Banco Bilbao Vizcaya Argentaria S.A.

Good morning, and welcome, everyone, to BBVA's quarterly audio webcast. As in previous quarters, I am joined today by our CEO, Onur Genç, and the group CFO, Ruiz Agome Bravo. Today, along with the second quarter results, we are also announcing the group's midterm goals. Accordingly, we will dedicate the first part of the call to reviewing the quarterly figures and then move on to our strategic objectives. Finally, we will open the line for your questions. So without further delay, I turn over to Arnold.

Thank you. Thank you, Patricia. Good morning to everyone. Welcome and thank you for joining BBVA's second quarter 2025 earnings webcast. As Patricia mentioned, we have two things today, the second quarter results, as always, and we also have medium-term objectives at the end of the presentation. So let me start with the second quarter results and starting with slide number three. You can see in the quarter the strong evolution of tangible book value per share plus dividends on the left-hand side of the page, which increased 14.6% year-over-year and 2.9% in the quarter, very good figures despite the relatively high currency depreciations in the quarter. On the right-hand side, you see our profitability. Our profitability continues to improve and rises to an outstanding return on tangible equity of 20.4% and the return on equity of 19.5% in the first six months of 2025. On page number four, on the left-hand side, another very strong quarter for net attributable profit, reaching €2,749,000,000. despite the falling rates in our core markets, which obviously negatively impacts our results, and despite the currency headwinds, we have managed to sustain our record profit levels. In this profit figure, there are two extraordinary items that I want to make you aware of, which affect the Spanish business unit and the holding, the corporate center only, in different accounting lines. But to be specific, first, in the second quarter, We have closed a tax audit process in Spain covering fiscal years 2017 to 2020. This tax audit, it resulted in some positive impacts leading to the release of some fiscal provisions affecting the tax rate. So the tax line item is affected from this. And also a review of VAT, the value added tax payment calculations. This latter, the VAT topic, it has a positive impact on the operating expenses, operating expenses lines in Spain and the corporate centers. Now the second extraordinary item to note is the negative NTI impact of US dollar hedges that are in place to manage the volatility of our CET1 ratio, as you all know. The impact was obviously relatively high this quarter due to US dollar depreciation against Euro. And starting from this quarter, third quarter 2025, the hedges will be accounted for under capital rather than P&L. So the total net attributable profit impact of these two items We're approximately positive 150 million euros in the bottom line at the net attributable profit level. 150 million euros, extraordinary impacts. Also on this page, on the right-hand side of the page, you see our CET1 capital ratio, which improved with an exceptional 25 basis points during the quarter, reaching 1334. We have very positive news on capital, which I will explain in detail later on. To elaborate further on profitability on page five, our first half profits continue their upward trend on the left-hand side, reaching 5,447,000,000 euros in 2025. This represents a 9.1% increase year over year, leading to a new record in our semestral profits. As compared to our peers on the right, our 20.4% return on tangible equity, and its trend, more important to me is the trend, it remains unmatched. With these figures, we are clearly one of the most profitable banks in the industry. Moving to page number six, this page is a summary of the pages to follow, where I will talk to you about activity, revenue growth, costs, asset quality, capital, and execution of our strategy. So please allow me to directly move to the next slide. Slide number seven, as always, the summarized P&L of the quarter. I would highlight in this page the robust evolution of the core revenues in constant euros with net interest income and fees growing 11 and 18% year-over-year respectively, and 4% each quarter-over-quarter as well. Slide number eight, the summarized P&L of the first half. I would once again highlight the positive core revenues and the gross income evolution, which increases in gross income 20% in constant euros year-over-year. The strong gross income growth coupled with the positive jaws and the limited growth in the impairments, it led, obviously, to an outstanding net attributable profit. Some more light into the revenue breakdown on slide number nine. I'm trying to pick up my speed because we have a second chapter to talk to you, so very quickly on this one. What is important to highlight in this page is not the numbers per se, but it is the consistent quarterly improvement in net interest income and net fees and commissions. And despite the macro context and falling interest rates, as we mentioned before, we have managed to grow our core revenues, which is very important to us. The only trend-breaking number in the quarter is the net trading income. As mentioned before, this quarter we have recorded a negative impact from the market-to-market of FX hedges, in particular related to the U.S. dollar hedges that are in place to manage the CET1 ratio, as I mentioned, and that comes in the holding in the NTI line. And despite all of this, the gross income, it grows 11.7% year over year and 1.7% quarter over quarter. Moving to slide number 10, a bit more focused on activity and long growth, which has increased at group level to an impressive 16% year over year. This is, even in our standard, it's an exceptional growth figure. It's very good news for the coming quarters, in my view, since we delivered this growth in a profitable manner. measured by return on capital metric on a loan-by-loan basis in every single country in every single segment. In Spain, loan growth remained very strong, 6.3% year-over-year, while Mexico maintained an excellent double-digit loan growth at 11.7% year-over-year. These numbers will lead us to improve our guidance on activity today for both geographies. Luisa is going to talk to you about it in a second for both countries. As you know, although we have been proactively managing it, we are still rate sensitive in both Spain and Mexico. And despite the fact that we have seen significant reduction in market rates lately, our robust activity growth more than compensated for spread compression. As a result, we continued expanding our core revenues with 2.2% year-over-year increase in Spain and 9.6% increase in Mexico. Similarly, we have beaten expectations and managed to grow our core revenues in both countries in the quarters as well. Slide number 11, on the left-hand side of the slide, we continue showing positive jaws at the group level, thanks to the good performance of gross income, as I mentioned before, growing almost 20% year-over-year, while costs are growing at 10% below the group's footprint average inflation, as you see on the page. And on the right side of the slide, you can see our efficiency ratio, which shows an outstanding improvement to 37.6%. If you exclude the VAT-related impact, the extraordinary impact that I talked to you on the results page, if you exclude that VAT impact on costs, the efficiency ratio would have been 38.6%, still at record. Slide number 12, this page shows the positive evolution of our asset quality metrics, which are performing better than expectations in a context of strong activity growth, in a context of growth in the most profitable segment. On the left-hand side of the page at the bottom, our cost of risk stands at 132 basis points, quite aligned to last quarter, and better than, again, our end-of-year estimates. Meanwhile, on the right bottom, both our MPL and coverage ratios, they remain close to last quarter levels, so stability. Slide number 13, important page in my view. On capital, as I mentioned before, we have some amazing news for this quarter and beyond. First, we had a very strong quarter, as we mentioned, increasing our CET1 ratio by 25 basis points to 1334. The ratio was helped by someone else, which I will explain in a second. But even at the business as usual level, even in the context of record activity growth, we continue to accumulate capital organically. So following the waterfall on the page, main impacts of the quarter are results, 69 basis points, given the cruel and 81 coupons, 37 basis points deduction. Then 41 basis points due to the RWA's growth. This figure reflects our ability, once again, to reinvest part of our capital generation into profitable growth. And also this number includes the result of several risk transfer transactions, SRTs as we call it, as you know, which positively contributed in this figure 10 basis points to the ratio in the quarter. Then we have a bucket of others, 17 basis points. As always, two things here, the market-related impacts and the credit in OCIE for hyperinflationary countries. And lastly, in the waterfall, you have a one-off bucket of 70 basis points, which includes two components. First, we recognize the positive impact related to Basel IV implementation, basically, after some pending clarifications in certain regulatory technical standards that were clarified this quarter. Okay? Second, in the number in the one-off, you also have the negative impact of the tax credits, which helps us on P&L, obviously, as we discussed, but which creates a negative impact on capital. On capital, on this page, I also would like to point your attention to the bubble at the top right-hand corner. And as part of our efforts to simplify our IRB regulatory model landscape, and in alignment with ECB's simplification drive, we have submitted an exhaustive plan to the supervisor at the beginning of this year around the simplification of our models. We just received in July the authorization for that work. which will come into effect in the fourth quarter of 2025. Also incorporating some pending model review of impacts, we now expect all combined to release an additional 40 to 50 basis points of CET1 in the remainder of 2025. I mean, on this one, from time to time, I talk to you about our RWA densities and mention that our RWA density is 50%. then the average RWA density of our peers is 29%. And there are multiple reasons to explain this difference, but after the implementation of Basel IV, through the use of SRTs, which would benefit BBVA much more than our peers, and through the simplification of our IRB model landscape that we just talked about, we expect this RWA density gap with our competitors to reduce going forward. And it's also worth to highlight that this IRB model simplification and so on, the reduced risk weights would not only create obviously a positive one-off impact, as you saw on the page, but also, also it's very important, it will help us on a continuous basis for the new loan origination. Moving to page number four and our strategic progress, new customer acquisition on this page, pickup speed, so 5.7 million new customers, records, digital, competitive advantage for BBVA. Slide number 15, another pillar of our growth strategy, sustainability. Another record, 63 billion euros of sustainable finance channeling in the first six months of the year. We are clearly on our path to channel 700 billion euros in sustainable finance until 2029. So, all good. For the business areas, Louisa.

Thank you very much, Anur, and good morning, everyone. Starting with Spain on slide 17, it has continued its impressive momentum in the second quarter, delivering outstanding results in the first half of the year. Net profit reached $1.1 billion in the quarter, supported by ongoing positive dynamics in NII, even in a lower rate environment, sound fees, and lower operating expenses. NII continued to grow by 1% quarter on quarter, even in the context of declining rates. This was mainly supported by strong loan growth up to 2% quarter-on-quarter, particularly in consumer lending and SMEs, the areas that we've been focusing on in the past as well. We also benefited from an improved deposit mix and a higher contribution from the ALCO portfolio. On expenses, as Onur mentioned, we had a positive one-off impact coming from the revision of our VAT payment calculations. Excluding this effect, expenses remained well-contained, growing by just 1.3% year-on-year in the first half of the year. Efficiency continued to improve, supported by sound gross income growth and lower costs. Our cost-to-income ratio stands at 31.3% in the first half of the year, or 33% if we exclude the above-mentioned one-offs. Risk metrics also remained solid. Cost of risk came in at 32 basis points for the first half, better than expected. Finally, given the very strong results and positive future projections of the Spanish business unit, We have activated some DTAs, some deferred tax assets this quarter. It is worth highlighting that if the Spanish business unit delivers in line with our expectations in the coming years, more DTA activations can be executed beyond this year. Based on this solid performance, we are pleased to announce that we are improving our full year guidance across all key lines. We now expect loan growth to accelerate to mid-single digit, NII to show slight growth, fees to increase by low to mid-single digit, and expenses to decline by low single digit. As a result, we are targeting a 33% cost-to-income ratio for the full year. On the asset quality side, we expect cumulative cost of risk to remain below 35 basis points for the year. In conclusion, an exceptional performance of BBVA Spain in the first half of this year. Moving on now to Mexico on slide 18. Once again, BVA Mexico delivered also a strong set of results in a still uncertain macro environment. Net profit reached nearly 1.3 billion euros, supported by a solid operating income growth of over 2% quarter-on-quarter, driven by NII growing by more than 2% quarter-over-quarter, primarily supported by strong lending activity across both retail and commercial segments. In addition to this solid lending momentum, we also observed more favorable deposit trends, with an improved deposit mix and lower deposit costs, which further contributed to the positive NII performance this quarter. The customer spread remains stable, which is particularly noteworthy in a declining interest rate environment. Recall that Banxico cut rates by 200 basis points since the beginning of the year. On the cost front, we recorded a slight quarterly decrease, reflecting the early impact of efficiency initiatives launched earlier this year. All in, our efficiency ratio remains at an exceptional 30.6%. On the asset quality side, we saw an increase in impairments this quarter, mainly driven by the IFRS 9 macro adjustment following the updated macroeconomic scenario. That said, underlying trends remain solid, with cost of risk standing at 324 basis points for the first half of the year. All in all, the solid dynamics observed so far in BVA Mexico have led us to revise the full year guidance upwards for both activity growth and cost of risk. We now expect loan growth to be close to 10% by year end and cost of risk to come below 350 basis points. Moving now to Turkey on slide 19. Guaranty UVA reported a net profit of 412 million euros, increasing by more than 17% year over year. The solid performance was driven by higher core revenues and lower impact from the hyperinflationary adjustment, which more than offset the expected increase in impairments. NII growth was strongly driven by a significant improvement in the Turkish lira customer spread, up by more than 150 basis points in the first half of the year as compared to the same period in 2024. This was driven by both higher yield on loans and lower deposit costs. At the same time, loan growth continued across both Turkish lira and foreign currency portfolios. Fees remain a strong contributor to revenue growth, driven by higher commissions from payment systems, as well as positive performance in both asset management and the insurance businesses. The impact of hyperinflation continued to decline in line with the continued disinflationary trend in the country. Impairments increased year-on-year, reflecting a normalization in the cost of risk amid the ongoing macro rebalancing. For the first half of the year, the cumulative cost of risk stands at 164 basis points ahead of expectations. Going forward, we expect it to close at around 180 basis points, as provisioning needs in the retail portfolios remain high. All in all, positive underlying trends combined with the resumption of the monitoring easing cycle by the CDRT reinforce our confidence in the four-year net profit guidance, which we expect to close somewhat below €1 billion in 2025. Let me remind you that Guaranteed UVA's balance sheet shows negative sensitivity to lower rates. And finally, let's turn to South America. The region continued to deliver a strong earnings contribution to the group, achieving a net profit of 421 million euros in the first half of the year, representing a 33% year-on-year increase. This quarter's solid performance across geographies was further supported by sound lending trends and improved deposit mix and disciplined price management. Despite a lower interest environment, it is noteworthy that the customer spread improved in the quarter in Colombia while it remained stable in Peru. On the asset quality side, the cost of risk remains well under control in both Peru and Colombia, reflecting improving asset quality trends within what we had anticipated, supported by a more favorable economic environment and the adjustment to our risk appetite in the most vulnerable retail portfolios. These positive dynamics in the risk metrics have led us to review downwards for full-year cost of risk guidance for the region, which we now expect to stand below 250 basis points. Finally, in Argentina, we continue to observe a reduced impact on the hyperinflation adjustment driven by easing inflationary pressures. And now, back to Anu for the final remarks on the quarter.