Banco Santander Mexico, S.A.

Good morning, everyone. Thanks for joining us for this first Q2021 earnings call. As always, we have our group CEO, José Antonio Álvarez, and the group CFO, José García Cantera, who will address the presentation, the slide that we published earlier today, 7 o'clock Madrid time. Before jumping to the questions, obviously, the CEO will... address the highlights for the first quarter and the group performance, then the CFO in detail the different business areas review before handing over back to Jose Antonio for the key takeaways and then the Q&A. So with no further delays, Jose Antonio, please.

Good morning to everyone. Thank you for making the time to attend this conference call. So I should say that we have had a good performance in the first quarter. We have delivered growth in the quarter, net operating income, the pre-provision profit increased 15% on the back of revenues on growing 8% and costs being flat in constant euros. This was driven by greater volumes, repricing deposits and strong cost control. In this environment, naturally, in the middle of the pandemic, the digital adoption has keep accelerating, and now more than 50% of our sales were made through digital channels compared with the 41% in Q1 2020. Compared with the first quarter of 2020, revenue was higher, fees improved a lot, mainly driven by Europe, and the cost of credit also improved, notably to 108 basis points. Loan loss reserves stood at 24 billion, while non-performing loan coverage of 74%. We have barely used the provisions overlay that we made last year. As a result, underlying attributable profit reached Euro 2.1 billion, and underlying return on tangible equity stood at 13%. In addition, we recorded expected restructuring charge for the whole year, for the whole 2021, 530 million net of taxes resulting in an attributable profit of $1.6 billion. The core equity tier one ratio was 12.3%, with an organic generation in the quarter, a strong organic generation on the quarter, of 28 basis points, including 15 basis points that we accrue to remunerate the shareholders, equivalent to 40% of Q1 2021 underlying profit. The bank is accruing through the year, or its intention to accrue through the year, the proportional amount of 40% to remuneration holders once the supervisors allow to do so. The tangible net asset value per share grew 2% quarter on quarter, and while it's true that we still live in an environment with significant uncertainties going forward, particularly those related with the vaccination process and wind economy, it's going to go back to normal. On top of this, as you already know, we announced our intention to make a cash offer to repurchase our standing shares in Santander, Mexico, around 8% of the stake in the company. This transaction is expected to be completed in the second or third quarter of this year. So if we look at the quarter, I should say that we've been living in an environment in which we have had still... Expansionary fiscal and monetary policy with very low rates, although we should say that we start to see some changes in the quarter. Brazil in our footprint already raised rates in the first year, but in general we still have very low rates across the board. In relation on the social front, lockdowns and restrictive measures, with different density in different countries and different time, but this has affected significantly, particularly household and individuals and consumer activity in the countries in which we operate. On the other hand, state warranty programs had a negative impact on the revenue also, even with respect to benefit the cost of credit. So we have different speeds in the vaccination that is producing different outcomes among major economies. We are seeing already a significant rebound in the activity in the U.S. UK has had significant volume levels, and in the EU we are starting to see some rebound starting back in March and accelerating a bit in April. Going to the group performance, I should say, starting with the income statement, change rates, and you have two columns there in the presentation, had a strong negative impact year-on-year, 12 percentage points in revenue and 8 percentage points in cost. Excluding then, revenue grew driven by all the P&L lines. We continue to deliver an excellent cost performance in all the regions, and we are doing especially well in Europe. As a result, net operating income, as I mentioned before, grew 15% year on year. In addition, lower loan loss provisions compared with previous quarters and lower cost of credit, which I will describe later in more detail. All in all, the first quarter underlying attributable profit reached what I already mentioned, 2.1 billion. Finally, we recorded 330 million expected restructuring charges for the year as a whole, mainly in UK, around 300 million, Portugal, around 160 million, and corporate center and others around the remaining 70 million. Following this, Q1 attributable profit stood at 1.6 billion. Overall, all income statement lines performed well, supported, as can be seen in the slide by our diversification. All over, geographies showed virtually the same weight, I mean the regions, and recorded a strong profit increase. Of note probably was the U.S., with net profit of €616 million in the quarter. Digital Consumer Bank, which contributes to 11% of the group's underlying profit, also increased its profit significantly. There is also the case for our global business as CAB had an excellent quarter with a result above 700 million profit. If we look at the trends in the P&L, we see revenues going up 3% quarter on quarter due to the strong performance in CAB on the back of our strong activity with our corporate customers and the continued recovery in net fee income 4% that came mainly from CIV and other activities because, as I said before, the activity with household was somehow subdued in the quarter due to the lockdowns. Costs were down 3%, mainly driven by falls in North and South America, as the four-quarter is usually affected by seasonal factors. As a result, net operating income increased 8% quarter on quarter. Loan loss provisions plummeted by 25%, with growth base fall across regions and most markets. Digital consumer bank also recorded sharp falls. Finally, underlying profit exceeded 2 billion, notably higher than in the previous quarters. I have focused more in the NII. I should say that while NII grew 5%, it's a result of higher volumes, plus 2% in loans, plus 8% in deposits. Cost of deposits management that I mentioned before, positive impact from the TLTRO and well, it's one of the highest figures in the last couple of quarters. Moreover, it's worth recalling that the first quarter has always some seasonality compared with the Q4. As for year-on-year performance by country, I should remark the good performance in the UK, plus 24%, on the back of higher customer balances, deposit repricing actions, that were partially offset by lower asset yields. Spain plus 10% driven by higher volumes and TLTRO. Brazil plus 6% due to greater volumes that offset lower interest rates. The U.S. remained flat despite interest rate cuts. On the other hand, Mexico fell 6% due to lower interest rates and lower portfolio volumes. impacted by the pandemic and having a relatively cautious approach to the credit risk. When you go to net fee income, well, continue to be affected, particularly on the households by the lockdowns in most countries and seasonality as every year in Brazil. Despite this environment, the upturn in net fee income quarter after quarter from the laws of Q2 2020 allow us to recover Q1-20 pre-pandemic levels. And from here, we expect to start to grow if the pandemic behaves as we are expecting on the back of better activity on the consumer household side of the business. Our study has remained focused on growing loyal customers and higher value-added services and products. These were reflected in the positive performance in CAV, insurance, wealth management, and other business studies. In total, they account for 50% of the group's total fee income. Cars and transactional fees were dampened by the pandemic, and the U.K. reflected the impact from regulatory changes to overdraft since April 2020. By region, North America grew 7%, with prices both in U.S. and Mexico. South America, 2%, with growth recorded in Chile and Argentina, while Brazil started to recover. And Europe, minus 4%, with generalized declines, except Poland, due to lowered activity on the household side that I've been commenting across the presentation. On the cost side, well, very positive performance. So we see Europe cost falling 4%, and North America, although they grow 2.8%, inflation, as you know, in Mexico is relatively high. and South America is performing extremely well when you see in real terms. Efficiency improved a lot. The group level now stays at 45%, slightly below 45%, and I want to remark productivity gains, significant productivity gains in Europe, where cost-income ratio stays now at 50% when last year, this period, we were close to 50%. 60%. We are building a new operating model across the group that will enable us to accelerate our transformation and further increase in productivity and remain one of the most efficient global banks in the world. Going to credit quality, so we have here the NPL is basically flat. Improved cost of credit to 108 basis points, driven by lower loan loss provisions in most countries, particularly in the U.S., Brazil, the U.K., and also in Spain. Looking at the three-month annualized provision, the cost of credit to quarter was 84 basis points, that, well, in the first year of 2020 was almost double due to the provision overlay we took at this time. Loan loss reserves stood at Euro 24 billion, while non-performing loans coverage at 74%. As I said, the overlay is still in the balance sheet that we did last year. It's mainly in the balance sheet. In summary, amid the system uncertainties, especially in Europe, we see areas that are performing better than expected, such as the U.S. Looking forward, we also expect and improvement in individuals. We are seeing consistent trends on individuals' household credit quality, and we are somewhat more prudent about corporates, particularly SMEs, that is going to depend very much on the recovery of the economy that we expect to start in second and third quarters of this year. All this enabled the group COSFK to perform better than expected, And, well, this is moving towards our average cost across the cycle. While this strong operating performance translating to the ratio of the return equities in the return tangible equity in the quarter, 13% EPS growing nicely and tangible net asset value that also reflect before they translate. The good results, the good consistent, I will say, sustainable results towards the ratios, the main financial ratios. On capital, I already commented on the strong organic generation, 28 basis points in the quarter, due to the net effect of the 43 basis points increased from profit and risk-weighted asset management and the negative impact from the shareholder remuneration of 15 basis points. This positive performance was offset by regulatory impact. Six basis points is the IFRS 9 phase out. and market sympos on the AFS portfolio. And full year 21, expected restructuring charges of 10 basis points that we bring forward to the first quarter. So now we hand it to the CFO, José García Cantera, that is going to elaborate about the different areas of the group.

Thank you, José Antonio, and good morning, everyone. I'll start by... Our global scale, our customer focus, and our diversification really help once again our business and profit growth in the quarter. In Europe, we are executing our business transformation to accelerate growth through a more efficient operating model that should allow us to progress towards our medium-term return on tangible equity target of 10% to 12%. In the first quarter, it was 8%. Loans grew 2% and customers 7%. with positive trends since the beginning of the year in all markets. Revenue growth was 13% versus the first quarter of last year, with strong cost control and efficiency improvements. In addition, we had lower cost of risk at 51 basis points in the quarter. In North America, a sharp increase in deposits in both the U.S. and Mexico, while loans fell due to the negative economic impact from the pandemic and, more importantly, from the expulsions of Puerto Rico and Blue Stem. Underlying attributable profit was up strongly year-on-year, driven by good net operating income and lower provisions in the U.S. Return on tangible equity was 14 percent, 22 percent, if we adjust for the excess capital in the U.S. In South America, double-digit growth in both loans and deposits, net operating income and profits were up, driven by strong revenue growth and lower loan loss provisions in most markets. Return on tangible equity rose to 19%. Our digital consumer bank had a 12% return on tangible equity, and we saw a significant pickup in activity in March. So in summary, we've delivered robust performance in all regions in the quarter with a strong business generation, positive trends in all lines of the P&L. Moving to the countries, starting with Spain, our strategy remains focused on Santander 1, where customer migration is advancing according to plan. In activity, we saw positive commercial trends in individuals, notably in residential mortgages that were up 17% year-on-year and consumer finance. However, loans fell slightly in the quarter, mainly driven by wholesale banking in line with global corporate deleveraging. On a year-on-year basis, growth was 3% due to SMEs and corporates. Customer funds were 10% higher year-on-year, and of note here, mutual funds that were up 23%. In terms of results, underlying profit amounted to $243 million, almost three times higher than last year. We had resilient total income, growing 10% in NII, although this was negatively affected by lower fee income from reduced economic activity from the pandemic. Quarter on quarter, NII was negatively affected by lower day count, lower ALCO portfolio, and reduced volumes. We continued with a transformation of our distribution model, which enabled us to grow the net operating income 9%, loan loss provisions down 29%, and cost of risk improving relative to the previous quarter. Going forward, and despite the uncertainty that still remains in the quarter, we expect NII growing at mere single digits and a cost of risk below 2020, while operating costs should perform as expected. In the UK, we had a very positive quarter based on volume growth, lower cost of deposits, and efficiency improvements. In volumes, continued year-on-year growth in lending driven by mortgages and SMEs, and customer funds were also up, boosted by retail banking deposits and mutual funds. Profits were 6% higher year-on-year. Here, total income increased 12%. Of note was, again, net interest income up 24%, mainly from deposit repricing actions, as well as higher customer balances, especially in mortgages. Fee income was lower due to regulatory charges affecting overdrafts. Cost decrease reflecting progress on our transformation program, and cost of credit was 21 basis points in the quarter. In 2021, we expect to grow net interest income close to double digits, benefiting from new business pricing dynamics and lower funding costs. The 1-2-3 account latest changes introduced in April will drive additional improvements in our Q2 NIAE. We remain confident on being able to reduce the cost base by mid-single digits in 2021, and we are not seeing any signs of a quality deterioration in the UK. If we move to Brazil, which had an excellent performance at the beginning of the year, both in terms of volumes and results, we saw commercial activity recovering pre-COVID levels, and we took advantage of that, increasing our market share in lending. We hit the highest number of mortgage sales in the first quarter, and in auto, we remained the leader in individuals, and we increased our current account customer base. All the above was reflected in greater volumes. Loans grew 13% year-on-year, mainly in individuals and government-backed SMEs, while customer funds rose 12%. In terms of results, profit was up 47% year on year, and return on tangible equity increased to 21%. Total income was backed by very strong NII and higher gains on financial transactions. We had higher productivity and a strong expense management, which enabled costs to drop 3% in real terms and reach record efficiency levels. Loan loss provisions decreased strongly with a very positive cost of credit performance, which fell to 3.8 percent if we look at 12 months, 3.3 percent in the first quarter. Compared to the fourth quarter, profits up 3 percent, again driven by a strong NII and cost reduction, which offset lower fee income, which is affected by insurance seasonality. If we look at 2021, we expect loans to grow faster than the market, while customer revenue should increase moderately and cost maintain a good trend. And we would expect the cost of risk to be lower than last year and in no scenario higher than 4%. Moving to the U.S., where we believe that the work that we have conducted over the last few years is is showing in these numbers. So beyond the improved macro conditions that obviously is helping, we believe that the work, again, that we've done in the last few years is helping our performance in the U.S. Volumes was impacted by the divestiture of Blue Stem and Puerto Rico that I referred to before. Excluding these perimeter changes, loans were up 1% year-on-year, with auto originations increasing 24%. Also, deposits continue to perform very strongly. We had very good and positive P&L performance with underlying profit of $616 million, the highest of any country in the first quarter. Net operating income increased 13% of the bank of strong NII from strong lease income, capital markets, fee income, and expense management. Excluding the disposals impact, net operating income was up 19%. On top of that, loan loss provisions decreased 81%. We've made significant regulatory progress as the Fed terminated its 2017 written agreement with Shusa, and the OCC upgraded Santander Bank's Community Reinvestment Act rating to outstanding. In private banking, BSI announced a transaction to acquire $4.3 billion in customer assets and liabilities from Credit Agricole, improving our competitive position in this highly profitable market. For 2021, we would expect these trends to continue all throughout the P&L and maintain a positive performance in asset quality. We move to Mexico. We continue to invest in digital channels, and that is strengthening our value proposition with new products and services. Year-on-year volume performance reflects the normalization of the corporate portfolio following the uptick at the beginning of the pandemic. Profit was down year-on-year, impacted by NII pressure due to lower rates and volumes. Total income was down. Again, NIA was pressured, but this was more than offset by which more than compensated fee income and gains on financial transactions. Costs were slightly up due to higher technology investments, but in real terms, costs were down 3%. Loan loss provisions dropped 7% despite some charges recorded for certain corporate customers. When we look at 2021, we would expect to see flattish NII, while net fee income is expected to grow, supported by credit cards, insurance, funds, and investment banking. Cost of credit should start to improve in the coming quarters, with non-performing loans around 3% by year-end. Moving to our digital consumer bank, remember that we created this program as the leading digital consumer finance bank in Europe, combining the scale and leadership of Santander Consumer Finance and Open Bank's digital capabilities. As a result of the health crisis, new lending fell 3% year on year, especially in January and February, but as I said before, we saw strong recovery in the month of March. In results, underlying profit was 291 million, 25% higher year on year. Total income increased slightly compared to 2020, NII was down mainly due to lower outstanding balances in Spain and interest rate limitations in Poland, which were offset by higher income from operational leasing activity following the acquisition of six leasing Germany in 2020. Cost increased 1%, mainly due to digital investments in technology in open bank, excluding the acquisition of six in Germany. Cost fell 4% year on year. We had a strong reduction in loan loss provisions with quite strong credit quality performance. Cost of risk was 0.69% in the quarter. For the coming quarters, we expect a strong cyclical growth in consumer finance after one year of the pandemic with a gradual recovery of volumes and a solid credit quality across the European customer footprint. Thank you. Moving quickly to the global businesses, SIB, Santander Consumer, sorry, Corporate and Investment Bank, delivered a very excellent quarter. We held leading positions in the rankings of structure finance, DCM, and ECM. Outstanding results in the quarter, which hit a record high. Revenue was up 44% year-on-year, driven by customer-related activities. Costs 8% higher. but the efficiency ratio improved to an outstanding 31.8%. Although these quarterly results are unlikely to be repeated in the coming quarters, we expect a positive performance for 2021. The wealth asset management and insurance business continue to perform well in the quarter. Total asset management amounted to $370 billion, to 12% higher year-on-year. For insurance, fee income rose 5%. Total fee income generated accounted for 31% of the group's total and grew 3% year-on-year. Looking ahead, we expect continued growth in line with volumes in this business. This is the first quarter in which we report Pagonex, so I'm going to stop here for maybe a bit longer than for the other countries. Payments, as you know, are at the cornerstone of our strategy to grow and reinforce our customer loyalty. Santander serves more customers than any other bank, over almost 150 million, including 4 million SMEs, of which more than 200,000 are international customers in Europe and Latin America. PagoNext comprises three different businesses. First, Merchant Solutions. GetNet is already one of the top three acquirers in Latin America. As you know, it started in Brazil. That is a highly competitive market, but the business is growing. We are taking advantage of that, gaining market share, reaching 15% in December 2020 from 11.5% in 2019. In the first quarter, we launched GetNet Chile, providing differential features in the local market that generate strong demand. GetNet in Latin America already operates in Brazil, Chile, Mexico, and Argentina, has 1.1 million active merchants, and this figure is growing 14% year on year. Total payment volume was $22.5 billion in the first quarter, up 26% year-on-year. And we would expect to achieve 20% to 30% growth in the medium term for these two metrics. This year is an investment year for the company. We will start generating revenues in Europe in the second half of the year. And to this end, obviously, we will rely on the newly acquired technology assets of Wirecard that have been purchased at a good price, and we are unlocking their value quickly. The second component of Pagonex is trade solutions. As I said, we have 207,000 clients with international activities in the last 12 months. Let me focus on the two most representative businesses here. The first is OneTrade, which is our global trade and international payments platform. It already connects our customers in Brazil, Spain, UK, Chile, Portugal, and Colombia. and we have over 4,000 active customers. We expect to double the transaction volume yearly going forward here. Iberi, which has a presence in 20 countries, offers financial solutions to simplify international trade. It has already 15,000 customers, active clients, and we would expect its revenues to grow 30% to 4% a year in the medium term. And the third component of PagoNext is consumer solutions. Here, superdigital. Our platform to address the financial needs of the underbanked population is being rolled out across seven countries in Latin America. This provides, obviously, huge growth opportunities for us, and we believe we can double business year on year. To this end, Superdigital in Brazil already have almost 600,000 active customers with a transaction volume growing 30% year on year. And now let me finish with the corporate center, where we see results improve 49% year on year, mainly due to the positive impact of income tax from the release carried out this year and the charges recorded in the first quarter of 2020, and the positive trend in operating expenses, which improved 7% compared to the first quarter of last year, driven by ongoing streamlining and simplification measures. On the other hand, net interest income was impacted by the increase in the liquidity buffer. We had lower trading gains. because of the positive hedging results recorded last year, and we had higher provisions. The net loan loss provision line includes a charge of 150 million gross, 105 million net, which has not been allocated to any specific portfolio so far, and it was built due to the lack of visibility as to the timing, pace, and strength of the economic recovery. And with this, I'll turn it over to José Antonio. Thank you.