Spain's Santander beat forecasts with a 35% jump in second-quarter underlying profit on the back of lower loan loss provisions, strong US consumer business and a rise in mortgage lending in the UK market.
The euro zone's second-biggest lender in terms of market value reported a net profit of €2.07 billion.
The result topped the €1.76 billion forecast by analysts polled by Reuters and almost matched the €2.1 billion underlying profit recorded in the second quarter in 2019, before the outbreak of the coronavirus pandemic.
Second quarter's net and underlying profit remained the same as the bank did not book any one-off gains or charges. A year ago, pandemic-related writedowns led to a record net loss of €11.1 billion.
"We are on track to outperform our profitability target for the year," Santander boss Ana Botin said in a statement.
Its profitability gauge - return on tangible equity ratio (ROTE) - rose to 12.29% at the end of June from 12.16% in March, ahead of Santander's original year-end target of around 10%.
The bank also said it planned to return to its dividend payout ratio of 40% to 50% of ordinary earnings, following the lifting the cap on dividend payments by the ECB last week.
Even though Santander did not set aside specific Covid-19 provisions in the quarter, its solvency ratio dipped because of shareholder remuneration.
The lender's core tier-1 fully loaded capital ratio fell to 11.7% at the end of June from 11.85% three months earlier, adjusted down from originally reported 11.89%, still within its 11-12% target.
Shares in Santander were down 0.5%, while Spain's leading blue-chip index was up 0.6%.
Analysts from Keefe, Bruyette & Woods welcomed a solid set of results in Britain, the United States and Brazil despite weaker capital, though highlighted that Spain and the rest of Europe came in weaker than expected.
Costs of risks falls, lending margins improve
At the end of June, the bank's cost of risk, which acts as an indicator for potential losses in the future, fell to 94 basis points from 108 points in the previous quarter.
Overall, second-quarter net interest income, a measure of earnings on loans minus deposit costs, rose 6.8% to €8.24 billion against the same period last year, with lending growth in the UK and Brazil offsetting pressure from low interest rates.
Analysts polled by Reuters expected €8.07 billion.
In Britain, underlying net profit rose 36% against the previous quarter, helped by lower funding costs, while in the US market, which accounts for almost a third of Santander's underlying earnings, net profit rose 9.4%.
In Brazil, also responsible for a third of the bank's underlying results, operating profit rose 29.5% and fell 8.7% in Santander's home market Spain, where the bank now generates 7% of its business.