Banco Santander Mexico, S.A.

Good morning everybody and welcome to Banco Santander's conference call to discuss our financial results for the first quarter of 2022. Just as a reminder, both the results report and the presentation we will be following today are available to you on our website. I'm joined here today by our CEO, Mr. José Antonio Álvarez, and our CFO, Mr. José García Cantera. Following their presentations, we will open the floor for any and all questions you may have in the Q&A session. With this, I will hand over to Mr. Alvarez. Jose Antonio, the floor is yours.

Thank you, Begoña. Good morning to everyone. Thank you for joining us this morning. I'm going to start with the first quarter results, starting with the activity levels of the group in the quarter, where we continue to have a good Customer activity, customer and business activity, we keep growing the customer base, 2 million more customers in the quarter, 7 million more since March 2021. This reflects our growing business and increased customer satisfaction. As you know, this is one of our goals, and we rank in the top three in MPS in A markets now. While the transactionality and the digital adoption keep growing at a good pace, 49, almost 50 million digital customers, 5 million more than in March 2021, and transactions in digital channels are growing at 50%, not the digital adoption is getting a good pace. As a result of this, our volumes in the balance sheet, being loans and deposits, keep growing. both quarter on quarter and year on year, and we translate this into a customer revenue growth that you're going to see in our P&L. So going to the... performance results some profitability the Q1 attributable profit was 2.5 billion euros 2.54 billion euros 19% versus first Q21 in underlying profit and 58% year on year when we compare with the attributable profit remember that last year we printed around 500 million which is actually a cost that we don't have this year On the cost side, and this is particularly important in this unexpected high inflationary environment, we were able to, the cost to remain well below inflation and allow us to improve our efficiency ratio in line with our guidance of getting at 45%. We improved our profitability ratios quarter on quarter, year on year. Our return on tangible equity went to 14.2%, and EPS growing at 22% compared with the Q1-21. We continue to create value for shareholders. The tangible net asset value per share stood at 4.29%, 4% up quarter-on-quarter, 13% up year-on-year, including the cash dividends. When we go to the balance sheet and we look at the risk, particularly credit risk, the cost of credit remains relatively stable at 0.77% below our guidance for the whole year. And NPL ratio stays at 326. Remember that in the quarter we have, we include the new definition of default on a like-for-like basis. Without this new definition of default, the NPL ratio fell like this. 10 basis points or something like that. The correct indicator one was above 12%, 12.05. Well, good organic capital generation for the basis points from Q1, 22 earnings and minus 23 basis points from dividend accrual and the second buyback, share buyback that is going on and started mid-March. So going to our P&L, let me say that the chain rates play in the positive way for five percentage points. You have in the third column in the slide, in current euros and constant euros, current euros is for five percentage points more, partially offset by hedging in the corporate center that our CEO will elaborate later on. that we have a negative thing due to the hedging of the expected profits. As I mentioned earlier, we earned a profit of more than 2.5 billion euros, growing strongly year on year. In the quarter, the underlying profit recorded the same amount, and we had no extraordinary charges. I will elaborate in the different lines on the P&L later on. When we look at the regions, we see that Well, we are around 30% in each of the main regions, Europe, North America and South America, and the digital consumer bank around the 10%. Well, in addition to the revenues, profit also receives an uplift from costs, growing below average inflation. We will see later on controlled loan loss provisions and lower minority interest following the acquisition mainly of the centenary consumer U.S. minorities. The quarterly series reflects our sustained profit growth, quarter after quarter, but what I mentioned, customer revenue growth. The quarterly comparison of NII is affected by the count, as you know. So, like for life basis, we are growing 1% to 2% in constant euros, NII. Key on key of income continue to increase, positive performance in the majority of the countries, partially offset by seasonality in South America, mainly in Brazil. Cost decrease quarter on quarter, thanks to our cost discipline and partly due to bonus adjustment at the end of, in the fourth quarter of 2021. In addition, all last provisions remained flat quarter, year on year, and up quarter on quarter, driven by the provision released in the fourth quarter of circa 750 million euros. Trends in euros were better, as I said, than in constant euros, as growth rates were higher, benefiting from the positive FX impact in the quarter. So when we go in deep into the revenue, revenues were north of 12 billion euros, net interest income and fee income accounted 95% of total income. Byline, NII, grew 6% in constant euro due to greater volumes and higher interest rates. By country, at constant exchange rates, significant rises were recorded in UK, plus 15%, Poland, plus 78%, Brazil, 7%, Mexico, 7%. On the other hand, Spain was affected by the change of mix and lower ALCO portfolio. and Portugal by ARCO portfolio disposals that we executed in Q1-21. Net income amounted to €2.8 billion, plus 6% in costs and euros, driven by improved activity, notably in high-value-added products and services. You have the figures in this slide, and great, good levels of activity in cars, insurance premiums, PRS turnover, mutual investment, all the fees all across the board, significant increase in activity levels that are related to higher fees. In cost, as I mentioned at the beginning, we are working in a high inflationary environment. We are focusing here in two main points. One is to make sure that our costs grow less than inflation, and this is the minus 3.3% in real terms that we achieved. That's particularly important. And the second one is to keep improving our efficiency. That improved 1.2% going to the 45%. As you know, this is one of our key targets. When we go by regions, We are delivering, as expected, according to our plans in Europe, in a much more difficult environment. So it's true that we are showing here with the different reporting in Europe, but we are not far away. I think the CFO already guided you that the 1 billion cost savings is going to be more in the region of 800 million affected by inflation, but we are progressing rapidly. very well in both in Spain, Portugal and UK and also in Poland in a high inflationary environment and we continue to deliver according to our plans affected somehow by inflation in non-personal expenses that are much more difficult to control. In North America, growing well below inflation, North America and US and Mexico, minus 2.7% that is a good achievement. You've seen the results of other players in the same markets where cost control has been difficult to achieve. And in South America, well, the figure is pretty high. Argentina is there, but also in Brazil where the inflation is running above 10%. And the agreement with the unions in Brazil that the sector signed in September last year was in the region of 10%, 11% and translated into significant higher costs in 2009. a bit higher than inflation. I do expect in Brazil to enter into two quarters of having dispensers growing less than they grew in the last two quarters on the back of our efficiency plans. And digital consumer banks that are growing above inflation due to some initiatives and change in perimeter last year. The cost of credit. Well, the credit quality indicators remain stable. No significant impact from the war in Ukraine. We have no exposure to Ukraine or Russia. As you already know, our cost of credit, 77 basis points. If you look at the last three months, it's 83 basis points. As you can see later in the country review, provisions normalize after releases in Q4. The MPL ratio, 326%. 19 basis points come from the new definition of default. Otherwise, the MPL ratio, unlike for live basis, will be 307. The loan reserves and the coverage remains relatively stable. In common quarters, the implications of the impact of the current geopolitical situation on our business performance and credit quality are still relatively uncertain, and we don't know the extent of the duration of the conflict. However, I should say that our starting point is very solid. So the growth diversification enables us the resiliency to face the crisis. I mentioned that our exposure to the parts in the conflict is negligible. We have enough tools in our hands to to make us confident that we will meet our expected G-rank cost of risk of below 1%, even in the new scenario. When it comes to capital, Our capital ratio, we had a very good organic capital generation. Gross organic capital generation in the quarter was 40 basis points on the back of the good results I just presented to you. Twenty-three basis points went to the shareholder remuneration, 15 basis points for the share buyback, and eight basis points for the accrual of our 40% payout policy. That's basically, and the other impacts are relatively minor regulatory models and markets and other relatively minor effects. In coming quarters, we will maintain our clear focus of the implementation of discipline capital allocation measures across the group and the achievement of the targets we announced in Q4. In this regard, while risk-weighted taxes are growing below long growth, Our front book is already delivering high-risk adjusted return. We generate a ROA of 2.8% in Q1 2022. The percentage of risk-weighted assets that do not cover the cost of equity keeps falling, and this is a good sign of our future profitability. Well, you know our policy to remunerate the shareholders, the dividends, the 3.4 billion dividends split in 50 in-cast dividend and share-by-backs. The second share-by-back program with a maximum of 865 million euros started on March the 15th and is under execution as we speak. As a result, the total shareholder remuneration is 3.4 billion, 6% yield. In 2022, you know our policy, dividend policy that was stated by the board and we reiterate in our AGM. When we look at the profitability ratios, you can see in the slide both EPS, return tangible equity, tangible net asset value per share, going in the right direction on the back of excellent capacity of the bank to generate results on a recurrent and sustainable basis. Finally, before I hand to Jose, I would like to highlight some very strong commitments to AESG. You have in the slide our commitments and how are we progressing in the different commitments that we have been in green finance, where we already originate 69 billion since 2019. Our commitment is 120 billion by 2025. We continue to seek good demand. There is significant investment going in this field, and we are participating in this. We are developing green products. At the same time, we are starting to develop an information system that allows us to track how our portfolio behaves in relation with CO2 emissions, and this is an important tool that we need to implement in order to track all our progress here. Well, in the asset management industry, we have also targets. You have the figures in the screen. And renewable energy, we are world leaders, and we are signing alliances in order to make progress in this field. The decarbonization targets, you have there our commitments, both in the mainly related with the power sector and while we are progressing in line with our targets. These goals are included in the executives long-term incentive scorecard and that show how committed we are with this ESG target, particularly I was referring here in the screen to the E, but you know that we are also very active in the social target, particularly in the microcredit space in Latin America. So I hand over to Jose that continues the presentation with the results by regions and global businesses.

Thank you, Jose Antonio, and good morning, everyone. As usual, I will start with a brief summary of the regions, and then I will move on to the countries to discuss in a bit more detail. We continue to leverage one of the strengths of our model, which is diversification and scale, improving the operating performance in all three regions and global businesses. In Europe, we are making significant progress in the transformation of our business and in developing a common operating model We achieved double-digit growth in net operating income and profit, reaching a 13.5% return on tangible equity. In North America, we are refocusing our position in the U.S. while maintaining a disciplined capital allocation. We accelerated growth and volumes, generated a return on tangible equity of 24%. South America, we are growing the number of customers and capturing new business opportunities, delivering almost 27% return on equity. And in the digital consumer bank, new lending increased by 17% and profits rose double digits with a return on tangible equity of almost 13%. Obviously, we achieved all of this while enhancing our global business and connectivity with the regions, In this way, SCIB, a corporate and investment bank, earned a return on tangible equity of 25%, and wealth management and insurance return on tangible equity was 55%. We continue to make progress in the development of PagoNext. We'll talk about that in a minute. Maintaining high profitability in our car business with a return on tangible equity around 30%. So moving to Europe, the business transformation to develop a simpler and a common operating model is delivering good results with increased volumes, especially in individuals. Mortgages were up 6%. Consumer lending was up 9%. Mutual funds up 3%. We experienced significant improvements in customer satisfaction surveys at the same time. Profit reached $1 billion in the quarter, increasing 30% year on year. Revenue grew strongly. NII was up 9%, supported by higher volumes and interest rate hikes in Poland and in the UK. Fee income grew 7%, but by greater activity. Our efficiency plans continue to bear fruit as the cost base shrunk 2%, went down 7% in real terms, and the efficiency ratio improved to around 48%, driving net operating income up by 12%. Loan loss provisions dropped 14% as the cost of credit started to normalize across countries, most notably in Spain. Return on tangible equity reached, as I mentioned before, 13.5%, up 30 percentage points year-on-year. All in all, we remain on track to meet our targets for the year. Our performance in Europe stood out not only for its positive set of results, but also for the special initiatives implemented to support our Ukrainian customers and employees. as well as refugees and all those affected by the war. In this regard, we provided financial measures to facilitate transfers and cash withdrawals, made donations, and collaborated with NGOs to help refugees, such as the two planes chartered from Warsaw to Portugal and Spain. Going into details in Spain and in the UK, in Spain, we increased the customer base by 200,000 customers in the first quarter, which obviously helped volumes, especially new mortgage lending, which doubled compared with the first quarter of 21 and exceeded pre-pandemic levels in consumer credit. Profit grew 21% year-on-year, supported by the execution of our efficiency plans and the lower cost of credit. Revenue remained under pressure due to ALCO sales in 2021 and the change in mix. We had a much better performance in fee income. The quarter-on-quarter comparison is benefited from, obviously, the deposit guarantee fund charges of the fourth quarter, but also supported by lower costs and loan loss provisions. In the UK, we maintain very positive business dynamics. Gross mortgage lending rose to £9.5 billion in the first quarter, near a record level. NII rose 15%, supported by increased volumes and higher interest rates, which drove double-digit growth in revenue. The comparison in fee income is negatively affected by the transfer of the Corporate Investment Bank activity from the bank to the London branch. We doubled our efforts to keep costs under control and thus improved efficiency by 7 percentage points, which enabled net operating income to grow 3%. Loan loss provisions were higher following the normalization of the cost of credit. We would expect cost of credit to be around 10 basis points. And quarter-on-quarter comparison was affected by the loan loss provision releases in the fourth quarter. Moving to North America, our strategy there is to accelerate profitable growth in the U.S. while creating a joint value proposition to improve customer experience, simplifying our business to generate efficiencies. The acquisition of Santander Consumer U.S., outstanding shares, along with Amherst Pierpont Securities and Credit Agricole's LATAM wealth management operations will improve our strategic focus and competitive position. We had solid growth in individuals and commercial loans in Mexico and increases in auto and CID in the U.S. On a like-for-like basis, we need to exclude Bluestem portfolio disposal in the first half of 21. Profit was 4% higher, benefiting from a better NII and the acquisition of minorities in Scusa. In the quarter, we virtually doubled the average profit recorded before the COVID-19 pandemic. In the U.S., we continue to make progress towards simplifying our business model across our four core businesses, consumer, commercial, CIB, and wealth management. Loans grew 8% backed by CIB, auto, and wealth management. During the period, auto originations decreased, impacted by the semiconductor shortage, pushing the Menheim Value Index to an all-time high in early 2022. Customer funds continued to exhibit strong performance while the overall cost of funds decreased. Moving to the P&L, on a like-for-like basis, profits dropped 5%, basically due to higher loan loss provisions driven by normalization in the cost of credit. We also had a more normalized leasing activity due to an increase in the share of lease and vehicles repurchased at the dealership. In this quarter, in the first quarter of 22, 94% were purchased relative to 35% in the first quarter of 21. NII was pressured by the runoff in paycheck protection program-related balances. All in all, we recorded a very high level of profit, more than doubling the quarter average profit in 2019. In Mexico, we had an excellent quarter, reflecting our successful customer attraction strategy. We delivered a 32% year-on-year increase in profit and also great returns, great profitability, due to the increase in revenue supported by NII, both due to higher volumes and the rise in interest rates and higher net fee income. We also had lower loan loss provisions due to positive performance in our portfolio. In South America, we continue to focus on attracting new customers and leveraging business opportunities, strengthening connectivity and synergies across the region. We recorded overall growth in loans with good dynamics in individual lending in most countries. Deposits rose 6%, driven by both demand and time deposits. In terms of results, we grew profits 8% year-on-year with double-digit customer revenue growth, costs heavily affected by inflation, especially in Brazil and Argentina, although total costs were virtually flat in real terms. and higher provisions mainly driven by growth in individuals. Also in Brazil, we had lower taxes. Moving to Brazil, we maintained positive trends in customer acquisition. Customer increased 12% year-on-year, and digital customers grew 18% year-on-year, as we launched several initiatives for our multi-channel strategy. In volumes, mortgages rose double digits, car turnover was up 22%, and we maintain our leadership in auto. This great customer activity enabled us to absorb the rising costs and higher provisions due to the growth we had in individuals. Cost of risk stood at 3.94%. In Chile, we continue to expand Santander Live, Superdigital, and GetNet. We were very active in launching new strategic initiatives. And as a result, we had very strong customer attraction with 11% growth year-on-year. We maintain our top position in NPS, and we grew the balance sheet both in loans and deposits. In the P&L, very positive performance year-on-year, up 28%, with revenues up 10%, costs growing below inflation, and a lower cost of credit. Thank you. In the digital consumer bank, also Solid Quarter, which reinforced our position. We are gaining market share very quickly in Europe. We also signed new strategic alliances with Stellantis or Piaggio. We launched new leasing businesses in all our markets in 2021, which experienced a 48% growth in new contracts year on year. We launched the subscriptions. We signed an agreement with Wabi in subscriptions. And we launched Xenia, our buy-now-pay-later solution in Germany, which has generated over 2.5 million new contracts in just 14 months. Moreover, new business activities now above pre-COVID levels have been increased 17% year-on-year, up 13% in new cars and 29% in used cars. We are increasing market share, as I mentioned, in both markets, new and used cars. Open Bank continues to grow strongly, both in balance sheet terms and number of customers. And obviously, this greater activity was reflected in fee income and leasing revenue growth. Costs were up due to investment in global transformation platforms and some inorganic transactions. Excluding these, costs increased 2%, more or less, minus 2% in real terms. We also had very positive trends in trade quality with a further 25 basis points reduction in the cost of credit. So overall, again, very excellent results, very good results in the quarter by the Digital Consumer Bank, which increased 11%. Turning to our global businesses in corporate and investment bank, our goal is to become one of the leading investment banks in Europe, consolidating our leadership in Latin America and continue to accelerate growth in the US. Additionally, as leaders within the sustainable sphere, we completed in April 2022 our plan to acquire 80% of WayCarbon, a leading Brazil-based ESG consultancy firm. In terms of financial performance, Q1 was the best quarter in CIB history with record revenue, attributable profit, and return on risk-weighted assets. Revenue was up 5% year-on-year, a very good quarter relative to already a very good 21%, which led to a 10% increase in profit. It is Worth noting that only 20% of our revenue come from market-related activities. 80% comes from customers. In wealth management, despite market volatility, our businesses grew thanks to our globally diversified value-added proposition and sales through digital channels. We were named as one of the top three global private banks by Euromoney, and activity levels remained strong with new money around 3 billion in the quarter. Investment flows and asset valuations were less impacted than in previous crises due to our global high-value-oriented asset mix. Contribution to the group rose 10%. In insurance, we had sustainable growth based on non-related business in addition to strong growth in digital sales, which were up 50% year-on-year. In summary, higher revenue and total contribution to the group's profit in wealth management and insurance achieved a 7% growth, 14% up on a like-for-like basis. Turning to PagoNext, in the first quarter, we had several achievements. In merchant acquiring, GetNet continued to deliver very high growth, increasing total payments volume by 40%, backed by Brazil, one of our main growth drivers, and Spain, thanks to our customer acquisition strategy and increased merchant activity, and also in Mexico. In international trade, our OneTrade platform currently connects our customers in eight countries, and we continue to expand its capabilities to provide international instant payments between Spain and Brazil. We plan to launch real-time payments in other international corridors in the coming quarters. In summary, revenue doubled year-on-year in the quarter. Obviously, quarter-on-quarter is affected by seasonality. In cards, I would like to highlight our efforts to improve our global card services. We are working to globally manage 95 million cards throughout the group. In the first quarter of 2022, we continued to grow strongly, turnover and the number of transactions increased well above 20%. This performance was also reflected in the first quarter revenue, which reached almost 1 billion, 30% higher year on year. We had positive performance in both credit, debit cards, and across regions. It is worth mentioning that revenue in the fourth quarter is seasonally higher In the fourth quarter, we had Black Friday and Christmas. Still, you see a very good comparison quarter-on-quarter, which shows how strong the first quarter of 2022 was. Looking forward, we expect to continue to grow the number of accounts, turnover, and revenue. Now, let me finish with the corporate center. we reported an attributable loss of $460 million, which is relatively high, affected by the negative FX hedging results, which obviously were more than upset by the positive performance of exchange rates in the country's results. The quarter was also impacted by the higher liquidity buffer, and we also recorded a negative tax impact due to the higher results of those businesses operating in Spain. On the other hand, We recorded no material changes in costs, and we had a significant decrease in non-loss provisions and other provisions. And now let me turn it back to the CEO for his final remarks.