946 ATMs, a service center in Querétaro and another in Mexico City. Through this network we provide outstanding quality service to our clients. Additionally, to reinforce this multichannel strategy, Santander has the leading technological and transactional platform in the market, guaranteeing our clients simple and rapid transactions.

Credit cards

932,702 cards placed, a 30% growth over 2011.

18

We work to make our institution an example of commitment to the communities in which we operate, and we intend to remain leaders in the field of corporate social responsibility. This year, we invested more than Ps.267 million in various initiatives that benefited thousands of individuals.

© UNICEF México/ Mauricio Ramos

201220112010

19

SOLID PERFORMANCE EMBRACING SOCIAL RESPONSIBILITY

■ Based on our business and sustainability models, at Santander México we are committed to actions that affirm our institutional values and benefit our clients, employees, the community and the environment, while maintaining a constant, respectful and open dialogue and shared responsibility with all of our stakeholders.

Investment

Ps.267 million in Mexico’s development.

Santander Innovation AwardNumber of projects presented

463

267

417

2012 ANNUAL REPORT

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Supporting the communities where we operate is one of our greatest responsibilities. We are especially concerned about education, because we see it as an essential pillar of Mexico’s future development. We have the most ambitious program globally and in Mexico to support

higher education through Santander Universidades and Universia.

Santander Universidades supports study and teaching projects, research and activities that encourage the use of new technologies on college campuses, and promote university-business engagement. In 2012, we channeled Ps.101 million to this effort, benefiting 161 higher educational institutions and 314,747 students.

Universia is the largest collaborative university network in the world, and it works along four strategic lines: Jobs, Knowledge, Collaboration and Future. In 2012, Universia Mexico linked together 2,567,216 students, 86% of the undergraduates enrolled

in this country, and benefited 271,212 teachers. Furthermore, 46,745 Mexican students obtained jobs through Universia.

We also supported Unicef’s “All Children in School” program in communities in Chiapas, Yucatán,

Oaxaca and Mexico City. We focused on providing infrastructure, school supplies, and teacher training, as well as on improving the quality of educational content. Through the use of our ATM network and the generous donations of our clients, we collected Ps.2.43 million.

The trust Por los Niños de México, created in 1994 based on the initiative of our employees, has since then operating through their donations and matching funds from the Bank. It has benefited 31,354 children in the areas of health, education and healthy eating, through 69 institutions.

We also promoted the Bécalos program, a nonprofit initiative supported by

SOLID PERFORMANCE EMBRACING SOCIAL RESPONSIBILITY

Support for

31,354 children in the area of health, education and healthy eating through our trust Por los Niños de México.

21

the Mexican Bankers’ Association and Fundación Televisa, which provides scholarships for thousands of students through contributions collected in ATMs. This year, Santander México was the leading source of donations to this program, collecting more than Ps.13.5 million from our clients.

Another aspect of our corporate social responsibility is support for Mexico’s neediest communities. One example was our contribution of Ps.4.6 million to the housing program Fundación Vivienda, which was used to build 364 homes in poor communities.

In the area of environmental care, last year we allocated Ps.2.6 million to the Reforestamos México program. In addition, among the greatest achievements of the year we can mention the following:

• The Contact Center at Santiago de Querétaro was awarded the National Energy Savings Prize for 2012, an annual public recognition from the Federal Electricity Commission (CFE),

through the Energy Saving Trust (FIDE), which recognizes advances in the rational and efficient use of electrical energy.

• For the eighth year in a row, we renewed our environmental management certification under

the UNE-EN ISO 14001:2004, from the Spanish Standards Association (AENOR) for the environmental management system used at Santander’s Corporate Headquarters in Santa Fe, Mexico City.

53.7%reductionin energy consumption at the Santander Querétaro Contact Center, which earned us the National Energy Savings Prize in 2012.

Santa Fe Headquarters

ISO 14001 recertification, and a 50% reduction in paper consumption.

2012 ANNUAL REPORT

22

OPERATING SUMMARY

■ Santander is Mexico’s third-largest financial group in terms of net income. In 2012, it reported comparable net income of Ps.17.24 billion, an annual increase of 31.4%. With a network of 954 branches serving more than 10 million clients, we have a market share of 13.7% in lending and 14% in deposits.

Our strategy has focused on further development of commercial banking, especially in the retail segments. We have strengthened our transactional bond with clients and accelerated the development of key segments like high net worth clients and small and mid-sized businesses, with value offerings tailored to their needs.

Lending activity improved during the year, and our loan portfolio surpassed the Ps.350 billion, an 11.8% gain over 2011. Growth was particularly strong in lending to strategic segments like small and mid-sized enterprises (77%), mortgages (12%), consumer credit (21%) and credit cards (30%). This growth was the result of a prudent focus on risk management, which was reflected in a loan delinquency ratio of just 1.7%, lower than the system average, and a cost of risk of 2.8%. Efficiency was 39.5%, with a recurrence ratio of 65.3%. Return on average equity (ROAE) was 19.1%.

Through a strategy focused on the most profitable clients, Santander México continued to offer innovative products and services. We launched the Select segment, a new model that serves clients through specialized business centers, a dedicated hotline, and products designed exclusively for them. In 2012, this segment accounted for approximately 31.2% of our total loan portfolio, 48.5% of demand and time deposits, 18.7% of net interest income and 23.6% of fee income.

Santander has also become Mexico’s leading bank for small and mid-sized enterprises, with a clear, differentiated business model, in terms of client service and product offering. In 2012, we strengthened our leadership in this sector with loans totaling Ps.32.94 billion—9% of our total portfolio—and year-over-year growth of 76.7%.

The pick-up in consumer credit was reflected in a portfolio of more than Ps.26 billion, a 20.8% growth

over 2011. The “Beneficios 24x7” program was a great success, offering rewards for consumer credit customers. It is an innovative program that offers benefits and special discounts on the purchase of articles or services in various areas, like education, health and automobiles, among others.

Our credit card portfolio grew by 30% over 2011, and we ended the year with a portfolio of more than Ps.37 billion, comprising 11% of our total loan portfolio.

Our results have improved in both quality and consistency. Revenues increased thanks to optimal margin and fee management. Net interest income rose by 17.7% during the year. Net commissions and fees grew by 19.3%, while strong performance in insurance commissions resulted in 32.5% growth. Cash management rose by 20.5%, financial advisory services, 66.1%, and credit cards, 15.2%.

In a stable economic environment, and with a solid, liquid financial system that boasts good asset quality ratios, Santander México continues to strengthen its franchise by forging closer ties with its clients and improving service quality.

23

We also announced an expansion plan in 2012, which will add another 200 branch offices over the next three years, strengthening our distribution network and taking advantage of the expected growth in the market. We doubled the number of Select client offices with 69 branches now specializing in the high-worth segment. At the close of 2012, our service network included 4,946 ATMs—5.5% more than in 2011—102,891 point-of-sale terminals (22.4% more than in 2011), and a network of 954 branches and 216 points of sale. Our customer base grew by almost 8% during the year, adding 702,547 new customers and bringing the total to 10,013,228.

■ In September, Santander México placed 24.9% of its stock on the mar-

ket, in a transaction worth US$4.21 billion.

■ Later, in November, Santander México floated paper on the interna-

tional debt market for the first time, placing a US$1.0 billion senior

bond, which was the largest issue, the longest term (10 years) and

lowest financing cost ever for a Mexican bank.

Expansion plan

200 new offices in the next three years will strengthen our distribution network and take advantage of market growth.

2012 ANNUAL REPORT

24

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS

Net interest incomeNet interest income totaled Ps.33.89 billion during the year, a 17.7% year-over-year increase. The improvement in net interest income over 2011 was due to the net effect of a rise in interest income (Ps.8.71 billion, increasing from Ps.46.68 billion in 2011 to Ps.55.39 billion in 2012), along with an increase of Ps.3.62 billion in interest

expense, from Ps.17.87 billion in 2011 to Ps.21.50 billion in 2012. This can be attributed to the combined effect of an increase of Ps.110.89 billion in average interest-bearing assets, and a 7 basis point decline in the average rate earned, combined with the rise of Ps.92.97 billion in average interest-bearing liabilities, and a 5 basis point increase in the average rate paid.

Net incomeNet income for the year totaled Ps.17.82 billion, a decline of Ps.861 million, or 4.6%, from the Ps.18.68 billion reported in 2011. Eliminating extraordinary and incremental revenues, net income was Ps.17.24

billion, an increase of Ps.4.12 billion, or 31.4%, over the Ps.13.11 billion registered the year before.

Net income was driven primarily by the combined effect of the following increases:

■ 17.7%, or Ps.5.09 billion, in net interest income, from Ps.28.81 billion in 2011 to Ps.33.89 billion in 2012, primarily due to the product mix and an expansion of the loan portfolio.

■ 19.3% or Ps.1.97 billion in net commission and fee income, from Ps.10.23 billion in 2011 to Ps.12.20 billion in 2012, mainly the result of an increase in fees for credit cards, insurance, cash management, collec-tion and payments, and financial advisory services.

■ 147.3% or Ps.1.31 billion in net gain on financial assets and liabilities, from Ps.888 million in 2011 to Ps.2.20 billion in 2012.

■ 176.9% or Ps.1.89 billion in other operating income from Ps.1.07 billion in 2011 to Ps.2.95 billion in 2012, mostly the result of the sale of bank branches in the second quarter of 2012 totaling Ps.1.73 billion.

■ An increase of Ps.2.89 billion in loan loss reserves or 44.1%, due primarily to growth in the loan portfolio, and negatively affected by the comparable base (extraordinary reversal of provisions of Ps.1.07 billion in the third quar-ter of 2011). The increase in reserves for the fourth quarter of 2012 was due to: 1) a shift in the portfolio mix toward consumer credit and credit cards, which require higher provisioning; 2) provisions for project finance; and 3) a consumer credit campaign.

■ An increase of Ps.2.12 billion or 11.7% in administrative and promotional expenses, from Ps.18.11 billion in 2011 to Ps.20.24 billion in 2012, mostly because of a 13.6% increase (Ps.1.04 billion) in personnel expenses, a 28.7% rise in rents (Ps.281 million), an increase in technology expenses of 10.4% or Ps.170 million, and other items, 24.7% or Ps.446 million. Additionally, incremental expenses were incurred in the fourth quarter of 2012.

These increases were partially offset by:

25

and financial firms. These accounted for 61.6% of the total portfolio in 2012. Excluding loans to government entities, commercial loans accounted for 50.5% of the total portfolio, a year-over-year increase of 8.1%, chiefly caused by a 76.7% increase in loans to small and mid-sized businesses and a 14.2% growth in corporate loans.

Individual loans include mortgage loans, credit cards and consumer credit and accounted for 38.4% of the total loan portfolio at the end of 2012. Credit cards accounted for 10.6%, consumer credit 7.6% and mortgage loans 20.2%, growing 30.3%, 20.8% and 11.9%, respectively, over 2011. In mortgage lending, Santander México continues to pursue a strategy of focusing on middle and upper income homebuyers. In consumer credit, we continue to support Mexican families through campaigns to promote the use of credit cards with interest-free installment payments, together with efforts by the commercial teams of our branch network and multichannel strategy.

Interest incomeIn 2012, average interest-bearing assets expanded by Ps.110.89 billion or 19.7%, from Ps.562.29 billion in 2011 to Ps.673.18 billion in 2012. Santander México earned Ps.55.39 billion in interest in 2012, an increase of Ps.8.71 billion or 18.7% over the Ps.46.68 billion earned in 2011.

The loan portfolio continued to grow, accompanied by increased diversification among segments and growth in all products of the portfolio.

Loan portfolioSantander México reported a total loan portfolio of Ps.350.68 billion as of December 2012. This is an increase of Ps.37.01 billion, or 11.8%, over the level reported in December 2011. During the year, Santander México continued to report growth in all strategic segments of the loan portfolio.

Commercial loans consist of loans for business and commercial activities, as well as to government institutions

Interest income

Ps.55.4 billiona 18.7% increase over 2011.

2012 ANNUAL REPORT

26

Interest expense In 2012, interest expense increased by Ps.3.62 billion, to Ps.21.50 billion, compared to Ps.17.87 billion in 2011.

Total deposits were Ps.362.45 billion, a 17.2% growth over the previous year. Santander México continues its strategy of improving service for every one of its clients, taking into account the characteristics of each segment. Through this strategy we have been able to increase demand deposits from both individuals and corporations. Demand deposits totaled Ps.210.91 billion at the end of the year, an 18.4% increase over 2011. The total balance of time deposits was Ps.151.54 billion, a 15.6% increase over 2011.

The interest paid on these demand deposits totaled Ps.2.16 billion in 2012, a 44% increase over 2011. This was due to a rise in the average volume, along with a 24 basis point increase in the average rate paid.

Interest paid on time deposits totaled Ps.5.63 billion in 2012, a 1.1% rise over 2011. The difference is attributed to an increase in the average volume combined with a 2 basis point decline in the average rate paid.

Asset qualityNon-performing loans came to Ps.6.09 billion in 2012, an increase of Ps.777 million, or 14.6%, over 2011.

The year-over-year rise in non-performing loans was the result of an increase in the loan portfolio and change in the mix of loans, with more weight in consumer credits, credit cards, mortgages and loans to small and mid-sized businesses.

In 2012, the non-performing loan ratio was 1.74%, a 5 basis point increase over the 2011 indicator, consistent with our stringent credit scoring model and ongoing monitoring of the quality of our loan portfolio, which enables us to adjust lending policies according to the observed performance of the portfolio. In 2012, our reserves covered 190.1% of past-due loans, down from 210.5% in 2011. This is the product of a nominal increase in non-performing loans resulting from a more rapid expansion of the loan portfolio. Although the loan portfolio grew, it did not increase at the same rate as allowances for loan losses, since most of the growth in non-performing loans was related to mortgage loans. This results from the fact that the latter require less provisioning than consumer credit, because the loans are backed by real property collateral.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Total deposits

Ps.362 billionan increase of 17.2%.

27

In 2012, allowances for loan losses at Santander México totaled Ps.9.44 billion, 44.1% higher, or an increase of Ps.2.89 billion, over 2011. This increase is due to 11.8% growth in the loan portfolio over the last 12 months, as well as the reversal of provisions under new CNBV regulations established during 2011, which reduced the required level of reserves for 2011 and the provisions required in the fourth quarter of 2012.

Net commission and fee incomeNet commission and fee income totaled Ps.12.20 billion in 2012, an increase of 19.3%, or Ps.1.97 billion, over 2011. The biggest increases were in insurance (32.5% or Ps.727 million), financial advisory services (61.1% or Ps.543 million), credit cards (15.2% or Ps.355 million), collections and payments (14.1% or Ps.177 million) and cash management (20.5% or Ps.121 million).

Net gains on assets and liabilitiesIn 2012, Santander México brought in market-related revenues of Ps.2.20 billion, compared to Ps.888 million in 2011. This was primarily due to Ps.2.68 billion gain on securities trading in 2012, offset in part by mark-to-market losses of Ps.488 million, primarily on the derivatives position.

Other operating income (expense)In 2012, other net operating income totaled Ps.2.95 billion, compared to Ps.1.07 billion in 2011. This increase was due to the extraordinary effect of revenues from the sale of bank branches in the second quarter of 2012.

Administrative and promotional expensesAdministrative and promotional expenses consist primarily of personnel compensation and benefits, promotion and advertising expenses, and other general expenses. Personnel expenses consist primarily of wages and salaries, social security contributions, and

incentive bonuses for executives. Other general expenses include expenses relating to technology and systems, which are the main outsourced services in the areas of technology, taxes and fees, professional fees, IPAB contributions, rental property and equipment, advertising and communications, securities transportation, and expenses relating to maintenance, upkeep and repair, among others.

In 2012, these expenses totaled Ps.20.24 billion, an 11.7% rise over 2011, due to increased in personnel expense, rents, taxes, technology and other expenses.

The efficiency ratio for 2012 was 39.5% an improvement over the 44.2% reported in 2011.

The recurrence ratio in 2012 was 65.3%, up from 61.5% in 2011.

Capitalization and ROAEThe capitalization ratio of Santander México was 14.8% in 2012, unchanged from 2011. This ratio includes payment of a dividend of Ps.7.30 billion by the Bank in the third quarter of 2012.

The tier 1 capital ratio was 14.5%, also unchanged from 2011.

As of December 2012, Banco Santander México was classified as a Category I institution in accordance with the general rules referred to in article 134 bis of the Credit Institutions Law.

ROAE as of December 2012 was 19.1%, down from 21.9% at the end of 2011. Efficiency

39.5% higher than in 2011.

2012 ANNUAL REPORT

28

CORPORATE GOVERNANCE

■ Santander México applies solid corporate governance procedures, ensuring close oversight of the institution’s performance and a broad-based perspective on long-term value creation, strongly grounded in ethics.

This Code specifies the ethical values, social commitment, mission, vision and corporate values, among other traits, that must be shared by all Santander employees.

Santander México has a Board of Directors made up of a minimum of five and a maximum of fifteen regular board members, 64% of them independent. For each regular member, an alternate is named. Both regular members and their alternates are appointed for terms of one year, and they may be re-elected. Members of the Board are appointed and/or ratified at the Annual Shareholders’ Meeting, based on their experience, professional career, reputation and knowledge in a variety of areas, like finance, banking, business, management, society and technology, among others.

The Board of Directors is supported by four committees: Auditing, Corporate Practices, Risk Management, and Compliance, each of which is governed by various regulations.

There are external bodies for oversight, whose legal powers include approving and observing the performance and the technical capacities and reputation of members of the Board and top executives. These include the Ministry of Finance and Public Credit, the National Banking and Securities Commission, the Ministry of the Economy and Banco de México.

At Santander, we firmly believe that ethics are the best foundation for good corporate governance and optimal operations. That is why we make sure 100% of our employees read and sign acceptance of the institution’s General Code of Conduct, which is permanently available online for our personnel.

29

SENIOR MANAGEMENT

Marcos Alejandro Martínez Gavica Executive President and Chief Executive Officer Grupo Financiero Santander México

José Carlos Ávila Benito Deputy Director General Credit

Jorge Alberto Alfaro Lara Deputy Director General Payment Systems

Estanislao De la Torre Álvarez Deputy Director General Media

Eduardo Fernandez García-Travesí Chief Legal Officer

Pedro José Moreno Cantalejo Vice President Administration and Finance

Rodrigo Brand de Lara Deputy Director General Institutional Relationships and Communication

José Antonio Alonso Mendívil Deputy Director General Business Strategy

Enrique Mondragon Domínguez Deputy Director General Human Resources

Javier Pliego Alegría Executive Director Internal Audit

Juan Sebastian Moreno Blanco Vice President Retail Banking

Juan Garrido Otaola Deputy Director General Global Banking & Markets

Emilio De Eusebio Saiz Deputy Director General Intervention and Control Management

Juan Pedro Oechsle Bernos Deputy Director General Individual and SME Banking

Pablo Fernando Quesada Gomez Deputy Director General Corporate Banking and Institutions

Alfonso Sanchez de Pazos Deputy Director General Private Banking

2012 ANNUAL REPORT

30

DIRECTORY OF BOARD MEMBERS

Carlos Gomez y Gomez is the Chairman of our Board of Directors and Chairman of the Boards of Directors of Banco Santander México, Casa de Bolsa Santander, Gestión Santander, Santander Consumo and Santander Hipotecario. He has also been a member of the Boards of Directors of Grupo KUO and DINE.

Jesús María Zabalza Lotina is a member of our Board of Directors and of the Board of Directors of Banco Santander México. He has also served on the Board of Directors of Banco Santander Chile since 2008 and, since 2001, he has been Director General of the Division America of Banco Santander Spain.

Marcos Alejandro Martínez Gavica is a member of our Board of Directors and of the Boards of Directors of Banco Santander México, Casa de Bolsa Santander, Gestión Santander, Santander Consumo and Santander Hipotecario. He also serves as Executive President and Chief Executive Officer of Banco Santander México.

José Carlos Ávila Benito is a member of our Board of Directors. He was appointed Deputy Director General of Banco Santander México’s Credit department in 2002.

Antonino Fernandez Rodríguez is an independent member of our Board of Directors and of the Boards of Directors of Banco Santander México, Casa de Bolsa Santander, Santander Consumo and Santander Hipotecario. He has been the Honorary for Life Chairman of the Board of Directors of Grupo Modelo since 2005.

Joaquín Vargas Guajardo is an independent member of our Board of Directors and of the Boards of Directors of Banco Santander México, Casa de Bolsa Santander, Santander Hipotecario and Santander Consumo. He is the Chairman of the Board of Directors of Corporación Mexicana de Restaurantes and also a member of the Boards of Directors of several companies including Vitro, Grupo Posadas, Médica Sur and Grupo Aeroportuario del Pacífico.

Fernando Solana Morales is an independent member of our Board of Directors and of the Boards of Directors of Banco Santander México, Casa de Bolsa Santander, Santander Hipotecario and Santander Consumo. He is a member of the Board of Directors of several companies, including Solana Consultores, Impulsora de Desarrollo y Empleo en América Latina, Acrosur, Telmex, Grupo Carso, Siglo XXI Editores, Consejo Mexicano de Asuntos Internacionales and Fresnillo plc.

Vittorio Corbo Lioi is a member of the Boards of Banco Santander in Spain and Banco Santander Chile, SURA, Empresa Nacional de Electricidad and Compañía Cerveceras Unidas in Chile.

Carlos Fernandez Gonzalez is an independent member of our Board of Directors and of the Boards of Directors of Banco Santander México, Casa de Bolsa Santander, Santander Consumo and Santander Hipotecario. He is the Chief Executive Officer of Grupo Modelo, and member of the Board of Directors of Emerson Electric Co. and Grupo Televisa.

Fernando Ruiz Sahagún is an independent member of our Board of Directors and of the Boards of Directors of Banco Santander México, Casa de Bolsa Santander, Santander Hipotecario and Santander Consumo. He also serves on the Board of Directors of Bolsa Mexicana de Valores, Empresas ICA, Fresnillo plc, Grupo Cementos de Chihuahua, Grupo México, Grupo Modelo, Grupo Palacio de Hierro, Grupo Pochteca, Kimberly Clark de México, Mexichem and SanLuis Corporación.

Alberto Torrado Martínez is an independent member of our Board of Directors and of the Boards of Directors of Banco Santander México, Casa de Bolsa Santander, Santander Hipotecario and Santander Consumo. He is the Chairman of the Board of Directors and Chief Executive Officer of Alsea, and Chairman of the Mexican Communications Council.

Juan Sebastian Moreno Blanco is an alternate member of our Board of Directors and a member of the Boards of Directors of Banco Santander México, Casa de Bolsa Santander, Santander Consumo and Santander Hipotecario. He has been the Vice President of Retail Banking for Banco Santander México since 2010.

Pedro José Moreno Cantalejo is an alternate member of our Board of Directors and a member of the Boards of Directors of Banco Santander México, Casa de Bolsa Santander, Santander Consumo and Santander Hipotecario. Since 2010, he has been Banco Santander México’s Vice President of Administration and Finance.

31

Rodrigo Brand de Lara was appointed Deputy Director General of Institutional Relationships and Communication for Grupo Financiero Santander in 2011. He has been Director General for the Social Communication Division of the Mexican Ministry of Foreign Affairs (SRE), head of the Social Communication Unit and the Spokesperson for the SHCP, and Director General of Social Communication and Institutional Link for the Mexican Institute for the Protection of Bank Savings (IPAB).

Eduardo Fernandez García-Travesí is an alternate member of our Board of Directors and of the Boards of Directors of Banco Santander México, Casa de Bolsa Santander, Santander Consumo, Santander Hipotecario and Gestión Santander. Mr. García-Travesí was appointed Chief Legal Officer of Banco Santander México in 2007.

Jesús Federico Reyes Heroles Gonzalez Garza is an alternate independent member of our Board of Directors and of the Boards of Directors of Banco Santander México, Casa de Bolsa Santander, Santander Hipotecario and Santander Consumo. He was the Chief Executive Officer of Petróleos Mexicanos from December 2006 to September 2009, and is a member of several Boards of Directors such as OHL México and Water Capital México (WCAP Holdings).

Alberto Felipe Mulas Alonso is an alternate independent member of our Board of Directors and of the Boards of Directors of Banco Santander México, Banco Santander Spain, Casa de Bolsa Santander, Santander Hipotecario and Santander Consumo. He is a member of the Board of Directors of several companies, including Empresas ICA, URBI Desarrollos Urbanos, Grupo Aeroportuario Centro Norte, Grupo Modelo, Grupo Comex, Organización Ramírez, Comercializadora Farmacéutica de Chiapas (Farmacias del Ahorro), RCO and Sociedad Hipotecaria Federal (SHF).

Guillermo Güémez García is an alternate independent member of our Board of Directors and of the Boards of Directors of Banco Santander México, Casa de Bolsa Santander, Santander Consumo, Santander Hipotecario and Zurich Santander Seguros México. He is an independent member of the Board and member of the Investment Committee of ING AFORE, and member of the Board and of the Investment Committee of Zurich Compañía de Seguros.

Enrique Krauze Kleinbort is an alternate independent member of our Board of Directors and of the Boards of Directors of Banco Santander México, Banco Santander Spain, Casa de Bolsa Santander and Santander Consumo. He is director and founder of the publishing house Clío. In December 2003, the Spanish government awarded him the Gran Cruz de la Orden de Alfonso X, el Sabio and, in April 2005, he became a member of the Colegio Nacional.

Luis Orvañanos Lascurain is an alternate independent member of our Board of Directors and of the Boards of Directors of Banco Santander México, Casa de Bolsa Santander, Santander Hipotecario and Santander Consumo. He is founder and Chairman of the Board of Directors and General Director of Corporación GEO and its 24 subsidiary companies. He is also a member of the Board of Directors of Club de Industriales A.C., Grupo Zurich México, and Consejo Mexicano de Hombres de Negocios.

Antonio Puron Mier y Teran is an alternate independent member of our Board of Directors and of the Boards of Directors of Banco Santander México, Casa de Bolsa Santander, Santander Hipotecario and Santander Consumo. He is also a member of the Board of Directors of Zurich Santander Seguros México, S.A. He serves as an associate of the Centro de Investigación y Análisis Económico (CIDAC), and he is a member of the Instituto de Fomento e Investigación Educativa (IFIE) and of Metrópoli 2025.

2012 ANNUAL REPORT

32

Main countries

Other countries where Banco Santander conducts retail and commercial banking: Peru, Puerto Rico, Uruguay, Norway, Sweden, Finland, Denmark, the Netherlands, Belgium, Austria, Switzerland and Italy.

DISTRIBUTION OF RECURRING ATTRIBUTABLE PROFIT BY OPERATING GEOGRAPHIC SEGMENTS

Grupo Santander’s geographic diversification is balanced between mature and emerging markets, which contributed, respectively, 45% and 55% of profit in 2012.

The Bank focuses on 10 core markets: Spain, Germany, Poland, Portugal, United Kingdom, Brazil, Mexico, Chile, Argentina and the United States. Furthermore, the global business areas develop products that are distributed in the Group’s retail networks and provide services to global clients.

Rest of Latin America

2%

Mexico

12%

Chile

6%

Argentina

4%

United States

10%

Brazil

26%

GEOGRAPHIC DIVERSIFICATION

33

Spain

15%

Rest of Europe

2%

United Kingdom

13%

Portugal

1%

Germany

4%

Poland

5%

2012 ANNUAL REPORT

34

BANCO SANTANDER BUSINESS MODEL

Highlights

Banco Santander’s business model produces substan-tial recurrence in results.

Santander has over 100 million customers and 14,392 branches, more than any other international bank.

Geographic diversification in 10 core countries gives Santander the right balance between mature and emerging markets.

Santander is one of the world’s most efficient inter-national banks.

Maintaining a high level of capital and liquidity is a priority. Santander has not needed state aid at any time during the crisis.

Santander’s NPL ratio is below the banking sector’s average in almost all its main markets thanks to prudent risk policies.

The Bank’s international expansion has been achieved through subsidiaries that are autonomous in capital and liquidity, providing advantages in funding and limiting the risk of contagion.

Santander conducts its business on a sustainable basis, preserving the environment, supporting the communities in the countries in which it operates and investing in higher education.

Santander has 186,763 employees focused on the customer and on results.

Customer

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INTERNATIONAL RECOGNITION

Euromoney The Banker

Best bank in the world

Best bank in Argentina

Best bank in Mexico

Best bank in Poland

Best bank in Portugal

Best bank in UK

Best bank in Argentina

Best bank in Mexico

Best bank in Poland

Best bank in Portugal

Best bank in Puerto Rico

Best bank in UK

July NovemberBritish financial magazine

Euromoney opted for a European

and Spanish bank when selecting

Santander - for the third time in

seven years - as the Best Bank in

the World. Meanwhile, The Banker,

a part of the Financial Times

group, named the bank as the best

in six of its core markets.

EUROMONEY HIGHLIGHTED THE “BANK’S ABILITY

TO GENERATE RECURRING PROFITS, EVEN IN

DIFFICULT TIMES, AND THE SOUNDNESS OF ITS

BALANCE SHEET.”

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35

36

CONSOLIDATED FINANCIAL STATEMENTS

37

38 Independent auditors’ report 40 Consolidated balance sheets 43 Consolidated statements of income 44 Consolidated statements of changes in stockholders’ equity 46 Consolidated statements of cash flows 47 Notes to consolidated financial statements

38

informe anual 2012

Galaz, Yamazaki,Ruiz Urquiza, S.C.Paseo de la Reforma 489Piso 6Colonia Cuauhtémoc06500 México, D.F.México

Tel: +52 (55) 5080 6000Fax: +52 (55) 5080 6001www.deloitte.com/mx

Deloitte se refiere a Deloitte Touche Tohmatsu Limited, sociedad privada de responsabilidad limitada en el Reino Unido, y a su red

de firmas miembro, cada una de ellas como una entidad legal única e independiente. Conozca en www.deloitte.com/mx/conozcanos

la descripción detallada de la estructura legal de Deloitte Touche Tohmatsu Limited y sus firmas miembro.

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40

Consolidated BalanCe sheetsas of december 31, 2012 and 2011(in millions of mexican pesos)

Assets 2012 2011

funds available $ 81,626 $ 66,598margin accounts 3,995 8,276investment in securities: trading securities 117,183 155,953 securities available for sale 47,373 61,461 securities held to maturity 5,090 4,861 169,646 222,275

debtors under sale and repurchase agreements 9,471 3,478

derivatives: trading purposes 80,321 85,081 hedging purposes 300 897 80,621 85,978Valuation adjustment for hedged financial assets 210 122

Performing loan portfolio: Commercial loans - Commercial or business activity 175,329 162,419 financial entities loans 407 1,975 Government entities loans 38,709 33,378 214,445 197,772 Consumer loans 61,603 49,342 mortgage loans 68,542 61,243 total performing loan portfolio 344,590 308,357

non-performing portfolio: Commercial loans - Commercial or business activity 1,523 1,926 Government entities loans - 2 1,523 1,928

Consumer loans 2,236 1,270 mortgage loans 2,334 2,118 total non-performing portfolio 6,093 5,316 total loan portfolio 350,683 313,673allowance for loan losses (11,580) (11,191) loan portfolio (net) 339,103 302,482

other receivables (net) 46,159 31,912

foreclosed assets (net) 150 253

Property, furniture and fixtures (net) 4,095 5,592

long-term investment in shares 236 234

deferred taxes (net) 10,584 8,063

other assets (net): deferred charges, advance payments and intangibles 4,277 3,722 other 164 190 4,441 3,912 Total assets $ 750,337 $ 739,175

GruPo finanCiero santander méxiCo, s.a.B. de C.V. and suBsidiaries(a subsidiary of Banco santander, s.a. (spain)) (formerly Grupo financiero santander, s.a.B. de C.V.)

41

Liabilities 2012 2011

deposits: demand deposits $ 210,915 $ 178,065 time deposits - Customer deposits 125,584 114,720 money market 25,953 16,409 151,537 131,129 Credit instruments issued 35,094 21,676 397,546 330,870

Bank and other loans: demand loans 8,240 2,371 short-term loans 16,767 15,156 long-term loans 2,456 2,027 27,463 19,554

Creditors under sale and repurchase agreements 73,290 120,590

Collateral sold or pledged as guarantee: securities loans 6,853 15,478

derivatives: trading purposes 77,939 88,148 hedging purposes 1,622 2,501 79,561 90,649

other payables: income taxes payable 503 507 employee profit sharing payable 172 153 Creditors from settlement of transactions 38,604 28,579 sundry creditors and other payables 27,477 43,254 66,756 72,493

deferred revenues and other advances 1,041 1,062 total liabilities 652,510 650,696

Stockholders’ equityPaid-in capital: Capital stock 36,357 36,357 share premium 11,454 11,838 47,811 48,195

other capital: Capital reserves 349 108 retained earnings 31,068 19,828 result from valuation of available for sale securities, net 678 465 result from valuation of cash flow hedge instruments, net 90 1,188 net income 17,822 18,682 50,007 40,271non-controlling interest 9 13 total stockholders’ equity 97,827 88,479 Total liabilities and stockholders’ equity $ 750,337 $ 739,175

42

GruPo finanCiero santander méxiCo, s.a.B. de C.V. and suBsidiaries(a subsidiary of Banco santander, s.a. (spain)) (formerly Grupo financiero santander, s.a.B. de C.V.)

the accompanying notes are part of these consolidated financial statements.

Memorandum accounts 2012 2011

on behalf of third parties: Customer banks $ 74 $ 87 settlement of customer transactions 116 20 Premiums collected from customers 1 - Customer securities received in custody 317,118 181,374 repurchase transactions on behalf of customers 45,914 51,219 secured loan transactions on behalf of customers 1,256 602 Collateral received as guarantee on behalf of customers 29,504 21,191 derivative purchase transactions 289,248 1,751,863 derivative sale transactions 570,945 2,028,099 1,254,176 4,034,455

own record accounts: Contingent assets and liabilities 33,236 32,133 Credit commitments 133,744 162,528 assets in trust or mandate: trusts 125,954 145,755 mandates 1,580 1,556 assets in custody or under administration 3,561,696 2,935,454Collateral received 71,296 39,015Collateral received and sold or pledged as guarantee 53,788 18,120uncollected interest earned on past due loan portfolio 1,808 701other record accounts 501,538 428,757 4,484,640 3,764,019 $ 5,738,816 $ 7,798,474

Consolidated BalanCe sheetsas of december 31, 2012 and 2011(in millions of mexican pesos)

43

GruPo finanCiero santander méxiCo, s.a.B. de C.V. and suBsidiaries(a subsidiary of Banco santander, s.a. (spain)) (formerly Grupo financiero santander, s.a.B. de C.V.)

the accompanying notes are part of these consolidated financial statements.

2012 2011

interest income $ 55,388 $ 46,680interest expense (21,496) (17,874) financial margin 33,892 28,806

Provisions for loan losses (9,445) (6,556) financial margin after provisions for loan losses 24,447 22,250

Commission and fee income 14,773 12,524

Commission and fee expense (2,570) (2,292)

net gain on financial assets and liabilities 2,196 888

other operating income 2,955 1,067

administrative and promotional expenses (20,236) (18,111) total operating income 21,565 16,326

equity in results of associated companies 73 70 income from continuing operations before income taxes 21,638 16,396

Current income taxes (5,858) (4,269)

deferred income taxes (net) 2,043 1,734 (3,815) (2,535)

income from continuing operations 17,823 13,861

discontinued operations - 4,822

Consolidated income before non-controlling interest 17,823 18,683

non-controlling interest (1) (1)

Net income $ 17,822 $ 18,682

Consolidated statements of inComefor the years ended december 31, 2012 and 2011(in millions of mexican pesos)

44

GruPo finanCiero santander méxiCo, s.a.B. de C.V. and suBsidiaries(a subsidiary of Banco santander, s.a. (spain)) (formerly Grupo financiero santander, s.a.B. de C.V.)

the accompanying notes are part of these consolidated financial statements.

Paid-in Capital Other Capital

Result from Result from valuation of valuation of available cash flow Total Capital Share Capital Retained for sale hedge Net Non- Stockholders’ Historical Restated Total premium reserves earnings securities, net instruments, net income controlling equity

Balances, december 31, 2010 $ 25,658 $ 10,699 $ 36,357 $ 11,838 $ 104 $ 17,855 $ 790 $ 1,619 $ 13,850 $ 12 $ 82,425 transfer of prior year’s net income - - - - 4 13,846 - - (13,850) - - dividends declared - - - - - (11,350) - - - - (11,350) total entries approved by stockholders - - - - 4 2,496 - - (13,850) - (11,350)

Comprehensive income- result from valuation of available for sale securities, net - - - - - - (325) - - - (325) result from valuation of cash flow hedge instruments, net - - - - - - - (431) - - (431) recoveries of allowance for loan losses previously applied to retained earnings - - - - - 76 - - - - 76 share of comprehensive income of associated companies accounted for by the equity method - - - - - 6 - - - - 6 initial cumulative effect of change in methodology for measuring allowance for loan losses with respect to states and municipalities loan portfolio, mortgage loans and non-revolving consumer loan portfolio, net of deferred taxes - - - - - (605) - - - - (605) net income - - - - - - - - 18,682 1 18,683 total comprehensive income - - - - - (523) (325) (431) 18,682 1 17,404

Balances, december 31, 2011 25,658 10,699 36,357 11,838 108 19,828 465 1,188 18,682 13 88,479 transfer of prior year’s net income - - - - 241 18,441 - - (18,682) - - dividends declared - - - - - (7,300) - - - - (7,300) total entries approved by stockholders - - - - 241 11,141 - - (18,682) - (7,300)Comprehensive income- result from valuation of available for sale securities, net - - - - - - 213 - - - 213 result from valuation of cash flow hedge instruments, net - - - - - - - (1,098) - - (1,098) recognition of cost in connection with share-based payments - - - 35 - - - - - - 35 shares held by the treasury - - - (419) - - - - - - (419) recoveries of allowance for loan losses previously applied to retained earnings - - - - - 61 - - - - 61 share of comprehensive income of associated companies accounted for by the equity method - - - - - 38 - - - (5) 33 net income - - - - - - - - 17,822 1 17,823 total comprehensive income - - - (384) - 99 213 (1,098) 17,822 (4) 16,648

Balances, December 31, 2012 $ 25,658 $ 10,699 $ 36,357 $ 11,454 $ 349 $ 31,068 $ 678 $ 90 $ 17,822 $ 9 $ 97,827

Consolidated statements of ChanGes in stoCkholders’ equityfor the years ended december 31, 2012 and 2011(in millions of mexican pesos)

45

Paid-in Capital Other Capital

Result from Result from valuation of valuation of available cash flow Total Capital Share Capital Retained for sale hedge Net Non- Stockholders’ Historical Restated Total premium reserves earnings securities, net instruments, net income controlling equity

Balances, december 31, 2010 $ 25,658 $ 10,699 $ 36,357 $ 11,838 $ 104 $ 17,855 $ 790 $ 1,619 $ 13,850 $ 12 $ 82,425 transfer of prior year’s net income - - - - 4 13,846 - - (13,850) - - dividends declared - - - - - (11,350) - - - - (11,350) total entries approved by stockholders - - - - 4 2,496 - - (13,850) - (11,350)

Comprehensive income- result from valuation of available for sale securities, net - - - - - - (325) - - - (325) result from valuation of cash flow hedge instruments, net - - - - - - - (431) - - (431) recoveries of allowance for loan losses previously applied to retained earnings - - - - - 76 - - - - 76 share of comprehensive income of associated companies accounted for by the equity method - - - - - 6 - - - - 6 initial cumulative effect of change in methodology for measuring allowance for loan losses with respect to states and municipalities loan portfolio, mortgage loans and non-revolving consumer loan portfolio, net of deferred taxes - - - - - (605) - - - - (605) net income - - - - - - - - 18,682 1 18,683 total comprehensive income - - - - - (523) (325) (431) 18,682 1 17,404

Balances, december 31, 2011 25,658 10,699 36,357 11,838 108 19,828 465 1,188 18,682 13 88,479 transfer of prior year’s net income - - - - 241 18,441 - - (18,682) - - dividends declared - - - - - (7,300) - - - - (7,300) total entries approved by stockholders - - - - 241 11,141 - - (18,682) - (7,300)Comprehensive income- result from valuation of available for sale securities, net - - - - - - 213 - - - 213 result from valuation of cash flow hedge instruments, net - - - - - - - (1,098) - - (1,098) recognition of cost in connection with share-based payments - - - 35 - - - - - - 35 shares held by the treasury - - - (419) - - - - - - (419) recoveries of allowance for loan losses previously applied to retained earnings - - - - - 61 - - - - 61 share of comprehensive income of associated companies accounted for by the equity method - - - - - 38 - - - (5) 33 net income - - - - - - - - 17,822 1 17,823 total comprehensive income - - - (384) - 99 213 (1,098) 17,822 (4) 16,648

Balances, December 31, 2012 $ 25,658 $ 10,699 $ 36,357 $ 11,454 $ 349 $ 31,068 $ 678 $ 90 $ 17,822 $ 9 $ 97,827

46

GruPo finanCiero santander méxiCo, s.a.B. de C.V. and suBsidiaries(a subsidiary of Banco santander, s.a. (spain)) (formerly Grupo financiero santander, s.a.B. de C.V.)

the accompanying notes are part of these consolidated financial statements.

2012 2011

net income $ 17,822 $ 18,682adjustment for line items that do not require cash flows - result from the valuation associated with operating activities (192) (3,646) equity in results of associated companies (73) (70) impairment losses associated with investing activities - 30 depreciation of property, furniture and fixtures 630 617 amortizations of intangible assets 923 847 Provisions 44 48 recognition of share-based payments 35 - Current and deferred income taxes 3,815 2,535 discontinued operations - (4,822) 23,004 14,221operating activities: margin accounts 4,281 (98) investment in securities 52,935 (17,142) debtors under sale and repurchase agreements (5,994) 6,778 derivatives-asset 3,701 11,105 loan portfolio-net (36,622) (48,096) acquisition of credit portfolio - (18,110) foreclosed assets 59 (90) other operating assets (17,063) (3,851) deposits 66,677 47,784 Bank and other loans 7,909 690 Creditors under sale and repurchase agreements (47,299) 7,551 Collateral sold or pledged as guarantee (8,625) (5,820) derivatives-liability (11,088) (491) other operating liabilities 7,526 3,309 Payments of income taxes (5,076) (3,692) net cash provided by (used in) operating activities 34,325 (5,952)

investing activities: Payments for acquisition of mortgage business - (22,846) Proceeds from disposal of property, furniture and fixtures 2,950 34 Payments for acquisition of property, furniture and fixtures (674) (748) Proceeds from disposal of subsidiaries and associated companies 3 - Payments for the acquisition of associates companies (9) (2) Cash dividends received 77 40 Payments for acquisition of intangible assets (1,123) (869) Proceeds from disposal of other long-lived assets - 6,363 net cash provided by (used in) investing activities 1,224 (18,028)

financing activities: Cash payment of dividends (18,650) (6,400) Payments for acquisition of treasury shares (419) - recovery of allowance for loan losses previously applied to retained earnings 61 76 net cash used in financing activities (19,008) (6,324) net (decrease) increase in cash and cash equivalents 16,541 (30,304) effects on exchange rate changes on cash and cash equivalents (1,513) 3,613 Cash and cash equivalents at the beginning of the period 66,598 93,289Cash and cash equivalents at the end of the period $ 81,626 $ 66,598

Consolidated statements of Cash flowsfor the years ended december 31, 2012 and 2011(in millions of mexican pesos)

47

notes to Consolidated finanCial statementsfor the years ended december 31, 2012 and 2011(in millions of mexican pesos)

1. Explanation for translation into English

the accompanying consolidated financial statements have been translated from spanish into english for use outside of mexico. these consolidated financial statements are presented on the basis of accounting criteria prescribed by the Commission. Certain accounting practices applied by the financial Group may not conform to accounting principles generally accepted in the country of use.

2. activity and Economic and rEgulatory EnvironmEnt

Grupo financiero santander méxico, s.a.B. de C.V. (formerly Grupo financiero santander, s.a.B. de C.V.) (the “Group”) is a subsidiary of Banco santander, s.a. in spain (Banco santander, s.a. (“spain”)) and is authorized by the treasury department (“shCP”) to operate as a financial group under the form and terms established by the law of financial Group, subject to the supervision and oversight of the mexican national Banking and securities Commission (the “Commission”) and Banco de méxico (“Central Bank”). the Group’s main activities include the acquisitions of financial sector entity shares and supervision of the activities of such entities, which activities are carried out accordance with the above-mentioned law. the Group and its subsidiaries (collectively, the “financial Group”) are regulated depending on their activities, by the Commission, the mexican national insurance and Bonding Commission (“Cnsf”) (in the case of seguros santander, s.a., entity sold in november 2011), the Bank of mexico (Banco de méxico) and other applicable laws.

the main activity of the subsidiaries is to carry out financial operations that include the rendering of full-banking services, stock exchange intermediation and proving life and casualty insurance (up to november 2011, when seguros santander, s.a. was sold).

Per legal requirements, the financial Group has unlimited liability for the obligations assumed and losses incurred by each of its subsidiaries.

during 2012, the macroeconomic indicators have remained stable, with inflation at 3.57%, an estimated 3.8% reduction in Gross national Product (GnP) compared to 2011, and a significant appreciation of the mexican peso with respect to the u.s. dollar of 7.04.

during 2011, the global economic climate demonstrated signs of instability, which was reflected in ratings cuts of the sovereign debt of certain developed countries issued by ratings agencies, thus generating uncertainty in financial markets worldwide as evidenced by high volatility in stock markets and foreign exchange markets, as well as a credit crunch and a lack of liquidity in global financial markets, which has mainly reduced the gains on financial assets and liabilities the financial Group.

on august 13, 2012, the financial Group received stockholders’ approval to change its corporate name to Grupo financiero santander méxico, s.a.B. de C.V. (formerly, Grupo financiero santander, s.a.B. de C.V.). the change was subsequently authorized by the treasury and economy departments subsequently authorized this change of legal denomination, and on august 21, 2012, the name of the Group was officially changed to Grupo financiero santander méxico, s.a.B. de C.V.

Significant Events -

initial public offering.- in september 2012, the financial Group successfully completed a secondary public offering of 24.90% of its common stock. a total of 1,689,543,408 series B shares were sold at $31.25 per share or us $12.1849 per american depositary share (ads). the conversion ratio is five series B shares for each ads. of the total shares sold, 81% were placed in the united states of america (usa) and the remaining 19% in mexico.

debt placement in international markets.-on november 9, 2012 the financial Group completed the placement of debt instruments denominated senior notes for the amount of us $1,000,000,000 with a 10 year maturity. the instruments were issued and placed in accordance with rule 144a and regulation s of the us securities act of 1933. interest will be paid half-yearly on may 9 and november 9 at an annual rate of 4.125%. Principal will be paid when the instruments mature or, as the case may be, on the date that they are repaid in advance.

sale of real property to fibra uno.- in the second quarter of 2012, the financial Group entered into a contract with fibra uno, s.a. de C.V. (hereinafter, “fibra uno”) related to the sale and subsequent 20 year leaseback of 220 properties (branches, offices and parking lots). such transaction was subject to the approval of the corresponding regulatory entities which was granted in may 2012. the transaction amount was $3,334. the benefits of $1,730 obtained by the financial Group from this sale were recorded in the consolidated statements of income under the heading of “other operating income”.

the lease contract, which is accounted for as an operating lease, is non-cancellable and includes an option to renew up to an additional four consecutive periods of five years each with a market rates to be determined on the date of the renewal. the lease agreement includes rent adjustments based on the mexican national Consumer Price index and does not contain volume based or leveraged contingent rent payment clauses or purchase options, or impose any restrictions on the financial Group´s ability to pay dividends, engage in debt financing transactions or enter into further lease agreements.

GruPo finanCiero santander méxiCo, s.a.B. de C.V. and suBsidiaries(a subsidiary of Banco santander, s.a. (spain)) (formerly Grupo financiero santander, s.a.B. de C.V.)

Grupo Financiero Santander México, S.a.B. de c.V. and SuBSidiarieS(a Subsidiary of Banco Santander, S.a. (Spain)) (Formerly Grupo Financiero Santander, S.a.B. de c.V.)

48

as of december 31, 2012, the future minimum lease payments required under the financial Group’s operating lease are as follows:

Operating Lease December 31, Due 2012

2013 $ 2532014 2532015 2532016 2662017 2762018 and thereafter 3,952Future minimum payments $ 5,253

sale of the investment fund management business.-at a Board meeting held on July 26, 2012, the management of the financial Group approved the divestment of the investment fund management business (including all the assets administered by Gestión santander, s.a. de C.V. (the “Gestora”)) and the sale to a holding company that will be a subsidiary of Banco santander, s.a. (españa), which will acquire a significant portion of the securities portfolio management business of Grupo santander worldwide as part of an internal global reorganization to centralize the investment fund management business of Group santander.

this sale was authorized only if it is performed at a reasonable price, as determined by an independent third party, subject to compliance with certain conditions. furthermore, all the legal procedures must be performed and all the respective authorizations must be obtained from the competent authorities in order to divest the Gestora as a financial entity of the financial Group. the financial Group expects to sign exclusive long-term distribution contracts with the Banco and Casa de Bolsa (subsidiaries), which will enable it to continue offering investments in the investment funds with the Gestora, after the divestment and sale processes have been concluded. at december 31, 2012, this process is still underway.

3. significant accounting policiEs

the significant accounting policies applied by the financial Group are in conformity with the accounting criteria established by the Commission in the General Provisions applicable to financial Groups, Credit institutions, Brokerage house and regulated multiple Purpose financing entities (“the provisions”), in its circulars and in general and specific official mandates, which require that management make certain estimates and utilize certain assumptions to determine the valuation of items included in the consolidated financial statements and to make required disclosures. although the actual results may differ, management believes that the estimates and assumptions utilized were appropriate under the circumstances.

Based on accounting criterion a-1 of the Commission, the accounting of the financial Group shall be in conformity with mexican financial reporting standards (“mfrs”, which are comprised of individual accounting standards that are known as “nif”) as promulgated by the mexican Board of financial reporting standards (“Cinif”), except when the Commission believes that a specific regulation or accounting treatment should be applied on the basis that the institutions subject to its rules carry out specialized operations.

Changes in accounting policies –

changes in the accounting criteria of the commission –

changes that occurred during 2012

in July 2012, the federal official Gazette published certain amendments to the accounting criteria applicable to credit institutions, which modify the accounting criteria used for trusts and the consolidation of special-purpose entities (“ePe”) and which define the specific standards used for the recognition, valuation, presentation and disclosure of trusts and ePe in the financial statements, as a means of generating transparent financial information comparable with that of other countries.

these changes are as follows:

- the valuation of the trust’s net assets must be recognized in memorandum accounts according to the accounting criteria issued by the Commission, unless trusts request, obtain and maintain the registration of their securities with the national securities registry, in which case their net assets must be valued according to the accounting standards issued by the Commission for application to securities issuers and other market participants (international financial reporting standards, or ifrs).

- the description of the minimum conditions that must be fulfilled to demonstrate that an entity does not exercise control over an ePe thereby avoiding the consolidation thereof has been eliminated.

- the financial statements of the consolidated ePe must be prepared according to the same accounting criterion; likewise, when involving operations of the same nature, the accounting policies applied by the consolidating entity must also be used.

- when the ePe uses accounting criteria or policies other than those applicable to the consolidating entity, the financial statements of the ePe utilized for consolidation purposes must be consistent with those of the consolidating entity.

49

changes that occurred during 2011

during 2011, the federal official Gazette published certain modifications to the accounting criteria for Credit institutions, Brokerage houses, regulated multiple Purpose financing entities and holding Companies of financial Groups.

the purpose of these changes is to achieve consistency with the nif and international financial reporting standards and to provide more complete financial information with improved disclosures. such changes principally affected investments in securities, derivatives and hedging operations, the credit portfolio, and the presentation of the basic financial statements.

the most significant effects of these changes are as follows:

− the presentation of the income statement is comprehensively restructured for purposes of compliance with mfrs. the headings of “other products” and “other expenses” are eliminated and the items which comprise these headings are now presented within the heading of “other operating income”.

− the accounting standard related to the treatment of collateral granted and received for transactions with derivative financial instruments traded on unrecognized markets. they will be accounted for separately from the margin accounts, and will be recorded in an account receivable or payable, as the case may be.

− the valuation of implicit derivatives denominated in foreign currency contained in contracts is not established, when such contracts require payments in a currency that is commonly used to purchase or sale non-financial items in the economic environment in which the transaction is performed (for example, a stable and liquid currency which is commonly used in local transactions or in foreign trade transactions) .

− in the case of separable hybrid financial instruments, the host contract and the embedded derivative will be presented separately. Previously, it was established that both should be presented together. now the embedded derivative should be presented under the heading of “derivatives”.

− in convergence with nif, the requirement to present the charge to net income for net additions to allowance for loan losses in a discrete line in the cash flow statement is eliminated.

− Bulletin a-2 of the Provisions applicable to financial Groups is amended to eliminate the provision which indicated that insurance and bonding companies were not subject to consolidation.

− accounting criterion B-6 “Credit portfolio” of the provisions establishes the following:

− in the case of restructuring and renewals in which multiple loans granted to a given borrower are consolidated into a single loan, which is given a credit rating equal to the lowest rated loan outstanding from the borrower.

− in order to demonstrate sustained payment and no longer classify a restructured or renewed loan as overdue, evidence supporting the borrower’s payment capacity must be made available to the Commission.

− the maturity periods used to transfer loans to the overdue portfolio can be monthly, regardless of the number of days of each calendar month, in accordance with the following:

30 days one month60 days two months90 days three months

− Current loans other than those involving a single principal payment, the payment of interest periodically or at maturity and which are restructured or renewed at least 80% of the original credit period having elapsed are only considered as current if the borrower has a) paid all accrued interest and b) settled the principal of the original credit amount which should have been paid at the renewal or restructuring date.

if all of the conditions described in the preceding paragraph are not fulfilled, loans are considered overdue from the date on which they are restructured or renewed until evidence of sustained payment is obtained.

− Current loans other than those involving a single lump-sum principal payment, periodic payments of interest or a lump-sum payment thereof at maturity and which are restructured or renewed during the final 20% of the original credit period are only considered as current when the borrower has a) settled all accrued interest, b) paid the principal balance due at the renewal or restructuring date and, c) paid 60% of the original loan amount.

if all the conditions described in the preceding paragraph are not fulfilled, credits are considered as overdue from the date on which they are restructured or renewed until evidence of sustained payment is obtained.

− in the case of loan payments reflecting timely borrower compliance (sustained credit payment), at least 20% of principal or the total amount of any interest accrued under the restructuring or renewal payment scheme must be covered.

− for loans involving a single principal payment, the periodic payments of interest or a lump sum payment of interest at maturity and which are restructured during the credit period or renewed at any time, are classified as overdue portfolio until evidence of sustained payment is obtained.

− loans that are initially classified as revolving and that are restructured or renewed at any time are only considered as current when the borrower has settled all accrued interest, the loan has no overdue payments and the elements needed to justify the debtor’s payment capacity are available, i.e., it is highly likely that the debtor will settle the outstanding payment.

Grupo Financiero Santander México, S.a.B. de c.V. and SuBSidiarieS(a Subsidiary of Banco Santander, S.a. (Spain)) (Formerly Grupo Financiero Santander, S.a.B. de c.V.)

50

− when a credit line is canceled, the unpaid balance of commissions collected for loans canceled before the end of the 12-month period are directly recognized in the results of the year under the heading of “Commission and fee income”.

− the incorporation of the commissions for loan restructurings as commissions for the initial granting of the loan, which may be deferred during the new term of the restructured loan.

− the commissions collected for granting loans must be presented net of the respective costs and expenses under the “other assets” or “deferred revenues and other advances” headings, as appropriate. likewise, annual credit card commissions must also be presented net of the respective costs and expenses.

− any deferred charge generated on the acquisition of portfolio should be presented under the heading of “other assets” and, furthermore, discounts should be presented under the heading of “deferred revenues and other advances”, together with any excess originated on the portfolio acquisitions.

Changes in NIF applicable to the Financial Group

applicable as of 2012

nif C-6, Property, Plant and equipment.- establishes the requirement to separately depreciate the components that are significant to items of property, plant and equipment, aside from the depreciation of the remainder of the entry as though a single component.

improvements to mexican financial reporting standards 2012.- the main improvements that result in accounting changes are as follows:

Bulletin B-14, earnings per share.- requires the calculation and disclosure of diluted earnings per share when the entity has incurred a loss from continuing operations, regardless of whether or not there is net income for the period.

Bulletin C-11, stockholders’ equity – eliminates the rule whereby the contributions received by a company must be recorded under stockholders’ equity. these amounts must now be recorded as income in the statement of income.

Bulletin C-15, impairment in the Value of long-lived assets and their disposal – eliminates a) the limitation that an asset that is not in use may be classified as held for sale, and b) reversal of goodwill impairment losses. the standard also stipulates that impairment losses related to long-lived assets should be classified in the statement of income within the appropriate cost and expenses line items, and not under other income and expenses, or as a special item.

nif d-4, income taxes – modifies the definition of a deductible temporary difference and taxable accruable temporary difference.

Changes in accounting estimates applicable in 2011

on october 25, 2010 and on october 5, 2011, the Commission issued rulings which modified the provisions, whereby the methodologies applicable to the classification of non-revolving consumer credit portfolio and the housing mortgage credit portfolio, as well as the classification of loans owed by states and municipalities, in order to change the current model of creating allowances for loan losses based on the incurred loss model to an expected loss model. such modifications went into effect on march 1 and september 1, 2011, respectively.

the Commission stipulated the recognition in stockholders’ equity at the latest as of march 31 and september 30, 2011, under the heading “retained earnings”, of the initial cumulative financial effect derived from the application of the classification methods for the non-revolving consumer credit portfolio and the housing credit portfolio, and for loans owed by states and Principalities, respectively.

the initial cumulative effect from application of the change in the classification’s methodology generated allowances for loan losses under the heading of “retained earnings” within stockholders’ equity, for the amount of $432, net of the related deferred tax, in relation to the non-revolving consumer credit portfolio and the housing mortgage credit portfolio, and the amount of $173, net of the related deferred tax, in relation to the loans owed by states and municipalities.

if the aforementioned effect had been recognized in the results for the year, the headings that would have been affected and the amounts that would have been recorded and presented in the consolidated balance sheet as of december 31, 2011, are as follows:

2011

retained earnings $ 20,433

net income $ 18,077

and the following in the consolidated statements of income:

Provisions for loan losses $ 7,420

deferred income taxes (net) $ 1,933

net income $ 18,077

the significant accounting policies applied by the financial Group are as follows:

monetary unit of the financial statements - the financial statements and notes for the years ended december 31, 2012 and 2011 include balances and transactions in mexican pesos of different purchasing power.

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Basis for consolidation – the accompanying consolidated financial statements include those of the Group and its subsidiaries listed below. all significant intercompany balance and transactions have been eliminated on consolidation.

the consolidated subsidiaries and the Group’s equity percentage are as follows:

Equity percentage 2012 2011

Banco santander (méxico),s.a. and subsidiaries (the “Bank”) 99.99% 99.99%Casa de Bolsa santander, s.a.de C.V. (“Casa de Bolsa”) 99.97% 99.97%Gestión santander, sa. de C.V. (the “Gestora”) 99.99% 99.99%

during a stockholders’ extraordinary General meeting of almacenadora serfin, s.a. de C.V. held on January 14, 2011, the stockholders approved the final liquidation balance sheet and the liquidation of corporate assets, which took place on march 31, 2011.

on december 29, 2011, during the extraordinary General meeting of the stockholders of almacenadora somex, s.a. (a subsidiary of the Bank) the final liquidation balance sheet detailing the liquidation of that company’s net worth was approved, which took place on July 3, 2012.

recognition of the effects of inflation in the financial information - Because it operates in a non-inflationary environment, the financial Group suspended recognition of the effects of on January 1, 2008. up to december 31, 2007, the recognition of inflation mainly resulted in gains or losses from inflation on non-monetary and monetary assets and liabilities.

the balances of assets, liabilities and stockholders’ equity include the effects of inflation recognized through december 31, 2007, during which time mexico was considered to be an inflationary environment as previously defined under mfrs. the effects of inflation are derecognized on the date on which the assets and liabilities or components of stockholders’ equity that were adjusted for such effects are derecognized. the consolidated financial statements as of december 31, 2012 and 2011 only include inflation adjustments recognized in previous periods, and which correspond to assets, liabilities and stockholders’ equity that have not yet been derecognized.

as established in nif B-10, effects of inflation, a non-inflationary environment is defined as one in which the cumulative inflation rate of the three preceding years is lower than 26%, and which is projected to maintain stable inflation rates according to the economic forecasts of government agencies. the inflation percentage under udis rates for 2012 and 2011 was 3.90% and 3.65% respectively. the cumulative inflation of the three-year periods preceding december 31, 2012 and 2011 is 11.66% and 14.40% respectively; consequently, the economic environment qualifies as non-inflationary in both years

offsetting of financial assets and liabilities - financial assets and liabilities are offset in such a way that the debit or credit balance is only presented on the consolidated balance sheet if the financial Group has the contractual right to offset recognized amounts, the intention to settle the net amount or realize the asset and simultaneously cancel the liability.

funds available - funds available are valued at face value; foreign currency funds available are valued at fair value using the yearend quoted exchange rates.

foreign currency acquired which it is agreed will be settled on a date subsequent to the purchase-sale transaction is recognized as restricted funds available (foreign currency receivable). foreign currency sold is recorded as a credit to funds available (foreign currency deliverable). the offsetting entry is recorded in a debit (credit) settlement account when a sale or purchase is performed, respectively.

for financial information presentation purposes, foreign currency settlement accounts receivable and payable are offset by contract and term and are presented under “other receivables (net)” or “Creditors from settlement of transactions”, as applicable.

interbank loans executed for a term of three working days or less, as well as other funds available such as correspondent Banks or other liquid notes, are also included in this line item..

margin accounts - the margin accounts given in cash (and other cash equivalents) required from entities when performing transactions with derivative financial instruments through recognized stock markets or exchanges are recorded at their face value.

in the case of margin accounts granted to the clearinghouse and composed by items other than cash, such as debt instruments or share certificates, the clearinghouse is entitled to sell the component assets embodied in these margin accounts or give them in guarantee. financial assets given in guarantee are presented as restricted assets; the respective valuation and disclosure standards are then utilized according to the applicable accounting criterion based on the nature of these assets.

margin accounts are used to ensure the fulfillment of obligations derived from the performance of transactions with derivative financial instruments on recognized stock markets and exchanges. accordingly, they reflect the initial margin, contributions and withdrawals made during each contractual period.

trading securities - trading securities represent investments in debt and equity securities, in proprietary position and pledged as guarantee, which are acquired with the intention of selling them to realize gains from increases in fair value. upon acquisition, they are initially recorded at fair value, which includes applicable the discounts or premiums. furthermore, the cost is determined by the average costs method. they are subsequently valued at fair value determined by the price supplier engaged by the financial Group in accordance with the Provisions of the Commission. the difference between the historical cost, which is determined using the average cost method, of the investments in debt securities plus accrued interest and of equity securities compared with their fair value is recorded in the consolidated statements of income under the item “net gain on financial assets and liabilities”. the effects of valuation will be treated as unrealized and, therefore, cannot be distributed to stockholders until the securities are sold.

fair value is the amount at which an asset may be exchanged or a liability may be settled by informed, willing and interested parties in an arm’s length transaction

Grupo Financiero Santander México, S.a.B. de c.V. and SuBSidiarieS(a Subsidiary of Banco Santander, S.a. (Spain)) (Formerly Grupo Financiero Santander, S.a.B. de c.V.)

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the transaction costs for the acquisition of trading securities are recognized in earnings on the acquisition date.

Cash dividends of shares are recognized in earnings in the same period in which the right to receive such payment is generated.

the exchange gain or loss on foreign currency-denominated investments in securities is recognized in earnings.

this heading is used to record outstanding transactions derived from the purchase-sale of assigned, unpaid securities, which are valued and recorded as securities held for trading purposes. the movements of the securities embodied in each transaction are recorded in the respective debit or credit settlement account.

the accounting criteria used by the Commission allow for reclassifications of trading securities to available-for-sale only in extraordinary circumstances (for example, a lack of market liquidity, no active market for the instrument, among others), which will be evaluated and, if applicable, validated with the express authorization by the Commission.

securities available for sale - securities available for sale are debt instruments and equity shares that are not held for purposes of realizing gains derived from increases in fair value and, in the case of debt instruments, those that the entity does not intend or is able to hold to maturity and, therefore, represent a residual category, i.e., they are acquired for purposes other than those of trading securities or securities held to maturity because the entity intends to trade them at some point in the future prior to maturity.

upon acquisition they are initially recorded at fair value plus the acquisition transaction cost, including applicable discounts or premiums, which is the acquisition cost for the financial Group. they are subsequently valued at fair value.

the financial Group determines the increase or decrease in the fair value using current prices provided by the price supplier, which uses various market factors for their determination. the yield on debt securities is recorded using the imputed interest or effective interest method depending on the nature of the security; such yield is recognized as earned in the consolidated statements of income under “interest income”. unrealized gains or losses resulting from changes in fair value are recorded in comprehensive income items under stockholders’ equity, specifically, under the heading “result from valuation of available for sale securities, net”, provided such securities were not defined as hedged in a fair value hedging relationship through a derivative financial instrument, in which case they are recognized in earnings

Cash dividends of shares are recognized in earnings in the same period in which the right to receive such payment is generated

the exchange gain or loss on foreign currency-denominated investments in securities is recognized in earnings.

the accounting criteria of the Commission allow for the transfer of securities classified as “held to maturity” to that of “available for sale”, provided that there is no intention or capacity to hold them to maturity, as well as reclassifications from the category of trading securities to available for sale under extraordinary circumstances (for example, a lack of market liquidity, or when there is no active market for the securities, among others), which should be assessed and, if applicable, validated through the express authorization of the Commission.

securities held to maturity - securities held to maturity are those with fixed or determinable payments and fixed maturity, which the entity has both the intention and the ability to hold until maturity. these securities are initially recorded at fair value plus acquisition transaction costs, including applicable discount or premium. they are subsequently valued at amortized cost. interest earned is recorded in the consolidated statements of income under “interest income” using the imputed interest or effective interest method, in accordance with the nature of the instrument.

at december 31, 2012 and 2011, the valuation of the reserve recorded for special Cete-denominated long-term udis is $373. accordingly, this amount was recorded in the consolidated statements of income under the heading “other operating income”. this valuation is canceled based on the acquisition of these special Cete-denominated udis by the Bank of mexico. Based on the early termination of debtor support Programs, in 2012 and 2011, and given that the federal Government did not repurchase any special Cete-denominated udis, the financial Group did not cancel any portion of this reserve during those years.

the accounting criteria of the Commission allow for the transfer of securities classified as “held to maturity” to that of “available for sale”, provided that there is no intention or capacity to hold them to maturity, as well as reclassifications from the category of trading securities to available for sale under extraordinary circumstances (for example, a lack of market liquidity, or when there is no active market for the securities, among others), which should be assessed and, if applicable, validated through the express authorization of the Commission.

the cash dividends of equity securities are recognized in earnings during the same period in which the fair value of these securities is affected as a result of the coupon cutoff date.

impairment in the value of a financial instrument - the financial Group must evaluate whether there is objective evidence that a financial instrument is impaired as of the consolidated balance sheet date. impairment is the condition that arises when the book value of the investments in securities exceeds their recoverable amount.

a financial instrument is considered to be impaired and, accordingly, a loss from impairment is incurred if, and only if, there is objective evidence of the impairment as a result of one or more events that took place after the initial recognition of the financial instrument, which had an impact on its estimated future cash flows that can be reliably determined. it is very unlikely that one identified event can be the sole cause of the impairment, and it is more feasible that the combined effect of different events might have caused the impairment. the expected losses as a result of future events are not recognized, regardless of how probable they are occurring.

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objective evidence that a credit instrument is impaired includes observable information such as, among others, the following events:

a) significant financial difficulties of the issuer of the instrument;

b) it is probable that the issuer of the instrument will be declared bankrupt or another financial restructuring will take place;

c) noncompliance with the contractual clauses, such as default on payment of interest or principal;

d) disappearance of an active market for the instrument in question due to financial difficulties, or

e) a measurable decrease in the estimated future cash flows of a group of securities since the initial recognition of such assets, even though the decrease cannot be matched with the individual securities of the group, including:

i. adverse changes in the payment status of the issuers in the group, or

ii. local or national economic conditions which are correlated with defaults on the securities of the group.

the management of the financial Group has not identified objective evidence of impairment of a credit instrument held as of december 31, 2012.

sale and repurchase agreements - sale and repurchase agreements are those in which the buying party acquires for a sum of money the ownership of securities and agrees within the agreed term and against reimbursement of the same price plus a premium, to transfer to the selling party the ownership of the other securities of the same kind. unless otherwise agreed, the premium is for the buying party.

for legal purposes, sale and repurchase agreements are considered as a sale in which an agreement to repurchase the transferred financial assets is executed. notwithstanding, the economic substance of sale and repurchase agreements is that of guaranteed financing in which the buying party provides cash as financing in exchange for obtaining financial assets that serve as protection in the event of default.

sale and repurchase agreements are recorded as indicated below:

when the financial Group acts as the buying party on the contracting date of the sale and repurchase agreements, the withdrawal of funds available or a credit settlement account is recognized, recording an account receivable, initially at the price agreed, which represents the right to recover the cash delivered. the account receivable will be valued subsequently during the useful life of the sale and repurchase agreements at amortized cost, recognizing the interest on the sale and repurchase agreements based on the effective interest method in earnings.

on the contracting date of the repurchase transaction, when the financial Group acts as the selling party, the entry of the cash or asset or a debit settlement account is recognized, as well as an account payable, initially at the price agreed, which represents the obligation to repay such cash to the buying party. the account payable will be valued subsequently during the useful life of the sale and repurchase agreements at amortized cost, recognizing the interest on the sale and repurchase agreements based on the effective interest method in earnings.

when the transactions performed are considered to be cash-oriented, the transaction is intended to obtain cash financing by using financial assets as collateral for such purpose; by the same token, the buying party obtains a return on its investment at a certain rate, and as it is not seeking a specific value, receives financial assets as collateral to mitigate the exposure to credit risk which it faces in relation to the selling party. in this regard, the selling party pays the buying party the interest on the cash that it received as financing, calculated based on the rate negotiated in the sale and repurchase agreements. also, the buying party obtains yields on its investment, whose payment is assured through the collateral.

when the transactions performed are considered to be securities-oriented, the intention of the buying party is to temporarily accept certain specific securities held by the selling party, by granting cash as collateral, which serves to mitigate the exposure to risk faced by the selling party in relation to the buying party. in this regard, the selling party pays the buying party the interest rate negotiated in the sale and repurchase agreements for the implicit financing obtained on the cash that it received, which rate is generally lower by comparison than the rates specified in “cash-oriented” sale and repurchase agreements.

regardless of the economic intent, the accounting for “cash-oriented” or “securities-oriented” repurchase transactions is the same.

collateral granted and received other than cash in sale and repurchase agreements - in relation to the collateral granted by the selling party to the buying party (other than cash), the buying party recognizes the collateral received in memorandum accounts, following the valuation guidelines for the securities established in Criterion B-9, Custody and management of assets, issued by the Commission, in the account named “Custody and management of assets”. the securities vendor presents the financial asset on its consolidated balance sheet as a restricted asset. it then applies valuation, presentation and disclosure standards according to the respective accounting criterion.

memorandum accounts recognized for collateral received by the buying party are cancelled when the sale and repurchase agreements matures or when the selling party defaults.

when the buying party sells the collateral, the proceeds from the sale are recorded and an account payable for the obligation to repay the collateral to the selling party (measured initially at the agreed-upon price) is valued at fair value. if the collateral is pledged as guarantee in another repurchase or resale agreement, it will be measured at amortized cost (any difference between the price received and the value of the account payable is recognized in earnings).

similarly, if the buying party becomes a selling party due to other sale and repurchase agreements with the same collateral received as guarantee of the initial transaction, the interest on the second sale and repurchase agreements must be recognized in earnings as accrued, according to the implied interest method or effective interest method, while also affecting the account payable valued at amortized cost.

Grupo Financiero Santander México, S.a.B. de c.V. and SuBSidiarieS(a Subsidiary of Banco Santander, S.a. (Spain)) (Formerly Grupo Financiero Santander, S.a.B. de c.V.)

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for transactions where the buying party sells or pledges as guarantee the collateral received (for example, when another repurchase or resale agreement securities loan transaction is established), memorandum accounts are used to control the collateral sold or pledged as guarantee, which is valued using the standards applicable to custody transactions included in Criterion B-9 issued by the Commission.

memorandum accounts which are recognized for collateral received that in turn was sold or pledged as guarantee by the buyer, are cancelled when the collateral sold is purchased to return it to the selling party, or when the second transaction matures or the other party defaults.

securities loans - a securities loan is a type of transaction in which the transfer of securities is agreed between the lender and the borrower, with the obligation to return such securities or other substantially similar instruments on a given date, or upon request, with a premium received as consideration. in this transaction, collateral or guarantee in the form of assets permitted under current regulations, other than cash, is requested by the lender from the borrower.

for legal purposes, securities loans are considered a sale in which it is agreed to return the securities in question on a specified date. notwithstanding, the economic substance of securities loans is that the borrower may temporarily use a certain type of security whereby the collateral serves to mitigate the risk exposure faced by the lender in relation to the borrower.

securities loans are recorded as indicated below:

at the contracting date of the securities loan, when it acts as the lender, the financial Group records the securities transferred in connection with the loan as restricted, and applies the applicable rules for valuation, presentation and disclosure in accordance with the respective accounting treatment.

the premium is recorded initially as deferred revenue, recording the debit settlement account or the entry of the cash. the amount of the accrued premium is recognized in earnings through the effective interest method over the effective term of the transaction.

when it acts as the borrower, at the contracting date of the securities loan, the financial Group records the security subject to the loan received in memorandum accounts, following the valuation guidelines established for securities recognized included in Criterion B-9, Custody and management of assets issued by the Commission.

the amount of the premium is recognized initially as a deferred charge, by recording the creditor settlement account or the cash outlay. the amount of the premium earned is recognized in results for the year through the imputed interest method or effective interest method for the effective term of the transaction.

the security subject matter of the transaction, as well as the collateral delivered, are presented as restricted, based on the type of financial asset in question.

the security subject matter of the transaction, as well as the collateral received, are presented in memorandum accounts under the heading of “Collateral received”.

derivatives – the financial Group’s carries out two types of transactions with financial derivatives:

- for hedging purposes – their objective is to mitigate the risk of an open risk position through transactions with financial derivatives.

- for trading purposes – their objective is different from that of covering open risk positions by assuming risk positions as a participant in the derivatives market.

the financial Group recognizes all its derivatives (including hedging derivatives) as assets or liabilities (depending on the related rights and/or obligations) in the consolidated balance sheet, initially at fair value, which presumably is equal to the price agreed in the transaction.

transaction costs that are directly attributable to the purchase of the derivative are recognized directly in earnings.

subsequently, all derivatives are valued at fair value without deducting any transaction costs incurred on the sale or another type of disposal, recognizing the valuation effect earnings under the heading “net gain on financial assets and liabilities”, except when the financial derivative forms part of a cash flow hedging relationship.

the rights and obligations of derivatives that are traded in recognized markets or stock exchanges are considered to have matured when the risk position is closed, i.e., when an opposite derivative with the same characteristics is traded in such market or stock exchange.

the rights and obligations of derivatives that are not traded in recognized markets or stock exchanges are considered to have expired when they reach their maturity date, when the rights are exercised by either party or when the parties early exercise the rights in accordance with the related conditions and the agreed consideration are settled.

derivatives are presented under a specific heading of assets or liabilities, depending on whether their fair value (as a result of the rights and/or obligations they may establish) refers to a debit or credit balance, respectively. such debit or credit balances may be offset subject to compliance with the respective offsetting rules.

derivative assets and liabilities are segregated between derivatives for trading purposes from derivatives for hedging purposes.

Transactions performed for trading purposes

Warrants:

warrants are documents which represent the temporary right acquired by holders in exchange for the payment of a premium to the issue shares or indexes. Consequently, as this right expires at the end of the validity period, holding warrants means recognizing the fact that their intrinsic value and secondary market price may fluctuate based on the market price of the reference assets.

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Forward and future contracts:

the forward and future contracts are those that establish an obligation to buy or sell an underlying asset on a future date at a pre-established quantity, quality and price on a trading contract. Both forward and futures contracts are recorded by the financial Group as assets and liabilities in the consolidated balance sheets at fair value, which is theoretically represents the fair value of rights or obligations, established in the underlying asset purchase-sale contract, to receive and/or deliver the underlying asset, and to receive and/or deliver the cash equivalent to the underlying asset subject specified in the contract.

transaction costs that are directly attributable to the purchase of the derivative are recognized directly in earnings.

differences between the exchange rate agreed in the forward contract for trading purposes and the monthly forward exchange rate, as well as the valuation effects, are recorded in the consolidated statements of income under “net gain on financial assets and liabilities”.

futures entered into for trading purposes are recorded at market value and the difference between such value and the agreed-upon price is recorded in the consolidated statements of income.

for financial information classification purposes, the asset and liability positions of derivatives that have both rights and obligations, such as forwards and futures are offset on a contract by contract basis; if the result is a debit balance, the difference is presented under the asset line item “derivatives”; and if it is a credit balance, under the liability line item “derivatives”.

Option contracts:

options are contracts that, in exchange for a premium, grant the right, but not the obligation, to buy or sell a specified number of underlying instruments at a fixed price within a specified period.

the holder of a call has the right, but not the obligation, to buy from the issuer a specified number of underlying assets at a fixed price (exercise price) within a specified period.

the holder of a put has the right, but not the obligation, to sell a specified number of underlying assets at a fixed price (exercise price) within a specified period.

Considering the rights granted, options are divided into buy options (calls) and sell options (puts).

options may be exercised at the end of the specified period (european options) or at any time during such period (american options); the exercise price is established in the contract and may be exercised at the holder’s discretion. the instrument used to set this price is the reference value or underlying asset. the premium is the price paid by the holder to the issuer in exchange for the rights granted by the option.

the financial Group records the premium paid for the option on the transaction date as an asset or liability. any fluctuations from valuation of the premium at market are recognized in the consolidated statements of income under “net gain on financial assets and liabilities”, with the adjustment to the appropriate consolidated balance sheet account. when an option matures or is exercised, the related premium is canceled against earnings under “net gain on financial assets and liabilities”.

recognized options that represent rights are presented, without offsetting, as a debit balance under the asset line item “derivatives”. recognized options that represent obligations are presented, without offsetting, as a credit balance under the liability line item “derivatives”.

trading option contracts are recorded in memorandum accounts at their exercise price, multiplied by the number of securities, distinguishing between options traded on the stock market from over-the-counter transactions, in order to control risk exposure.

all valuation gains or losses recognized before the option is exercised or before its expiration, are treated as unrealized and are not capitalized or distributed to stockholders until realized in cash.

swaps:

a swap contract is an agreement between two parties establishing a bilateral obligation for the exchange of a series of cash flows within a specified period and on dates previously established.

swaps are initially recognized by the financial Group in the consolidated balance sheet as an asset or liability, at fair value, which presumably is equal to the agreed-upon price.

the financial Group recognizes both an asset and a liability arising from the rights and obligations of the contractual terms, valued at the present value of the future cash flows to be received or delivered according to the projection of the implicit future rates to be applied, discounting the market interest rate on the valuation date using curves provided by the price vendor, which are reviewed by the market risk area.

transaction costs that are directly attributable to the purchase of the derivative are recognized directly in earnings.

subsequently, all derivatives other than hedging derivatives are valued at fair value without deducting any transaction costs incurred during the sale or any other type of disposal, through earnings.

if the counterparty credit risk of a financial asset related to the rights established in the derivatives is impaired, the book value must be reduced to the estimated recoverable value and the loss is recognized in earnings. if the impairment situation subsequently disappears, the impairment is reversed up to the amount of the previously recognized impaired loss, recognizing this effect in earnings when it arises.

a swap contract may be settled in kind or in cash, according to the conditions established.

for purposes of classification in the financial information, with financial derivatives that incorporate rights and obligations at the same time, such as swaps, the asset and liability positions are offset contract by contract; if the offsetting results in a debit balance, the difference is presented as part of the assets, under the heading “derivatives”. if a credit balance is generated, it is presented as part of the liabilities under the heading “derivatives”.

Grupo Financiero Santander México, S.a.B. de c.V. and SuBSidiarieS(a Subsidiary of Banco Santander, S.a. (Spain)) (Formerly Grupo Financiero Santander, S.a.B. de c.V.)

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Derivative hedging transaction

the financial Group’s management carries out derivative transactions for hedging purposes, which involve swap contracts.

the financial assets and liabilities which are designated and comply with the requirements to be designated as hedged items, as well as the derivative financial instruments which form part of the hedge relationship, are recognized in accordance with the Provisions related to hedge accounting for the recognition of the gain or loss on the hedge instrument and of the hedged item, as established in Criterion B-5, derivatives and hedge transactions issued by the Commission.

a hedge relationship qualifies for the use of hedge accounting when all the following conditions are met:

- formal designation and sufficient documentation of the hedge relationship.

- the hedge must be highly effective in achieving the offsetting of the changes in fair value or in the cash flows attributable to the hedged risk.

- for cash flow hedges, it must be highly probable that the forecast transaction that is intended to be hedged will occur.

- the hedge must be reliably measurable.

- the hedge must be evaluated periodically (at least quarterly).

all hedging derivatives are recognized as assets or liabilities (depending on the rights and/or obligations that they contain) in the consolidated balance sheet, initially at fair value, which refers to the price agreed for the transaction.

the result of offsetting the asset and liability positions, whether debtor or creditor, is presented independently of the hedged primary position, forming part of the heading “derivatives”. accrued interest is included in financial margin in the consolidated statements of income.

derivative financial instruments contracted for hedging purposes are valued at the market value and the effect is recognized according to the type of accounting hedge, as follows:

a. fair value hedge- this represents a hedge of exposure to changes in the fair value of recognized assets and liabilities or of unrecognized firm commitments, or a portion of both, which is attributable to a specific risk and which may affect earnings. the primary position for the risk hedged is valued at market and the hedging derivative instrument at market, and the net effect is recorded in earnings under the heading “net gain on financial assets and liabilities”. in fair value hedges, the adjustment to the book value for the valuation of the hedged item is presented under a separate heading on the consolidated balance sheet.

b. Cash flow hedge- this represents a hedge of exposure to variations in the cash flows of a forecast transaction which (i) is attributable to a specific risk associated with a recognized asset or liability, or with a highly probable event, and which (ii) may affect earnings. the hedging derivative instrument is valued at market. the portion of the gain or loss on the hedging instrument that is effective in the hedge is recorded within the comprehensive income account and the ineffective part is recorded in earnings as part of “net gain on financial assets and liabilities “.

the effective hedge component recognized in stockholders’ equity associated with the hedged item is adjusted to equal the lower (in absolute terms) of the accumulated gain or loss of the hedging instrument from the start of the hedge, and the accumulated change in the present value of expected future cash flows of the hedged item from the start of the hedge.

any remaining gain or loss of the hedging instrument is recognized directly in earnings.

the financial Group suspends hedge accounting when the derivative instrument has matured, been sold, is canceled or exercised, when the derivative financial instrument does not attain a high degree of effectiveness to offset changes in the fair value or cash flows of the hedged item, or when the hedge designation is canceled.

By ceasing to apply fair value hedge accounting on a prospective basis, any adjustment to the book value for the valuation of the hedged item attributable to the hedged risk is amortized in earnings. the amortization is carried out based on the straight-line method during the remaining life of the hedged item.

By suspending cash flow hedge accounting, the accrued gain or loss related to the effective part of the hedging derivative that was recorded in the stockholders’ equity as part of comprehensive income, remains in stockholders’ equity until the effects of the forecast transaction or firm commitment affect earnings. if it is no longer probable that the firm commitment or the forecast transaction will take place, the gain or loss that was recognized in the comprehensive income account is recorded immediately in earnings. when the hedge of a forecast transaction initially qualified for hedge accounting, but subsequently is not highly effective, the effects accumulated in comprehensive income within the stockholders’ equity are proportionally carried to earnings to the degree that the forecast asset or liability affects earnings

Packages of derivative instruments quoted on a recognized market as a single instrument are jointly recognized and valued (i.e., without individually disaggregating each derivative financial instrument). Packages of derivative instruments which are not quoted on a recognized market are recognized and valued in a disaggregated manner for each component derivative.

the result of offsetting the asset and liability positions, whether debit or credit, is presented separately from the hedged item, as part of the heading of “derivatives”.

Embedded derivatives - an embedded derivative is a component of a hybrid (combined) financial instrument that includes a non-derivative contract (known as the host contract) in which certain cash flows vary in a manner similar to that of an independent derivative. an embedded derivative causes certain cash flows required by the contract (or even all cash flows) to be modified according to changes in a specific interest rate, the price of a financial instrument, an exchange rate, a price or rate index, a credit rating or index, or other variables allowed by applicable laws and regulations, as long as any non-financial variables are not specific to a portion of the contract. a derivative that is attached to a financial instrument but that contractually cannot be transferred independently from that instrument or that has a different counterparty, is not an embedded derivative but a separate financial instrument (for example, in structured transactions).

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an embedded derivative is separated from the host contract for purposes of valuation and receives the accounting treatment of a derivative if all the following characteristics are met:

a. the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract;

b. a separate financial instrument that has the same terms of the embedded derivative would comply with the definition of a derivative, and

c. the hybrid (compound) financial instrument is not valued at fair value with changes recognized in earnings (for example, a derivative that is not embedded in a financial asset or a financial liability valued at fair value should not be separated).

the effects of the valuation of embedded derivatives are recorded under the same line item in which the host contract is recorded.

a foreign currency embedded derivative in a host contract, which is not a financial instrument, is an integral part of the agreement and therefore closely related to the host contract provided that it is not leveraged, does not contain an optional component and requires payments denominated in:

- the functional currency of one of the substantial parties to the contract;

- the currency in which the price of the related good or service that is acquired or delivered is regularly denominated for commercial transactions around the world.

- a currency which is commonly used in contracts to purchase or sell non-financial items in the economic environment in which the transaction is performed (for example, a stable and liquid currency which is commonly used in local transactions, or in foreign trade transactions).

collateral granted and received for derivatives transactions which are not performed on recognized stock markets or exchanges– the account receivable generated by granting collateral in cash for derivatives transactions which are not performed on recognized stock markets or exchanges is presented under the heading of “other receivables (net)”, while the account payable generated by receiving collateral in cash is presented under the heading of “sundry creditors and other accounts payable”.

Granted collateral other than cash remains under its original heading. the account payable, which represents the assignee’s obligation to restitute sold collateral other than cash to the assignor, is presented in the consolidated balance sheet under the heading of “Collateral sold or pledged as guarantee”.

the collateral other than cash for which a right is granted to enable it to be sold or given in guarantee is presented in memoranda accounts under a specific heading.

foreign currency transactions - foreign currency transactions are recorded at the exchange rate in effect on the transaction date. assets and liabilities denominated in foreign currency are adjusted at the year-end exchange rates determined and published by Central Bank.

revenues and expenses from foreign currency transactions are translated at the exchange rate in effect on the transaction date, except for transactions carried out by the foreign branch, which are translated at the exchange rate in effect at the end of each period.

foreign exchange fluctuations are recorded in the consolidated statements of income of the year in which they occur.

commissions charged and associated costs and expenses - Commissions charged for initial loan granting are recorded as deferred revenues under “deferred revenues and other advances”, and are amortized to earnings under “interest income”, using the straight line method over the life of the loan, except for those related to revolving loans, which are amortized over a 12 month period.

the commissions collected for commission restructuring or renewal are added to those originally generated according to the terms of the preceding paragraph and are recognized as a deferred credit which is applied to results by using the straight line method during the new credit period.

Commissions recognized after the initial loan grant, those incurred as part of the maintenance of such loans, or those collected on undrawn loans are recognized in earnings when they are incurred.

Commissions collected for credit card annual fees, whether the first or subsequent renewal fees, are recognized as deferred revenues under “deferred revenues and other advances”, and are amortized over a 12 month period against earnings under “Commission and fee income”.

the incremental costs and expenses associated with the initial loan grant are recognized as a deferred charge and are amortized against earnings as “interest expense” during the same accounting period in which income from collected commissions is recognized.

any other costs or expenses, including those related to promotion, advertising, potential customers, management of existing loans (follow-up, control, recoveries, etc.) and other ancillary activities related to the establishment and monitoring of loan policies are recognized directly in earnings as incurred under the respective line item that corresponds to the nature of the cost or expense.

Costs and expenses associated with the issuance of credit cards are recognized as a deferred charge, which is amortized to earnings over a 12 month period under the respective line item that corresponds to the nature of such cost or expense.

on the cancellation date of a credit line, the remaining unamortized balance of commission fees collected for credit lines cancelled before the end of the 12 month period are recognized directly in results for the year under the heading “Commissions and fees collected”.

Grupo Financiero Santander México, S.a.B. de c.V. and SuBSidiarieS(a Subsidiary of Banco Santander, S.a. (Spain)) (Formerly Grupo Financiero Santander, S.a.B. de c.V.)

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for the years ended december 31, 2012 and, 2011, the main items for which the financial Group recorded “Commission and fee income” in the consolidated statements of income are as follows:

Description 2012 2011

Credit card $ 4,010 $ 3,333account management 711 590Collection services 1,434 1,256insurance 3,049 2,311investment funds 1,838 1,877financial advice 1,394 1,048Purchase-sale of securities and money market transactions 621 548Checks trading 356 382foreign trade 527 489other 833 690 $ 14,773 $ 12,524

for the years ended december 31, 2012 and, 2011, the main items for which the financial Group recorded “Commission and fee expense” in the consolidated statements of income are as follows:

Description 2012 2011

Credit card $ (1,325) $ (1,003)insurance (87) (76)investment funds (109) (90)financial advice (29) (226)Purchase-sale of securities and money market transaction (161) (147)Checks trading (38) (43)other (821) (707) $ (2,570) $ (2,292)

performing loan portfolio –the financial group has the following criteria to classify the loans as performing portfolio:

- loans that are current in the payments of both principal and interest.

- loans that do not demonstrate the characteristics of non-performing portfolio.

- restructured or renewed loans which have evidence of sustained payment.

non-performing loan portfolio- the financial Group applies the following criteria to classify uncollected loans as non-performing

– loans with a single payment of principal and interest at maturity are considered non-performing 30 days after the date of maturity.

– loans with a single payment of principal at maturity and with periodic interest payments are considered non-performing 90 days after interest is due or 30 days after principal is due.

– loans whose principal and interest payments have been agreed in periodic installments are considered non-performing 90 days after an installment becomes due.

– if debts are composed by revolving credits with two outstanding monthly billing periods or, if the billing period is not monthly, when payments have been outstanding for 60 or more days.

– mortgage loans with periodic partial payments of principal and interest and are considered non-performing when a payment is 90 days or more non-performing.

– Customer checking accounts showing overdrafts will be reported in the non-performing portfolio at the date of the overdraft.

– if the borrower is declared bankrupt, in accordance with the Commercial Bankruptcy law

non-performing portfolio which are restructured or renewed will remain in the non-performing portfolio, until there is evidence of sustained payment; i.e., performance of payment by the borrower without arrears for the total amount due and payable in terms of principal and interest, for at least three consecutive installments under the credit payment scheme, or in the case of credits with installments that cover periods in excess of 60 calendar days, the payment of one installment as established in the accounting criteria of the Commission.

the credit payments referred to by the preceding paragraph must cover at least 20% of principal or the total amount of any interest accrued under payment restructuring or renewal schemes. however, accrued interest recognized in memoranda accounts is not considered for this purpose.

furthermore, loans with a single payment of principal upon maturity and periodic payments of interest that are restructured or renewed during the credit term, are classified as non-performing portfolio until there is evidence of sustained payment, as well as those in which at least 80% of the original term of the credit has not elapsed, which did not cover the total amount of the accrued interest or cover the principal of the original amount of the credit, and which should have been settled as of the date of renewal or restructuring in question.

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the accrual of interest earned on the credit transactions is suspended at the time the credit is classified as non-performing portfolio, including those credits which, in accordance with the respective contract, capitalize interest to the amount of the debt. while a credit remains in the overdue portfolio, accrued interest is recorded in memoranda accounts. when this overdue interest is collected, it is directly recognized in results of the year under the heading of “interest income”.

with regard to ordinary uncollected accrued interest on credits which are considered as non-performing portfolio, the financial Group creates an allowance for the total amount of the interest at the time the credit is transferred to non-performing portfolio.

Classification of the loan portfolio and allowance for loan losses-

the financial Group must classify their portfolios under the following headings:

a. Commercial: direct or contingent loans, including bridge loans denominated in mexican pesos or foreign currency, investment units, multiples of the minimum wage (Vsm) and accrued interest, granted to entities or individuals with business activities for commercial or financial purposes. these credits include those granted to financial entities other than interbank loans for periods of less than three business days, those involving factoring transactions or finance lease transactions performed with entities or individuals; credits granted to trustees acting under the auspices of trusts and credit schemes generally known as “structured” in which a net worth effect allows the associated risks to schemes be individually evaluated. likewise, the credits granted to federal entities, municipalities and their decentralized agencies are also included.

b. housing mortgage: direct loans denominated in mexican pesos, foreign currency, investment units or minimum daily wage (smG), as well as the interest generated, granted to individuals and intended for the acquisition, construction, remodeling or improvement of housing, without any speculative purpose; including those liquidity credits guaranteed by the borrower’s home and those granted for such purposes to the former employees of the credit institution.

c. Consumer: direct loans denominated in mexican pesos or foreign currency, investment units, multiples of the minimum wage (Vsm) and accrued interest granted to individuals as a result of credit card transactions, personal loans, payroll loans (other than those granted through credit cards), loans granted for the acquisition of durable consumer goods and finance lease transactions performed with individuals. loans granted to the former employees of the credit institution are also included.

the financial Group recognizes reserves created to cover credit risks in conformity with such provisions, based on the following:

commercial portfolio:

a. individual method - for borrowers with balances of over 4,000,000 investment units (udis), entails evaluating:

– the creditworthiness of the debtor based on the result obtained from rating, as applicable, 1) the likelihood of default of the borrower using the proprietary methodology authorized by the Commission for these purposes, or 2) the application of the standard methodology, specifically and independently rating country risk, financial risk, industry risk, and payment experience aspects, as established in those provisions.

– a differentiation is made between personal and real collateral, based on an estimate of probable loss. as a result of the analysis of real collateral, loans are classified into two groups, based on the discounted value of collateral: a) loans fully collateralized and b) loans with an exposed portion.

b. non-individualized method - for borrowers with balances less than 4,000,000 udis:

– Parametric calculation of the allowance for loan losses based on the borrower’s payment history over the last 12 months and its credit behavior.

the commercial portfolio is classified every quarter and is filed with the Commission within 30 days following the classification date. the allowance for loan losses is recorded based on the balance of the accounts on the last day of each month, considering the classification levels of the classified portfolio as of the latest known quarter, which includes the updated risks as of the current month-end.

the commercial portfolio rating methodology allows credit institutions to reevaluate the risk inherent to restructured, renewed or assigned credits based on the value of the respective guarantees.

the allowance for loan losses to be established by the financial Group under the individual method equals the amount generated by applying the respective percentage to the collateralized portion and, if applicable, to the unsecured portion of the credit rating, based on the following table:

Table of sites within the range of reserves Risk level Low Intermediate High

a-1 0.50% 0.50% 0.50%a-2 0.99% 0.99% 0.99%B-1 1.00% 3.00% 4.99%B-2 5.00% 7.00% 9.99%B-3 10.00% 15.00% 19.99%C-1 20.00% 30.00% 39.99%C-2 40.00% 50.00% 59.99%d 60.00% 75.00% 89.99%e 100.00% 100.00% 100.00%

Grupo Financiero Santander México, S.a.B. de c.V. and SuBSidiarieS(a Subsidiary of Banco Santander, S.a. (Spain)) (Formerly Grupo Financiero Santander, S.a.B. de c.V.)

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Credit portfolio of States and Municipalities:

on october 5, 2011, the Commission issued a ruling amending the provisions, which modifies the methodology applicable to the portfolio classification of states and municipalities.

Based on the aforementioned change of methodology, when rating the credit portfolio of federal entities and municipalities, the financial Group considers the Probability of default (Pi), loss Given default (sP) and exposure at default (ei). it also classifies the portfolio of federal entities and municipalities into several groups and considers different variables to estimate the noncompliance probability of the commercial portfolio containing credits granted to federal entities and municipalities.

this change in methodology was adopted by the financial Group on september 30, 2011, on which basis the amount of the allowance for loan losses on each credit will be the result of applying the following expression:

where:

ri = amount of allowance for loan losses to be created for the nth credit.Pii = Probability of default on the nth credit.sPi = loss Given default on the nth credit.eii = exposure at default on the nth credit.

the Probability of default on each credit (Pi i), will be calculated by using the following formula:

for purposes of obtaining the respective Pii, the total credit score of each borrower is calculated by using the following expression:

total Credit score = α (PCCt) + (1-α) PCCl

where:

PCCt: quantitative Credit score = ia+ iB + iC

PPCl: qualitative Credit score = iia + iiB

α = 80%

ia = average number of days in arrears with banks (ifB) + % of timely payments with

ifB + % of timely payments with non-bank financial institutions.

iB= number of recognized ratings agencies in accordance with the provisions which provide a rating to the state or municipality.

iC= total debt to eligible participations + debt service to total adjusted revenues + short-term debt to total debt + total revenues to current expense + investment to total revenues + proprietary revenues to total revenues.

iia= local unemployment rate + presence of financial services of regulated entities.

iiB = Contingent obligations derived from retirement benefits to total adjusted revenues + operating balance sheet to local GdP + level and efficiency of collections + soundness and flexibility of the regulatory and institutional framework for the approval and execution of the budget + soundness and flexibility of the regulatory and institutional framework for the approval and imposition of local taxes + transparency in public finances and public debt + issuance of outstanding debt in the securities market.

Unsecured loans

the loss Given default (sPi) on the credits granted to states or municipalities which have no real, personal or credit-based collateral will be:

a. 45%, for senior Positions.

b. 100%, for subordinated Positions or when the credit reports 18 or more months of payment arrears for the amount due and payable under the terms originally agreed.

the exposure to default on each credit (eii) will be determined based on the following:

si = the unpaid balance of the nth credit at the classification date, which represents the amount of credit effectively granted to the borrower, adjusted for accrued interest, less payments of principal and interest, as well as any reductions, amounts forgiven, rebates and discounts granted. in every case, the amount subject to the rating must not include the uncollected accrued interest, recognized in memorandum accounts within the consolidated balance sheet of credits in non-performing portfolio.

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Credit line authorized = maximum authorized amount of the credit line as of the classification date.

the financial Group may recognize the real collateral, personal collateral and credit-based collateral in the estimate of the loss Given default on the credits, with the aim of reducing the allowance derived from the portfolio classification. for such purpose, they will use the provisions established by the Commission.

eligible real collateral may be financial and non-financial. furthermore, only the real collateral which complies with the requirements established by the Commission will be recognize.

up to september 30, 2011, the allowance for the loans granted to states, municipalities and their decentralized agencies was determined as follows:

1. Credits whose balance was equal to or more than a mexican peso equivalent of 4 million udis were classified individually, taking as reference the base classifications which they had been assigned by one of the agencies authorized by the Commission, in accordance with the methodology established in such provisions.

for those credits in which no federal participations or other types of state and municipal revenues are granted, as the related source of payment, or those which are not registered in the registry of obligations and loans of states and municipalities, the degree of risk obtained must be moved two levels higher.

2. Credits whose balance was less than a mexican peso equivalent of 4 million udi’s as of the classification date were classified using the parametric methodology established in the preceding numeral.

3. states, municipalities and their decentralized agencies which had real collateral, once the debtor’s classification was obtained, classified each credit in relation to the value of the real collateral which covered such credits, in accordance with the procedure established in such provisions.

loans intended for investment projects with their own source of payment that were in the construction stage were assessed by considering the cost overrun of the project which may affect the credit institution, the degree that the project was behind schedule, or the startup of the project, and the analysis of the financial run; in the operating stage the risk was determined through the evolution of the financial run, in accordance with the provisions described above.

the portfolio of government entities guaranteed expressly by the federal Government was not subject to classification.

Housing mortgage loan portfolio

as of march 2011 the financial Group, when classifying the housing mortgage loan portfolio, considers the type of credit, the estimated Probability of default of the borrowers, the loss Given default associated with the value and nature of the credit’s collateral and the exposure at default.

furthermore, the financial Group classifies, creates and records the allowances for loan losses on the housing mortgage loan portfolio as follows:

due and Payable amount- amount the borrower has to pay in the billing period agreed, without considering any previous due and payable amounts that were not paid. if the billing is half monthly or weekly, the due and payable amounts of the two half months or four weeks in the month, respectively, must be added up so that the due and payable amount reflects a monthly billing period.

the discounts and rebates may reduce the due and payable amount only when the borrower complies with the conditions required in the credit contract for such purpose.

payment made- totals the payments made by the borrower in the billing period. write-offs, reductions, amounts forgiven, rebates and discounts made to the credit or group of credits are not considered as payments.

if the billing is half monthly or weekly, the payments made for the two half months or four weeks of a month, respectively, must be added up so that the payment made reflects one full monthly billing period.

the variable “payment made” must be more than or equal to zero.

Grupo Financiero Santander México, S.a.B. de c.V. and SuBSidiarieS(a Subsidiary of Banco Santander, S.a. (Spain)) (Formerly Grupo Financiero Santander, S.a.B. de c.V.)

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value of the home vi - the value of the home at the time of the credit origination, restated in accordance with the following:

i. for credits with an origination date prior to January 1, 2000, in two stages:

a) first stage, based on the minimum daily wage (smG)

where:

the value of the home on the origination date reflects the home value ascertained through an appraisal at the time the credit was originated

b) second stage, based on the monthly national Consumer Price index (inPC)

ii. for credits with an origination date prior to January 1, 2000, in accordance with subsection b) of numeral i above

in any case, the home value at the time of the origination may be restated based on a formal appraisal.

credit Balance si - the unpaid balance at the classification date, which represents the amount of the credit effectively granted to the borrower, adjusted for accrued interest, less any insurance payments which were financed, collections of principal and interest, as well as reductions, amounts forgiven, rebates and discounts granted, as the case may be.

days in arrears- number of calendar days at the classification date during which the borrower did not fully settle the due and payable amount under the terms originally agreed.

credit denomination (mon) - this variable will take the value of one (1) when the housing loan is denominated in investment units (udi), minimum wages or a currency other than mexican pesos, and zero when it is denominated in pesos.

completion of file (intExp) - this variable will take the value of one (1) if the selling party of the real estate property participated in obtaining the proof of income or in contracting the appraisal, and zero in any other case.

the total amount of reserves to be created by the financial Group will be equal to the allowance for loan losses, as follows:

where:

ri = amount of allowances for loan losses to be created for the nth credit

Pii = Probability of default on the nth credit.

sPi = loss Given default on the nth credit.

eii = exposure at default on the nth credit.

in any case, the amount subject to the classification must not include uncollected accrued interest recorded on the consolidated balance sheet, of loans classified within non-performing portfolio.

up to february 28, 2011, the financial Group, when classifying the housing mortgage loan portfolio, considered the defaults reported in the billing periods, the Probability of default and/or, as the case may be, the loss Given default associated with the value and nature of the collateral for the credits.

the financial Group classified, created and recorded the allowances for losses on the housing mortgage loan portfolio, with figures as of the last day of each month, in accordance with the following procedure:

i. it stratified the total portfolio based on the number of monthly installments which showed non-performance of the due and payable amount as of the classification date, using the history of payments on each credit, with data for at least nine months prior to such date, classifying it by type of loan, in accordance with that established in the table shown below.

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ii. for each stratum, it created allowances for loan losses by applying the respective percentage of loss Given default to the total amount of the unpaid balance of the credits located in each stratum and, multiplied the percentage of probability of default established in the following table by the result obtained, according to the type of credit. however, the amount subject to classification does not include the uncollected accrued interest recorded on the consolidated balance sheet, of credits which are classified as non-performing portfolio. the uncollected accrued interest on non-performing portfolio was fully provisioned at the time it was transferred.

table applicable to housing mortgage loan portfolio:

Percentage of Percentage of probability of probability of Number of payment Percentage of default default installments in default severity of loss (portfolio 1)(1) (portfolio 2) (2)

0 35% 1% 1% 1 35% 3% 5% 2 35% 7% 15% 3 35% 25% 50% 4 35% 50% 90% 5 35% 95% 95% 6 35% 98% 98% 7 to 47 70% 100% 100% 48 or more 100% 100% 100%

(1) Percentage of allowance applied to the loan portfolio granted as of June 1, 2000.

(2) Percentage of allowance applied to the credits denominated in mexican pesos, restructured in udis, or denominated originally in udis, which were granted before June 1, 2000, or credits granted after this date which were subject to some type of restructuring, or granted at variable interest rates without establishing a maximum rate or when the percentage of income of the borrower dedicated to the payment of the loan at the time the credit was granted exceeds 35%.

to help determine the level of risk, the following table was used based on the ranges of applicable percentages of the allowances: Percentage ranges of allowances Risk level for loan losses

a 0 to 0.99% B 1 to 19.99% C 20 to 59.99% d 60 to 89.99% e 90 to 100.00%

as of february 28, 2011, the classification and creation of the allowance for losses on mortgage loans was made using figures as of the final day of each month and was presented to the Commission at the latest 30 days after the month classified, based on the percentages of allowance applicable to each type of portfolio, as indicated above.

Non-revolving consumer credit portfolio:

as of the month of march 2011, the financial Group, when classifying the non-revolving consumer loan portfolio, determines the respective allowances for losses as of the classification date of the loans, by considering for such purpose the Probability of default, the loss Given default and the exposure at default, as follows:

the total amount of allowances for loan losses on non-revolving consumer portfolio will be equal to the allowances for each loan, as follows:

where:

ri = amount of allowances to be created for the nth credit.

Pii = Probability of default on the nth credit.

sPi = loss Given default on the nth credit.

eii = exposure at default on the nth credit.

the classification and creation of the allowances for loan losses on non-revolving consumer credit portfolio is made using figures as of the final day of each month and is presented to the Commission at the latest 30 days after the month classified, based on the applicable percentages of allowances, as indicated above

the consumer credit portfolio related to credit card transactions:

Grupo Financiero Santander México, S.a.B. de c.V. and SuBSidiarieS(a Subsidiary of Banco Santander, S.a. (Spain)) (Formerly Grupo Financiero Santander, S.a.B. de c.V.)

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at december 31, 2012 and 2011, at the last day of each month, the financial Group classifies, creates and records an allowance for loan losses for the consumer credit portfolio related to credit card transactions, while also considering the following:

Description

Balance payable amount payable as of the cutoff date on which the payment period in which the borrower has to pay the financial Group begins.

Payment made sum of payments made by the borrower during the payment period.

Credit limit maximum authorized limit of the credit line as of the cutoff date on which the payment period begins.

minimum payment due minimum amounts as of the cutoff date on which the payment period that the borrower must cover to comply with his contractual obligation begins.

default event that occurs when the payment made by the borrower does not cover the minimum payment required by the financial Group in the respective account statement.

to estimate the number of defaults, institutions must apply the following table of equivalencies depending on the billing frequency:

Billing Number of defaults

monthly 1 monthly default = 1 default

Bi-weekly 1 bi-weekly default = 0.5 defaults

weekly 1 weekly default = 0.25 defaults

the total allowance amount that must be established by the financial Group for this portfolio is equal to the sum of the reserves for each loan, which are obtained as follows:

where:

ri = amount of allowances to be created for the nth credit.

Pii= Probability of default of the i-th loan.

sPi= loss Given default of the i-th loan.

eii= exposure at default of the i-th loan.

in order to estimate the reserves is necessary to calculate the Probability of default, the loss Given default and the exposure at default.

notwithstanding the provisions of this methodology, the financial Group must not create allowance for loan losses in which simultaneously the balance payable is equal to zero and the payment made is greater than zero. Credit card transactions in which simultaneously the balance payable is equal to or lower than zero and the payment made is zero will be considered inactive and the related reserves will be obtained as follows:

where:

recoverable balance = amount that represents a right for the borrower, resulting from a payment or bonus as of the cutoff date on which the payment period begins.

for classification purposes, inactive card reserves will have a B-1 risk rating.

the percentage used to determine the allowance for each loan is the result of multiplying the Probability of default by loss Given default.

the reserve amount will be the result of multiplying the percentage above by the exposure to default.

the rating and creation of the allowance for loan losses of the consumer portfolio relative to credit card operations are prepared using the amounts as of the last day of each month and are presented to the Commission no later than 30 days after the month classified, based on the allowance percentages applicable to each portfolio type, as discussed above.

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Acquisition of loan portfolios

the contractual value of the portfolio acquired must be recognized under the loan portfolio line item as of the portfolio acquisition date based on the portfolio type classified by the originator; any difference in relation to the acquisition price is recorded as follows:

a) when the acquisition price is lower than the contractual value, in earnings under “other operating income” up to the amount of the allowance for loan losses created as discussed above, and the excess as a deferred credit, which will be amortized as the respective collections are made, based on the percentage they represent of the total contractual value of the loan;

b) when the portfolio acquisition price exceeds its contractual value, it is considered as a deferred charge which is applied as outstanding amounts are collected, based on the proportion they represent of the contractual value of the credit. when the acquisition price is greater than the contractual value, the difference is recognized as a deferred charge that will be amortized when the respective collection is made, in accordance with its percentage of the loan’s contractual value;

c) when related to the acquisition of revolving loans, the difference will be directly recorded in earnings on the acquisition date.

the allowance for loan risks is applied to the results of the year for all kinds of acquired credit, while considering any noncompliance arising since the start of the latter.

portfolio restructured in udis:

the portfolio restructured in udis for trusts is rated according to the rating rules applicable to commercial and mortgage portfolios, as the case may be.

additional portfolio allowance:

at december 31, 2012 and 2011, the financial Group has recorded an allowance for loan losses in addition to the minimum requirements established by the standard model issued by the Commission, which considers the allowance created during the restructuring process, known as the “Commerce fund” authorized by the Commission through document no. 601-i-dGsif “C”-38625 in march 2001. these amounts were provisioned in 2001 and applied to the retained earnings based on the authorization issued by the Commission for the commercial and mortgage portfolio. the total amount of these additional provisions is $115 and $168, respectively. this authorization also establishes that credit portfolio recoveries must be applied to the retained earnings instead of being credited in the consolidated statements of income. for the years ended december 31, 2012 and 2011, the financial Group’s subsidiaries have recovered $61 and $76, respectively.

at december 31, 2012 and 2011, the allowance for loan losses includes the allowance created to cover the cost of credit portfolio support programs.

Evidence of sustained loan payment:

loans with a history of payment noncompliance that will be restructured are maintained in the loan stratum in effect prior to the restructuring, until evidence is obtained of sustained loan payment under the terms established by the Commission.

Restructuring and renewal processes

a restructuring process is a transaction derived from any of the following situations:

a) the extension of guarantees given for the credit in question, or

b) the modification of original credit or payment scheme conditions, which include:

- the modification of the interest rate established for the remainder of the credit period;

- the change of currency or account unit, or

- the concession of a grace period regarding the payment obligations detailed in the original credit terms, unless this concession is granted after the originally-agreed period, in which case it is considered as a renewal.

restructuring transactions do not include those which, at the restructuring date, indicate payment compliance for the total amount due for principal and interest and which only modify one or more of the following original credit conditions:

guarantees: only when they imply the extension or substitution of guarantees for others of higher quality.

interest rate: when the agreed interest rate improves.

currency: provided the respective rate is applied to the new currency.

payment date: only if the change does not mean exceeding or modifying payment periodicity. modifying the payment date must not permit nonpayment in any given period.

a renewal is a transaction which extends the credit duration or maturity date or when the credit is paid at any time by using the proceeds generated by another credit contracted with the same entity in which one of the parties is the same debtor or another individual or entity with net worth connections representing a joint risk. a credit is not considered to be renewed when disposals are made during the term of a pre-established credit line.

Grupo Financiero Santander México, S.a.B. de c.V. and SuBSidiarieS(a Subsidiary of Banco Santander, S.a. (Spain)) (Formerly Grupo Financiero Santander, S.a.B. de c.V.)

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restructured or renewed overdue credits remain in the overdue portfolio until evidence of sustained payment is obtained; i.e., timely borrower payment compliance as regards the total amount due for principal and interest, with a minimum of three consecutive payments within the credit payment scheme or, in the case of credits with payment periods exceeding 60 calendar days, the settlement of one payment, as established by the accounting criterion issued by the Commission.

the credit payments referred to by the preceding paragraph must cover at least 20% of principal or any interest accrued under the restructuring or renewal payment scheme. accrued interest recognized in memoranda accounts is not considered for this purpose.

if a restructuring or renewable process is used to consolidate different loans granted to the same borrower in a single credit, the treatment applied to the total debt balance resulting from this restructuring or renewal process reflects the treatment given to the worst of its component credits.

Current loans other than those with a single principal payment and the payment of interest accrued periodically or at maturity, which are restructured or renewed before at least 80% of the original credit period has elapsed are only considered as current when the borrower has a) settled all accrued interest, and b) paid the principal of the original credit amount which was due at the renewal or restructuring date.

if all the conditions described in the preceding paragraph are not fulfilled, loans are classified as overdue from their restructuring or renewal date and until evidence of sustained payment is obtained.

Current loans other than those involving a single principal payment, the payment of interest periodically or at maturity and which are restructured or renewed during the final 20% of the original credit period are only considered as current when the borrower has a) settled all accrued interest; b) paid the original credit amount due at the credit renewal or restructuring date and, c) paid 60% of the original credit amount.

if all the conditions described in the preceding paragraph are not fulfilled, credits are classified as overdue from their restructuring or renewal date and until evidence of sustained payment is obtained.

Credits involving a single principal payment, the payment of interest periodically or at maturity and which are restructured during the credit period or renewed at any time are classified as overdue portfolio until evidence of sustained payment is obtained.

Credits which are initially classified as revolving and which are restructured or renewed at any time are only considered as current when the borrower has settled all accrued interest, the credit has no overdue billing periods and the elements needed to justify the debtor’s payment capacity are available, i.e., it is highly likely that the debtor will settle the outstanding payment.

other receivables, net – the financial Group has a policy of reserving against results, those accounts receivable identified within 90 days of initial registration and not identified within 60 days following the initial recording, and/or those items which are known to be unrecoverable from initial recognition.

foreclosed assets, (net) - assets acquired through judicial foreclosure are recorded on the date the approval ruling of the bid through which the foreclosure was determined is executed.

Property received in lieu of payment is recorded at the lower of net realizable value or cost on the date on which the related deed is executed or the date that delivery or transfer of the property is formalized.

the recognition value of foreclosed goods is equal to the lower of their cost or fair value after deducting the strictly indispensable costs and expenses incurred for foreclosure purposes.

the valuation methodology used for allowance for losses on foreclosed assets or goods received as payment establishes the quarterly creation of additional provisions to recognize the potential decrease in value of foreclosed assets, whether real property or movable goods, received through legal orders, out-of-court settlements or as payment, as well as collection rights and investments in securities received as foreclosed assets or as payment.

the allowance for losses on foreclosed assets amount is recognized under “other operating income” in earnings, in accordance with the procedure established by the Commission based on the time elapsed as of the foreclosure or payment in kind, by establishing a spread in terms of the deadline and applying a reserve percentage for movable property and real estate.

if realization problems are identified regarding the values of the foreclosed real estate, the financial Group records an additional allowance based on estimates prepared by its management.

if valuations made after the foreclosure or payment in kind result in the recognition of a decrease in value of the collection rights, values, movable property or real estate, the reserve percentages indicated in the provision may be applied to such adjusted value.

property, furniture and fixtures, (net) - Property, installation expenses and leasehold improvements are recorded at acquisition cost. the assets currently on hand that were acquired prior to december 31, 2007 were adjusted for inflation by applying factors derived from the udi from the date of acquisition until such date. the related depreciation and amortization are recorded by applying a percentage determined based on their estimated economic useful lives or, in the case of leasehold improvements, based on the period for which contracts are executed with leaseholders, which is an average of five years, extendable for another similar period when requested by the leaseholder.

when a property is held for sale, it is recorded at the lower of its carrying amount or net realizable value, estimated by the financial Group’s management.

furniture and fixtures are recorded at their acquisition cost; this amount was restated at december 31, 2003 by applying udi factors at that date. as of that date, the acquisition of furniture and fixtures was considered as a monetary item for which the restatement effect was recognized until december 31, 2007 as part of the monetary position result within the results of those years. the respective depreciation is recorded by applying a percentage determined according to the estimated economic useful life of these goods to their restated cost until the date of the most recent restatement or based on acquisitions made since January 1, 2004.

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permanent investments - are represented by investments in associated entities, investment funds managed by Gestora and other permanent investments; accordingly, these amounts are not subject to consolidation with the financial Group. Permanent investments in the shares of associated entities in which the financial Group has control or significant influence are initially recorded at their acquisition cost. they were restated at december 31, 2007 based on a factor derived from the udi at the close of that year. since 2008, the financial Group has recognized the value of this type of investment through the equity method based on the most recent available financial statements, while also recognizing value decreases by using the information provided by the management of these associated entities.

in the case of the investment funds managed by Gestora, the valuation increase was derived from matching the original investment value with its accounting value one day before the yearend close. the effect generated by performing this valuation based on the accounting value is recorded in the consolidated statements of income under the heading of “equity in results of associated companies”.

other permanent investments are recorded at their acquisition cost; the dividends received from these investments are recognized in the results of the year unless derived from the profits of periods prior to the acquisition, in which case they are subtracted from the permanent investment.

income tax - income tax (isr) and the Business flat tax (ietu) are recorded in earnings of the year in which they are incurred. management determines, based on financial and tax projections, whether the financial Group and its subsidiaries will incur isr or ietu, and deferred taxes are recognized based on which tax system the entity is expected to primarily be subject to. the financial Group determines the deferred tax on the temporary differences, tax losses and tax credits, from the initial recognition of the items and at the end of each period. the deferred tax derived from the temporary differences is recognized by using the assets and liabilities method, which compares the accounting and tax values of the assets and liabilities. this comparison produces deductible and taxable temporary differences, which along with tax losses and the tax credit from the un-deducted allowances for loan losses, are then multiplied by the currently enacted tax rate that is projected to be in effect when the temporary differences will reverse, or when the tax benefit carryforward is realized. as of december 31, 2011 and 2010, the financial Group has not recognized deferred employee statutory profit-sharing, because it calculates such obligation based on article 127, section iii of the federal labor law.

the financial Group management records a reserve for certain deferred tax assets to recognize only the deferred tax asset for which there is a high probability of recovery over a short-term period, considering for this treatment the amount generated by the tax credit for un-deducted allowances for loan losses expected to reverse in accordance with the financial and tax projections prepared by management. therefore, the effect of such tax credit is not fully recorded. the deferred tax is recorded either to earnings or stockholders’ equity, depending on the classification of the item originating the deferred tax.

other assets - software, system developments and intangible assets are recorded originally at the face value disbursed, and adjusted for inflation through december 31, 2007, using the factor derived from the udi.

the amortization of software, informatics developments and intangible assets with defined lives is calculated by using the straight line method over their estimated useful lives.

furthermore, the heading of “other assets (net)” includes financial instruments of the pension and retirement fund held in custody by Casa de Bolsa as well as mortgage loans granted to employees with the fund’s resources. Both investments and loans granted make up the fund to cover the obligations for the employee pension plan and seniority premiums.

the investments in securities acquired to cover the pension plan and seniority premium are recorded at market value.

for the purposes of presentation in the consolidated financial statements, if the investment in securities acquired to cover the pension plan and seniority premium exceed the liability recognized, such excess will be presented under the heading of “other assets (net)”. if it is less, such balance will be presented by decreasing the heading of “sundry creditors and other payables”. as of december 31, 2012 and 2011, the balance applicable to Casa de Bolsa is presented under the heading of “other assets (net)” and the balance applicable mainly to the financial Group is presented by decreasing the heading of “sundry creditors and other payables”. at december 31, 2011, the balance of almacenadora somex (an entity liquidated during 2012) is presented under the heading of “other assets”.

impairment of long-lived assets in use - the financial Group reviews the book value of long-lived assets in use when detecting any sign of impairment that could indicate that this book value might not be recoverable, by considering the higher of the present value of net future cash flows or the net sales price, in the event of its disposal. the impairment is recorded when the book value exceeds the higher of the aforementioned values. the impairment indicators considered for this purpose are, among others, operating losses or negative cash flows generated during the period, combined with a history or projection of losses, depreciation and amortization charged to earnings as revenue percentages, are significantly higher than those of prior years, the services rendered, competition and other economic and legal factors.

provisions - Provisions are recognized when there is a present obligation derived from a past event, which will probably result in the use of economic resources, and which can be reasonably estimated.

direct employee benefits - these are valued in proportion to the services rendered, considering the current wages, and the liability is recognized as it is accrued. it includes mainly employee profit sharing (Ptu) payable and incentives (bonuses).

incurred and deferred employee statutory Profit-sharing (Ptu) is presented in the consolidated statements of income under the heading of “administrative and promotional expenses”.

Grupo Financiero Santander México, S.a.B. de c.V. and SuBSidiarieS(a Subsidiary of Banco Santander, S.a. (Spain)) (Formerly Grupo Financiero Santander, S.a.B. de c.V.)

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labor obligations - in accordance with the federal labor law, the financial Group has obligations for severance benefits, pensions and seniority premiums payable to employees who cease rendering their services under certain circumstances; also, there are other obligations derived from the collective bargaining agreement. the financial Group’s policy is to record the liabilities for severance, seniority premiums, pensions and postretirement medical benefits as they are accrued based on actuarial calculations using the projected unit credit method, applying nominal interest rates, as established in note 22 to the consolidated financial statements. therefore, a liability is recognized representing the present value of estimated future cash flows required to settle the obligation for these benefits at the projected retirement dates of all the employees working in the financial Group.

the financial Group amortizes in future periods the actuarial gains and losses for the pension, seniority premium and postretirement medical benefits plans, in accordance with the terms of nif d-3, employee Benefits. in relation to severance payments, the actuarial gains and losses are recognized in earnings when they arise.

share-based payments - the financial Group recognizes share-based payment plans according to nif d-8, share-based payments (nif d-8). under this nif, the financial Group’s compensation plan is considered as a share-based transaction which can be settled with equity instruments. share-based transactions which can be settled through equity instruments assigned to officers who provide their services to the financial Group are valued according to the fair value of these equity instruments at their assignment date. details related to the termination of the fair value of transactions involving share-based payments which are settled through capital instruments are presented in note 28.

the fair value determined on the date when share-based payments made through capital instruments take place is recorded in the consolidated statements of income under the heading of “administrative and promotional expenses” by using the straight line method during the period based on the estimated value of the capital instruments which will eventually be assigned. at the end of each reporting period, the financial Group reviews the estimated number of capital instruments which it expects to assign. if applicable, the effect generated by reviewing these original estimates is recognized in the results of the period in such a way that the accrued expense reflects the reviewed estimate. the respective adjustment is recorded under the heading of “share premium” within stockholders’ equity.

shares held by the treasury – the shares acquired by the financial Group are considered as treasury shares.

Effects of restatement of stockholders’ equity - this represents paid-in capital and other capital restated up to december 31, 2007 using the factor derived from the value of the udis. as of 2008, given that the financial Group operates in a non-inflationary environment, the effects of inflation of the period for contributed and earned capital are not recognized.

financial margin - the financial margin of the financial Group is composed of the difference between total interest income less interest expense.

interest income is composed of the yields generated by the loan portfolio, based on the terms established in the contracts executed with the borrowers, the negotiated interest rates, the application of interest collected in advance, and the premiums or interest on deposits in financial entities, bank loans, margin accounts, investments in securities, sale and repurchase agreements and securities loans, as well as debt placement premiums, commissions charged on initial loan grants, and net equity instrument dividends.

interest expense is composed of premiums, discounts and interest on deposits in the financial Group, bank loans, sale and repurchase agreements and securities loans, and subordinated debentures, as well as debt placement discount and issuance expenses. the amortization of costs and expenses related to initial loan granting is also included under interest expense.

Both interests income and expense are periodically adjusted based on market conditions and the economic environment.

as of december 31, 2012 and 2011, the main items comprising the financial margin are:

2012

Amount (millions) Mexican pesos US dollars Total

interest income: interest and yield on loan portfolio $ 27,505 $ 1,395 $ 28,900 interest and yield on loan portfolio related to credit card transactions 8,264 - 8,264 interest and yield on securities 11,973 70 12,043 interest on funds available 2,386 39 2,425 interest and premium on sale and repurchase agreements and securities loans 2,723 - 2,723 interest on margin accounts 395 13 408 Commissions collected on loan originations 625 - 625total interest income 53,871 1,517 55,388

interest expense: interest from demand deposits (2,158) (7) (2,165) interest from time deposits (5,608) (22) (5,630) interest on bank and other loans (620) (171) (791) interest from credit instruments issued (1,210) (88) (1,298) interest and premium on sale and repurchase agreements and securities loans (11,612) - (11,612)total interest expense (21,208) (288) (21,496)Financial margin $ 32,663 $ 1,229 $ 33,892

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2011

Amount (Millions) Mexican pesos US dollars Total

interest income: interest and yield on loan portfolio $ 22,453 $ 1,096 $ 23,549 interest and yield on loan portfolio related to credit card transactions 6,590 - 6,590 interest and yield on securities 11,418 171 11,589 interest on funds available 2,601 21 2,622 interest and premium on sale and repurchase agreements and securities loans 1,562 - 1,562 interest on margin accounts 176 - 176 Commissions collected on loan originations 592 - 592total interest income 45,392 1,288 46,680

interest expense: interest from demand deposits (1,497) (6) (1,503) interest from time deposits (5,542) (26) (5,568) interest on bank and other loans (667) (114) (781) interest from credit instruments issued (887) (6) (893) interest and premium on sale and repurchase agreements and securities loans (9,129) - (9,129)total interest expense (17,722) (152) (17,874)Financial margin $ 27,670 $ 1,136 $ 28,806

net gain on financial assets and liabilities - as of december 31, 2012 and 2011 the main items comprising the net gain on financial assets and liabilities are as follows:

2012 2011

Valuation result foreign exchange $ (75) $ (36) derivatives (996) (3,129) shares 457 (1,352) debt instruments 126 53 (488) (4,464)

Purchase-sale result foreign exchange 94 1,134 derivatives 983 4,603 shares 1,028 (528) debt instruments 579 143 2,684 5,352Total $ 2,196 $ 888

Earnings per share - Basic earnings per share is calculated by dividing the net majority income from continuing operations (excluding extraordinary items) by the weighted average number of shares outstanding in each period, thus giving a retroactive effect to shares issued due to the capitalization of additional paid-in capital or retained earnings. for the years ended december 31, 2012 and 2011, the average number of weighted outstanding shares was 6,782,806,506 and 6,786,394,913; the basic profit per share derived from continuing operations is $2.62767337 pesos and $2.04233145 pesos (face value) respectively.

comprehensive income - the comprehensive income amount presented in the consolidated statement of changes in stockholders’ equity is the effect of transactions other than those performed with the stockholders of the financial Group during the period and is represented by the net profit plus the recovery effects of the allowance for loan losses which were previously applied to the retained earnings; the valuation effect of securities available for sale; the valuation effect of cash flow hedges; the initial effect derived from the first application of the consumer portfolio rating methodology to credit card transactions; the portfolio of credits granted to federal entities and municipalities and the housing mortgage credit portfolio, according to the accounting criteria and special authorizations issued by the Commission. these amounts were directly recorded in stockholders’ equity, net of the respective income tax.

Grupo Financiero Santander México, S.a.B. de c.V. and SuBSidiarieS(a Subsidiary of Banco Santander, S.a. (Spain)) (Formerly Grupo Financiero Santander, S.a.B. de c.V.)

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statement of cash flows - the consolidated statement of cash flows indicates the financial Group’s capacity to generate cash and cash equivalents, as well as the manner in which it utilizes these cash flows to cover its requirements. the consolidated statement of cash flows is prepared according to the indirect method by using the net result of the period, as required by Criterion d-4, Cash flow statements, of the provisions.

the consolidated statement of cash flows, together with the rest of the consolidated financial statements, provides information that helps to:

• assess changes in the assets and liabilities of the financial Group and in its financial structure.

• assess the amounts and dates of collection and payments to adapt to the circumstances and the opportunities to generate and/or apply funds available.

memoranda accounts- (see note 31) -

– Customer banks, settlement of customer transactions, customers’ securities received in custody, repurchase transactions performed in customers’ names, security loan transactions performed in customers’ names and collateral received in guarantee in customers’ names:

Customers’ cash and securities held in custody, guarantee and administration by the Brokerage house are recorded in the “Customer banks”, “Customer transaction settlement”, “Customers’ securities received in custody”, “repurchase transactions performed in customers’ names”, “security loan transactions performed in customers’ names” and “Collateral received in guarantee in customers’ names” memoranda accounts, which are valued based on the price received from the price supplier.

a. Cash is deposited in credit institution checking accounts other than those of the Brokerage house.

b. securities in custody and administration are deposited in s. d. indeval, s.a. de .C.V. (s.d. indeval).

– Contingent assets and liabilities:

the amount related to an available credit line of $31,320 granted to the financial Group by the Bank of mexico as of december 31, 2012 and 2011, a credit line of $1,297 granted by the financial Group to a foreign financial institution as of december 31, 2012, and the amount of financial penalties determined by an administrative or court authority, including the Commission, is recorded when the obligation to pay these fines is fulfilled and after the appeals process has been exhausted.

– Credit commitments:

this item represents the amounts of unused letters of credit granted by the financial Group, which are considered irrevocable commercial credit.

items under this account are subject to classification.

– Goods held in trust or representation:

the value of goods held in trust is recorded independently of the administration of each individual good. the value of goods held in representation is recorded based on the declared value of goods detailed in the representation contracts executed by the financial Group.

– assets in custody or under administration:

this account includes the activity of third-party assets and securities received in custody or to be managed by the financial Group

– Collateral received:

the balance is composed of all collateral received in sale and repurchase agreements in which the financial Group is the buying party, as well as collateral received in a securities loan transaction where the financial Group is the lender.

– Collateral received and sold or pledged in guarantee:

the balance is composed of all collateral received in sale and repurchase agreements in which the financial Group is the buying party that in turn is sold by the financial Group as a selling party. this balance also includes the obligation of the borrower (or lender) to return to the lender (or borrower) the assets subject to the loan transaction carried out by the financial Group.

– uncollected, accrued interest derived from the overdue portfolio:

accrued interest is recorded in memoranda accounts when credits are transferred from the current portfolio to the overdue portfolio.

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4. funds availaBlE

as of december 31, 2012 funds available were as follows:

2012 2011

Central Bank account, net (1) $ 31,423 $ 31,437time deposits (2) 115 1,226“Call money” transactions granted (3) 26,822 3,401Cash 16,966 12,706foreign correspondents and mexican banks, net 1,483 1,401foreign currency purchase-sale transactions (settled in 24-48 hours) 4,817 16,427 Total funds available $ 81,626 $ 66,598

(1) as of december 31, 2012 and 2011, Central Bank account includes compulsory deposits made by the financial Group of $31,320 in both years. as the term of this compulsory deposit is indefinite, Central Bank will timely notify the date and procedure to withdraw the respective balances. interest on the deposits is payable every 28 days at the rate established in the regulations issued by Central Bank.

(2) at december 31, 2012 and 2011, the financial Group has time deposits with mexican banks for the amount of $113 and $136, for a 182-period and with a 1.5% interest rate, respectively. as of december 31, 2011, the deposits mainly include $43 related to deposits that the financial Group holds in Banco santander, (new york) and $1,046 with a foreign financial entity, at a term of 7 days and a rate of 4.9% and 0.45%, respectively.

(3) “Call money” transactions represent interbank loan transactions agreed for periods equal to or less than 4 or 2 business days; as of december 31, 2012 and 2011, these transactions are as follows:

2012

Counterparty Days Rate Balance

(mexican pesos)(domestic bank) 2 4.30% - 4.50% $ 13,208(Foreign currency)(foreign financial institution) 2 0.03% - 0.19% 13,614 $ 26,822

2011

Counterparty Days Rate Balance

(mexican pesos)(domestic bank) 3 4.50% $ 1,867(foreign currency)(foreign financial institution) 4 0.11% 1,534 $ 3,401

foreign exchange receivable and deliverable on purchases and sales to be settled in 24 and 48 hours as of december 31, 2012 and 2011, consists of the following:

2012

Foreign currency Mexican Pesos (Millions of US dollars)

Purchase of foreign exchange receivable in 24 and 48 hours us dollar 2,135 $ 27,677sale of foreign exchange to be settled in 24 and 48 hours us dollar (1,763) (22,860) 372 $ 4,817

2011

Foreign currency Mexican Pesos (Millions of US dollars) Foreign currency

Purchase of foreign exchange receivable in 24 and 48 hours us dollar 2,112 $ 29,451sale of foreign exchange to be settled in 24 and 48 hours us dollar (934) (13,024) 1,178 $ 16,427

when the foreign exchange deliverable or receivable on the sales and purchases are recorded under the heading of “funds available”, the settlement accounts of the counter value of these transactions are recorded net in the consolidated balance sheet under the headings of “other receivable, (net)” and “Creditors from settlement of transactions”.

Grupo Financiero Santander México, S.a.B. de c.V. and SuBSidiarieS(a Subsidiary of Banco Santander, S.a. (Spain)) (Formerly Grupo Financiero Santander, S.a.B. de c.V.)

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5. margin accounts

as of december 31, 2012 and 2011 margin accounts for collateral submitted on derivative transactions in organized markets are as follows:

Type of collateral 2012 2011

mexder, mercado mexicano de derivados, s.a. de C.V. Cash $ 2,796 $ 7,569Chicago mercantile exchange Cash 191 265mexder, mercado mexicano de derivados, s.a. de C.V. shares 817 366Banco santander, s.a. (spain) Cash 191 76 $ 3,995 $ 8,276

Guarantee deposits cover positions operated on the mexican derivatives market (mexder), the futures detailed in the mexican stock exchange index of Prices and quotations (iPC), m20 Bond rates, m30 Bond rates, the tiie 28-day rate, swaps, dollar Currency (deua), iPC futures options, and the Chicago mercantile exchange (Cme) and futures issued by standard & Poor’s (s&P).

6. invEstmEnt in sEcuritiEs

trading securities- as of december 31, trading securities were as follows:

2012 2011

Acquisition Accrued (Loss) cost interest Gain Total Total

debt instruments: Government securities- federal treasury securities (Cetes) $ 22,904 $ 10 $ 13 $ 22,927 $ 44,322 united mexican states Bonds (ums) 141 3 (1) 143 284 Brazilian Government Bonds 50 11 2 63 68 us treasury Bills (tBills) 61 - - 61 13 development Bonds (Bondes) 15,841 5 34 15,880 1,066 m and m10 mexican Government Bonds (m Bonds) 7,741 - (3) 7,738 34,158 mexican Bank saving Protection Bonds (BPats) 22,810 1 69 22,880 41,501 federal mexican Government development Bonds in udis (udiBonds) 15,907 9 1 15,917 13,501 Private bank-issued securities- obligations 10 - (10) - - unsecured Bonds 1,360 - (2) 1,358 1,989 investment funds - - - - - Commercial paper - - - - 12Private securities: unsecured Bonds 459 - - 459 888 Convertible debt securities 738 6 17 761 881Capital market instruments: shares listed in stock exchanges 10,710 - 772 11,482 10,174 investments in investment funds 169 - 2 171 138Value date transactions (not settled): Government securities - federal treasury securities (Cetes) 16,561 - (5) 16,556 407 federal mexican Government development Bonds (Bondes) - - - - (2) m and m10 mexican Government Bonds (m Bonds) 556 - - 556 6,140 federal mexican Government development Bonds in udis (udiBonds) 330 - - 330 413 mexican Bank saving Protection Bonds (BPats) (100) - - (100) - Private bank-issued securities unsecured Bonds 1 - - 1 - Total trading securities $ 116,249 $ 45 $ 889 $ 117,183 $ 155,953

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at december 31, 2012 and 2011, the investment in Cetes and udiBonds includes the amount of $7,053 and $14,124, respectively, which refers to the guarantee provided for securities loan transactions in which the lender is Bank of mexico and other institutions. at december 31, 2012 and 2011, the liability portion of $6,853 and $15,478, respectively, is recorded under the “Collateral sold or pledged as guarantee” consolidated balance sheet heading and composed as follows: 2012 2011

Loan term in days Amount Loan term in days Amount

asset guarantee: Central Bank- Cetes - $ - 3 $ 14,124 udiBonds 2 6,697 - - 6,697 14,124 other institutions- Cetes 14 356 - - 356 - $ 7,053 $ 14,124

liability loan Central Bank- Cetes 2 $ 612 3 $ 4,497 m Bonds 2 3,672 3 8,046 udiBonds 2 2,274 3 1,094 6,558 13,637 other institutions- shares listed in stock exchanges 14 295 21 1,841 295 1,841 $ 6,853 $ 15,478

as of december 31, 2012 and 2011, the trading securities position includes the following securities, that are under sale and repurchase agreements, at market value:

2012 2011

Government securities- federal Government development Bonds (Bondes) $ 9,052 $ 1,066 m and m10 Bonds 7,737 32,583 savings Protection Bonds (BPats) 18,648 26,550 treasury Bills (Cetes) 22,571 29,228 federal Government development Bonds in udis (udiBonds) 7,331 13,501 subtotal 65,339 102,928Bank securities - unsecured bonds 583 599 subtotal 583 599Private securities - unsecured bonds 458 459 subtotal 458 459 Total $ 66,380 $ 103,986

this position is considered restricted within trading securities.

as of december 2012, positions greater than 5% of the financial Group’s net capital in debt securities with a sole:

Issuer Date of maturity % Rate Restated value

mx2PPe050004 16/Jul/2015 9.91 $ 3,868us706451Bf73 15/dec/2015 5.75 1,615 $ 5,483

as of december 2011, positions greater than 5% of the financial Group’s net capital in debt securities with a sole issuer (other than government securities) are as follows:

Issuer Date of maturity % Rate Restated value

us71656maf68 28/sep/2015 6.63 $ 10us70645kaJ88 15/dec/2014 7.38 31us706451Bf73 15/dec/2015 5.75 1,808mx2PPe050004 16/Jul/2015 9.91 3,974 $ 5,823

Grupo Financiero Santander México, S.a.B. de c.V. and SuBSidiarieS(a Subsidiary of Banco Santander, S.a. (Spain)) (Formerly Grupo Financiero Santander, S.a.B. de c.V.)

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during december 2011, management transferred financial instruments from the category of “trading securities” to that of “securities available for sale” in order to align the management strategy with the dynamics of the financial Group’s current operation. this transaction was authorized by the Commission through document numbers 113-1/23632/2011 and 113-1/51801/2012, which were received on december 20, 2011 and January 5, 2012, respectively.

the financial Group transferred securities with an amortized cost basis of $10,688 and a market value of $11,580 from this category to that of “securities available-for-sale”, as explained below :

Fair value at Issuer Number of securities Average interest rate November 30, 2011

mexican Pesos: Pemex 33,607,671 5.54% $ 4,003 strips Bonds 422,239,039 5.44% 3,378 7,381

foreign currency ums 116,916 2.45% 2,402 Pemex 111,588 1.56% 1,797 4,199 $ 11,580

Exchange offer for Hipotecaria Su Casita SOFOL bonds

in april 2011 and after receiving authorization from the Commission, su Casita announced a national public offering for the voluntary acquisition and reciprocal subscription of long-term unsecured bonds under trading board codes Casita 06, Casita 06-2, Casita 07, Casita 07-2 y Casita 07-3. similarly, the outstanding balance of short-term unsecured bonds was offered under trading board codes Casita 01810, Casita 01910, Casita 02010, Casita 02110,Casita 02210, Casita 02310 and Casita 02410 (the “exchange offering”).

at the June 2011 close, the financial Group cancelled the account receivable of $63 and the respective allowance, which was recognized during 2010, so as to record new certificates derived from the restructuring process. accordingly, 693,000 certificates with a market value $22 were recorded under the heading of “trading securities”, while a further 2,252,229 certificates with a market value of $71 were recorded under the heading of “securities available for sale”. the new certificates are valid for a period of 2,556 days as of their issuance date. this issuance has been rated as having a high counterparty risk with a level of ‘CC (mex)’ for long-term certificates and ‘C (mex)’ for short-term certificates.

on december 31, 2012, “su Casita” declared bankruptcy after having defaulted on its obligations. the financial Group reserved the entire market value of the 693,000 and 2,252,229 securities which were restructured in June 2011. the reserved market value is $13.

similarly, on october 1, 2012, during the meeting of stockholders’ of sociedad Crédito inmobiliario, the shareholders’ resolved to declare that company bankrupt. Based on this event, the financial Group decided to reserve the entire position composed by the securities of Crédito inmobiliario, which included 146,845 CinmoBi00712 securities, 1,372,960 CinmoBi00912 securities and 45,482 CinmoBi 01212 securities; the total reserved value was $16.

Exchange of Unsecured bonds for convertible debt securities –

in december 2009, Cementos mexicanos, s.a.B. de C.V. (Cemex) made a public offering in the mexican stock exchange aimed at the holders of unsecured bonds issued in mexico by Cemex. the financial Group exchanged 10,510,900 unsecured bonds of the Cemex 08, Cemex 06, Cemex 06-03 and Cemex 07-2 series into 118,100 debt securities convertible into common stock. there is a ten year conversion term with quarterly payment of coupons at 10% per year, provided the conversion is not made in an advanced or compulsory manner.

as of december 31, 2012 and 2011, the market value of these debt securities was $761 and $881, respectively, and they have generated a (loss) gain for the years ended december 31, 2012 and 2011 of $(93), $(74), respectively, that is recorded under “net gain on financial assets and liabilities ” in earnings.

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securities available for sale - as of december 31, are comprised as follows:

2012 2011

Acquisition Accrued Unrealized gain Cost Interest (loss) Total Total

debt instruments: Government securities- m, m0, m3 and m5 Bonds $ 15,187 $ 37 $ 404 $ 15,628 $ 23,099 united mexican states Bonds (ums) 2,160 59 45 2,264 2,444 BPat’s 6,256 25 5 6,286 8,568 udibonds 4,313 184 460 4,957 4,340 federal Government development Bonds (Bondes) 11,989 175 55 12,219 17,128 Private bank securities - Bank unsecured bonds 501 - 1 502 74 Private unsecured bonds - - - - 5,784 Pemex Bonds 5,552 22 (91) 5,483 - Capital market instruments- shares listed in stock exchanges 21 - 13 34 24 Total securities available for sale $ 45,979 $ 502 $ 892 $ 47,373 $ 61,461

as of december 31, 2012 and 2011, of the Government securities related to m Bonds, m10 Bonds, Bondes, udiBonds, ums and Private unsecured bonds, the amounts of $7,805 y $19,340, respectively, have been repurchased, for which reason they are considered as a restricted position.

Sale of Master Card and Visa Inc. position

in march 2011, the financial Group sold 73,733 class “B” shares of master Card and 485,396 class “C” shares of Visa, which were maintained as securities available-for-sale. the sales price per share was us$ 243.4 and us$ 71.6, respectively. a profit of $367 was generated by these transactions, which was recorded under “net gain on financial assets and liabilities” in earnings.

securities held to maturity - as of december 31, were as follows:

2012 2011

Government securities- special Cetes - program of credit support and additional benefits to the states and municipalities $ 2,246 $ 2,151 special Cetes - support program for housing loan debtors 3,217 3,083 total securities held to maturity 5,463 5,234less- reserve for special Cetes (373) (373) Total securities held to maturity, net $ 5,090 $ 4,861

as mentioned on march 30, 2000, the Board of directors of Banca serfin (entity merged with the financial Group) approved the creation of a $1,887 million (face value) reserve with respect to the balance of long-term udi-denominated special Cetes (reserve for special Cetes) (which mature between 2017 and 2022), recorded by Banca serfin in march 2000. this reserve was applied to retained earnings at that date, based on the authorization granted by the Commission through official letter no. 601-ii-424, of april 10, 2000. according to this authorization, Banca serfin should proportionally release or cancel the reserves based on Banca serfin’s collections through the udis restructured portfolio trusts. at december 31, 2012 and 2011, this reserve amount is $373.

as discussed in note 10, the Group executed an agreement for the early settlement of debtor support programs because credit institutions considered the termination of these programs to be appropriate.

Grupo Financiero Santander México, S.a.B. de c.V. and SuBSidiarieS(a Subsidiary of Banco Santander, S.a. (Spain)) (Formerly Grupo Financiero Santander, S.a.B. de c.V.)

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7. salE and rEpurchasE agrEEmEnts

when the financial Group acts as purchaser:

December 2012

Debtors in Collateral received and repurchase sold for repurchase agreements agreements Position-net

Government securities- federal Government development Bonds (Bondes) $ 53,487 $ (51,275) $ 2,212 treasury Bills (Cetes) 4,000 (1,618) 2,382 subtotal 57,487 (52,893) 4,594Private Bank securities- unsecured bonds 5,681 (804) 4,877 Total $ 63,168 $ (53,697) $ 9,471

December 2011

Debtors in Collateral received and repurchase sold for repurchase agreements agreements Position-net

Government securities- federal Government development Bonds (Bondes) $ 17,604 $ (16,967) $ 637 treasury Bills (Cetes) - (5) (5) subtotal 17,604 (16,972) 632

Bank securities- unsecured bonds 3,886 (680) 3,206 Bank promissory note 99 - 99 subtotal 3,985 (680) 3,305

Private securities- unsecured bonds - (459) (459) Total $ 21,589 $ (18,111) $ 3,478

as of december 31, 2012 and 2011, premiums collected and paid on sale and repurchase agreements are $2,722 and $1,482, respectively.

as of december 31, 2012 and 2011, the repurchase transactions performed by the financial Group, acting as purchaser, were agreed at terms ranging between 2 and 41 days.

when the financial Group acts as seller:

2012 2011

Government securities- federal Government development Bonds (Bondes) $ 21,908 $ 21,201 treasury Bills (Cetes) 22,497 27,521 m and m10 Bonds 6,965 35,157 savings Protection Bonds (BPats) 9,301 12,979 federal Government development Bonds in udis (udiBonds) 7,330 17,688 united mexican states Bonds (ums) 104 2,301 subtotal 68,105 116,847Bank securities- unsecured bonds 1,317 77 subtotal 1,317 77Private securities- unsecured bonds 3,868 3,666 subtotal 3,868 3,666 Total $ 73,290 $ 120,590

as of december 31, 2012 and 2011, premiums collected and paid on sale and repurchase agreements are $11,002 and $8,276, respectively.

as of december 31, 2012, the repurchase transactions performed by the financial Group, acting as seller, were agreed at terms ranging between 2 and 28 days.

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8. dErivativEs

as of december 31, the financial derivatives instruments positions are as follows:

2012 2011

Nominal Asset Nominal Asset Asset position amount position amount position

futures- foreign currency futures $ 389 $ 9 $ 1,586 $ 48 interest rate futures 200 - 6,149 26 index futures 5,925 43 3,789 64forwards- foreign currency forwards 87,946 1,457 65,070 4,245 interest rate forwards 5,000 4 1,600 35 equity forwards 5,497 90 4,848 117options- foreign currency options 7,649 131 24,661 629 interest rate options 190,123 1,892 123,025 1,863 index options 5,890 506 10,256 824 equity securities options 5,521 745 10,603 925swaps- interest rate swaps (irs) 1,406,602 48,917 1,411,802 49,123 Cross currency swaps (CCs) 295,667 26,527 255,728 27,182 total trading 2,016,409 80,321 1,919,117 85,081swaps- Cash flow hedge (irs) 17,725 244 28,535 842 fair value hedge (CCs) 4,101 56 3,860 55 total hedge 21,826 300 32,395 897 Total position $ 2,038,235 $ 80,621 $ 1,951,512 $ 85,978

2012 2011

Nominal Liability Nominal Liability Liability position amount position amount position

futures-foreign currency futures $ 741 $ 5 $ 373 $ 16 interest rate futures 517,029 1,386 1,945,481 3,894 index futures 3,906 36 4,645 111forwards- foreign currency forwards 83,841 1,278 98,520 5,714 interest rate forwards - - 1,740 35 equity forwards 5,331 158 8,210 224options- foreign currency options 8,201 129 25,163 663 interest rate options 233,099 3,352 192,249 4,210 index options 4,261 271 12,535 714 equity securities options 4,340 415 7,080 851index warrants 1,424 393 88,302 414swaps- interest rate swaps (irs) 1,524,625 43,495 1,376,177 43,655 Cross currency swaps (CCs) 334,378 27,021 237,504 27,647 Total trading 2,721,176 77,939 3,997,979 88,148

swaps- fair value hedge (CCs 20,039 1,333 20,572 2,354 fair value hedge (irs) 7,895 289 2,832 147 total hedge 27,934 1,622 23,404 2,501 Total position $ 2,749,110 $ 79,561 $ 4,021,383 $ 90,649

the valuation effect of “over the Counter” (otC) derivative financial instruments held for trading purposes is recorded in the consolidated statements of income in the “net gain on financial assets and liabilities” account. at december 31, 2012 and 2011, the recognized surplus value (shortfall) was $1,098 and $(3,663).

Grupo Financiero Santander México, S.a.B. de c.V. and SuBSidiarieS(a Subsidiary of Banco Santander, S.a. (Spain)) (Formerly Grupo Financiero Santander, S.a.B. de c.V.)

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derivatives and the underlying assets are as follows:

Futures Forwards Options Swaps CCS Warrants

deua Bonds-Cetes equity-aaPl Cetes euriBor Gmxs&P equity-iBoVesPa equity-ComParC euriBor liBor sPxiPC equity-iPC equity-iCa liBor tiie iPCswaP equity-irt.mx equity-amxl tiie Cdi wmxtiie28 equity-kof.mx equity-eem aPlm equity-estx50 equity-Gfnorte Cmx equity-s&P equity-GmexiCo eem fx-eur equity-GfinBur fx-us equity-tleVisa equity-walmex equity-iBex equity-iPC equity-s&P equity-BVsP fx-eur fx-us fx-inr C&f-tiie C&f-liBor

as of december 31, 2012 and 2011, the guarantees and/or collateral received and delivered for the “over-the-Counter (otC)” derivative financing transactions which were not performed on recognized stock markets or exchanges are as follows:

Delivered

Heading Type of collateral 2012 2011

other receivables (net)foreign financial entity Cash $ 14,518 $ 15,003mexican financial entity Cash 2,767 3,261 $ 17,285 $ 18,264

trading securitiesforeign financial entity Government bonds $ 1,101 $ 1,514 $ 1,101 $ 1,514

Received

Heading Type of collateral 2012 2011

sundry creditors and other accounts payableforeign financial entity Cash $ 4,016 $ 2,234mexican financial entities Cash 1,709 1,108 $ 5,725 $ 3,342

in the case of “over the Counter (otC)” derivatives transactions which are not performed on recognized stock markets or exchanges, the financial Group agrees to deliver and/or receive collateral to cover any exposure to market risk and the credit risk of such transactions. such collateral is contractually agreed to with each of the counterparties.

Currently, debt securities, are posted as collateral for transactions with domestic finance companies; cash deposits and securities are used for transactions with foreign financial entities and institutional customers.

Management of derivative financial instrument usage policies

the policies of the financial Group allow the use of derivatives for hedging and/or trading purposes.

the main objectives of these products are covering risks and maximizing profitability.

the instruments used are:

forwards futures options swaps warrants

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according to the portfolios, implemented strategies can be of a hedge or trading nature.

trading markets:

listed over the Counter (otC)

trading markets are listed and otC, in which eligible counterparties may be domestic and foreign with internal authorizations.

the designation of calculation agents is determined in the legal documentation signed with counterparties. the prices published by authorized Price suppliers are used to value derivative financial instruments.

the main terms or conditions of the contracts are based on the international swap dealers association (isda) or a local outline agreement.

the specific policies on margins, collateral and lines of credit are detailed in the internal manuals of the financial Group.

Authorization levels and processes

Pursuant to internal regulations, all products and services marketed by the financial Group are approved by the local Committee of new Products (ClnP) and the Global Committee of new Products (CGnP). Products or services whose original authorization is amended or increased require the approval of the ClnP and, depending on their significance, of the CGnP as well.

all of the areas involved in the operation of the product or service, depending on their nature, as well as those responsible for their accounting, legal documentation, tax treatment, risk assessment. participate in the Committee. the authorizations of the Committees must be unanimous as there are no authorizations granted by a majority of members. in addition to the Committees’ approval, certain products require the authorization of local authorities; therefore, the approvals of the Committees are conditional upon the authorization required by competent authorities, as applicable.

finally, all approvals are presented to the Comprehensive risk management Committee (Cair) for authorization.

Independent reviews

the financial Group is subject to the supervision and oversight of the Commission, Central Bank and Bank of spain, which are exercised through follow-up processes, inspection visits, information and documentation requirements and submission of reports.

likewise, periodic reviews are performed by internal and external auditors.

Generic description of valuation techniques

derivative financial instruments are valued at their fair value according to the accounting standards detailed in the sole Circular for Credit institutions issued by the Commission through Criterion B-5, derivative financial instruments and hedge transactions.

Valuation methodology

1. for trading purposes:

a. organized markets:

the valuation is made using the closing price of the respective market and the prices are provided by a price supplier.

b. over-the-Counter” markets (otC):

i. derivative financial instruments with optionality.-

in most cases, a generalized form of the Black and scholes model is used, which assumes that the underlying asset follows a lognormal distribution. for exotic products or when the payment depends on the trajectory of a market variable, monte Carlo simulations are used for valuation purposes. in this case, the assumption is that the logarithms of the variables involved follow a multivariate normal distribution.

ii. derivative financial instruments without optionality-

the valuation technique is to obtain the present value of future estimated flows.

in all cases, the financial Group values its positions and records the value obtained. however, in certain cases a different calculation agent is established, which could be the same counterparty or a third party.

2. for hedging purposes:

in its commercial banking activity, the financial Group has attempted to cover the evolution of the financial margin of its structural portfolios exposed to adverse shifts in interest rates. the assets and liabilities Committee (alCo) the body responsible for managing long-term assets and liabilities, has been building the portfolio with which the financial Group obtains such coverage.

a transaction is classified as an accounting hedge when the following conditions are met:

a. the hedging relationship is designated and documented at the beginning in an individual file, setting its objective and strategy.

b. the hedge is effective for purposes of offsetting variances in fair value or cash flows attributable to the hedged risk, consistently with the initially documented risk management.

Grupo Financiero Santander México, S.a.B. de c.V. and SuBSidiarieS(a Subsidiary of Banco Santander, S.a. (Spain)) (Formerly Grupo Financiero Santander, S.a.B. de c.V.)

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management of the financial Group uses swaps for derivative hedging transactions.

derivatives for hedging purposes are valued at market value and the effect is recognized in accordance with the type of accounting hedge, as follows:

a. for fair value hedges, the hedged risk of the primary position and the derivative hedging instrument are valued at market, recording the net effect in earnings.

b. for cash flow hedges, the derivative hedging instrument is valued at market. the effective portion of the hedge is recorded in stockholders’ equity under comprehensive income and the ineffective portion is recorded in earnings.

the financial Group suspends hedge accounting when the derivative has matured, has been sold, cancelled or exercised, when it does not reach a sufficiently high effectiveness level to offset the changes in the fair value or cash flows of the hedged item, or when the hedging designation is cancelled.

it must be shown that the hedge effectively complies with the objective for which the derivatives were contracted. this effectiveness requirement assumes that the hedge must comply with a maximum deviation range of 80% to 125% in regard to the initial objective.

the effectiveness of the hedges must be proven by applying two tests:

a. Prospective test: shows that in the future the hedge will remain within the maximum range.

b. retrospective test: reviews whether the hedge has remained within the maximum range from its establishment to date.

at december 31, 2012 and 2011, fair value and cash flow hedges are prospectively and retrospectively efficient and are located within the maximum permitted departure range.

3. reference variables

the most relevant reference variables are:

exchange rates interest rates shares Baskets and share indexes.

4. Valuation frequency

derivative financial instruments for trading purposes are valued daily; those for hedging purposes are valued daily.

Management of internal and external liquidity sources that may be used for requirements related to financial instruments -

resources are obtained through the domestic and international treasury areas.

Changes in the exposure to identified risks, contingencies, and known or expected events of derivative financial instruments -

as of december 31, 2012 and 2011, the financial Group does not have any situations or contingencies, such as changes in the value of the underlying assets or reference values, which may mean that the use of the derivatives may differ from their original use, significantly modify their scheme or imply a full or partial loss of coverage that may require the issuer to assume new obligations, commitments, or cash flow variances that affect its liquidity (for margin calls); or contingencies or events that are known or expected by management of the financial Group, which may affect future reports.

during 2012, the number of matured derivative financial instruments and closed positions was as follows (unaudited):

Closed Description Maturities positions

Caps and floors 821 27equity forward 173 52otC equity 7,880 282otC fx 2,968 340swaptions 83 1fx forward 3,113 294irs 1,477 2,397CCs 172 61forward bond 36 -

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during 2011, the number of matured derivative financial instruments and closed positions was as follows (unaudited):

Closed Description Maturities positions

Caps and floors 734 17equity forward 247 48otC equity 9,469 144otC fx 2,125 203swaptions 42 -fx forward 5,781 990irs 1,996 7,737CCs 124 32forward bond 35 -

the number of margin calls made during 2012 and 2011 was that necessary to cover both contributions in organized markets and those required in collateral agreements.

during 2012 and 2011, no counterparty noncompliance was reported.

Impairment of derivative financial instruments -

as of december 31, 2012and 2011, there is no indication of impairment in credit risk (counterparty) that would require a modification in the book value of the financial assets related to the rights established in the derivative financial instruments.

Derivative financial instrument transactions for hedging purposes

as of december 31, 2012 and 2011, the financial Group presents swap (interest rate and Cross Currency) hedging transactions which are intended to hedge the financial margin with cash flow hedges and fair value hedges throughout the hedge period.

Quantitative information

Fair value hedges

at december 31, 2012 and 2011, applicable hedges are equal to a nominal hedged amount of $10,561 and $2,832, (face value), respectively. the hedge item is commercial portfolio.

as of december 31, 2012, the positions of derivatives held as fair value hedges are as follows:

Face value Instrument and Instrument in millions risk being hedged

swap irs 2,600 mexican pesos Commercial portfolio – interest rate riskswap CCs 206 us dollars Commercial portfolio – interest rate riskswap irs 408 us dollars Commercial portfolio – interest rate risk

as of december 31, 2011, the hedging derivative positions (fair value) are as follows:

Face value Instrument and Instrument in millions risk being hedged

swap irs 2,832 mexican pesos Commercial portfolio – interest rate risk

the fair value hedges carried out by the financial Group are extended in certain cases up to the year 2023.

the net accrued loss as of december 2012 and 2011, which represents the ineffectiveness of the fair value hedges, is $(35) y $(12), respectively.

for the years ended december 31, 2012 and 2011, the valuation effect of the hedged items for fair value hedging purposes recorded in the consolidated statements of income in the account “net gain on financial assets and liabilities” is $88 and $115, respectively.

for the years ended december 31, 2012, and 2011, the effect of the valuation for the period of derivative financial instruments for fair value hedging purposes recorded in the consolidated statements of income under “net gain on financial assets and liabilities” is $(111), $(121), respectively.

Grupo Financiero Santander México, S.a.B. de c.V. and SuBSidiarieS(a Subsidiary of Banco Santander, S.a. (Spain)) (Formerly Grupo Financiero Santander, S.a.B. de c.V.)

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Cash flow hedges

during 2012, the financial Group structured cash flow hedges for its commercial credit portfolio and debt issuance, as follows:

Face value Instrument and Instrument in millions risk being hedged

swap CCs 301 us dollars Commercial credit portfolio – exchange rate riskswap CCs 280 us dollars senior notes – exchange rate riskswap CCs 121 euros Commercial credit portfolio – exchange rate riskswap irs 1,400 mexican pesos unsecured bonds – interest rate risk

during 2011, the financial Group structured cash flow hedges on the commercial portfolio as follows:

Face value Instrument and Instrument in millions risk being hedged

swap CCs 974 us dollars Commercial portfolio – exchange rate riskswap CCs 230 euros Commercial portfolio – exchange rate risk

during 2011, the financial Group structured cash flow hedges on udibonds as follows:

Face value Instrument and Instrument in millions risk being hedged

swap CCs 825 udis udiBonds – inflation risk

as of december 31, 2012, the positions in derivatives with cash flow hedging purposes are as follows

Face value Instrument and Instrument in millions risk being hedged

swap irs 5,590 mexican pesos BPat’s and Bondes d Bonds – interest rate riskswap irs 10,735 mexican pesos Central Bank compulsory deposits – interest rate riskswap CCs 905 us dollars Commercial portfolio – exchange rate riskswap CCs 280 us dollars senior notes – exchange rate riskswap CCs 121 euros Commercial portfolio – exchange rate riskswap CCs 825 udis udiBonds – inflation riskswap irs 1,400 mexican pesos unsecured bonds – interest rate risk

as of december 31, 2011, the positions in derivatives with cash flow hedging purposes are as follows

Face value Instrument and Instrument in millions risk being hedged

swap irs 12,690 mexican pesos BPat’s and Bondes d Bonds – interest rate riskswap irs 15,845 mexican pesos Central Bank compulsory deposits – interest rate riskswap CCs 1,241 us dollars Commercial portfolio – exchange rate riskswap CCs 180 euro Commercial portfolio – exchange rate riskswap CCs 825 udis uduiBonds – inflation risk

the effective portion of cash flow hedges recognized in stockholders’ equity as part of comprehensive income is adjusted, in absolute terms, to be lower of the accrued gain or loss of the derivative financial instrument of the hedge and the accrued change in fair value of the cash flows of the hedged item. as cash flow hedges are totally efficient at december 31, 2012 and 2011, the financial Group has not recognized an amount in results for the ineffective portion of cash flow hedges, as established by the accounting criteria issued by the Commission.

the movement of the effective portion of cash flow hedges, which is recognized in stockholders’ equity as a part of comprehensive income, is as follows:

2012 2011

opening balance $ 1,188 $ 1,619movement of the period: amount recognized in comprehensive income within stockholders’ equity during the period (net of deferred taxes) (869) (147) amount reclassified from stockholders’ equity to earnings during the period (net of deferred taxes) (229) (284)Balance at December 31, 2012 $ 90 $ 1,188

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the periods and amounts expected for cash flows and which affect results are as follows:

More than 3 More than 1 Less than 3 months and less year and less More than 5 months than 1 year than 5 years years Total

receivable cash flows $ 349 $ 696 $ 721 $ 452 $ 2,218Payable cash flows $ (269) $ (407) $ (717) $ (697) $ (2,090)

in certain cases, the cash flow hedges contracted by the financial Group last until 2014 as regards the Compulsory deposit, BPat’s and Bondes d Bonds classified as “available-for-sale” until 2022 for debt issuances, 2025 for udiBonds, until 2023 for commercial credits denominated in foreign currency and until 2016 for the securitization certificate.

Cancelled cash flow hedges -

at december 31, 2012 and 2011, the financial Group maintains a balance in stockholders’ equity under the heading of “result from the valuation of cash flow hedges instruments, net” of $90 and $1,188, which reflects the residual accrued gain, net of deferred tax, generated by the effective portion of the hedge derivative which was recognized in stockholders’ equity as part of comprehensive income during the period in which these hedges were in effect and effective. this balance is applied based on the originally forecast transaction period. the application period expires between 2013 and 2014.

at december 31, 2012, the amount of $945 was reclassified from stockholders’ equity to earnings due to the valuation of hedge swaps which were canceled in prior years. of these, the amount of $555 refers to the valuation accrual of swaps which hedged BPat’s Bonds and d Bondes, the amount of $387 involves the valuation accrual of swaps which hedged the compulsory deposits, while the amount of $3 refers to the valuation accrual of swaps which hedged the commercial portfolio.

as of december 31, 2011, the amount of $646 derived from the valuation of hedge swaps canceled in prior years was reclassified from stockholders’ equity to results. of this amount, $406 refers to the valuation accrual of swaps covering BPat’s Bonds and d Bonds, while the amount of $240 involves the valuation accrual of swaps used to cover the compulsory deposits.

Formal hedge documentation -

once cash flow and fair value hedges are structured, the financial Group prepares an individual file for each containing the following documentation:

– the strategy and objective of the entity’s risk management, as well as the justification to carry out the hedging operation.

– the specific risk or risks to be hedged.

– hedge structure identifying the derivative financial instruments contracted for hedging purposes and the item generating the hedged risk.

– definition of the elements composing the hedge, its objective and a reference to the effectiveness valuation method.

– Contracts for the hedged item and hedging instrument, as well as confirmation from the counterparty.

– Periodic hedge effectiveness tests at the prospective level regarding its estimated future evolution and at the retrospective level, concerning its past behavior. these tests are applied at least at the end of each quarter, according to the valuation method defined when creating the hedge files.

Sensitivity analysis -

- risk identification -

the market risks sensitivity measurements associated with securities and derivative financial instruments measure the variation (sensitivity) in the market value of the financial instrument in question with regard to the variations of each of the related risk factors.

the sensitivity of the value of the financial instruments as regards the modification of market factors is obtained by completely revaluing the instrument.

the management strategy employed by the financial Group is composed by positions based on securities and derivative financial instruments. the latter are primarily contracted to mitigate the risk generated by the former. accordingly, sensitivity or exposure measurements consider both instrument types taken as a whole.

the sensitivities determined according to each risk factor and the historical consumption associated with the trading portfolio are detailed below:

1. sensitivity to equity (eq delta) risk factors

the eq delta indicates the change in portfolio value in relation to the changing prices of assets with variable returns.

in the case of derivative financial instruments, the calculated eq delta considers a relative variation of 1% in the prices of variable assets with variable returns. in the case of securities with variable returns, the calculated eq delta considers a relative variation of 1% in the security market price.

Grupo Financiero Santander México, S.a.B. de c.V. and SuBSidiarieS(a Subsidiary of Banco Santander, S.a. (Spain)) (Formerly Grupo Financiero Santander, S.a.B. de c.V.)

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2. sensitivity to foreign exchange (fx delta) risk factors

the fx delta indicates the change in value of the portfolio with regard to changing exchange rate asset prices.

in the case of derivative financial instruments, the calculated fx delta considers a relative variation of 1% in the prices of underlying exchange rate assets. in the case of currency positions, it considers a relative variation of 1% in the respective exchange rate.

3. sensitivity to Volatility (VeGa) risk factors

the Vega sensitivity is the measurement derived from changes in the volatility of the underlying asset (reference asset). the Vega risk represents the risk of a change in the volatility of the underlying asset, which results in a change in the market value of the derivative financial instrument.

the calculated Vega activity considers an absolute variation of 1% in the volatility associated with the value of the underlying asset.

4. sensitivity to interest rate (rho) risk factors

the sensitivity quantified the variation in the value of the financial instruments contained in the trading portfolio given a parallel increase of one basis point of interest rate curves.

the “sensitivity analysis” table presents the above sensitivities related to the trading portfolio position:

Sensitivity Analysis (Amount in Mexican pesos)Total rate sensitivity

sensitivity to 1 basis point (2.14) 0.37

EQ FX IR

Vega per risk factor 4.03 0.71 (6.37)

delta per risk factor (eq and fx) 2.02 1.65

it is considered that the above sensitivity tables reflect the prudential management of the trading portfolio of Banco santander méxico with regard to risk factors.

Stress Test of derivative financial instruments .

the different stress test scenarios are presented below and consider the different hypothetical scenarios calculated for the financial Group’s trading portfolio.

• Probable scenario: this scenario was defined based on the movement of a standard deviation of the risk factors which affect the valuation of instruments which have maintained the trading portfolio in each period. more specifically:

o the risk factors of interest rate (ir), volatilities (Vol) and exchange rate (fx) increased by a standard deviation, ando the stock market (eq) risk factors decreased by a standard deviation.

• Possible scenario: in this scenario the risk factors move by 25%.

o the risk factors ir, fx, Vol are multiplied by 1.25, i.e., they increase by 25%.o the eq risk factors are multiplied by 0.75, i.e., they decrease by 25%.

• remote scenario: in this scenario the risk factors move by 50%.

o the risk factors ir, fx, Vol are multiplied by 1.50, i.e., they increase by 50%.o the eq risk factors are multiplied by 0.5, i.e., they decrease by 50%.

Impact on earnings

the results for such scenarios are as follows, showing the impact in earnings if they took place:

Summary of the Stress Test analysis

Stress test Risk Profile (all factors)

Probable scenario (79)Possible scenario (493)remote scenario (1,443)

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Advance maturity of Lehman Brothers-

lehman Brothers

on september 18 and 24, 2008, advance maturities were performed for otC derivatives transactions held with lehman Brothers, inc. (lehman), because the counterparty was declared bankrupt under us law. the market value at the unwind date of such derivatives was determined by the management of the financial Group at $143, which was recorded as “other receivables, (net)” as stipulated in the contract executed with the counterparty.

in october 2011, the financial Group received a payment of $32 (us $2,400,000) from lehman Brothers international europe london for a part of the transaction that resulted in the early maturity during the month of september 2008, which was applied in earnings under the heading of “other income”.

9. loan portfolio

the detail of the loans granted by economic sector as of december 31, is as follows:

2012 2011

federal Government loans $ 38,709 $ 33,380manufacturing industry 41,891 49,172retail 134,715 114,024other activities and services 43,434 38,253Commercial 30,899 27,084Communications and transportation 11,121 10,003Construction 36,273 30,455tourism 5,529 6,090farming and cattle-raising 7,091 4,808mining 1,349 682 312,302 280,571 351,011 313,951interest collected in advance (295) (229)un-accrued financial burden from financial leasing transactions (33) (49) $ 350,683 $ 313,673

during 2012, the average placement rate was 12.41% and 3.25% for loans denominated in mexican pesos and us dollars, respectively. during 2011, this rate was 12.14% and 13.15% for loans denominated in mexican pesos and us dollars, respectively.

at december 31, 2012 and 2011, the valuation of the portfolio hedged based on derivative financial operations was $210 and $122, respectively.

Risk diversification -

in accordance with the general risk diversification provisions applicable to credit institutions in the performance of debit and credit transactions, published in the federal official Gazette on april 30, 2003; it is reported that, at december 31, 2012, no financing has been granted to debtors; similarly, at december 31, 2011, the following credit risk transactions were in effect:

– financing granted to debtors or groups of individuals or entities representing a joint risk, the individual amount of which exceeds 10% of the financial Group’s basic capital (of the month immediately preceding the reporting date) is composed by the group that represent the total amount of $10,364 and $8,340, which is equal to 15.15% and 12.07% respectively, of the financial Group’s basic capital.

– loans granted to the main debtors or groups of individuals representing a joint risk for the aggregate amount of $15,763 and $18,910 represent 21.43% and 27.64% respectively, of the financial Group’s basic capital.

loans to related parties - at december 31, 2012 and 2011, loans have been granted to related parties per article 73 of the law on Credit institutions amounting to $77,584 and $63,105, respectively, which were approved by the Board of directors. as of december 31, 2012 and 2011 these amounts include a loan granted to santander Consumo, s.a. de C.V. sofom, e.r. (the sofom) for $47,413 and $34.936, respectively, and, at december 31, 2012 and 2011, a credit granted to santander hipotecario, s.a. de C.V. sofom, e.r. (santander hipotecario) for the amount of $17,992 and $18,548, respectively, which were eliminated from the consolidated balance sheet for consolidation purposes.

Policy and methods used to identify distressed commercial loans - Commercial loans are identified as distressed in regard to the individual portfolio rating, by considering quantitative elements when they are unsatisfactory and there are significant weaknesses in cash flow, liquidity, leverage, and/or profitability that may jeopardize the company’s ability to continue as a going concern or when it has stopped operating. in general, they refer to borrowers whose portfolio rating is “d” or “e”.

Policy and procedures to identify credit risk concentration - Concentration risk is an essential element of risk management. the financial Group continuously monitors the degree of concentration of credit risk portfolios by economic group. this monitoring starts from the admission study stage with the application of a questionnaire to the partners of the borrowing group to create a list of companies and assess the exposure of the economic group by both credit and market risk.

Grupo Financiero Santander México, S.a.B. de c.V. and SuBSidiarieS(a Subsidiary of Banco Santander, S.a. (Spain)) (Formerly Grupo Financiero Santander, S.a.B. de c.V.)

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credit lines unused by customers - as of december 31, 2012 and 2011, unused credit lines were authorized to customers for $95,021 and $112,672, respectively.

federal Government loans - as of december 31, 2012 and 2011, loans granted to the federal Government agencies, including those of the support programs and agreements, were as follows:

2012 2011

additional Benefit Program for: mortgage debtors $ 350 484 early termination of the housing support programs 350 484 loans derived from credit support programs 142 434 Guarantees for final recovery remnants of foVi credits other loans granted to government agencies: 32,600 29,188 simple loans 1,141 1,076 General loans 1,608 1,653 unsecured loans 2,868 545discounted portfolio loans 38,217 32,462 Total government loans $ 38,709 $ 33,380

Portfolio by loan type and currency – as of december 31, 2012 and 2011, the loans granted by type and currency are as follows:

2012

Valued amount Loan type Mexican pesos US dollars UDIS Total

Performing loan portfolio: Commercial loans Commercial or business activity $ 138,112 $ 37,216 $ 1 $ 175,329 loans to financial entities 406 1 - 407 loans to government entities 24,730 13,979 - 38,709 Consumer loans 61,603 - - 61,603 mortgage loans 65,975 1,047 1,520 68,542 290,826 52,243 1,521 344,590non-performing loan portfolio Commercial loans Commercial or business activity 1,475 48 - 1,523 loans to government entities 2,236 - - 2,236 Consumer loans 1,911 143 280 2,334 5,622 191 280 6,093 $ 296,448 $ 52,434 $ 1,801 $ 350,683

2011

Valued amount Loan type Mexican pesos US dollars UDIS Total

Performing loan portfolio: Commercial loans Commercial or business activity $ 120,040 $ 42,377 $ 2 $ 162,419 loans to financial entities 1,975 - - 1,975 loans to government entities 22,525 10,850 3 33,378 Consumer loans 49,342 - - 49,342 mortgage loans 58,224 1,187 1,832 61,243 252,106 54,414 1,837 308,357non-performing loan portfolio Commercial loans Commercial or business activity 1,783 143 - 1,926 loans to government entities 2 - - 2 Consumer loans 1,270 - - 1,270 mortgage loans 1,723 162 233 2,118 4,778 305 233 5,316 $ 256,884 $ 54,719 $ 2,070 $ 313,673

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as of december 31, 2012 and 2011, the loan portfolio of the financial Group is unrestricted.

Below is a breakdown of commercial loans, identified as distressed or non-distressed and performing or non-performing, as of december, 2012:

Non distressed Distressed

Portfolio Performing Non-performing Performing Non-performing Total

Business or commercial activity $ 175,244 $ 546 $ 85 $ 977 $ 176,852loans to financial entities 407 - - - 407loans to government entities 38,709 - - - 38,709 $ 214,360 $ 546 $ 85 $ 977 $ 215,968

Below is a breakdown of commercial loans, identified as distressed or non-distressed and performing or non-performing, as of december 31, 2011:

Non distressed Distressed

Portfolio Performing Non-performing Performing Non-performing Total

Business or commercial activity $ 162,317 $ 1,151 $ 102 $ 775 $ 164,345loans to financial entities 1,975 - - - 1,975loans to government entities 33,378 2 - - 33,380 $ 197,670 $ 1,153 $ 102 $ 775 $ 199,700

the restructured and renewed portfolio as of december 31, 2012 is as follows:

Restructured portfolio Performing Non-performing Total

Business or commercial activity $ 10,105 $ 571 $ 10,676loans to government entities 3,758 - 3,758Consumer loans 2,285 229 2,514mortgage loans 256 575 831 $ 16,404 $ 1,375 $ 17,779

the restructured and renewed portfolio as of december 31, 2011 is as follows:

Restructured portfolio Performing Non-performing Total

Business or commercial activity $ 1,819 $ 1,235 $ 3,054loans to government entities 2,151 - 2,151Consumer loans 951 75 1,026mortgage loans 248 70 318 $ 5,169 $ 1,380 $ 6,549

as of december 31, 2012, the financial Group had the following collateral, which was received after the restructuring of certain loans:

Restructured portfolio

Nature of collateral Performing Nature of collateral Total

real property $ 3,613 $ 520 $ 4,133Personal guarantees 408 175 583securities 5,210 - 5,210federal Government 21 2 23 $ 9,252 $ 697 $ 9,949

as of december 31, 2011, the financial Group had the following collateral, which was received after the restructuring of certain loans:

Restructured portfolio

Nature of collateral Performing Nature of collateral Total

real property $ 292 $ 538 $ 830Personal guarantees 1,310 315 1,625securities 2,134 382 2,516federal Government 21 - 21 $ 3,757 $ 1,235 $ 4,992

Grupo Financiero Santander México, S.a.B. de c.V. and SuBSidiarieS(a Subsidiary of Banco Santander, S.a. (Spain)) (Formerly Grupo Financiero Santander, S.a.B. de c.V.)

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as of december 31, 2012, aging of non-performing portfolio is as follows:

Period

Portfolio From 1 to 180 From 181 to 365 From 365 to 2 years Total

Business or commercial activity $ 793 $ 214 $ 516 $ 1,523Consumer loans 2,185 46 5 2,236mortgage loans 1,158 684 492 2,334 $ 4,136 $ 944 $ 1,013 $ 6,093

as of december 31, 2011, aging of non-performing portfolio is as follows:

Period

Portfolio From 1 to 180 From 181 to 365 From 365 to 2 years Total

Business or commercial activity $ 1,129 $ 202 $ 595 $ 1,926Government entities 2 - - 2Consumer loans 1,255 12 3 1,270mortgage loans 1,634 424 60 2,118 $ 4,020 $ 638 $ 658 $ 5,316

for the year ended december 31, interest generated on the loan portfolio of the financial Group is as follows:

Interest 2012 2011

Business or commercial activity $ 13,737 $ 11,511finance companies 37 231Government entities 1,626 1,240Consumer loans 6,734 5,195mortgage loans 6,766 5,372 28,900 23,549Credit card portfolio 8,264 6,590 Total $ 37,164 $ 30,139

The acquisition of the mortgage business GE Capital México (currently Santander Hipotecario S.A de C.V., SOFOM ER) -

during december 2010, the financial Group executed an agreement to acquire the mortgage business of Ge Capital méxico. these transactions included the acquisition of the business with a mortgage loan portfolio of $21,926.

Ge Capital méxico maintained absolute control over the business until the closing date on april 29, 2011.

on the above date, the financial Group executed an agreement to acquire Ge Consumo méxico, s.a. de C.V., sofom enr (“Ge Consumo”), Ge holding méxico, s.a. de C.V. (“Ge holding”), Ge money servicios administrativos de monterrey, s. de r.l. de C.V. (“Gemsa”) and Pms servicios administrativos, s. de r.l. de C.V. (Pms) by providing the funding of $21,009 received by Ge Consumo from its parent company, together with the payment of $2,042 for the value of the entities’ stockholders’ equity, as presented in the pro forma financial statements at april 29, 2011, which considered a 9% discount on the equity value.

in april 2012, the financial Group concluded its analysis of estimates regarding the fair values of the assets and liabilities acquired through this transaction according to mexican financial reporting standard B-7, Business acquisitions. the acquired intangible assets include relations with established customers and no competition agreements which were not recognized due to their immateriality. the recognition of the assets and liabilities of santander hipotecario (formerly Ge Consumo méxico, s.a. de C.V. sofom enr) generated goodwill of $1,589, which is primarily composed by potential benefits regarding the generation of the acquired mortgage business.

Credit portfolio acquisition -

as discussed in note 1, to enable it to manage regional customer relations locally, in January, february and april 2011, the financial Group acquired the loans of mexican companies or which have a certified mexican holding company from its foreign related parties. the face value of the loans acquired during January and february 2011 was $14,365, while loans of $4,029 were acquired in april of that year and recorded under the heading of “Performing loan portfolio”.

the amount of $14,062 was paid to acquire these loans in January and february, thereby generating a difference of $301 as regards their face value. of this amount, management recorded $112 in the results of the year under the heading of “other operating income” to reflect the allowance for loan losses created at the acquisition date. the surplus of $191 was recorded as a deferred credit which will be applied as the loans in question are collected according to Bulletin B-6, “Credit portfolio” issued by the Commission.

with regard to the loans acquired in april 2011 for a purchase price of $4,048, management recorded a deferred charge of $19, which reflects the difference between the portfolio acquisition price and the contractual value of the loans in question, which will be applied during the remaining useful life of these loans.

the payment made to acquire these loans reflected the market values determined by third parties

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10. udis rEstructurEd portfolio

as of december 31, the financial Group’s udis-restructured loan portfolio (net of allowance) was recorded in trusts, as follows:

2012 2011

UDIS Mexican pesos UDIS Mexican pesos

- $ - 739,199 $ 3

at december 31, 2012, all the credits restructured in udis and which were recorded in the respective trusts reached maturity. the management of the financial Group is currently in the process of liquidating these trusts.

Early Elimination of the Debtors Support Programs

the contract to early eliminate the debtors support programs (the “Contract”) was signed on July 15, 2010, whereby the banks deemed it advisable to early terminate the following programs, which were created between 1995 and 1998 derived from the debt restructurings, as follows:

a. housing loan debtors support Program (support Program);

b. support Program for the Building of housing in the process of construction in their personal loan stage (support Program); and the

c. agreement of Benefits for housing loan debtors (discount Program)

the banks reached agreement with the mexican treasury and the Commission. this agreement was handled through the mexican Bankers’ association (aBm) and establishes that to ensure the proper application of the early termination agreement scheme, the banks will be subject to the supervision and oversight of the Commission, and will adhere to the observations and corrections indicated by such Commission, for which purpose they must provide any and all information requested from them in relation to the performance of the agreement.

the early termination scheme covered the loans restructured or granted in udis under the debtors support Programs, the loans denominated in mexican pesos which are entitled to receive the discount Program benefits. additionally, it covers loans which, as of december 31, 2011 (cutoff date) are current, as well as past-due loans which as of the same date were restructured, as well as those loans which in order to be current received a reduction, discount or rebate, regardless of the amount, provided that there is evidence of payment compliance.

on July 26, 2010, the Commission published, in the federal official Gazette, the “General provisions applicable to Credit institutions in the early termination of mortgage programs”, which establish the rules for accounting, reporting and audit requirements for the operation of the Contract, as well as the special rules for the proper restructuring process of the loans which can apply the benefits of the mortgage Programs and the agreement.

as established above, the financial Group complied with the Contract, which went into effect on July 15, 2010.

at december 31, 2012 and 2011, the total amount of federal Government housing credit payment obligations is $350 and $484, respectively; these amounts are recorded under the heading of “Government entities loans”.

each monthly installment will include a financial cost (the “annual Charges”) from the day immediately following the Cutoff date until the close of the month immediately before the payment date, using for January 2011, the rate resulting from the arithmetical average of the annual rates of return calculated on the discount rate of the 91 day Cetes issued in december 2010, and for the subsequent months the future interest rates of the 91 day Cetes of the immediately preceding month, published by the company Proveedor integral de Precios, s.a. (price vendor), on the business day immediately following that of the Cutoff date, or as the case may be, that of the closest previous month contained in such publication, carried to a 28 day term yield curve, by dividing the resulting rate by 360 and multiplying the result so obtained by the number of days elapsed during the period in which it is accrued, and capitalized monthly.

these payment obligations will be subject to the other provisions contained in the Contract and the “liquidation agreement”.

in June 2011 and the start of the terms established by the agreement, management determined the correct application and execution of the agreement to ensure the early settlement of housing loan debtor support Programs.

federal government payment obligation resettled to annual payments over a five-year period; as of december 31, 2011, outstanding payments are as follows:

Annuity Payment Date Amount

third June 3, 2013 $ 121fourth June 2, 2014 $ 117fifth June 1, 2015 $ 112

after determining payable annuities, on september 29, the 2011, management calculated the adjusted amount of the first annuity payable on december 1, 2011 by considering that the default index is inapplicable to this initial year. under the agreement, if the portfolio exceeds this default index, the financial Group loses the support Benefit payable by the federal Government.

the adjustments of the first and second annual payments of december 1, 2011 and June 1, 2012 were $127 and $118, respectively. on december 1, 2011 and June 1, 2012, the management of the financial Group received the adjusted amounts of the first and second annual payments.

Grupo Financiero Santander México, S.a.B. de c.V. and SuBSidiarieS(a Subsidiary of Banco Santander, S.a. (Spain)) (Formerly Grupo Financiero Santander, S.a.B. de c.V.)

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the maximum amount that the financial Group will have to absorb from loan debtors which, given their characteristics, were not included in the early settlement scheme under the agreement, if these loans become current and whereby debtors would be entitled to receive discount Program benefits, would be $32.

the remnant and maturity dates of these special cetes which, as they were not repurchased by the federal Government, are maintained by the financial Group in its consolidated balance sheet as of december 31, 2012, are as follows:

Issuance Trust Non-securities Maturity date Price in pesos Millions of pesos

B4-270701 423-2 15,292,752 01-Jul-2027 $ 85.28406 $ 1,304B4-170713 421-5 9,155,840 13-Jul-2017 $ 85.28406 781B4-220707 422-9 12,762,386 07-Jul-2022 $ 85.28406 1,088B4-170720 424-6 86,723 20-Jul-2017 $ 85.28406 7B4-220804 431-2 440,294 04-ago-2022 $ 78.08445 34BC-170720 424-6 2,875 20-Jul-2017 $ 27.74702 1BC-220804 431-2 71,442 04-ago-2022 $ 27.74702 2 $ 3,217

during January 2011, the amount related to the repurchase of the special Cetes, special Cetes “C” and special Cetes “V” was $506, which are recorded under the heading “securities held to maturity”.

11. alloWancE for loan lossEs

on october 25, 2010 and october 5, 2011, the Commission issued rulings to amend the provisions which modify the methodology used to rate the non-revolving consumer loan portfolio, the housing mortgage loan portfolio and the portfolio of loans to states and municipalities, in order to change the model currently used to create provisional reserves from the incurred loss model to the expected loss model. these amendments took effect on march 1 and in september 2011, respectively.

the Commission required the recognition of the initial accrued financial effect derived from the application of rating methodologies to non-revolving consumer loan portfolios, housing mortgage portfolios and the loans to states and municipalities in stockholders’ equity, under the heading of “retained earnings”, no later than march 31 for non-revolving consumer and mortgage loan portfolio and at september 30, 2011 for loans to states and municipalities.

the initial accrued effect of applying the modified rating methodology led to the creation of an allowance for loan losses of $432, net of deferred tax, under the heading of “retained earnings” within stockholders’ equity, for the non-revolving consumer loan portfolio and the housing mortgage loan portfolio, together with the amount of $173, net of deferred tax, for the portfolio of loans to states and municipalities.

the classification methodology of the commercial credit portfolio of banks by allowing them to reassess the risk inherent to the credits that were restructured, renewed or assigned, by considering the value of their related guarantees.

as of december 31, 2012 and 2011, the allowance for loan losses was $11,580 and $11,191, respectively, assigned as follows:

Performing Non-performing Assigned 2012 Portfolio portfolio allowance

Commercial and financial entities portfolio $ 2,228 $ 959 $ 3,187mortgage loans 440 348 788Credit cards and consumer loans 6,229 1,376 7,605 Total Portfolio $ 8,897 $ 2,683 $ 11,580

Performing Non-performing Assigned 2011 Portfolio portfolio allowance

Commercial and financial entities portfolio $ 2,218 $ 952 $ 3,170mortgage loans 598 405 1,003Credit cards and consumer loans 6,178 840 7,018Total Portfolio $ 8,994 $ 2,197 $ 11,191

as of december 31, 2012 and 2011, the financial Group maintained an allowance for loan losses equivalent to 190% and 211% of the non-performing portfolio, respectively.

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the allowance for loan losses resulting from the loan portfolio classification as of december 31, 2012 and 2011, recorded in the same year, together with the additional allowances required and those established for the udis trusts, were classified as follows:

2012 2011

Classification Classification of the portfolio Amount of the portfolio Amount by degree of allowance by degree of allowance Degree of Credit Risk of risk recorded of risk recorded

a $ 306,030 $ 2,826 $ 275,060 $ 3,560 B 57,431 3,805 51,959 3,327 C 5,805 1,994 5,943 1,922 d 2,889 2,018 1,907 1,347 e 755 822 822 867Base classification portfolio 372,910 11,465 335,691 11,023

Portfolio excluded (includes government agencies with federal government guarantee, among others)Base classification portfolio 4,672 - 5,394 - total portfolio 377,582 11,465 341,085 11,023less- Guarantees and credit openings (26,571) - (27,134) - un-accrued financial burden (33) (49) interest collected in advance on factoring operations (295) - (229) - Loan portfolio, net $ 350,683 11,465 $ 313,673 11,023

additional reserves 115 168 Total allowance for loan losses $ 11,580 $ 11,191

the financial Group maintains additional reserves, which include the cost of loan portfolio support programs.

the portfolio classified with “d” and “e” risk is identified as distressed portfolio.

Below is the activity of the allowances for loan losses for the years ended december 31, 2012 and 2011:

2012 2011

opening balances $ 11,191 $ 10,254Provisions (applications) with a charge (credit) to-Portfolio reserve of santander hipotecario based on its fair - 2,514 earnings 9,445 6,556Charge to capital due to methodology change (Consumer, mortgage, states and municipalities) - 864 Portfolio acquisition reserves (378) - recoveries credited in results from retained earnings (61) (76) applications and reductions (8,591) (8,972) support program (2) (10) others (24) 61 Closing balances $ 11,580 $ 11,191

Release of the allowance for loan risks in Santander Consumo -

Based on a request issued by the Commission to santander Consumo, during the third and fourth quarters of 2011 and the first and second quarters of 2012, it implemented an exhaustive program to review and clear inactive accounts to determine the number of accounts to be reactivated or not. this program was intended to identify the allowance for loan risks derived from the latter.

as a result of this program, 1,283,671 accounts were cleared. however, due to account reactivation difficulties, a total of 1,686,582 inactive accounts were canceled, thereby reducing the allowance for loan risks by the amount of $1,580. the amount of $313 was credited to earnings of the year in 2012, together with the amount of $1,267 in 2011. this amount is presented net under the “allowance for loan losses” heading in the consolidated statements of income.

Grupo Financiero Santander México, S.a.B. de c.V. and SuBSidiarieS(a Subsidiary of Banco Santander, S.a. (Spain)) (Formerly Grupo Financiero Santander, S.a.B. de c.V.)

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12. othEr rEcEivaBlEs, (nEt)

as of december 31, are composed as:

2012 2011

debtors due to liquidation of operations $ 16,617 $ 5,400Collateral given in cash for transactions not performed on recognized stock markets or exchanges (otC) 17,285 18,264other debtors 6,134 3,999employee loans 2,694 2,410recoverable taxes 3,925 2,338other accounts receivable 295 248

46,950 32,659allowance for doubtful accounts (791) (747)

Total $ 46,159 $ 31,912

as of december 31, transaction liquidation debtors are as follows:

2012 2011

debt instruments $ 5,225 $ 977shares 203 131foreign currency 11,040 3,804others 149 488

Total $ 16,617 $ 5,400

13. forEclosEd assEts, (nEt)

as of december 31, were as follows:

2012 2011

foreclosed real estate $ 539 $ 680real estate under promise-to-sell agreements 11 46

550 726less- allowance for losses on foreclosed assets (400) (473) Total $ 150 $ 253

the movements of the allowance for losses on foreclosed assets are summarized below (at face values) for the years ended december 31, 2012 and 2011:

2012 2011

opening balance $ 473 $ 307foreclosed assets reserve of santander hipotecario based on its fair value valuation - 247results 44 48release of reserves for sale of foreclosed assets (117) (129)

Closing balance $ 400 $ 473

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14. propErty, furniturE and fixturEs, (nEt)

as of december 31 were as follows:

2012 2011

Properties for office use (1) $ 1,091 $ 3,281fixtures 4,475 3,947Computers 257 236office furniture 935 855Communication equipment 104 88Peripheral computer equipment 368 346Vehicles 123 116other 16 28 7,369 8,897

less- accumulated depreciation and amortization (3,274) (3,305) Total $ 4,095 $ 5,592

((1) as discussed in note 1, during the second quarter of 2012 the financial Group executed a contract with fibra uno, s.a. de C.V. (hereinafter “fibra uno”) for the sale of 220 properties (branches, offices and parking lots), together with the subsequent lease of this property for a 20-year period. this transaction was subject to the approval of the respective regulatory entities, which was granted in may 2012. the transaction amount was $3,334. the benefits of $1,730 obtained by the financial Group from this sale were recorded in the consolidated statements of income under the heading of “other operating income”.

the lease contract is considered as an operating lease which cannot be canceled and includes a renewal option for up to four consecutive five-year periods based on market rates which will be determined at each renewal date. the lease contract includes rental adjustments based on the national Consumer Price index, but does not contain contingent rental payment clauses based on volumes or purchase options. likewise, it does not restrict the capacity of the financial Group to pay dividends, contract debt or execute additional rental agreements.

according to the operating lease contract, at december 31, 2012, minimum future payments are as follows:

Lease

2013 $ 253 2014 253 2015 253 2016 266 2017 2762018 and after 3,952Minimum future payments $ 5,253

the annual depreciation and amortization rates were as follows:

Percentage

Properties for office use 2% to 5%office furniture 10%Computers 25%Peripheral computer equipment 25%Vehicles 20%Communication equipment 20%fixtures 10%other 10% and 20%

Grupo Financiero Santander México, S.a.B. de c.V. and SuBSidiarieS(a Subsidiary of Banco Santander, S.a. (Spain)) (Formerly Grupo Financiero Santander, S.a.B. de c.V.)

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15. long-tErm invEstmEnt in sharEs

as of december 31, were as follows:

Equity Percentage Institution in 2011 2012 2011

managed investment funds several $ 102 $ 93other investments several 134 141 Total $ 236 $ 234

as of december 31, were as follows

Institution 2012 2011

managed investment funds $ 4 $ 1 other investments 69 69 $ 73 $ 70

16. othEr assEts, (nEt)

as of december 31, were as follows:

2012 2011

intangibles: Goodwill (1) $ 1,589 $ 1,593 Prepaid expenses 604 282 software and technological developments 4,617 3,494 6,810 5,369 less – accumulated amortization of other assets (2,533) (1,620) 4,277 3,749other assets investments of the pension plan and seniority premiums 42 41 Provisions for employee benefits (28) (23) Projected net asset 14 18 Guarantee deposits 150 145 164 163 $ 4,441 $ 3,912

software is amortized over a three-year term from the date acquired. licenses are amortized over a 3.3-year term from their date of use.

(1) includes the goodwill generated by the mortgage business acquired from Ge for $1,589 which, at december 31, 2012, shows no signs of impairment.

17. forEign currEncy position

at december 31, 2012 and 2011, foreign currency assets and liabilities of the financial Group were as follows:

Millions of US dollars 2012 2011

funds available 1,580 2,239margin accounts 29 24investments in securities 543 355derivatives (net) (2,328) (3,534)loan portfolio 4,018 4,000Valuation adjustment for hedged financial assets 6 -other receivable (net) 720 36other assets (net) 22 -deposits (2,760) (1,466)interbank and other loans (1,314) (911)sundry creditors and other payables (470) (385)sale and repurchase agreements (net) (8) (265)asset position 38 93Mexican peso equivalent $ 484 $ 1,323

as of december 31, 2012 and 2011, the “fix” (48-hour) exchange rate used was $12.9658 and $13.9476 per us dollar, respectively.

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as of february 13, 2012, the unaudited foreign currency position (unaudited) was similar to that in effect at year-end, and the “fix” exchange rate was $12.7116 per us dollar.

Central Bank sets the ceilings for foreign currency liabilities and the liquidity ratio that the financial Group obtains directly or through its foreign agencies, branches or affiliates, which must be determined daily for such liabilities to enable the financial Group to structure their contingency plans and promote longer term funding within a reasonable time frame.

the financial Group performs a large number of foreign currency transactions. Given that the parities of other currencies against the mexican peso are linked to the us dollar, the overall foreign currency position is consolidated into us dollars at each month-end closing.

18. dEposits

the instruments used by the financial Group to obtain funding from their customers are recorded in this line item and consist of the following:

Demand and time deposits and bank bonds - this caption represents customers’ cash deposits.

the 2012 and 2011 year-end funding rates were as follows:

2012 2011

Year-end rates Year-end rates Mexican Foreign Mexican Foreign Accounts pesos currency pesos currency

demand deposits- Checking accounts from 0% to 1.25% from 0.00% to 4.67% -time deposits - fixed-term deposits from 0.15% to 2.90% from 0.10% to 0.35% from 0.15% to 4.09% from 0.10% to 0.35% deposits certificates (money market) from 1.21% to 2.87% from 1.21% to 2.87% -

as of december 31, time deposits consisted of the following:

2012 2011

notes with interest payable at maturity $ 139,909 $ 108,933fixed-term deposits 6,287 17,779foreign currency time deposits 5,341 4,417 $ 151,537 $ 131,129

as of december 31, 2012, maturities of promissory notes with interest payable upon maturity denominated in mexican pesos fluctuate between 2 and 737 days and the annual closing rates were within 0.00% to 10.24%.

19. issuancE program

Issuance program

on april 19, 2007, the Board of directors of the financial Group authorized an issuance program for up to us $4,000,000,000 or its mexican pesos equivalent. in december 2007, the Commission authorized the issuance of 42,000 million “Bank unsecured bonds”, “Bank fixed-term deposit Certificates”, “Promissory notes with returns Payable at maturity” and “structured Bank Bonds” denominated in mexican pesos, udis, euros or us dollars for up to 30 years (the General Program). the Board of directors authorized this program during its august 2008 meeting. the Commission acknowledged the i financial Group’s program to issue “Private Bank Bonds” (unsecured private placement bonds) for the amount of $10,000 million). in october 2010, the Board of directors renewed its april 2007 authorization of the issuance program for amount of up to us$ 4 billion.

as the General Program was not updated in January 2011, it was canceled. however, as the financial Group currently has placements in effect, a new 10-year program was presented to the Commission to issue “Bank unsecured bonds” and “Bank fixed-term deposit Certificates” in mexican pesos (unsecured public placement bonds) and other program to issue “structured securities” in mexican pesos (structured Bank instruments) for the amount of $10,000 million mexican pesos. as of december 31, 2011, the financial Group has made placements of $5,990 million under the General Program, $4,309 million in unsecured private placement bonds and $11,400 unsecured public placement bonds.

Grupo Financiero Santander México, S.a.B. de c.V. and SuBSidiarieS(a Subsidiary of Banco Santander, S.a. (Spain)) (Formerly Grupo Financiero Santander, S.a.B. de c.V.)

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Senior Notes

on november 9, 2012, the financial Group placed debt securities known as senior notes for the amount of one billion us dollars for a 10-year period. these securities were issued and placed according to rule 144a and regulation s of the 1933 us securities act. interest will be payable every six months on may 9 and november 9 as of may 9, 2013. Principal is payable at maturity (november 9, 2022). the securities will accrue interest at an annual rate of 4.125%. Principal will be payable when the securities mature or, if applicable, in the event of early payment.

at december 31, 2012 and 2011, the financial Group has placed and settled securitization certificates, bank bonds and senior notes with a market value of $35,094 and $21,676, respectively, which are composed as follows:

Instrument 2012 2011 Period Rate

unsecured Bonds $ 14 $ 20 16/apr/2013 rate subject to exchange rateunsecured Bonds 4 4 15/Jul/2013 Guaranteed rate subject to iPC yieldunsecured Bonds 5,000 5,000 18/apr/2013 tiie rate + 12bpsunsecured Bonds 1,700 1,700 9/mar/2021 8.91%unsecured Bonds 3,700 3,700 16/apr/2013 tiie rate + 15bpsunsecured Bonds 5,000 5,000 27/Jan/2014 tiie rate + 20bpsunsecured Bonds 730 730 27/Jan/2014 tiie rate + 20bpsunsecured Bonds 2,800 2,800 21/sep/2016 tiie rate + 50bpsunsecured Bonds 1,300 1,300 21/sep/2016 tiie rate + 50bpsstructured bank bonds 76 76 23/may/2013 iPC s&P 500 and dow Jones euro stoxx 50structured bank bonds 100 100 25/Jun/2013 iPC dow Jones euro stoxx and nikkei 225structured bank bonds 749 749 30/Jul/2013 iPC dow Jones euro stoxx and nikkei 225structured bank bonds 10 10 11/Jun/2014 tiie ratestructured bank bonds 92 92 29/may/2014 tiie ratestructured bank bonds - 105 05/Jan/2012 1.00%structured bank bonds - 28 05/Jan/2012 6.00%structured bank bonds - 70 26/01/2012 3.00%structured bank bonds 200 - 05/may/2014 tiie ratestructured bank bonds 57 - 17/may/2014 tiie ratestructured bank bonds 131 - 26/aug/2015 tiie ratestructured bank bonds 30 - 20/dec/2013 tiie ratestructured bank bonds 13 - 20/dec/2013 tiie ratestructured bank bonds 20 - 16/oct/2015 rate guaranteed by return in iBex35structured bank bonds 20 - 14/may/2013 iPC BoVesPastructured bank bonds 15 - 28/nov/2014 tiie ratestructured bank bonds 13 - 09/Jan/2013 tiie ratestructured bank bonds 11 - 28/feb/2013 1% ratesenior notes 12,966 - 9/nov/2022 4.125% rate subtotal 34,751 21,484add - accrued interest 343 192 Total $ 35,094 $ 21,676

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20. Bank and othEr loans

as of december 31 were as follows:

2012 2011

Mexican Foreign Pesos currency Total Total

demand loans- received “call money” transactions $ - $ 8,168 $ 8,168 $ 2,371 loans with development banking institutions 48 - 48 - loans with public fiduciary funds 8 16 24 - total demand loans 56 8,184 8,240 2,371

short-term portion- loans undertaken by foreign branches - - - 24 loans from development banking institutions - 8,109 8,109 8,041 loans from public fiduciary funds 4,361 45 4,406 3,467 loans from other agencies 3,815 437 4,252 3,624 total short-term loans 8,176 8,591 16,767 15,156

long-term portion- loans undertaken by foreign branches - 100 100 122 loans from development banking institutions 720 109 829 891 loans from public fiduciary funds 1,475 52 1,527 1,014 total long-term loans 2,195 261 2,456 2,027 Total bank and other loans $ 10,427 $ 17,036 $ 27,463 $ 19,554

loans with national banks (not including accrued interest) - as of december 31, 2012 and 2011, call money transactions performed by treasury are used to cover liquidity and position leveling needs, which accrue interest at 0.36% in mexican pesos and 0.40% in us dollars, respectively.

loans with foreign banks (not including accrued interest) - as of december 31, 2012 and 2011, the transactions with foreign institutions accrue interest at 1.29% al 1.89%.

loans with development Bank institutions - loans are granted by nacional financiera, s.n.C. (nafin) and Banco de Comercio exterior, s.n.C. (BanComext), which represent a direct obligation for the financial Group with these entities. accordingly, the financial Group grants their customers loans for financial support in mexican pesos and us dollars.

loans granted by nafin represent financial support in mexican pesos and us dollars earmarked for the industrial, commercial and service sectors, earmarked for industrial development.

the deposits of the foreign branch are valued at placement value plus interest earned, which is calculated using the straight line method, distributing the difference between the placement value and the face value of the certificate throughout the life of the instrument.

lines of credit for discounts and loans, granted in mexican pesos and us dollars by the development funds mentioned above, operate under the authorizations of the internal risk units of the financial Group. the financial conditions are set under fixed and variable rate programs, both in us dollars and mexican pesos, and the term is based on the specific program or transaction determined for each project.

loans from public fiduciary organizations - Certain federal Government agencies support discount and credit transactions for different sectors, such as the Banking fund for housing operation and financing (foVi), agricultural trusts (fira).

Grupo Financiero Santander México, S.a.B. de c.V. and SuBSidiarieS(a Subsidiary of Banco Santander, S.a. (Spain)) (Formerly Grupo Financiero Santander, S.a.B. de c.V.)

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21. comparativE maturitiEs of principal assEts and liaBilitiEs

the maturities of the significant assets and liabilities held as of december 31, 2012 were as follows:

Up to 1 to Over 6 months 1 year 5 years 5 years Total

assets: funds available (1) $ 50,193 $ - $ - $ 31,433 $ 81,626 margin accounts 3,995 - - - 3,995 trading securities 36,576 9,634 28,544 42,429 117,183 securities available for sale 14,905 6,388 19,178 6,902 47,373 securities held to maturity - 15 2,772 2,303 5,090 debtors under sale and repurchase agreements 9,471 - - - 9,471 derivatives 3,999 2,176 26,092 48,354 80,621 Performing loan portfolio (2) 102,187 39,079 123,919 79,405 344,590 other receivables, (net) 43,521 96 786 1,756 46,159 Total assets $ 264,847 $ 57,388 $ 201,291 $ 212,582 $ 736,108

liabilities: demand deposits $ 210,915 $ - $ - $ - $ 210,915 time deposits 146,383 4,704 450 - 151,537 Credit instruments issued 9,333 796 10,299 14,666 35,094 Bank and other loans 20,770 4,178 2,275 240 27,463 Creditors under sale and repurchase agreements 73,290 - - - 73,290 Collateral sold or pledged as guarantee 6,853 - - - 6,853 derivatives 5,494 3,655 24,015 46,397 79,561 Creditors from settlement of transactions 38,604 - - - 38,604 sundry creditors and other payables 19,346 706 6,987 438 27,477 total liabilities $ 530,988 $ 14,039 $ 44,026 $ 61,741 $ 650,794 Assets less liabilities $ (266,141) $ 43,349 $ 157,265 $ 150,841 $ 85,314

(1) the heading of funds available includes Central Bank compulsory deposits. such deposits of december 31 2012, are $31,320 and cannot be disposed.

(2) the heading of current loan portfolio includes the consumer and credit card portfolio, which is recoverable depending on the individual credit circumstances.

22. rElatEd-party transactions and BalancEs

transactions are carried out among the companies of the financial Group, such as investment, deposits, rendering of services, etc., most of which generate income for one entity and an expense for another. transactions and balances among consolidating companies were eliminated, while those of unconsolidated entities remain in effect.

as of december 31, 2012 and 2011, the financial Group’s main receivable and payable balances with related parties are as follows:

2012 2011

receivable- funds available $ 390 $ 104

derivatives (asset) (1) $ 18,937 $ 23,697

Performing loan portfolio (2) $ 2,288 $ 1,528

other receivables, (net) (3) $ 7,891 $ 6,344

Payable- demand deposits (4) $ 638 $ 1,039

Credit instruments issued (5) $ 1,106 $ 955

Creditors under sale and repurchase agreements $ 134 $ -

Bank and other loans $ 186 $ 21

derivatives (liability) (1) $ 24,871 $ 28,490

sundry creditors and other payables $ 78 $ 11,916

sundry creditors and other payables $ 494 $ -

99

as of december 2012 and 2011, the most significant transactions carried out by the financial Group with related and affiliated companies (at face values) were as follows:

2012 2011

revenues- interest $ 86 $ 108

Commissions $ 3,016 $ 2,255

result from derivative financial instrument transactions $ 59,104 $ 120,578

expenses- interest $ 47 $ 52

administrative expenses $ 241 $ 226

result from derivative financial instrument transactions $ 64,019 $ 124,546

technical assistance $ 1,452 $ 1,345

(1) as of december 31, 2012, asset and liability transactions with derivative financial instruments are as follows:

Active Passive

santander Benelux, s.a., n.V. $ 9,921 $ 13,040Banco santander, s.a. (spain) 8,719 11,486abbey national treasury services plc (london) 295 344other 2 1 $ 18,937 $ 24,871

(2) at december 31, 2012, the entities denominated santander Capital structuring, s.a. de C.V. (sCs), Promociones y servicios Polanco s.a. de C.V. (Polanco) and Produban servicios informáticos Generales, s.l. (PsiG), received credits from the Bank for the amounts of $1,217, $210 and $861, respectively, at the 6.24% (sCs), 8.16% (Polanco) and 3.39% (PsiG) rates.

(3) at december 31, 2012, other accounts receivable are primarily composed by:

• unpaid transactions of $1,105 with Banco santander (spain), s.a.• Collectible commissions of $629 from Zurich santander seguros méxico, s.a. (Zurich santander) for the placement of insurance policies

through Bank branches.• Guarantees given for transactions with derivative financial instruments (collateral) performed with Benelux, s.a. n.V. for the amount of $3,171;

abbey national treasury services PlC (london), for the amount of $47 and Banco santander, s.a. (spain) for the amount of $2,872.

(4) as of december 31, 2012, time deposits are as follows:

Term Company Instrument Amount (Years) Rate

isBan méxico, s.a. de C.V. PrlV $ 200 10 4.30%isBan méxico, s.a. de C.V. PrlV 135 3 4.10%isBan méxico, s.a. de C.V. Promissory note in us dollars 156 1 0.15%Produban servicios informáticos Generales, s.l. Promissory note in us dollars 99 1 0.15%other Promissory note in us dollars and mexican pesos 48 sundry sundry $ 638

(5) at december 31, 2012, Zurich santander and Banco santander, s.a. (spain) have an investment in credit securities issued by the Bank with the following characteristics:

Term Series Amount (Days) Rate

Bsant 1-08 $ 92 1,819 2.96%Bsant 2-08 103 1,821 0.99%Bsant 3-08 800 999 0.99%Bansan d12303 37 28 0.70%total Zurich santander 1,032Bsantm 74 3,671 4.125%total Banco santander s.a. (spain) 74Total $ 1,106

Grupo Financiero Santander México, S.a.B. de c.V. and SuBSidiarieS(a Subsidiary of Banco Santander, S.a. (Spain)) (Formerly Grupo Financiero Santander, S.a.B. de c.V.)

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the financial Group executed professional service contracts with isBan mexico, s.a. de C.V. (isban), ingeniería de software Bancario, s.l. spain (isban spain), Produban mexico, s.a. de C.V. (Produban) and Produban servicios informaticos Generales, s.l. (Produban spain) which provide systems development and operation services, among others. similarly, the financial Group acquired software developed by isban, isban spain, Produban and Produban spain for $883 and $757 in 2012 and 2011, respectively.

management believes that transactions with related parties are performed according to the prices and payment amounts that would be utilized with or between independent parties for comparable transactions.

23. laBor BEnEfits

under mexican labor law, the financial Group is liable for severance payments and seniority premiums to employees terminated under certain circumstances; there are also other obligations derived from the collective bargaining agreement.

each year, the financial Group records the net periodic cost to create a fund that covers the net projected obligation from seniority premiums and pensions, medical expenses and severance payments as it accrues based on actuarial calculations prepared by independent actuaries, which are based on the projected unit credit method and the parameters established by the Commission. therefore, the liability is accrued at the present value of future cash flows required to settle the obligation from benefits projected to the estimated retirement date of the financial Group’s employees.

Based on the current collective bargaining agreements and individual employment contracts, the financial Group has a liability for postretirement benefits that requires the full payment of certain medical expenses of such employees and their family members upon retirement based on the respective contracts. the financial Group has a defined contribution pension plan, whereby such institutions agree to pay pre-established cash amounts to a given investment fund, in which the worker benefits consist of the sum of such contributions, plus or minus the gains or losses from the management of such funds of those workers who adhered to the new plan, which was optional for them. during 2012 and 2011, the amount recognized by the financial Group as an expense for the defined contribution plan was $126 and $143, respectively.

as of december 31, 2012 and 2011, approximately 2.44% and 2.88% (unaudited) of the financial Group’s employees, respectively, were still enrolled in the defined benefit pension plan while the rest of the employees had enrolled in the defined contribution pension plan. as of december 31, 2012 and 2011, the investment fund of the defined contribution pension plan was $4,489and $3,872, respectively.

at december 31, 2012 and 2011, approximately 77.40% and 73.92% (unaudited) of the workers employed by the financial Group and enrolled in the defined contribution plan have been included in the new retirement medical Coverage subaccount system.

as of december 31, 2012, the financial Group amortizes variances based on the estimate of 12.25 years for the pension plan for retirees, 11.25years for post-retirement medical services and 14.60 years for seniority premiums, based on the average remaining years of service.

as of december 31,2012 and 2011, balances and activity reflected in employee benefits from defined benefit plans of entities that comprise the Group, which include pension plans, seniority premiums, medical expenses and severance payments, were as follows:

2012 2011

Projected benefit obligation $ (7,322) $ (6,306)Plan assets 4,531 3,917 funded status (2,791) (2,389)

unamortized: transition liability - 59 Past service costs and improvements to the plan - 4 unrecognized actuarial losses 2,309 1,898 Net projected liability $ (482) $ (428)

as of december 31, 2012, the net projected liability for severance payments at the end of the employment relationship for reasons other than restructuring is $396.

as of december 31, 2012 and 2011, the obligations for acquired benefits are $5,089 and $4,601, respectively.

net periodic cost consists of the following:

2012 2011

service cost for the year $ 138 $ 154amortization of transition liability 59 61amortization of past service costs and improvements to the plan 4 9financial cost 524 501less- expected return on plan assets (327) (343)actuarial losses 50 78immediate recognition of actuarial losses for the year 110 118effects due to personnel downsizing 5 (7) Net periodic cost $ 563 $ 571

the economic assumptions used were as follows:

101

2012 2011

discount rate 7.25% 9.50%expected rate of return of assets 7.25% 9.50%rate of wage increases 5.00% 5.00%

in July 2001, the financial Group executed a collective lifetime payment insurance operation agreement for certain retirees with Principal mexico Compañía de seguros, s.a. de C.V. (Principal). such agreement establishes that with the payment of the single premium by the financial Group, Principal commits to paying insured retirees a lifetime payment until the death of the last insured retiree.

under such agreement, the financial Group’s net worth would not be affected in the future by these insured persons, since the risk was transferred to Principal. however, in order to record the financial Group’s legal obligation to its retirees in the consolidated balance sheets, the financial Group records the projected benefit obligation of the insured retirees surrendered to Principal under the heading of “employee retirement obligations”, and a long-term account receivable with Principal, which is recorded under the heading of “other assets (net)” for the funds that it transferred thereto. the amount of the projected benefits obligation was calculated by the financial Group ‘s external actuaries at the close of the year, based on the estimates used in the actuarial study for labor liabilities and the remaining personnel. as of december 31, 2012 and 2011, such liability is $1,052 and $1,001, respectively, and is recorded separately under the heading of “sundry creditors and other payables”, which for presentation purposes is eliminated against the equivalent balance under the heading of “other assets (net)”.

the reserves for employee benefits net of the contributions to the fund, with the exception of the Casa de Bolsa and almacenadora somex (entity liquidated in 2012), are presented in the consolidated balance sheets under “sundry creditors and other payables”.

the changes in net projected obligations were as follows:

2012 2011

opening balance (face value) $ (428) $ (384)Payment of benefits 112 194Provision for the year (563) (571)Contributions for the year 397 333 Net projected liability $ (482) $ (428)

fund movements were as follows:

2012 2011

opening balance $ 3,917 $ 3,884Contributions 397 333actual fund yield 614 71Payments made (374) (342)liquidation almacenadora serfin - (12)liquidation almacenadora somex (8) -transfer to defined contribution plan (15) (17) Closing balance $ 4,531 $ 3,917

as of december 31, 2012, the entities of the financial Group which had assets related to the defined benefit plan are the Bank and the Brokerage house. such assets were invested as follows:

Amount %

fixed income- Government securities $ 3,709 81.90% other types of securities 275 6.00% Variable income 547 12.10% $ 4,531 100.00%

Expected return $ 327

Actual return $ 614

as of december 31, 2012, there is no fund created for severance payments at the end of the employment relationship for reasons other than restructuring.

Grupo Financiero Santander México, S.a.B. de c.V. and SuBSidiarieS(a Subsidiary of Banco Santander, S.a. (Spain)) (Formerly Grupo Financiero Santander, S.a.B. de c.V.)

102

Changes in the present value of the defined benefits obligation:

2012 2011

Present value of the defined benefits obligation as of January 1, 2012 and 2011 $ 6,306 $ 5,855labor cost of the current service 138 154financial cost 524 501actual payment of benefits during the year (488) (534)elimination of obligations - (13)extinguished obligations (15) (17)Changes to the plan - 13liquidation of almacenadora serfin and somex (10) (17)actuarial loss on the obligation 867 364Present value of the defined benefits obligation as of December 31, 2012 and 2011 $ 7,322 $ 6,306

24. crEditors from sEttlEmEnt of transactions

as of december 31, are as follows:

2012 2011

debt securities $ 22,569 $ 7,939indexed shares 118 21foreign exchange 15,857 20,239option contracts 43 374others 17 6 $ 38,604 $ 28,579

25. sundry crEditors and othEr payaBlEs

as of december 31, sundry creditors and other payables were as follows:

2012 2011

investments in personnel pensions and seniority premiums $ (4,489) $ (3,876)Provision for labor obligations at retirement 4,985 4,322 net projected liability 496 446Provisions and other creditors 16,550 11,168Cashier and certificates checks 1,073 712letters of credit and drafts payable 1,174 1,510Value added tax payable 791 535other obligations 200 185declared dividends - 11,350Creditor bank compensation 1,475 14,009Guarantee deposits from margin calls 5,718 3,339 $ 27,477 $ 43,254

the line item provision for sundry obligations includes reserves for tax, labor and legal contingencies established by the financial Group at yearend.

Performance share plan

the management of the financial Group has executed the agreement known as the “Performance share plan” (the Plan), which was approved locally by the audit Committee and Corporate Practices, and by the Board of directors, and the stockholders’ General meeting. the Plan consists of the free delivery of shares (or “Performance shares”), which is conditioned upon the continued employment of the eligible officers in the financial Group for the time established for the respective cycle and reaching targets related to a) the total return for the shareholder (rta), according to the behavior of the share quotation of the Parent Company and b) the profit per share (BPa).

the Plan consists of five cycles where a maximum number of shares representing the capital of the Parent Company were assigned from the year 2009 until 2013, subject to reaching the aforementioned targets.

for the years ended december 31, 2012 and 2011, the financial Group recognized a charge to earnings for this item in the amount of $76 and $91, retrospectively.

Equity benefits plan

on april 27, 2009, the Board of directors of Banco santander, s.a. (spain) approved a supplementary Program to the Pension Plan (the Program), which will be part of the benefits included in the total compensation of the participating directors. this Program is exclusively for a reduced sector (designated by the human resources department of Banco santander, s.a. (spain)) of 17 directors of the bank and Casa de Bolsa.

the Program consists of the financial group contribution based on fixed remuneration (salary, yearend bonus and vacation premium), where the percentage is variable and is based on the employee’s seniority. the accumulated balance may be provided at the end of the employment relationship subject to the provisions of the Program.

103

the first contribution to this Program was made during the year 2009.

at the close of december 2012 and 2011, the financial Group recognized an expense of $8 and $7 respectively, in earnings.

26. incomE taxEs

in 2012, the financial Group is subject to income tax (“isr”) and business flat tax (“ietu”).

isr is calculated considering certain effects of inflation, such as depreciation calculated according to values at constant prices. in addition, the effect of inflation on certain monetary assets and liabilities is accrued or deducted for the purpose of determining taxable income.

the 2013 federal incomes law amended the corporate income tax rate for which a transition period affecting 2013 and 2014 had been established. the income tax rate was 30% for 2012 and 2011 and will be 30% in 2013; 29% in 2014 and 28% in 2015 and subsequent years.

as a general rule, the ietu considers revenues, deductions and certain tax credits based on cash flows; however, for the services for which they pay and collect interest, the Bank and the sofom determine them through the intermediation margin based on what is earned. the ietu law (lietu) establishes that for the year 2012 and 2011, the tax will be incurred at the rate of 17.5%.

the current income tax payable in any given year is the higher of isr and ietu.

By using financial projections, the management of the financial Group identified that it will essentially pay isr. accordingly, based on financial and tax projections, it will not incur ietu in the medium-term, it will only recognize deferred isr.

the isr and ietu provision recorded in results is composed as follows:

2012 2011

Current expense: isr $ 5,848 $ 4,267

ietu $ 10 $ 2

deferred benefit: isr $ (2,041) $ (1,734)

ietu $ (2) $ -

reconciliation of the accounting-tax result- the principal items which affected the determination of the tax result of the financial Group were the annual adjustment for inflation, the accounting-tax effect on the purchase and sale of shares, provisions, the result from market valuation, the difference between accounting and tax depreciation and amortization, and the deduction for bad debts taken by a subsidiary for which there is no recognized deferred tax asset.

penalty interest for purposes of Business flat tax (iEtu) - in accordance with the Business flat tax law, the Bank and the sofomes must consider interest as taxable revenue for purposes of this tax as it is accrued, regardless of whether it is collected or not, which applies both to ordinary and penalty interest. however, for purposes of such tax, both entities, based on the advice received from external attorneys, did not consider the penalty interest as taxable revenue, arguing that it was unconstitutional to require taxpayers to accrue penalty interest that was earned but not collected. however, according to an analysis made by management, recognizing the penalty interest of the Bank and sofomes as taxable income would not have affect the income tax provision.

tax loss carryforwards and iEtu tax credit - at december 31, 2012, the financial Group has ietu tax credits, together with tax loss carryforwards for ietu purposes, which will be indexed until their year of application for the restated amount of:

IETU Applicable Maturity Credit tax loss

2013 $ - $ 30 2014 - 21 2017 - 2 2018 68 - 2019 223 - 2020 205 1 2021 27 1 2022 - 5 Total $ 523 $ 60

Based on the acquisition of santander hipotecario from Ge Capital méxico, the former has restated tax loss carryforwards of $3,564 that are considered as an account receivable from Ge Capital méxico, which guaranteed their recovery.

Employee statutory profit-sharing - the financial Group subsidiaries determines employee statutory profit-sharing based on the guidelines established the article 127, section iii of the federal labor law, except for certain entities that determine it based on the provisions established by the Constitution in mexico.

Grupo Financiero Santander México, S.a.B. de c.V. and SuBSidiarieS(a Subsidiary of Banco Santander, S.a. (Spain)) (Formerly Grupo Financiero Santander, S.a.B. de c.V.)

104

deferred taxes- are composed as follows at december 31:

2012 2011

deferred isr asset: Preventive provisions for un-deducted credit risks $ 10,251 $ 9,664 fixed assets and deferred charges 1,644 1,298 accrued liabilities 1,334 1,181 tax loss carryforwards (shares) 1,917 590 tax loss carryforwards (other) 3 99 Commissions and interest collected in advance 505 448 tax deduction due to bankruptcy - 273deferred isr asset: 15,654 13,553

deferred isr (liability): surplus value of financial instruments $ (2,113) $ (1,726) labor obligations (8) (8) financial operations derived from exchange rate 67 (466) advance payments (152) (131) others 32 48deferred isr (liability): (2,174) (2,283)

less - allowance for deferred income tax asset (2,896) (3,207) Deferred income tax asset (net) $ 10,584 $ 8,063

management records an allowance for the deferred income tax asset in order to recognize the deferred tax asset that they believe will be recovered, considering for such purposes the effects of the tax credit for non-deductible allowances for loan losses that is expected to reverse, based on the financial and tax projections prepared by management. the recovery of such asset is dependent on the economic and operating conditions under which such projections were prepared. deferred taxes are recorded in earnings or stockholders’ equity as the corresponding account, depending on how the item underlying the anticipated deferred tax was recorded.

the reconciliation of the legal isr rate and the effective rate expressed as a percentage of profit before isr is:

2012 2011

legal tax rate 30% 30%effect of the portfolio credit (2%) (11%)effect in shares (6%) (2%)effects of tax inflation (3%) (2%)nondeductible (1%) -Legal tax rate 18% 15%

Tax reviews and issues

a. on april 16, 2007, the Bank filed a proceeding for annulment against the ruling issued by the tax administration service which, among other items, determined a tax liability of $114 for 2003 for income tax, inflation adjustments, surcharges and fines. this proceeding was sent to the seventh regional metropolitan Court of the federal tax Court for study and the respective ruling. on august 21, 2007, the Court issued notification regarding the admission of this lawsuit, together with the requirement that the Bank submit certain evidence, which has since been filed. Consequently, the financial Group is currently waiting for the tax authorities to file their response to this proceeding.

on august 14, 2008, the Bank was notified of the agreement in which the defendant authority filed a motion for reconsideration against the admission decree.

on august 20, 2008, the response to the motion for reconsideration filed by the defendant authority was submitted, for which reason the Bank is waiting for the Chamber to issue its ruling accepting such response as filed.

in 2009, the expert witnesses of the Bank and authorities submitted their respective reports.

due to on the analysis performed by the tax Court of the reports submitted by the expert witnesses of the Bank and authorities, and given the discrepancy between them, the Court appointed a third expert witness.

the tax Court is currently waiting for the court-appointed expert witness to submit his report in order to grant the period allowed by law for the parties to submit their closing arguments.

b. through official notice 900-06-03-2010-4377 issued by the Central administration for audits of the financial sector, a tax liability was determined, for which a total of $4 was provisioned for income tax allegedly unpaid, together with restatement, surcharges and fines, all related to the year 2004.

on may 31, 2010 an action for annulment was filed against the ruling contained in such official notice, which was turned over to the third metropolitan regional Court of the federal tax Court.

105

through the ruling of march 2, 2012, the tax Court acknowledged the fulfillment of the requirement issued to the agent of the Public Prosecutor’s office, table Viii-rn, to present a certified copy of the claim submitted by the Bank against mr. sabino Gonzalo lozano for the unlawful use of resources derived from the absence of this antecedent in his file. Consequently, the tax Court requested that the Bank demonstrate the issue indicated by the agent of the Public Prosecutor’s office.

this requirement was fulfilled through the document of may 3, 2012, which challenged the alleged impossibility indicated by the agent of the Public Prosecutor’s office pertaining to assistant Criminal Procedures department of “B” regarding the claim filed against mr. sabino Gonzalo lozano, and the respective exhibits.

the Court is currently waiting for the court-appointed expert witness to submit his accounting report; however, once this occurs, the Court will grant the period permitted by law for the parties to submit their closing arguments.

the tax Court once again issued a request to the agent of the Public Prosecutor’s office pertaining to assistant Criminal Procedures department of “B” regarding the claim filed against mr. sabino Gonzalo lozano and the respective exhibits. this requirement was fulfilled by the agent of the Public Prosecutor’s office and is currently being evaluated by the tax Court.

Other tax issues:

the following balances are in effect at december 31:

2012 2011

net tax income account $ 10,409 $ 10,368

Contributed capital account $ 84,880 $ 81,306

net reinvested tax income account $ 38 $ 37

27. stockholdErs’ Equity

as of december 31, capital stock, at per value, was as follows:

Number of shares

2012 2011 2012 2011

fixed capital - series “f” shares 1,078,456,241 1,078,456,241 $ 4,078 $ 4,078 series “B” shares 1,739,931,948 1,739,931,948 6,578 6,578

Variable capital - series “f” shares 2,385,852,904 2,385,852,904 9,020 9,020 series “B” shares 1,582,153,820 1,582,153,820 5,982 5,982 Total 6,786,394,913 6,786,394,913 $ 25,658 $ 25,658

the stockholders’ annual ordinary General meeting of february 22, 2012 resolved to order the following applications because the financial statements, which reported a net profit of $18,682 for the 2011 corporate year, were approved by the meeting:

a) of the net profit of the year obtained by the financial Group, the amount of $241, equal to 5% of the profit of the year, must be applied to the “legal reserve” account.

b) the remainder of the profit generated by the financial Group, the amount of $4,584, must be transferred to the “retained earnings” account.

c) the net profit of the year of $13,857 generated by the financial Group ‘s subsidiaries must be transferred to the “retained earnings” account.

the stockholders’ ordinary General meeting of may 14, 2012 resolved to pay a cash dividend of $3,000 million pesos to the stockholders´ of the financial Group taken from the “retained earnings” account.

the stockholders’ ordinary General meeting of august 13, 2012, resolved to pay a cash dividend of $4,300 million pesos to the stockholders of the financial Group taken from the “retained earnings” account.

the above dividend payments approved for stockholders were not taken from the net tax income account.

as discussed in note 1, in september 2012, the financial Group successfully concluded a secondary public offering of 24.90% of its common stock. this offering was approved by the Board of directors of the financial Group on July 26, 2012.

a total of 1,689,543,408 series B shares with a value of $31.25 pesos per share or 12.1849 us dollars per american depositary share (ads) were sold. the conversion ratio was 5 series B shares for each ads share. of the total number of shares sold, 81% were placed in usa and the remaining 19% in mexico.

at all times, series “f” shares must represent no less than 51% of common stock and can only be directly or indirectly acquired by a foreign financial institution, as defined by the law to regulate financial Groups (lraf). series “B” shares can represent up to 49% of common stock, can be freely-subscribed and are subject to the terms of article 18 of the lraf.

at no time may foreign entities performing official functions hold equity in the financial Group. this restriction is also applicable to mexican financial entities, even those forming part of the financial Group, unless acting as institutional investors per article 19 of the lraf.

Grupo Financiero Santander México, S.a.B. de c.V. and SuBSidiarieS(a Subsidiary of Banco Santander, S.a. (Spain)) (Formerly Grupo Financiero Santander, S.a.B. de c.V.)

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if profits are declared on which tax applicable to the financial Group has not been paid, it must be settled when the dividend is distributed. Consequently, the financial Group must keep records of the profits subject to each tax rate.

Capital reductions incur tax based on the amount by which the distributed amount exceeds its tax value determined according to the income tax law.

except for the Bank, the financial Group and its subsidiaries are subject to the legal provision which requires that at least 5% of the net profits of each year be separated and transferred to a capital reserve fund until equal to 20% of paid-in capital. in the case of the Bank, the legal provision requires the separation of 10% of net profits to create a legal reserve until equal to 100% of paid-in capital. this reserve cannot be distributed to stockholders while these entities exist, except as share dividends.

shares held by the treasury

the balance of shares held in the treasury covers the acquisition cost of the shares held by the financial Group. at december 31, 2012, the financial Group has 13,401,600 shares in its treasury.

28. sharE-BasEd paymEnts

performance share plan

in July 2012, the Board of directors of the financial Group approved a compensation plan for senior executives subject to the fulfillment of certain conditions. this plan is paid annually during the first three years following the secondary public offering of 24.9% of common stock which took place in september 2012 and is linked to the revaluation of the financial Group’s shares on the mexican share market during this period.

according to this plan, eligible executives will obtain a cash incentive which must be irrevocably used to acquire the financial Group’s shares at an exercise price of $31.25 pesos per share (the incentive).

each year, the incentive is linked to the attainment of two independent objectives. if these objectives are attained annually, a third part of the total incentive amount is granted to eligible executives.

the attainment of each objective depends on the payment of 50% of the maximum annual incentive amount to eligible executives who remain as active officers of the financial Group when each of the three plan payments is made:

1. absolute revaluation of the financial group’s share.- fifty percent of the incentive applicable to each tranche or third assigned to each eligible executive will be delivered if: a) the share revaluation at the annual assignment date is equal to or higher than 15%, while 25% of the incentive will be delivered in each tranche or third if b) the share revaluation at the annual assignment date is equal to or higher than 10%; c) if an intermediate revaluation objective of between 10% and 15% is attained, the resulting incentive amount is calculated based on a lineal interpolation.

2. relative revaluation.- fifty percent of the maximum incentive assigned to each eligible executive will be delivered if the evolution of the financial Group’s share value is at least equal to the behavior of the iPC during the period in question.

according to nif d-8, the fair value of granted plans is estimated from the date on which they are assigned according to the fair value of the capital instrument on the estimated exercise date, while considering the periods and conditions under which the capital instruments were granted. the projected fair value is determined by considering market value assignment conditions, because this condition must be attainable. however, performance conditions are not considered when projecting the fair value because they are only used for each period to recognize the number of instruments granted.

in the case of a plan linked to the share price, the cost or expense must reflect the fair value of the shares projected at the assignment date. according to the number of eligible officers and the compensation plan specifications described above, the fair value is $419.

during 2012, the financial Group recognized the amount of $35 for compensation in the consolidated statements of income under the heading of “administrative and promotional expenses”, while the respective adjustments were recorded under the heading of “share premium” within stockholders’ equity.

at december 31, 2012, none of the executives of the financial Group has been eligible for this plan.

29. prEvEntivE savings protEction mEchanism

on January 19, 1999, the Bank savings Protection law was approved and iPaB was created to establish a bank savings protection system in favor of individuals that perform any of the guaranteed transactions, and to regulate financial support granted to full service banking institutions in order to protect the interests of depositors.

iPaB’s resources come from the mandatory contributions paid by financial institutions, according to the risk to which they are exposed. such contributions are calculated based on the capitalization level of each institution and other indicators set forth in iPaB’s bylaws issued by its Board of directors. these contributions must be equivalent to one-twelfth of four-thousandths of the monthly average of the daily balances of liabilities activities of the applicable month.

for 2012 and 2011, the amount of the fund contributions payable by the Bank, as determined by the iPaB, were $1,342 and $1,228 respectively.

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30. contingEnciEs

as of december 31, 2012 and 2011, the financial Group was the defendant in various legal proceedings and claims arising in the ordinary course of business. while this situation represents contingent liabilities, according to the financial Group’s management and their legal, tax and labor lawyers, in the event of an unfavorable final decision, they do not expect any significant effect on the consolidated financial statements.

a. IPAB Indemnity:

as of december 31, 2012 and 2011, Grupo financiero serfin (which was merged with Grupo financiero santander mexicano, s.a., currently Grupo financiero santander mexico, s.a.B. de C.V.) was the defendant in various legal proceedings and claims arising in the ordinary course of business. while this situation represents contingent liabilities, according to management and its legal, tax and labor lawyers, in the event of an unfavorable final decision, they do not expect any significant adverse effect on the consolidated financial statements. this is because all or most of them are covered by the agreement to purchase shares of the capital stock of Grupo financiero serfin, s.a. and subsidiaries (Grupo financiero serfin) entered into by the financial Group and iPaB, as described below.

according to the purchase-sale contract executed for the shares of Grupo financiero serfin between the financial Group and the iPaB, the latter must respond to the financial Group for any amount resulting from any kind of administrative, legal or arbitration proceedings filed against Grupo financiero serfin and/or the financial entities of Grupo financiero serfin (Banca serfin (merged with Banco santander mexicano and currently denominated Banco santander (méxico)), operadora de Bolsa serfin (merged with Casa de Bolsa santander mexicano, currently denominated Casa de Bolsa santander), almacenadora serfin (a company liquidated in october 2011), factoraje serfin (merged with factoring santander; after the merger, the new entity was denominated factoring santander serfin, which subsequently merged with Banco santander mexicano and is currently denominated Banco santander (méxico)), and seguros serfin (formerly seguros serfin lincoln, the absorbing company of seguros santander mexicano, subsequently denominated seguros santander and finally sold in July 2011, as detailed in note 33), prior to the execution of the contract (may 23, 2000) and for a maximum three-year period as of that date, and which result in the issuance of a definitive sentence by the mexican authorities or courts or foreign courts when involving a definitive sentence with a standardized counterpart in mexican law, or a definitive arbitration ruling with a standardized counterpart in mexican law.

according to Clause 11 of the above agreement, iPaB is liable before the buyer and designated buyer, accordingly, for any amount of taxes assessed on Grupo financiero serfin and/or its financial entities by the mexican tax authorities, including contributions to the mexican social security institute (imss) and national institute of the workers’ housing fund (infonaVit). this liability, however, will apply only to taxes, penalties, surcharges and tax restatements payable prior to the date of transfer of title to the shares of Grupo financiero serfin, or generated through that date, but paid on a later date.

also, iPaB is therefore liable before the buyer and designated buyer for any amount resulting from labor claims related to a final adverse court decision issued against Grupo financiero serfin and/or its financial entities, or derived from any agreement executed before the respective arbitration panels, provided that such claims were filed prior to the date of transfer of ownership of the shares of Grupo financiero serfin.

the share purchase agreement also establishes that: a) the reserves established by Grupo financiero serfin and Banca serfin for the respective amounts of $546 and $91 (face value), relative to legal and labor contingencies at the transfer date of the shares, as described in exhibit G of the agreement, must be restated against Group financiero serfin’s stockholders’ equity for an amount equal to the result of applying the Cetes rate to the reserves and b) the fees and expenses incurred in connection with services rendered to defend these entities from any legal, labor, arbitration or administrative claim, will be borne by iPaB. if this agreement is not fulfilled, iPaB will be released from any obligation to cover the above-mentioned contingencies.

if Grupo financiero serfin and/or its financial entities are required to transfer to iPaB any liabilities resulting in disputes due to administrative, legal or arbitration proceedings against Grupo financiero serfin and/or its financial entities, the financial Group will have Grupo financiero serfin and/or its financial entities take all the necessary steps to transfer such liabilities to iPaB or to any legal vehicle or entity appointed by iPaB.

neither Grupo financiero serfin nor its financial entities recorded any contingency reserve, in addition to that recorded prior to their acquisition by the financial Group, in connection with any item generated from transactions performed prior to the transfer date of the shares of Grupo financiero serfin to the financial Group, since iPaB will take the measures mentioned in the preceding paragraphs if any contingency should arise.

on september 30, 2010, the financial Group signed an amendment agreement derived from the contract of purchase and sale of shares of Grupo financiero serfin, s.a. and subsidiaries (Grupo financiero serfin) entered into between Grupo financiero santander, s.a.B. de C.V. (the financial Group) and the iPaB.

in accordance with this amendment agreement, the financial Group reimbursed to the iPaB the amount of $905, which was recorded under the heading of “sundry creditors and other accounts payable”. this amount comes from the reserves contributed by the iPaB under the contract signed on may 23, 2000, as indicated in the preceding paragraphs.

at december 31, 2012 and 2011, the financial Group has recorded reserves of $199 and $258 for contingencies related to the transaction preceding the acquisition. these reserves resulted from the execution of the amendatory agreement and are recorded under the heading of “sundry creditors”.

as of december 31, 2012 and 2011, the amount of the maximum contingencies related to the lawsuits that are covered by the iPaB, without considering those not determined, is $388 and $391, respectively.

Grupo Financiero Santander México, S.a.B. de c.V. and SuBSidiarieS(a Subsidiary of Banco Santander, S.a. (Spain)) (Formerly Grupo Financiero Santander, S.a.B. de c.V.)

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in the amendatory agreement executed for the share purchase-sale contract of september 30, 2010, it was agreed that the financial Group could utilize the created reserve regardless of the nature of the contingency in question. accordingly, the financial Group will recover paid Value added tax and will not pay the 5% fee charged for the reimbursement procedure. Based on this agreement, in 2012 and 2011, the reserve was used for the amounts of $73 and $54, respectively, for the remaining expenses incurred to handle legal issues.

b. Fiduciary Area:

as of december 31, 2012, management has recorded a provision of $140 (face value), to cover the contingency derived from the fiduciary area in which the Group acts as trustee.

the financial Group’s fiduciary division is currently analyzing internal documentation, financial Group’s management believes that there will be no additional contingencies that could materially affect the consolidated financial statements of the financial Group.

c. Legal contingencies:

at december 31, 2012 and 2011, as a result of its business activities (without considering contingencies derived from hedges with the iPaB), the financial Group has had certain claims and lawsuits representing contingent liabilities filed against it. notwithstanding, management and its internal and external legal, tax and labor advisers do not expect such proceedings to have a material effect on the consolidated financial statements in the event of an unfavorable outcome. as of december 31, 2012 and 2011, the financial Group has recorded contingency reserves for the amounts of $1,179 and $1,198, respectively, that have been included under the “sundry creditors and other accounts payable” account, which, based on the opinion of its internal and external legal advisers, management considers to be adequate.

31. mEmorandum accounts

memorandum accounts do not form an integral part of the consolidated balance sheet; accordingly, the only memorandum accounts covered by the external audit are those used to record transactions which are directly related to consolidated balance sheet accounts, as follows: contingent assets and liabilities, credit commitments, collateral received, sold or given in guarantee, and uncollected accrued interest derived from the non-performing credit portfolio.

aside from the above memorandum accounts, the financial Group also has the following:

a. Assets in trust or mandate (unaudited) -

as of december 31, 2012 and 2011, the financial Group administered the following trusts and mandates:

2012 2011

trusts- administration $ 102,054 $ 125,400 Guarantee 4,975 3,078 investment 18,925 17,277 125,954 145,755mandates 1,580 1,556 Total assets in trust or mandate $ 127,534 $ 147,311

b. Assets in custody or under administration (unaudited)-

as of december 31, 2012 and 2011 the financial Group has the following assets in custody and under administration:

2012 2011

Bank securities $ 27,014 $ 23,501Capital market 697,933 486,413Collection documents 1,966 2,036Credit operations 238,666 115,427Government securities 1,026,401 784,877movable goods and real property 278,981 193,980obligations 79,981 83,915other received guarantees 513,103 648,507 other securities 264,637 208,100Promissory notes, deposit certificates and bills of exchange 433,014 388,698 Total assets in custody or under administration $ 3,561,696 $ 2,935,454

as of december 31, 2012 and 2011, the revenues generated by this type of assets were $343 and $297, respectively.

c. Other record accounts -

as of december 31, 2012 and 2011, other record accounts have a balance of $501,538 and $428,757, respectively.

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32. othEr opErating incomE

as of december 31 is as follows:

2012 2011

recovery of previously written-off loans $ 1,804 $ 1,525Cancellation of liabilities and reserves 201 176Profit from the sale of real property 1,741 13recovered taxes - 96technical advisory services 103 72interest on personnel loans 122 110release of allowance for loan losses 378 -recovery of derivative early maturities - 32write-offs and bankruptcies (791) (383)Portfolio recovery legal expenses and costs (611) (452)Provision for legal and tax contingencies (272) (242)iPaB (indemnity) provisions and payments (35) (34)allowance for losses on foreclosed assets (44) (48)acquisition of discounted credit portfolio - 112Profit from sale of foreclosed assets 146 54others 213 36Total $ 2,955 $ 1,067

33. discontinuEd opErations

sale of seguros santander

in february 2011, Banco santander, s.a. (spain) and Zs insurance america, sl (“Zurich and/or buyer 1”) executed a commercial alliance for the insurance banking business in latin america, which primarily consists of executing a distribution agreement for the sale of insurance products in each country for a 25-year period.

as a result of this commercial alliance, on July 14, 2011, an agreement was executed between Banco santander, s.a. (spain), Zurich and Zurich insurance Company ltd, (the “buyer”).

likewise, on July 14, 2011, the financial Group sold all its shares in seguros santander, s.a. (seguros santander) through the share purchase-sale contract (the “Contract”) executed between the financial Group and GesBan méxico servicios administrativos Globales, s.a. de C.V., (“GesBan méxico”) with Zurich and inversiones Zs america sPa (inversiones Zs america and/or buyer 2”). this contract was only executed for the purpose of guarantees with Banco santander, s.a. (spain).

the contract establishes that the financial Group agreed to sell, transfer and deliver 189,999 shares of seguros santander to “buyer 1”, which represents 99.99% of its total common stock. similarly, GesBan méxico agreed to sell, transfer and deliver to inversiones Zs américa one share in the common stock of seguros santander, which represents 0.01% of its total common stock.

the sales price of the 99.99% equity held by the financial Group in the shares of seguros santander was $7,441, which generated a profit of $4,822, net of taxes, which was recorded by the financial Group in november 2011, when the sale was completed according to contractual clauses. the effects of this transaction were recorded in the consolidated statements of income under the heading of “discontinued operations”. this profit, net of taxes, includes the amount of $570 derived from the operating results of seguros santander for the period in 2011 during which this entity belonged to the financial Group.

under the contract, the financial Group and GesBan méxico will continue to provide administrative services and place insurance policies as part of the business operation continuity process, while also holding intangible goods and property of seguros santander and conserving significant business relations, unless Zurich e inversiones Zs américa agrees otherwise or closes the contract.

the condensed result of the discontinued operation of seguros santander for the year ended october 31, (the close date nearest to the transaction performance date) is as follows:

2011

issued premiums net of assigned premiums $ 4,239 increase of current reserves (2,699) retained accrued premiums 1,540 net acquisition cost (864) net cost of casualties, claims and other contractual obligations (454) 222technical profit net increase of other technical reserves (34) Gross profit 188 operating expenses, net (107) operating profit 81 Comprehensive financing result 733 equity in the result of permanent investments 5 Profit before income taxes 819 Provision for the payment of income tax (249)Profit of the year $ 570

Grupo Financiero Santander México, S.a.B. de c.V. and SuBSidiarieS(a Subsidiary of Banco Santander, S.a. (Spain)) (Formerly Grupo Financiero Santander, S.a.B. de c.V.)

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34. commitmEnts

as of december 31, 2012 and 2011, the financial Group has signed agreements for the provision of services (to be received) related to its operations, less than 14% and 21%, respectively, of operating expenses, which form part of its current spending.

35. information By sEgmEnts

as of december 31, 2012, the financial Group provides integrated financial services to its clients, which include banking and credit operations, brokerage services and fund management for retirement pensions.

the principal data by business segment are as follows:

Segments

Commercial Global Corporate Bank (1) Wholesale Banking (2) Activities Total

financial margin $ 26,535 $ 3,825 $ 3,532 $ 33,892Provisions for loan losses (9,212) (163) (70) (9,445)financial margin after allowance for loan losses 17,323 3,662 3,462 24,447net commissions 10,578 1,707 (82) 12,203net gain on financial assets and liabilities 638 1,614 (56) 2,196other operating income 1,598 2 1,355 2,955administrative and promotional expenses (18,237) (2,007) 8 (20,236)operating income 11,900 4,978 4,687 21,565equity in the results of associated companies - 1 72 73result before income taxes 11,900 4,979 4,759 21,638incurred and deferred income taxes (3,570) (1,493) 1,248 (3,815)income from continuing operations before income taxes 8,330 3,486 6,007 17,823net income 8,330 3,486 6,007 17,823non-controlling equity - - (1) (1)net income 8,330 3,486 6,006 17,822

significant balance sheet data:Total loan portfolio $ 254,972 $ 94,091 $ 1,620 $ 350,683

Customer deposits $ 282,278 $ 58,210 $ 21,964 $ 362,452

(1) includes individuals, small and medium Businesses, Companies, institutions and local Corporate.

(2) includes Global Corporate, treasury, investment Banking and fund management.

36. comprEhEnsivE risk managEmEnt (unauditEd figurEs)

the financial Group considers risk management as a competitive element of a strategic nature with the sole purpose of maximizing the value generated for stockholders. this risk management is defined, both conceptually and organizationally, as the comprehensive treatment of the different risks (market, liquidity, credit, counterparty, operating, legal and technology risks) assumed by the financial Group in the normal course of business. the way in the financial Group manages the risk inherent in its transactions is essential to understand and determine how its financial position will behave and create value in the long term.

in compliance with the prudent regulations for comprehensive risk management applicable to credit institutions, issued by the national Banking and securities Commission, the Board of directors agreed to set up the financial Group Comprehensive risk management Committee, based on the guidelines established in the aforementioned provisions. this Committee meets monthly and ensures that operations adhere to the objectives, policies and procedures approved by the Board of directors for Comprehensive risk management.

the Comprehensive risk management Committee delegates responsibility to the Comprehensive risk management unit for implementing procedures to measure, manage and control risks according to established policies. likewise, it also grants powers to the uair to enable it to authorize established limits to be exceeded, although the Board of directors must be informed of these departures.

Market Risk -

the market risk management department of the Comprehensive risk management unit is responsible for recommending the market risk management policies to be implemented by the financial Group, by establishing the parameters for measuring risks and delivering reports, analyses and evaluations to senior management, to the Comprehensive risk management Committee and to the Board of directors.

market risk management consists of identifying, measuring, monitoring and controlling the risks derived from the fluctuations of interest and exchange rates, market prices and other risk factors in currency and money markets and related to derivative financial instruments to which the financial Group’s positions are exposed.

the measurement of market risk quantifies the potential change in the value of the positions assumed as a result of changes in market risk factors.

depending on the type of activities performed by the business units, debt securities and share certificates are recorded as trading securities, securities available for sale and/or securities held to maturity. in particular, after the item of securities available for sale, what underlies and

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identifies them as such is their permanent status, and they are handled as a structural part of the consolidated balance sheets. the financial Group has established guidelines which must be applied for securities available for sale, as well as adequate controls to ensure their compliance.

when significant risks are identified, they are measured and assigned limits to ensure adequate control. the risk is measured from a global perspective through a combination of the methodology applied to trading portfolios and that applicable to the management of assets and liabilities.

Trading Portfolios-

to measure risks using a global approach, the Value at risk (Var) method is followed, which is defined as the statistical estimate of the potential loss of value of a specific position at a specific period of time and with a specific level of confidence. the Var is a universal measure of the exposure level of the various risk portfolios. it helps compare the risk level assumed among different instruments and markets, expressed in the exposure level of each portfolio through a unique figure in economic units.

the Var is calculated by historical simulation with a window of 521 business days (520 for percentage changes), and a one-day horizon. the calculation is made based on the series of losses and gains simulated by considering the 1% percentile using constant mexican pesos and mexican pesos decreasing exponentially with a decline factor that is reviewed annually, and the most conservative measurement is reported. the level of reliance is variable. a 99% level of reliance is assumed.

market risk management consists of identifying, measuring, monitoring and controlling the risks derived from the fluctuations of interest and exchange rates, market prices and other risk factors in currency and money markets and related to derivative financial instruments to which the financial Group’s positions are exposed.

the historical simulation model has the limitation of assuming that the recent past represents the immediate future.

at the december 2012 close, the Value at risk (unaudited) was:

Bank and Brokerage House Var thousands of MXN %

Trading Markets 72,367.68 0.09%market making 43,924.59 0.06%Proprietary trading 33,646.92 0.04%

Risk factor 72,367.68 0.09%interest rate 65,992.75 0.09%exchange rate 10,235.62 0.01%Variable income 12,718.59 0.02%

the average quarterly Value at risk in 2012 (unaudited) was:

Bank and Brokerage House Var thousands of MXN %

Trading Markets 70,372.62 0.09%market making 46,517.84 0.06%Proprietary trading 36,918.68 0.05%

Risk factor 70,372.62 0.09%interest rate 65,211.63 0.09%exchange rate 5,810.47 0.01%Variable income 13,356.32 0.02%

* % Var percentage of net Capital

for informative purposes, the Var associated with consolidated trading and available-for-sale positions is 264,546 (thousands of pesos) (unaudited), which is primarily concentrated on the interest rate risk factor.

furthermore, monthly simulations are performed of portfolio losses or gains through evaluations under different scenarios (stress tests). these estimates are generated in two ways:

• By applying percentage changes observed in a given period of the history, which covers significant market turbulence, to the risk factors.

• By applying changes that depend on the volatility of each to the risk factors

monthly “backtesting” is performed to match daily losses and gains to determine whether the same positions have been maintained, while only comparing the change in value due to market movements with the value at risk calculation in order to calibrate utilized models. although prepared monthly, these reports include all daily tests.

Grupo Financiero Santander México, S.a.B. de c.V. and SuBSidiarieS(a Subsidiary of Banco Santander, S.a. (Spain)) (Formerly Grupo Financiero Santander, S.a.B. de c.V.)

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Management of assets and liabilities –

the financial Group’s commercial banking activities generate significant consolidated balance sheet amounts. the assets and liabilities Committee (alCo) is responsible for determining guidelines for managing risk for the financial margin, net worth and liquidity, which must be followed in the different commercial portfolios. under this approach, finance senior management is responsible for executing the strategies defined in the assets and liabilities Committee in order to modify the risk profile of the commercial balance sheet by following the policies established. therefore, it is essential to adhere to information requirements for interest rate, exchange rate and liquidity risks.

as part of the financial management performed by the financial Group, the sensitivity of the financial margin (nim) and net worth (mVe) of the different consolidated balance sheet headings is analyzed against interest rate variations. this sensitivity derives from the differences between the expiration and modification dates of interest rates generated in the different headings of assets and liabilities. the analysis is based on the classification of each heading sensitive to interest rates over time, depending on their dates of amortization, expiration or contractual amendment of the applicable interest rate.

the following table shows metrics as a proportion of the established limit:

Sensitivity 1% NIM Sensitivity 1% MVE

Bank and Brokerage House Oct-12 Nov-12 Dec-12 Average Oct-12 Nov-12 Dec-12 Average

Balance mxP GaP 56% 62% 72% 63% 77% 76% 69% 74.0%Balance us GaP 25% 73% 64% 54% 80% 75% 54% 69.7%

simulation techniques are used to measure the foreseeable valuation of the financial margin and net worth value under different interest rate scenarios and the sensitivity of both elements in the event of an extreme movement at the december 2012 close.

Sensitivity 1% NIM Sensitivity 1% MVE

Millions of pesos Non- Non- Bank and Brokerage House Total Derivatives Derivatives Total Derivatives Derivatives

Balance mxP GaP 865 67 798 (2,425) 667 (3,092)Balance us GaP 124 (91) 215 629 (90) 719

the assets and liabilities Committee adopts investment and hedge strategies to keep these sensitivities within the objective range.

Limits

limits are used to control the global risk for the financial Group, based on each of their portfolios and books. the limits structure is applied to control exposures and establish the total risk applied to the business units. these limits are established for the Var, loss alert, maximum loss, volume equivalent of type of interest, delta equivalent of variable income, foreign currency open positions, sensitivity of the financial margin and sensitivity of net worth.

Liquidity risk

liquidity risk is associated with the financial Group’s capacity to finance the commitments undertaken at reasonable market prices, and to carry out its business plans with stable financing sources. the influencing factors may be external (liquidity crisis) or internal due to excessive concentrations of expirations.

the financial Group manages expirations of assets and liabilities, performing oversight of maximum profiles for time lags. this oversight is based on analyses of asset and liability expirations, both contractual and related to management. Please note that the liquidity risk is limited in terms of a liquidity level accumulated over a one-month period and an established liquidity Coefficient.

Liquidity Coefficient

Bank and Brokerage House Oct-12 Nov-12 Dec-12 Average *

Balance mxP GaP 41% 36% 34% 37%Balance us GaP 24% 26% 19% 23%

Liquidity Collateral Exposure

the following table shows the liquidity collateral exposure of assets and liabilities with different maturities at december 31, 2012:

Millions of pesos Total 1D 1S 1M 3M 6M 9M 1A 5A >5A

structural gap 78,251 75,276 (35,326) (23,915) 9,925 17,508 17,165 10,840 5,771 1,007non-derivatives 69,738 75,160 (35,484) (23,203) 9,432 18,586 19,479 10,446 (124) (4,554)derivatives 8,513 116 158 (712) 493 (1,078) (2,314) 394 5,895 5,561

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Credit Risk

the management of the financial Group’s credit risk is developed differently for the different customer segments through the three phases of the credit process: admission, follow-up and recovery.

from a global standpoint, the management of credit risk in the financial Group covers the identification, measurement, composition and valuation of aggregated risk and the profitability adjusted to such risk, whose purpose is to oversee the levels of risk concentration and adjust them to established limits and objectives.

the risks which receive individual treatment are identified and differentiated (risks with companies, financial institutions and entities) from those handled in standardized fashion (consumer and mortgage loans of private parties and loans to business and micro-companies).

in the case of risks to which an individual treatment is applied, the financial Group has a solvency classification or “rating” system that calculates the probability of noncompliance, which enables it to measure the risk associated with each customer from the start of the respective transaction. the customer valuation obtained after analyzing the relevant risk factors in different areas is subsequently adjusted based on the specific characteristics of the transaction (guarantee, term, etc.).

standardized risks, given their special characteristics (a large number of transactions involving relatively small amounts) require different handling that ensures effective treatment and efficient allocation of resources, for which automatic decision-making tools are used (expert and credit scoring systems).

the treatment of business loans is also complemented, in its follow-up stage, with the so-called “special oversight system”, which determines the policy to be followed in handling risk with companies or groups classified in such category. several special oversight situations or degrees are distinguished, from which different actions may arise. the special oversight rating is reached either by alert signals, systematic reviews or special initiatives promoted by the risk division or internal audit.

recovery units are a fundamental element in the management of irregular risks and are intended to minimize the final loss incurred by the financial Group. these units perform specialized risk management activities based on the classification of a given risk as irregular (timely payment noncompliance).

the financial Group has implemented a policy of selective growth of the risk and strict actions in the treatment of late payments and its provisions, based on the prudent criteria defined by the financial Group.

Probability of Noncompliance and Expected Losses

according to the Comprehensive risk management guidelines detailed in the General Provisions applicable to Credit institutions, as part of their credit risk management, credit institutions must calculate the default probability. the system allows the default probability to be estimated for different credit portfolios:

a. the default probability (Pd) of “no retail” portfolios is determined by calibrating customer ratings at a given date based on the monthly default rates observed over a five-year period. these default rates are then adjusted to an established 10-year economic cycle. the standard default probabilities issued by the Basel agreement are utilized for “retail” portfolios.

b. once the default probability has been determined, the “loss Given default” (lGd) and “exposure at default” (ead) parameters established by the Basel agreement are utilized.

after obtaining the above factors, the expected loss (Pe) is calculated by using the following formula:

expected loss = noncompliance Probability x loss Given default x exposure at the moment of noncompliance

that is: Pe = Pd * lGd * ead

Counterparty Risk

the overall credit risk includes a concept whose peculiar nature requires specialized handling: Counterparty risk.

Counterparty risk is that which the financial Group assumes with government, government agencies, financial institutions, corporations, companies and individuals in its treasury and correspondent banking activities. its measurement and control of credit risk in financial instruments, counterparty risk, is handled by a special unit whose organizational structure is independent of the business units.

the control of counterparty risk is handled each day through the kondor Global risk (kGr) system, which ascertains the line of credit available with any counterparty, in any product and for any term.

the reC estimates the amount that the financial Group could lose through current transactions with a given counterparty if the latter defaults on its commitments at any time before transaction maturity. the reC considers the Current Credit exposure, defined as the cost of replacing the transaction at market value, provided that such value is positive for the financial Group, and is measured as the market value of the transaction (mtm). furthermore, the reC incorporates the Potential Credit exposure or additional Potential risk (rPa), which represents the possible evolution of the current credit exposure up to expiration, based on the characteristics of the transaction and possible variations in market factors.

for calculation purposes, the reC also considers the existence of counterparty credit risk mitigation factors like collateral and netting agreements, among others. this methodology continues to indicate efficiency.

apart from the Counterparty risk, there is the risk of settlement, which arises in any transaction at its expiration date, given the possibility that the counterparty will not comply with its obligations to pay the financial Group, once the financial Group has satisfied its obligations by issuing the respective payment instructions.

for specific risk control purposes, financial risk executive management supervises compliance with credit risk limits by counterparty, product, period and other conditions detailed in the financial market authorization. this area is also responsible for daily communicating limits, consumption or any observed departure or excess.

Grupo Financiero Santander México, S.a.B. de c.V. and SuBSidiarieS(a Subsidiary of Banco Santander, S.a. (Spain)) (Formerly Grupo Financiero Santander, S.a.B. de c.V.)

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furthermore, monthly reports are submitted to the Comprehensive risk management Committee and quarterly reports are sent to the Board of directors regarding Counterparty risk limits, issuer risk limits and current consumption, incurred excesses and transactions with unauthorized customers. information is also provided regarding the calculation of the expected loss from current transactions performed on financial markets at each monthly close, together with different expected loss stress scenarios based on the methodology and assumptions are approved by the Comprehensive risk management Committee.

the financial Group has currently approved Counterparty risk lines for the following sectors: mexican sovereign risk and local development Banking, foreign financial institutions, mexican financial institutions, Corporations, Company Banking-sGC, institutional Banking, large enterprise unit and Project finance.

the net Credit risk equivalent of Counterparty and issuer risk lines applied by the financial Group at the december 2012 close has a 90.33% concentration as regards the sovereign risk, development Banking and financial institutions segment, 9.19% for the Corporate sector and 0.49% for the Company sector.

the maximum Gross Credit risk equivalent of Counterparty risk lines applied by the financial Group at the december 2012 close and which is related to derivatives transactions has a Gross reC of us$ 9,995.75 million. according to the derivative type, a Gross reC of us$ 5,907.5 million is presented for interest rate derivatives; a Gross reC of us$ 3,888.74 million is presented for exchange rate derivatives, a Gross reC of us$ 342 million is presented for bond derivatives, and a Gross reC of us$ 196.09 million is presented for equity derivatives.

the average quarterly net Credit risk equivalent of Counterparty and issuer risk lines utilized by Grupo financiero santander for the october-december 2012 quarter was a net reC of us$ 19,037.48 million for the sovereign risk, development Banking and financial institutions segment, a net reC of us$ 1,708.73 million for the Corporate sector and an reC of us$ 95.03 million for the Company sector.

the expected loss of the financial Group at the december 2012 close has a 22.71% concentration in the sovereign risk, development Banking and financial institutions segment, 71.74% for the Corporate sector and 5.55% for the Company sector.

the average quarterly expected loss of the Counterparty and issuer risk lines applied by the financial Group for the october-december 2012 quarter was us$ 2.55 million in the sovereign risk, development Banking and financial institutions sector, us$ 7.55 million for the Corporate sector and us$ 0.62 million for the Company sector.

the mexican and foreign financial institutions segments are very active counterparties with which the financial Group has current financial instrument positions with a Counterparty Credit risk. the net Credit risk equivalent is mitigated by netting agreements (isda-Cmof) and, in certain cases, collateral agreements (Csa-CGar) or revaluation agreements with counterparties, which result in the net Credit risk equivalent.

as regards the total collateral received for transactions involving derivative financial instruments at the december 2012 close, 99.91% represents cash collateral, while the remaining 0.09% refers to collateral represented by bonds issued by the mexican federal Government.

Operating Risk

in terms of operating risk, the financial Group has policies, procedures and methodologies to identify, control, mitigate, oversee and disclose operating risks.

different categories and business lines have been established to identify and measure operating risks, in which operating incidences are grouped in accordance with the methodology applied. this methodology begins with the identification and documentation of processes, based on self-evaluation tools, and considers the development of historical databases and indicators of operating risk, for the purposes of the respective control, mitigation and disclosure.

Legal Risk

legal risk is defined as the potential loss from noncompliance with applicable legal and administrative provisions, the issuance of adverse administrative and court rulings and the application of penalties in relation to the transactions performed by the financial Group.

the following activities are performed in compliance with Comprehensive risk management guidelines:

a) establishment of policies and procedures to analyze legal validity and ensure the proper instrumentation of the legal acts performed, b) estimate the amount of potential losses derived from unfavorable legal or administrative rulings and the possible application of penalties, c) analyze legal acts governed by a legal system outside mexico, d) Publication among managerial personnel and employees of legal and administrative provisions applicable to transactions, and e) Performance, at least annually, of internal legal audits.

Technological Risk

technological risk is defined as the potential loss from damages, interruption, alteration or failures derived from the use of or dependence on hardware, software, systems, applications, networks and any other information distribution channel used in the provision of bank services with the customers of the financial Group.

the financial Group has realized a model to deal with technological risk, which is currently integrated into the service and support processes of the systems areas, in order to identify, oversee, control and report on the systems technology risks to which the operation is exposed, and is intended to prioritize the establishment of control measures that will reduce the probability of risks becoming reality.

37. capitalization ratio

as of december 31, 2012, the Bank in accordance with the capitalization requirements applicable to full service banks in effect, the Bank presents the following capitalization ratio, which exceeds the minimum level required by the authorities:

net Capital / required Capital 1.85Basic Capital / assets subject to Credit and market risk 14.47net Capital / assets subject to Credit risk 23.79net Capital / assets subject to Credit, market and operating risk 14.78

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38. ratings

as of december 31 2012, the Bank maintains the following classifications Standard & Poor’s Moody’s Fitch Ratings

Global level- foreign currency: long-term BBB Baa1 a-* short-term a-2 P-2 f-1 mexican pesos: long-term BBB a3 a* short-term a-2 P-2 f-1national level - long-term mxaaa aaa.mx aaa.mx short-term mxa-1+ mx-1 f1+mxfinancial strength - C- -issuer default rating - - a-single - - CBase - - 1Perspective stable stable stable

* this rating has a negative observation.

39. nEW accounting principlEs

at the date of issuance of these financial statements, the financial Group is in the process of determining the effects of these criteria and standards in its financial information.

nif B-8, Consolidated or Combined financial statements nif C-7, investments in associated companies, joint businesses and other permanent investments nif C-21, agreements with joint control

improvements to the financial reporting standards 2013

some of the principal changes established in such provisions are as follows:

nif B-8, Consolidated or Combined financial statements- amends the definition of control. the existence of control over an entity is the basis for consolidation of the financial information. with this new definition and in accordance with the criteria of the revised standard, consolidation may be required of certain previously unconsolidated entities that are controlled by the entity and, vice versa, the entity may be required to deconsolidate previously consolidated entities over which the entity has determined it does not exercise control. this nif establishes that an entity exercises control when it has power to direct relevant activities and if it is exposed to or has rights to variable returns of another entity and has the ability to influence such returns. additionally, the nif introduces the concept of protective rights, which are defined as those rights that are designed to protect the non-controlling investor’s participation, while not granting power to such investor. the standard also incorporates the concepts of principal and agent, wherein the principal is the investor entitled to make decisions on its own behalf, while the agent’s role is limited to making decisions on behalf of the principal; consequently, the latter cannot be the party who exercises control. the nif removes the term “special-purpose entity” and introduces the concept of a structured entity, which is an entity designed in such a way that voting or similar rights are not the determining factor for deciding who has control over it.

nif C-7, investments in associated companies, joint businesses and other permanent investments – establishes that investments in joint businesses should be recognized by applying the equity method and that all the profit and loss effects derived from permanent investments in associated companies, joint businesses and others should be recognized in results under the heading of equity in results of other entities. requires further disclosures designed to provide greater financial information on the associated companies and joint businesses and eliminates the term specific purpose entity (sPe).

nif C-21, agreements with joint control – it defines that a joint agreement is an agreement that regulates an activity over which two or more parties exercise joint control, as follows: 1) joint transaction, when the parties to the agreement have direct rights to the assets and obligations for the liabilities, relative to the agreement and 2) joint business, when the parties have the right to participate only in the residual value of the assets once the liabilities have been deducted. establishes that the equity held in a joint business should be recognized as a permanent investment and valued by the equity method.

Grupo Financiero Santander México, S.a.B. de c.V. and SuBSidiarieS(a Subsidiary of Banco Santander, S.a. (Spain)) (Formerly Grupo Financiero Santander, S.a.B. de c.V.)

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improvements to nif 2013 – the principal improvements that generate accounting changes which should be recognized retrospectively in years beginning as of January 1, 2013 are as follows:

Bulletin C-9, liabilities, provisions, contingent assets and liabilities and commitment and

Bulletin C-15, impairment in the value of long-lived assets and their disposal- . if an operation is discontinued, the obligation to restructure any balance sheets of previous periods presented for comparative purposes is eliminated.

Bulletin d-5, leases- stipulates that non-reimbursable lease payments should be deferred over the lease period and recognized in current earnings upon recognition of revenues and related expenses by the lessor and the lease, respectively.

furthermore, improvements to the nif 2013 that do not generate accounting changes were issued; they mainly establish clearer definitions of terms.

at the date of issuance of these consolidated financial statements, the Group has not fully assessed the effects of adopting these new standards on its financial information

40. rEclassifications to thE financial statEmEnts

the financial statements as of december 31, 2011, have been reclassified to conform to the financial statements as of december 31, 2012.

these reclassifications are performed for the following headings: funds available, margin accounts and other receivables.

41. authorization of thE financial statEmEnts By thE commission

the accompanying financial statements as of december 31, 2012 and 2011 are subject to examination by the Commission and could therefore be modified following this review.

CONTACTS AND INVESTOR INFORMATION

Grupo Financiero Santander méxico corporate HeadquartersAvenida Prolongación Paseo de la Reforma 500 colonia Lomas de Santa Fe Delegación Álvaro Obregón c.P. 01219 méxico, D.F.Tel: +52 (55) 5257 8000

investor and Shareholder RelationsGerardo Freire AlvaradoExecutive Director investor and Shareholder Relations Tel: +52 (55) 5257 8000 Ext.16320

investorsE-mail: investor@santander.com.mx www.santander.com.mx/ir/principal/ index.html

Shareholders Tel: +52 (55) 5249 4452 y 5249 4453 E-mail: accionistas@santander.com.mx www.santander.com.mx/accionistas/ principal/index.html

institutional Relationships and communication Rodrigo Brand de LaraDeputy Director General institutional Relationships and communication Tel: +52 (55) 5257 8128

Depositary BankJPmorgan chase Bank, N.A. 1 chase manhattan Plaza, Floor 58 New York, NY, 10005-1401United States of America Attention: ADR Administration Tel: (212) 552 3724 Fax: (212) 552 6650

Legal counsel

DAViS PoLK New York450 Lexington Avenue New York, NY 10017 United States of America Tel: (212) 450 4000Fax: (212) 701 5800

RiTcH mUELLER, S.c. Blvd. manuel Ávila camacho 24, piso 20, Lomas de chapultepec c.P. 11000 méxico D.F.Tel: +52 (55) 9178 7000 Fax: +52 (55) 9178 7095

independent Auditors

DELoiTTE Paseo de la Reforma 489, piso 6 colonia cuauhtémocc.P. 06500 méxico D.F.Tel: +52 (55) 5080 6000 Fax: +52 (55) 5080 6001

design: www.signi.com.mx

Grupo Financiero Santander México, S.A.B. de C.V. (Santander México) is one of Mexico’s leading financial groups and a subsidiary of Banco Santander, headquartered in Madrid, Spain. It provides a wide range of financial and related services, including retail and commercial banking, securities brokerage, financial advisory services and other related investment activities. Santander México offers a multi-channel financial services platform focused on mid- to high-income individuals and small- to medium-sized enterprises, while also providing integrated financial services to larger multi-national companies in Mexico. As of December 31, 2012, Santander México had total assets of Ps. 750.3 billion and more than 10 million customers. Headquartered in Mexico City, the Company operates 954 branches and 216 points of sale nationwide, and has a total of 13,385 employees.

coNTENTS

2 Letter to shareholders 4 Solid financial performance 7 Solid performance supported by our

experience 11 Solid performance delivering results today 15 Solid performance with prospects for a

better future 19 Solid performance embracing social

responsibility22 Operating summary

24 management’s discussion and

analysis of results 28 corporate Governance 29 Senior management 30 Directory of Board members 32 Grupo Santander 32 Geographic diversification 34 Business model 35 international recognition 36 consolidated financial statements

ViSioNSantander is a large international financial group. its main business is retail banking, through which it offers comprehensive solutions to satisfy the full range of its clients’ financial needs, while providing high value for its shareholders. To achieve this, the Group maintains a leading presence in ten main markets, where it operates through subsidiaries with autonomous capital and liquidity, to which it provides global business policies and corporate organizational and technological capacity.

VALUESDynamism: We stay in the lead, with the agility to discover and take advantage of business opportunities before our competitors, and the flexibility to adapt quickly to changes in our markets.

Strength: Our solid balance sheet and prudent risk management are the best guarantees of our capacity to grow and generate long-term value for our shareholders.

Leadership: Our mission is leadership in all the markets where we are present. We have the best people working for us, in client-focused, results-oriented teams.

innovation: We are continually seeking new products and services that can meet the growing needs of our clients while increasing returns faster than our competitors.

Quality service and customer satisfaction: clients are the center of Banco Santander’s business model. We are a bank for their ideas. We want to understand their needs, respond with innovative solutions, and build lasting, long-term relationships based on trust.

Professional ethics and sustainability: in addition to complying with laws, codes of conduct and internal regulations, all the professionals at Santander work with the utmost transparency and honesty. in performing their duties, they share the bank’s commitment to the economic, social and environmental progress of the communities where we are present.

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