Banco Santander Mexico, S.A.

Good morning, everyone. Thanks for joining to this Santander nine-month 2021 earnings presentation. As every quarter, our group CEO, Mr. Antonio Alvarez, will address the highlights on the group performance. Then the group CFO, José García Cantera, in detail, will comment on the different business areas, trends, before the CEO jumps into the key takeaways. And obviously, we'll have plenty of time to answer your questions. José Antonio, please.

Okay, thank you, Sergio. Good morning to everyone. Thank you for joining us in this third quarter result presentation. I think the results show the business momentum we are having with another solid set of results in the Q3. The operating income pre-provision profit is growing 11% year-on-year in constant euros. Revenue was up 8% driven by the risk in volumes, loans, deposits, mutual funds. And this comes along with a growth in the, it cannot be the other way, increasing customers and greater digitalization that led to strong broad-based revenue generation, efficiency improvement, and higher profitability. Specifically going to the numbers, Q3 21 profit was around 2.2 billion euros, plus 2% quarter-on-quarter in constant euros, plus 5% in current euros on the back of some The Euro average depreciation against the currency year-on-year is different, but in the quarter, the Euro depreciate a bit against the basket of our currencies. Nine months, 21 group attributable profit, 5.9 billion euros. Excluding Q1 extraordinary items, nine months, 21 underlying profit, 6.4 billion euros. The numbers speak for themselves. We maintain our cost discipline and solid credit quality. the later reflected in a cost of credit below 1%. Regarding capital, strong capital generation in the quarter, plus 48 basis points in Q3, enable us to reach a fully loaded core equity tier 1 ratio of 1185% at the top end of our 11-12% target range. We continue to deliver an outstanding growth in profitability, return on tangible equity stood at 12.6%, in-app tangible net asset performance value grew in the quarter and including the dividend per share rose 6.5% year-on-year. The Board, as you know, has approved a new remuneration policy for 2021 with a 50 payout set at 40% underlying profit, 50% cash, 50% buyback problems. Interim distribution approximately in the region of 1.7 billion euros. So in short, we are well on track to outperform the full year 21 goals that we established at the beginning of the year and to reach our median term underlying return on tangible equity target in the region of 13 to 15%. Moving to customers. Well, great success on digitalization has been a key driver of the revenue and net operating income growth. We recorded an steady increase in total customers, and in turn, our customers are increasingly using our products and services through contact centers, digital channels, and the branches. As a result, digital customers rose by more than 5 million year-on-year. Digital transactions were up 39% year-on-year and grew across all the countries between 20% and 50%. Digital sales as a percentage of total sales stood at 54% in IMAO 2021, plus 10 full percentage points year-on-year, with growth in all products across the board, mainly in the ones related with individuals, mortgages, consumer deposits, investments. If we look at the last quarter, digital sales reached 57% of the total. Also, and this is important, we are top three by NPS in seven markets in which we are operating. Going to move into the group's income statement, exchange rates had a small positive impact in the quarter, as I mentioned before, but year on year, still negative impact, minus 5% percentage points in revenue and minus 3% percentage points in cost. Looking at the results in constant year revenue group, particular customer-related revenue, We demonstrate, of course, discipline and an environment of recent inflation. Certainly, inflation is rising, particularly not only in Argentina, as has been the case in the last couple of years. Also in Brazil and Mexico and Chile, we have significant inflation. Now in Europe. Additionally, we had a significant reduction in loan loss provisions, although they reflected in the quarter some increase, mainly in the U.S., We delivered a nine-month 21 underlying profit of 6.4 billion euros plus 87% year-on-year. No extraordinary items in the third quarter. Recall that we recorded 530 million restructuring costs in Q1. I will give you a brief overview of the performance of the regional and global business. Our CFO, José García Cantera, will elaborate further. Very positive performance across all of them. Once again, the U.S., Brazil, and CAV performance stands out. The global business performing very well, wealth management, insurance, and Pagonex delivering according or better than our expectations, our guidance that we gave to you, underscore as usual by our geographical and business diversification. Each of our three regions contributed roughly 30% to the group profit, Europe 29%, North America 29%, South America 30%, and Digital Consumer Bank the 12%. If we analyze the quarterly trends in core lines, sustained revenue growth, NII up 1%, positive performance in trading gains in Q3, and the quarter-on-quarter comparison was favored by the single resolution fund contribution in Q2. On the other hand, net income remained stable, impacted by decisionality in Europe and strong figures in CIB, in the corporate investment banking business, across the board. I will run you through this in more detail in the following slides. Cost control in the context of higher inflation and increased expenses related with greater activity, higher loan loss provisions mainly in the U.S., and to a lesser extent in the U.K., as both had some provision releases in Q2. As you already know, in the U.S., LLPs tend to have some sectionality in the second half of the year. NII was 7% higher compared with nine months in 2020 and 1% quarter-on-quarter. On the back of higher volumes, loans grew $8 billion in the quarter. Deposits grew $15 billion. Regarding margin management versus previous years, we saw a general repricing of liabilities, Europe, North America, and Chile, and improving loan spreads in UK, Poland, and the U.S. In addition, there was a positive impact year-on-year of the TLT role that you know very well. Naturally, no impact on quarter-on-quarter. Finally, average interest rates remained lower than in nine months 2020. despite increases in Latin America, Brazil, Mexico, and Chile, where the rates went up, and recently in Poland. These increases will positively impact NII in the coming quarters. When we go to the fee income, we continue with the recovery from the lows in the second quarter in 2020. The entire range of products show higher activity levels year on year, with some seasonality in the quarter 2020. mainly in Europe. You have the figures in the slide. All the activities show a greater activity. Payment volumes grew significantly. Cars are growing. Cars turnover are growing in a significant speed. In consuming activity, trends continue to improve with strong signs of recovery year on year. In Q3, mainly the motor finance business has been affected by new vehicle sales that are affected, as you know, by the shortages in the supply chain of the OEMs. And while we have a strong activity, the strongest, probably the strongest activity we have seen so far in the used vehicles space. In addition, CAB and wealth management and insurance generate a sharp increase in fee income, representing about 50% of the group's total fee income. Wealth management insurance grew 11%, underpinned by the significant increase in assets under management and insurance return premiums. CAB fees grew 19%, on the back of pay good activity in DCM, ECM, and MIA. In short, free income recovery pre-pandemic levels across our footprint set for the UK due to regulatory changes regarding overdraft since April 2020. In the cost side, we continue to see, and this is new, significant increases in inflation in all countries, particularly in Latin America. In this context, group costs rose 3.7%. In real terms, excluding inflation, costs were 1% lower after absorbing higher inflation. IT expenses, digital developments, increased activity, and labor agreements. Our efficiency ratio improved more than 120 basis points year on year to 45.6%. That is a very good number in the industry. Mainly driven by Europe, we recorded the highest efficiency gains. In Europe, costs were 1.5% lower. making headway in our cost reduction plan, which we expected to accelerate in the coming quarters, increasing synergies. Of note, Spain, with a 7% decrease in efficiency in the region, as I mentioned before, stood at 50%, having improved 7 percentage points year on year. In North America, costs increased 8%, mainly driven by technology expenses, digitalization, amortizations, and a US $50 million increase. a dollar donation to our community foundation in the U.S. that was recorded in the quarter. Of note was the performance in Mexico, minus 2% in real terms. Efficiency in the region stood at 44%. In South America, the increase in costs plus 9% was greatly distorted by the very high inflation in Argentina. In real terms, costs declined 3% in the region. Brazil, minus 6%. Chile, minus 1%. And Argentina was flat in real terms. Deficiency in the region stood at 35% with continued improvement. Finally, the consumer bank cost increased due to changes in perimeters. This is the leasing company that we bought in Germany, 6 Leasing, and the joint venture in Italy that we launched this year. Finally, loan loss provisions. Well, we have a cost of credit in the last 12 months of 90 basis points. In the same period of 2020, it was 1.27. Taking into account the first nine months of the year, only the cost of risk was 0.83, 83 basis points, performing better than expected due to lower provisions in most markets mainly in the U.S. digital consumer band, Brazil and Chile, together with the net releases in the U.K. The NPR ratio was virtually flat year-on-year and slightly lower quarter-on-quarter. Total loan loss reserves stood at 24.5 billion with a coverage ratio of 74%. In addition, I would like to remind you that the majority of the overlay that we recorded last year is on the balance sheet. We expect to make some releases in Q4 and Q4 on the back of new macro scenario, which will enable the cost of risk to reach around 80 basis points by year end. This is our best estimation, if nothing changed, in our view of the macro scenario. Finally, on capital, I would like to highlight the strong organic generation in the quarter, 48 basis points. The figure is mainly supported by our net profit. risk-weighted asset matchment through securitization mainly, and neutral impact from dividend accrual on the back of the new dividend policy that you already know. Additionally, we recorded 16 basis points related to regulatory and model-related capital impact, and another 17 basis points mainly market performance. All in all, The core equity tier one ratio increased by 15 basis points to 1185 on a fully loaded basis, very close to the maximum level of our range, 11 to 12%. The phase-in you have in the slide, 1226%. Additionally, I would like to comment on the solid results achieved by the group in the EVA stress test. In accordance with our expectations, we outperformed clearly our peers. That showed that the resilience of our business model in stress scenarios. So when we go to the ratios, you have, in the slide, the return on tangible equity progressing well. EPS is progressing well. Tangible net as the value per share is still progressing clearly. Also noteworthy is the return on risk weighted assets. We reached 1.8% versus 1% 1 year ago. You already know our dividend policy. Once the ECB lifted the recommendation not to pay dividends, well, the board approved a payout at 40% of underlying profit. We are entering distribution for value of 1.7 billion euros, well, half in cash, half in buyback. Today, around 30% of the buyback program was already executed. So this is where we are in this regard in our dividend policy. Finally, going to ESG. So as you know, the bank has strong commitments to ESG. Well, we have stood for a sustainable and inclusive growth of people and business for many years, and we continue working on improving our financial products to support our customers in their transition towards a low-carbon economy. We have set ambition to be net zero by 2050, being a founding member of the Net Zero Banking Alliance, among other guidelines requires the bank to set the carbonization targets for carbon-intensive sectors no later than September 22. In this regard, we have set and disclosed the first specific net zero banking alliance targets for power generation, that is to reduce emissions more than by half in our power generation portfolio by 2030. In this regard, in Q3, we joined the Partnership for Carbon Accounting Financial. It's important to have general standards to harmonize all the numbers that are being published, and we are committed to reaching to have a standard under which we publish all the numbers related with this. As regard to the green finance, well, as you know, we are market leader in renewable energy. We mobilized in nine months 17 billion, 51 billion since 2019. As you know, we are leader in financial renewals. In our core geographies, we continue to lead the renewals project finance league tables year-to-date, by number of deals by Bloomberg, and I'm top three by volume in the logic. We have issue on our own one billion grid bonds, three billion total to date, as part of our sustainable debt plan. On the social side, as having a strong presence and being the market leader in Latin America, naturally our Our main goal, this is to financial empowerment strategy in the program that we call Santander Finance for All. It helps people access to the financial system, set up and grow micro-business, and also offers financial education. Our micro-finance initiatives have already been launched in Brazil, Mexico, Uruguay, Colombia, and it was launched in Peru in Q3. We have reached 6.2 million people financial and power people since 2018, of which 1.3 million are microentrepreneurs, and we are making progress in the share of women in senior leadership positions. When it comes to governments, well, you know the board, the composition of the board, diversity in the board in terms of independence, and also gender and diversity in all the dimensions. We also include ESG metrics in our executive bonus score. In addition, our work in our corporate cultures and underway were reflected in the results of the year global engagement survey, where the level of employee commitment reached 80% considerably higher than the sector average rates. Finally, I would like to point out that our different ESG initiatives have got significant external recognition along the years. And now I'll hand over to José to elaborate over the different business units and regions.

Thank you, José Antonio, and good morning, everyone. Like always, I will start with a brief summary of the regions, and then I will move into the main countries in the following slides. In Europe, we continue to grow our business while we advance in a common and more efficient operating model. We had volume growth year-on-year and quarter-on-quarter in almost all markets. and we expect these trends to continue in the coming quarters. This led to revenues growing strongly at 12% year-on-year, and as Jose Antonio mentioned, outstanding cost management with a strong efficiency improvement, and we also had low cost of risk at 48 basis points. This, in turn, led to net operating income growth of 30% and doubling of profits. In North America, we had accelerated volumes, although U.S. figures, as I will explain later, are affected by the disposals in the year-on-year comparison. We had a strong profit growth year-on-year, boosted by cost of credit improvement, mainly in the U.S., and revenue increase, excluding disposals, revenue, total income was up 7%. Return on tangible equity in North America was 13%. In South America, we continue to strengthen our regional ties, reflected in solid double-digit customer and volume growth. Profit was up 31% and return on intangible equity stood at 20%. In the digital consumer bank, we saw strong profit growth in the third quarter, leading to double-digit growth year-on-year as well. Now let me go into the main countries now. In Spain, the stock of loans was flat in the quarter as mortgages offset the decrease in companies. Mortgages recorded the highest new business volumes in the last three years. Results in the third quarter were boosted by strong net operating performance. Revenue rose 11% in the quarter, while costs dropped 4%. Regarded provisions, we remain cautious in Spain, but we expect the cost of risk in 2022 to be approximately half of that of 2021. Year-on-year revenue grew 4%, mainly driven by net fee income, especially in transactional and insurance products. Our cost reduction efforts were reflected in a sharp fall, 7%, improving efficiency by 6 percentage points, while loan loss provisions remain stable. This obviously was reflected in the almost 50% growth in profit. We expect balance sheet trends to continue in the coming quarters, which should lead to a stable net interest income, while fee income could expand at mid-single-digit rates. Cost should maintain its downward trend. In the UK, the main trends recorded in previous quarters continued. Net interest margin kept improving based on deposit repricing and volume growth. The mortgage grew 4%. As you can see in the slide, downward training costs accelerated as our transformation program delivered savings, partially offset by IT investments and regulatory-related programs. As a result, the efficiency ratio improved 13 percentage points in the first nine months of the year. We recorded another quarter of zero loan loss provisions. Return on tangible equity in the first nine months was 11.5%. Like in Spain, we expect balance sheet trends to continue in the coming quarters. Assuming no hikes in rates, net interest income should stabilize, while fee income would grow at low single-digit rates. We expect to reach a cost-to-income below 50% next year, while the cost of risk should gradually normalize. Brazil closed another excellent quarter in terms of volumes, profit, and profitability. We maintained a strong growth rate in new mortgage lending and reached a record high in card sales. We gained 1.6 million new customers just in the third quarter. Turning to results, profit was almost 30% higher year-on-year at 1.8 billion euros, and return on tangible equity increased to 22%. We had positive NII performance due to larger volumes as a slight increase in average interest rates, while net fee income also grew in insurance and capital markets especially. We reached record efficiency levels with costs up 1% while inflation was up 10% year on year. Loan loss provisions decreased sharply with a very positive cost of credit performance which fell to 3.6%, 1 percentage point In the coming quarters, the structural double-digit volume growth rates should be maintained, which will continue to push up net interest income and fee income. We expect to be able to keep costs growing below inflation and to maintain cost of risk at similar levels. In the U.S., the work conducted over the last several years allowed us to be uniquely positioned to benefit from current market conditions. In volumes, loan performance was impacted by Bluestem portfolio disposal. Excluding perimeter, growth was 2% year-on-year, with auto originations increasing 16% versus the same period of last year. Customer funds showed strong performance, also growing 13%. Year-on-year performance is affected by Puerto Rico and Blue Stem disposals, so I will comment on the year-on-year results on a like-for-like basis. Net operating income increased 17%, on the back of resilient NII growth of 7%, strong auto leasing results, and fee income. At the same time, provisions decreased sharply, although we are starting to see signs of normalization. Thank you. We are very proud to announce that this quarter Santander U.S. donated $50 million to the Santander Consumer Foundation in order to fund a multi-year program focused on transforming lives of low-income students, young adults, and families across the country. This program will target closing the digital divide and aiding students and families in education programs to boost digital and financial competencies. In addition, in line with group strategy to deploy capital to the most profitable businesses, and to accelerate growth in the U.S. In the third quarter, we announced two transactions that we have already shared with you. The proposal to acquire all outstanding shares in Santander consumer we don't own, which is around 20%, and the agreement to acquire Amherst Pierpont Securities. Both transactions are still subject to regulatory approvals. In the coming quarters, we expect high single-digit growth in loans supported by consumer and CIB. Revenue should continue to grow, driven by double-digit growth in AII, while fees might contract slightly. Cost of income is expected to remain at similar levels. In Mexico, lending started to show signs of recovery in the quarter, as individuals' positive performance partially offset corporate loan normalization. In the third quarter, NII was favored by volume growth and higher interest rates, while fee income performance was impacted by insurance seasonality in the second quarter and lower financial advisory fees. Costs were affected by inflation, IT projects, and new outsourcing legislation. In September, cost of credit stood well below 3%. We expect NII plus fees to grow at high single digits, Next year, while cost should increase below inflation and cost of risk should remain fairly stable. In the digital consumer bank, activity trends generally continue to improve. New lending was 11% higher year on year. However, in the third quarter, the microchip shortage hampered production and consequently the new auto market, particularly in the first part of the quarter. Despite this, in terms of total income, September was the best month of the year to date, driving the strongest quotas since 2019, thanks to recovering fees in Germany and strong consumer lending and flat-use vehicle volumes. These, together with 3% falling costs and the SRF contribution in the second quarter, resulted in a 32% increased quarter-on-quarter in underlying profits. For the coming quarters, we expect strong cyclical growth in consumer finance demand, Cost to income should remain below 40%, and cost of risk should gradually normalize. Turning to the global businesses, in corporate and investment banking, we held leading positions in the rankings of structured finance in Europe and South America, and DCM and ECM in most countries where we operate. We are one of the world leaders in financing and advising on renewable energy. Outstanding three-quarter results shown by revenues, which was up 12% year-on-year, and the efficiency ratio remained a benchmark in the sector at below 38%. Loan loss provisions started to normalize as well. In wealth management, total assets under management increased double digits year-on-year. Commercial flows year-to-date in private banking and Santander asset management reached $14 billion. These flows account for more than 3% of total volume managed. In insurance, gross return premiums rose 5% year-on-year. In summary, total fee income generated, which includes the part accounted for in the commercial networks, grew 11%, and total contribution to the group profit increased 16% year-on-year. Now turning to PagoNext, in nine months, revenue increased 41% year-on-year, boosted by the strong jumping fees, 45% at constant exchange rates. We are clearly on track to achieve our expected second-half revenue growth of close to 50% versus the first half and to reach €1 billion of revenue in the medium term. Now, talking about the three components of PagoNext, starting with merchant solutions, GetNet continued to deliver significant growth, The number of active merchants and total payments volume grew across all geographies. GetNet Brazil continued to increase market share in the country, reaching 16% in total and over 30% in e-commerce. We are developing an integrated offer for European customers with GetNet Europe and the integration of Wirecard's technology assets and talent acquired last January. All in all, we reach a total of 1.2 million active merchants and a total payment volume of 81 billion in the nine months, up 53% year-on-year. In trade, our initiatives to support our clients in international trend to expand beyond their domestic markets continue to evolve favorably. One trade already connects our customers in eight countries, reaching 7,300 active customers from 4,100 in March 2021, an 80% increase in the last six months. Avery already has over 15,000 corporates as customers, growing over 500 new companies per month, revenues growing at over 20% versus the first quarter. Finally, in consumer solutions, Superdigital began to operate in Argentina in the third quarter. Looking forward, we expect revenue in Pagonex to continue to grow strongly in line with 2021, which puts us on track to achieve the €1 billion revenue target in the medium term. Lastly, we expect to reach more than 2 million active merchants in the medium term. And to finalize, let me now go over the corporate center. Underlying attributable loss of €1.6 billion in the first nine months, is higher than last year due to lower gains on financial transactions. Remember that we had positive foreign currency hedging results in 2020. On the other hand, we have no material differences in NII and cost, and significantly lower provisions due to charges in the first nine months of last year for certain holdings whose valuation was affected by the crisis. And now let me turn it back to the CEO for his final remarks.