Southern Missouri Bancorp, Inc.

good morning everyone thanks for joining to this uh group of santander first half 2021 uh earnings call as uh our normal procedure our group ceo mr jos antonio alvarez will uh start at the presentation with the highlights and the group first half this year performance, followed by our group CFO, José García Cantera, who will address in detail the different aspects of the first half by business areas. Before handing over back to our CEO for the key takeaways and obviously plenty of time for the Q&A session. So, José Antonio, please.

Thank you, Sergio. Thank you to everyone for joining us this morning. Look at the first half of the year, I would say we continue to show the main features of our bank in the sense that we continue to grow. Growth has been one of the features that we kept during a long time. The growth is reflected both in customers, volumes, both deposits, mutual funds and loans. And also we translate this into revenues, into the operating profit that grew 13% year-on-year. So our operating income consistently keeps growing. We deliver in volumes, well diversify across regions and businesses. The performance was supported during this year, particularly in the pandemic, by increased digitalization with a strong growth in digital customers and digital sales. Q1 profit, we translate this Growth in volumes into profitability, Q2 21 profit was 2.1 billion euros, including the single resolution fund contribution of almost 370 million euros. Excluding this quarter-on-quarter growth, growth was 8%. No extraordinary items were recorded this quarter. The first half of the year, we reached a recurrent a attributable profit of $3.6 billion. As you know, we did a chart for restructuring costs in the first Q. So the underlying profit was $4.2 billion, the largest since 2010. The return on tangible equity increased to 12.6%. Compared to the first half of 2020, revenue was higher, efficiency improved, and the cost of credit increased. It dropped notably to 94 basis points. Third, we announced the agreement to acquire Amherst Pierpoint in the U.S. and a proposal to acquire the minority of... We don't own in... The 20% we do not own today. Our capital position remains solid. This core equity tier 1 ratio was 12.11% above our target range, and we continue to generate organically capital Q&Q and risk-weighted asset growth on the accrual for shareholder remuneration inside our range of 40% to 50% payout. Finally, our tangible net asset value per share increased four percent is quarter to around euro for for your spare share in short i will say we achieve our targets we sit our targets in the first half and we remain very focused on building a more resilient inclusive and greener businesses so when We go to the revenue generation in the quarter. As I said, we kept growing the customer base 3%. As you may expect, the digital transactions kept booming in this environment, plus 38%, and digital sales increased by 8 percentage points. As you can see, this is well spread across the board among the different products, mortgages, consumer, cars, deposits, investments, insurance. So digitalization is making a good progress across the board. At the same time, we translate this, as I mentioned before, to our income that kept growing, keep growing, operating income and efficiency. On the back of our efficiency plan, our cost income ratio improves to 45.7%. At the same time, and this is important, we are top three in NPS in seven markets in which we work. I recognize by the market. Going to the P&L, moving to the change rate had first difference with other quarters, has very small impact in the quarter, but still has a strong negative impact year on year, minus 7 percentage points in revenue and 6 percentage points in cost. Looking at the results on constant Euro basis, revenue grew mainly in those related with customers, cost discipline in an environment that inflation is accelerating all across the board. We continue to reduce long-loss provisions compared with the previous quarter and we improve the cost of trade I will describe later in more detail. We didn't record any extraordinary items in Q2. Recall that we recorded the 530 million restructuring costs in Q1. Additionally, in the same period last year, we recorded adjustments, the goodwill adjustments. We delivered first half underlying profit of 4.2 billion. Importantly, and this I want to underline this, all regions and global business are performing very well. All our three regions contributed roughly to 30% of the group profits, with strong profit increases in all of them. Once again, the U.S. performance stands out with a profit of circa 700 euros in Q2 and 1.3 billion in the first half of 2021. Digital Consumer Bank, which contributes to 11% of the group underlying profit, also increased its profit significantly, challenging environment in the first month of the year. Regarding our global businesses, CAB had another excellent quarter, around 500 million net profit in the quarter, after record performance in the previous quarter. Wealth management insurance has gradually recovered in recent quarters and grew at double-digit rates, both in volumes and fees in the first half of this year. This positive performance by region, together with the support of our global business, continues to demonstrate that our geographic and business education is a fundamental pillar of our economy. business model. We see consistent trends across the board. NII and fees increased and reached pre-pandemic levels. I will run you through this in more detail in the following slides. Cost control in the costs of higher inflation and increased expenses are related with higher activity. Loan loss provisions declined 13% with a widespread improvement in the cost of credit In short, a very good quarter reflecting the rebound and activity that was more intense at the end of the quarter, particularly in the month of June. If we go to the NII, Google then an 8% compared with the first half of 2020 and 3% quarter-on-quarter as a result of higher volumes quarter-on-quarter and year-on-year with widespread growth by region and country. Regarding margin management, we saw repricing liabilities in Europe, mainly in UK, Mexico, and Chile, and improving loan spreads in US, UK, and Poland. In addition, there was a positive impact from the TLTRO. Finally, average interest rates continue to have a negative path impact despite the hikes in Brazil plus 200 basis points since June 20, Mexico plus 25% in June 21, and Chile plus 25 basis points in July. These increases will materialize positively in NII in the coming quarters. When it comes to the fee income, this reflects clearly the rebound on activity. In this slide, you have several key... ...and you see the growth compared with the first half of 2020 and quarter-on-quarter. The quarter-on-quarter, I am going to focus more on the quarter-on-quarter, was particularly intense... on the back of the sum normalization. I will not say a full normalization of activity levels, but with this sum normalization, you can see that we are growing strongly in the main business of the bank, being from traditional business like acquiring business cards or the business in private banking or CIV that this quarter grew, decreased versus previous one, but the previous one was kind of extraordinary quarter. We expect as the normalization progress, this will continue in the coming quarters. In cost, as you know, our efficiency improved, 159 basis points year-on-year. That's a good track record. Europe recorded the highest efficiency savings, a percentage point reduction. That is a quantum leap. see significant increase in inflation in all countries particularly in the u.s where inflation had the biggest jump since 2008 in this context group cost rose three percent in real terms excluding inflation costs were 0.4 percent lower after the investments in it in europe because we're 1.5 percent lower making we are progressing to our south wall reducing 1 billion costs in europe spain had a 7% decrease. The U.K. is lagging a little bit behind, but we will accelerate in the second quarter and onwards in the region. Efficiency in the region in Europe stood at 51%. In North America, costs increased 7%, mainly driven by technology expenses and amortizations. In real terms, U.S. increased 3% and Mexico fell 2%. Efficiency in the region stood at 43%. In South America, the increase in cost, 7%, was greatly distorted by the very high inflation in Argentina. In real terms, cost declined 3% in the region, Brazil minus 6%, Chile minus 1%, and Argentina plus 6%. Deficiency in the region stood at 34%. Finally, in digital consumer bank, cost increases due to changes in perimeters. six, the leasing business we bought one year ago in Germany, and some investments on digitalization. So we continue to do the transformation of the ban, and it will have reflect in our cost-income ratio as we progress in our transformation, plus particularly intense in Europe, where we are committed to the deeper transformation of the business. The cost of credit, well, I mentioned the number, 0.94 basis points, 79 basis points in the last six months. This sets our expectations while probably for the whole year we will be running at this level, at around 1% cost of risk for the whole year. The NPL ratio remains basically flat. The long-run reserves are still in 24 billion in the balance sheet, with a non-performing long coverage ratio of 73%. What we have seen, the trends we have seen in the cost of risk, we have seen better behavior than the one embedded in our models for all the individual spaces, being mortgages, being consumer, on the back of lower unemployment than the one estimated in our models, and also a better house prices in our March book that leads to a lower potential cost of risk in this space. In companies, particularly in SMEs, we are still in a prudent mode. While we are seeing a recovery, we need to see how intense is the recovery, and once we assess this, we will be in a position to assess this. So compared with our expectations one year ago, the situation is much better than the one we were embedding in our models. The profitability ratios on the back of these strong results, naturally the return on tangible equity went to 12.6%. The EPS, underlying EPS north of 22 cents per share, and the TNAP grew quarter 4% quarter on quarter. Well, I would say the return on tangible equity and the return on risk weighted assets are higher than in 2019. So those are the main ratios. I'm going to capital. We continue to generate capital organically in the quarter, seven basis points due to profit earnings. We are accruing a 50% payout on underlying profit and this is in the organic capital generation. The regulatory model related impact were 24 basis points in the quarter. Well, basically, the counterparty credit risk, counterparty risk on derivative operations, 11 basis points, and trim on low default exposures, where the impact was 9 basis points. After that, the core equity tier 1 phasing ratio was 12.11%. So we are above our target, above the upper limit of the range, 11-12%. and we enjoy a significant very large management buffer. So additionally, while the group is conducted by EVA, will be published this Friday, we expect to continue to show a consistent performance on this. If you review the previous one, we came always at the top with the capital depletion being one of the lowest among our peers in Europe. So I would say that our capital generation organically continues to support our medium, long-term goals. return tangible equity progressing toward our goal of having a medium term target of 13% to 15%. This should allow us to grow significantly the business, to have a payout in the range of 40% to 50% and to face the potential regulatory impacts that may come down on the road. And finally, let me A little bit on ESG. We made a strong commitment on ESG. On the environmental side, we will become a founding member of the Next Zero Banking Alliance. This requires some specific targets in power generation, oil and gas. And we already published our target for the Next Zero Banking Alliance in power generation. We are working in three different directions in the environmental issues, improving our financial product to support customers, Issuing in our own green bonds that we issued this year already 1 billion green bonds as part of our global sustainable debt plan. Finally, mobilizing green finance. We mobilized this year in the first half of the year. billion in green finance, bringing our total of 42 billion since the beginning of our commitment in 2019. So we are the market leader in the renewal sector, financing the renewal sector, and we continue to lead the new project. its finance league tables on the social side well the santander finance for all helps people to get access to the financial system this is extremely important in the micro credit business and also in the financial education we have as you know microfinance alternatives already launched in brazil mexico uruguay and colombia and will be launched in peru this year as a result Of these, we were recognized as the best bank for sustainable finance in Latin America by Euromoney. In governance, we have clear and robust governance across group of subsidiaries. we ensure ongoing board effectiveness, balanced tenure, and diversity. In addition, we include ESG metrics in our executives board bonus scorecard. And now we'll have... Thank you, José Antonio, and good morning, everyone. I will start with a brief summary of the regions, and then I will elaborate on the main countries.

In Europe, we are accelerating one Santander's transformation, which enables us to progress towards our medium-term targets. We had positive volume growth year-on-year, almost in all markets, following the trends that we've seen since the beginning of the year. Revenue increased 14% year-on-year, cost control was maintained, and efficiency improved. In addition, we had long loan provision reductions in most countries. and a lower cost of risk at 49 basis points. In North America, strong profit growth boosted by cost of credit improvements in the U.S., cost control and revenue increased. Revenues increased 8%, excluding disposals. Return on tangible equity in the region was 15%. The group announced several transactions, which I will explain later. In South America, we are strengthening regional ties in order to continue growing profitably, reported by record new customer increase in recent months. We had a strong rise in loyal customers, up 24%, and in digital customers, up 20%, reflected in double-digit volume growth. Return on tangible equity reached 20%. In the digital consumer bank, we also saw positive performance year on year after the significant pickup in activity in the quarter. So in summary, we have delivered robust performance in all regions in the quarter. Let me now analyze the main countries in more detail. In Spain, As the economic activity started to show signs of recovery, our stock of loans expanded 1% in the quarter, new mortgage lending reached its highest level in the last three years, and consumer lending recovered to pre-pandemic levels. basis, the loan portfolio increased mainly in SMEs and corporates, which lagged after the 2020 boost on eco-loans. Quarter on quarter, underlying profit was heavily affected by the SFR contribution, €116 million in Spain. Excluding this, net operating income was 4% higher, with a positive performance in fee, income and costs. In the first half, profits increased 56% year on year, NII grew 10%, driven by TLTRO and active management of funding costs. Income recovered to pre-pandemic levels on the back of transactional fees, insurance, and mutual funds. We showed record inflows in the first half. We reduced costs by 7%, reaching an efficiency ratio which is well below peers' average. Positive jobs in the period delivered over 16%, growth in pre-provision profit. With regards to provisions, we remain cautious as to the recovery of the key sectors in the Spanish economy, such as tourism. For the second half of the year, we expect the trends to continue with a slight increase in loans and deposit volumes. Revenue should recover to pre-pandemic levels at low single digit rates and in costs we maintain, we expect to maintain the downward trend with a 7% decrease in costs by year-end. In the UK we had a strong increase in total income driven by NII growth of 29% year-on-year. This was the result of management actions to reprice deposits reflected in net interest margin improvement of 26 basis points year-on-year. In addition, volumes grew driven by mortgages and government-backed business loans. Costs continue its downward trend, reflecting progress on our transformation program. which resulted in a strong efficiency improvement of 13 percentage points. Loan loss provision releases of 86 million euros in the quarter reflect the absence of significant charges and an improved economic outlook. In short, another positive quarter with a strong increase in profitability. We expect to maintain a positive Positive trend in AII for the year-end, while costs should drop as the optimization plans are executed. We don't see signs of deterioration in asset quality. Brazil continued to deliver excellent performance in terms of volumes and profitability. We maintained a strong growth in new mortgage lending to individuals, which reached a record high in card sales and significant income growth in GetNet. In auto, we remained the leader in individuals. As a result, loans grew 15%. and customer deposits 11%. Profit was 44% higher year-on-year, and return on tangible equity increased to 22%. Total income rose 9%, backed by positive NII performance. Here, larger volumes offset margin pressure. are rising from lower average interest rates, although they increase in the quarter, and net fee income growth. Higher productivity and expense management enable us to continue to reach record efficiency levels. Loan loss provisions decrease strongly with a positive cost. ...of credit performance, which fell to 3.51%, down 116 basis points year-on-year. Compared to the first quarter, profits up 6%, net interest income and fee income up 7%, offset lower gains on financial... transactions and higher provisions in individuals. So in short, we continue to experience healthy growth with very positive revenue performance, gaining market share in key segments while reducing the cost of credit quarter-on-quarter, leading to efficiency and improving customer traction and loyalty. We expect to see the same trends in the second half. In the U.S., the work conducted over the last few years made us to be uniquely positioned to benefit from improving market conditions. Long growth was impacted by Bluestem and Puerto Rico. ...disposals, excluding perimeter changes. Growth was 1% year-on-year, with auto-origination increasing 29% year-on-year in the first half. Very positive P&L performance. The U.S. was the largest contributor to the group's underlying... both in the second quarter and in the first half, reaching 700 million and 1.3 billion respectively. Net operating income increase on the back of resilient NII, where deposit pricing actions offset lower rates, strong auto leasing, as well as wealth management and cards fee income. Excluding the disposals impact, net operating income increased 23%. Loan loss provisions decreased sharply as the improved macro outlook, customer loan relief, and increased used car prices led to a strong credit performance. Again, the first quarter, profit up due to better performance on leases and the release of loan loss provisions. Excluding the Bluestem disposal impact, profit was up 14%. In line with the group's strategy to accelerate growth in the U.S., We announced two transactions. The proposal to acquire all outstanding shares of Santander Consumer. We already don't own, which is around 20%. and the agreement to acquire Amherst Pierpont securities. These transactions follow our strategy to reduce complexity, increase profitability with minimal additional operational risk, and increase businesses' diversification by expanding our exposure to corporates. Both transactions follow our rigorous financial discipline and goals and strengthen our business model and profitable growth. In the second half, we would expect to maintain our strong performance in net operating income with double-digit growth through deposit pricing, strong wealth management and CAB fee income performance, and continued momentum in auto leases. This is forecasted to have a significant improvement against last year, although we would expect to see a gradual normalization in the second half, after an abnormally low first half as I just mentioned. In Mexico, Multi-channel innovation continues to strengthen our value proposition, which enables us to increase our loyal and digital customer base at double-digit rates. Lending showed strong performance in auto loans and mortgages, gaining market share. However, the total loan portfolio decrease in line with the system, which was still affected by corporate loans normalization. We continued to shift our funding mix towards demand deposits and mutual funds. Profit was slowly down, slightly down year on year. Total income fell, impacted by NII pressure from low rates and volumes, and lower trading gains due to ALCO sales in the second quarter of last year. On the other hand, fee income increased, driven by transactional revenues. Costs fell 2% in real terms. despite higher technology investments and amortizations. Loan loss provisions dropped 21%, leading to a cost of risk below 3%. In addition, and in line with the group's strategy, the tender offered to acquire the outstanding shares of Santander, Mexico, that we don't own. 8.3% is on track to be launched on the third quarter, subject to regulatory approvals. In the second half, we would expect recoveries in volumes, fees growing at high single-digit rates, and a gradual pick-up in NII. Loan loss provisions should decrease against 2020. The digital consumer bank in consumer lending activity trends improved. New lending performed very well in the second quarter after pandemic controls eased in Central Europe, delivering 20%. growth year-on-year. In the quarter, profit headwinds included the SRF, the Single Resolution Board contribution, excluding need, profits would have been up 6%, and higher provisions related to the Swiss franc mortgage portfolio in Poland. The recovery in activity was reflected in NII fee income and cost of risk improvement. In the first half, profit was up 11% higher year-on-year. Cost grew 5%. ...year-on-year due to changes in perimeter. Remember, sixth and team fin and investments in digitalization. On a like-for-like basis, costs were down. For the coming quarters, we expect strong cyclical growth in consumer finance demand, delivering amid single-digit growth. in revenue, flat is cost, and cost of risk that would remain more or less at between 60 to 70 basis points. Let me now review the global businesses started with CIB. As Jose Antonio mentioned, CIB delivered another excellent quarter in activity and results, although obviously the quarter-on-quarter comparison was affected by the very, very strong record high first quarter 21. In the first half, CIB held leading positions in the rankings of structure finance. We were first globally by number of transactions. DCM first in Spain and top three in Mexico and Chile, and ECM, top three in Spain, Mexico, and Poland. We had outstanding first half results backed by overall revenue improvement across businesses, mainly in markets and globally. Transactional banking. We expect that performance for 2021 to continue to be very positive, although probably in a more normalized trend. Wealth management and insurance. Total assets under management increased double-digit year-on-year, both by market ...movement and commercial inflows in private banking and Santander asset management of more than 9 billion, which account for 2% of the total volume managed. In insurance, gross return premiums rose 12% year-on-year, mainly by non-credit In summary, total fee income grew 10% and total contribution to the group's profits was up 9% year-on-year. In the second half, we expect to continue the same strong business dynamics, delivering double-digit growth in fees and profits. In PagoNext, as you know, well, payments is the cornerstone of our strategy to grow and reinforce our customer loyalty. In the first half, revenue increased 23% year-on-year, boosted by the strong jump in fees, 39% higher at constant exchange rates. And we expect revenues to grow strongly in the second half. ...around 50% and reach 1 billion in the medium term. To provide some context behind our growth in PagoNext, let me share background on our three businesses. Merchant solutions. GetNet is already one of the top three acquirers in... in Latin America and we continue to develop our capabilities across our technological hubs in America, Europe and Asia. We recorded a solid performance in the quarter exceeding pre-pandemic levels in active merchants and total payment volumes. GetNet Brazil recorded a strong strong commercial performance, reaching more than 15.5% market share. GetNet in Chile launched its commercial activity, and Mexico progressed in its migration plan to the global platform. GetNet also operates in Argentina. Europe, as our former domestic aquarium business in Spain, evolved to GetNet Europe and will be providing European customers with integrated offerings before the year-end. All in all, we reach a total of around 1.2 million active merchants, up 24% year-on-year, and a total payments volume of close to 50 billion euros in the first half, up 53% year-on-year. The second component is trade, trade solutions, which support SMEs and corporates that operate internationally through a state-of-the-art solution. One trade is already connected to our customers in eight countries after its recent rollout in Mexico and Poland. This solution has over 6,000 active customers, up 50% versus the first quarter of the year. to increase exponentially as we add new services. We continue to invest in project developments and platforms, although volumes and revenues were temporarily impacted by the pandemic. Finally, in consumer solutions, we will be soon rolling out the new global platform in Argentina, Peru, and Colombia. And now let me finish with the corporate center. We can see that results improved 6% compared to the first half of last year, mainly due to the continued positive trend in operating expenses and the decrease in loan loss provisions and other provisions due to the one-off provisions recorded in the first half of last year for certain stakes whose value was affected by the crisis. On the other hand, net interest income was impacted by the increase in the liquidity buffer, and we also had lower gains on financial transactions. As you remember, we recorded positive foreign currency hedging results in 2020. And let me turn it back to José Antonio for his concluding remarks. Thank you very much.