Banco Santander Mexico, S.A.

Good morning, everybody, and welcome to Banco Santander's conference call to discuss our financial results for the first nine months of 2023. Just as a reminder, both the results report and presentation that we will be following today are available to you on our website. Let me just highlight that during the presentation when we refer to global and network businesses, we are following the definition which was given during our investor day last February, as the new reporting and full management of the group through global businesses will begin in January 24. I am joined here today by our CEO, Mr. Hector Grissi, and our CFO, Mr. José García Cantera. Following their presentations, we will open the floor for any and all questions that you may have in the Q&A session. If you would like to ask a question, please press star and five on your phone. With this, I will hand over to Mr. Grissi. Hector, the floor is yours.

Thank you, Begoña. Good morning, everyone, and thank you for joining us. Let me share with you what we will focus on today. First, I'll talk about our nine-month results in the context of how we are progressing with the strategy we outlined at our investor day. Jose will then review our financial performance in greater detail, and then I'll conclude with a few closing remarks. As you can see, we had another strong quarter. demonstrating the strength and resilience of our unique business model, even in times of market volatility, as well as a solid execution of our strategy. We delivered record profit of 2.9 billion. That's an increase of 20% compared with Q3 in 2022. That's 26% in constant euros. Profit for the first nine months of 23 was 8.1 billion, up 13% in constant euros, driven by strong customer revenue growth. Revenue increased by double digit year on year, supported by all global businesses and all our regions. Commercial activity remained solid. We added 9 million new customers in the last 12 months, bringing the total to 166 million. We continue to advance towards a simpler, more integrated model through our one transformation, which is leading to efficiency improvements and growth in profitability. As a result, our efficiency ratio improved 1.5 percentage points year-on-year to 44. Our return on tangible equity rose 126 basis points year-on-year to nearly 15%. while earnings per share improved by 17% year-on-year, supported by profit growth and share buybacks. We further strengthened our balance sheet, generating capital in the quarter even after deducting the share buyback underway, and liquidity remains at comfortable levels and credit quality is quite strong. All of this led to strong shareholder value creation and attractive remuneration. Plus DPS grew 12% during the last 12 months, and we have increased the cash dividend per share by 39% year-on-year. Moving to the income statement, as always, we present growth rates in both in current and constant euros. Profit increases strongly continuing the positive trends of previous quarters, supported by First of all, strong top-line performance with growth in all our global businesses. We have improved efficiency as costs increased well below revenue, reflecting our transformation efforts. Double-digit growth in net operating income to more than $24 billion. Normalization of loan loss provisions in line with our expectations. And as I mentioned in the previous slide, these trends resulted in our highest quarterly profit on record, 9% above that of Q2 23. Jose will go now into more detail on these points later. These results maintained us on track to achieve our 23 targets, targets that we reiterate. First of all, good business dynamics led to double-digit revenue growth. Our efficiency ratio improved and remains at the lower end of our target range, even with investments in one transformation. A strong balance sheet with cost of risk normalizing as expected and capital ahead of target with CET1 improving quarter on quarter. Our ROTE is close to 15% and should comfortably reach our target at year end. Looking closer at capital and value creation, our CTE1 ratio has grown year-to-date from 12% to 12.3%, backed by strong organic capital generation after investing in profitable growth, absorbing regulatory impacts, and remunerating our shareholders according to our dividend policy. We continue to grow our shareholder value creation, which was up 12% in the first nine months of the year. and we're increasing our shareholder remuneration with payout up to 50%. In September, the Board of Directors approved an interim distribution against our first half results, which is being executed as follows. A cash dividend of 8.1 cents per share to be paid in November, 39% higher than the equivalent in 22. A share buyback program of up to $1.3 billion that is currently underway. Since 2021, and after completing the current program, Santander will have bought back 9% of its outstanding shares through share buybacks. We are... Progressing in our new phase of value creation, transforming the bank in the right way by changing our model to improve both cost and revenue. One transformation which implies creating a common operating platform and technology for our retail and commercial business across all of our geographies will lead to improved customer service efficiency and profitability. In simplification, we have reduced the number of products by 8% in 23. That's almost 800 less products. In digitalization, we're making good progress with our digital self-service model, increasing the availability of products and services in our digital channels and reducing the use of our contact centers by 16%. We have set up a fully digital end-to-end onboarding process in Mexico that takes just six minutes to complete. Since its launch in July, we have opened 36,000 new accounts. In the US, we have already captured around $114 million in savings from transformation and simplification. As you can see on the slide, the initial efficiencies from one transformation and the impact of our active spread management in a context of higher interest rates, have already contributed 117 basis points in efficiency improvements. Our global and network businesses contribute to the group's profitability and have delivered 39 basis points in efficiency gains. For example, multi-Latinas and multi-Europeans Initiatives to better serve our multinational corporates and SMEs through a regional coverage model are growing at very high rates, with revenue up by 50% in 23 year-on-year. In private banking, we continue boosting collaboration with CIV and corporates, which has generated over 160 million revenue this year, or 13%. In Brazil... We have acquired 117 new relationships that brought R$6 billion in net new money. In payments, GetNet already operates in five countries. We expect implementation in Chile in the next few months and in the UK in 2024. In auto, we continue to strengthen our relationships with global OEMs. Since January 2023, we have expanded three of our OEM partnerships to new countries. Finally, our global technology capabilities have already resulted in a 29 basis points improvement in the efficiency ratio. Our global approach to technology has allowed us to capture 125 million savings this year, 55 from the recent deployment of Gravity, 60 from the new global agreements with vendors, and 9 million from the implementation of new IT and Ops shared services. Let's look at how one transformation is reflected in cost and operational efficiencies. Simplification is driving significant improvements in our cost and revenue-productive customer. Process automation is enabling us to spend less time on operations in branches and turn this into a powerful sales and advisory channel. Since our investor day, we have reduced the number of operational FTEs per million customers by 5%. We are already deploying global tech platforms to improve customer experience, leverage economies of scale, and spread best practices. We have implemented across the group proprietary back-end gravity, already deployed in three countries and CIB. This is delivering 55 million in efficiencies in 23, and we have executed 75 billion transactions this year alone. That's 10% of the group's total. We're expanding our CART platform across the group, delivering real-time digital processing capabilities to our banks and accelerating our business growth and will generate operational synergies of around 100 million per year when it's fully deployed. Finally, we are being able to transfer the best-in-class products and processes from the country of origin to the rest of the group, which leads to a strong value creation. The contribution of our global and network businesses is clear. In CIB, we continue to grow strongly. Our global presence has allowed us to grow revenue by 21% year-on-year as we provide a one-stop-shop service to all our clients, capturing cross-order flows and making CIB products and services available to all wealth, retail, and commercial customers across the group and vice versa. As a result, revenue from these two concepts, or network revenue, grew by 27% year-on-year to $3 billion. Wealth management and insurance grew revenue 22% year-on-year, well above target, boosted by benefits of the Santander network effect. In private banking, a fundamental part of our value proposition is that our customers can move and transact easily from one country to another. Today, customers have 52 billion of assets under management booked abroad. That's 12% higher than a year ago. Our payments business is growing strongly and faster than the market. Our payments hub has become one of the largest processors of account-to-account payments in Europe. Spain, the UK, and CIB are already processing a significant payment volume through PagoNext, while we execute full migration of all the group's A2A payments in the next 18 months. In auto, we continue to prioritize profitability over market share growth in a context of rising interest rates. Global auto revenue was affected by lower lease income in the U.S. and the new regulation in Germany. One transformation is now being extended across a group, and the increasing contributions from our global and network businesses are helping us to reach our 25 profitability targets across regions and businesses. Some geographies and businesses have benefited from rising rates, and they should continue to do so in 2024. As for those countries and the businesses that do not benefit from higher rates, they are already showing signs of improvement. This diversification, which is a clear competitive advantage, will lead to consistent profitable growth and value creation. The group Rote rose 126 basis points year-on-year to around 15%, as mentioned before. Jose will go now. in more detail to the group's performance. Thank you, Jose.

Thank you, Hector, and good morning, everyone. I will take you through the main lines of the P&L in more detail. Starting with revenue, there was strong growth driven by customer revenue again this quarter, which made up more than 95% of total revenue and explained almost all the growth in the quarter. This was primarily supported by our retail business, as we actively managed interest rate tailwinds in Europe and Mexico, and due to the positive fee performance in Latin America. We delivered double-digit growth across most businesses, in particular our network businesses, which made up 38% of total group revenue. The only exception was auto, which was affected by lower leasing income in the U.S., Revenue at the corporate center also improved by more than 500 million year on year due to higher liquidity buffer remuneration and a lower impact from FX hedging. Most of our revenue growth came from NII, which continued its upward trend, increasing 7% in the quarter, driven mostly by Europe and Mexico. We see upside potential for further growth in the coming quarters. Nine-month 2023 was 16% higher year-on-year in cost and euros, on the back of positive sensitivity to rising rates mainly in Europe and Mexico, and volume growth in DCV, North America, and South America. In terms of profitability, we have improved our net interest margin every quarter since the first quarter of 2021. Gains from credit yields outweighed higher funding costs, thanks to our disciplined deposit remuneration leading to a clear margin expansion. In Europe, we are strictly managing deposit costs, especially in Spain and Portugal, where there is excess liquidity in the system and lower credit demand. The UK has a more competitive environment, but BITAS remain in line with our expectations. In South America, deposit rates are more directly linked to market interest rates, which results in negative sensitivity to raising rates. Therefore, as interest rates are starting to decline, we are seeing improved NII trends. In North America, in the U.S., betas continue to increase, although in line with our expectations, while net interest margin in Mexico expanded. Going forward in Europe, we expect further benefits from portfolio repricing in a context of stable interest rates or a slight increase, which we expect will more than outweigh potential cost of deposit growth, at least in the first half of next year. At the same time, as I said, we expect to benefit from interest rate cuts in South America. Turning to fees, in an environment of low fee income growth in general, as a result of subdued loan demand and weak consumer activity, our net fee income grew 9% compared to the third quarter of 2022 and 6% year-on-year, with good performance across regions and businesses. Retail banking grew well, supported by a larger customer base, and our tailored and targeted value propositions. Our global network businesses represented 42% of total group fees with corporate investment banking and PagoNext leading the way in terms of growth. Corporate investment banking is increasing its share of leading roles and PagoNext continued to expand its businesses increasing total payment volumes 24% year-on-year and transactions 32%. Wealth management and insurance was slightly up as customers move to lower value-added funds than bring in lower fees. However, we saw increased activity in both private banking and Santander asset management, with three consecutive quarters of positive net sales. Auto performance increased year-on-year, driven by good performance in all our main markets. In terms of costs, savings from one transformation initiatives, which will become more evident in the coming quarters, are already offsetting our investments in tech and digitalization. Group costs declined 0.5% real-terms. And driving down the transactional cost per active customer, 2% in real-terms, as Hector mentioned earlier. This, in turn, is reflected in efficiency gains laid by Europe, which improved 6 percentage points, with costs flat in real-terms. In North America and DCB, cost increases slightly in real-terms, reflecting investments to accelerate transformation. Additionally, costs were also slightly affected by some perimeter effects, such as the incorporation of APS in the U.S. and MCE bank acquisition and new Stellantis agreement in DCB. As a result, group efficiency remains at the bottom end of our target range, where we expect it to stay for the rest of the year. Credit quality remains robust across our footprint and in line or actually slightly better than our expectations, which is supported by strong labor markets and resilience in used car prices in the U.S. The NPL ratio was stable and in line with expected levels, and we remain comfortably on track to meet our 2023 cost of risk target of less than 1.2%. Spain continues to perform well, with a 12-month cost of risk down 9 basis points year-on-year, supported by the quality of the loan book and resilient economic conditions. In other units, such as the UK, Portugal, and the Digital Consumer Bank, the cost of risk is normalizing from very low levels, and we expect it to remain below or in line with through-the-cycle averages. Mexico is also increasing, although it remains at comfortable levels, mainly due to a change in mix towards unsecured loans, in line with our strategy to improve profitability. Normalization continues in the U.S. in line with expectations. As we mentioned last quarter, cost of risk in Brazil seems to have reached a turning point. The 12-month cost of risk decreased for the second quarter in a row, and the NPL ratio improved 28 basis points in the quarter, reflecting the improving macro conditions and our focus on more secured and high-rated customers. To close with our balance structure, we have discussed in previous presentations, our credit portfolio is well diversified by segment, product, and country. Our balance sheet is low risk. The portfolio is highly secured with quality collateral and has low loan-to-values, average loan-to-values. Loans decreased 2% year-on-year as a consequence of higher interest rates, reducing credit demand and driving early repayments, especially evident in Europe and especially evident within European mortgages. Positive dynamics continued in North America, South America, and DCB. On the other hand, deposits continue to grow well at 4% year-on-year and 2% in the quarter as deposit inflows more than offset mortgage prepayments. Growth in the year was concentrated mainly in time deposits as customers seek higher rates. Our deposit base is diversified and highly stable. Using LCR criteria, 75% of our deposits are transactional, which are stickier, and a high proportion of our deposits from individuals are covered by deposit guarantee schemes. Mutual funds rose 11%, with growth-based growth across all countries except the U.S. following a year of instability in 2022. Our fully doted capital ratio improved to 12.3%, but by strong organic generation of 45 basis points in a quarter which included 33 basis point charge in shareholder remuneration, 21 related to the latest program of share buybacks that we are currently executing, and 12 basis points for the cash dividend accrual. We continue to focus on profitable growth opportunities, and this was reflected in a front book return on risk-weighted assets of 2.7%, up from 2.5% in the first nine months of 2022, equivalent to a return on tangible equity above our current group return on tangible equity, which will support profitability going forward. Additionally, we continue to increase balance sheet mobilization and the percentage of risk-weighted assets with positive economic value added, progressing well towards our investor day target of 85 in 2025. Increased profitability will help us continue to build capital over the next few years. We are confident our fully loaded... Capital ratio will remain above 12% even after taking into account the final implementation of Basel III in 2025 on a fully loaded basis. That's all from my side. Hector, over to you. Thank you.