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 2024. Just as a reminder, both the results report and presentation we will be following today are available to you on our website. Let me just highlight that this is the first full quarter in which we are publishing results with our global businesses as primary reporting, aligned with the way we are managed. as we announced late last year. Secondary reporting will be what used to be primary until 2023, mainly country reporting, European DCB, etc. As we will explain later, changes versus previous periods are done on constant euros, with the exception of Argentina, which is presented in current euros, to avoid distortions. All information will be, as always, available in the Excel sheet and report that is published in our website. But now to the presentation. I am joined here today by our CEO, Mr. Hector Grissi, and our CFO, Mr. José García Cantera. Following their presentations, we will be opening the floor for any and all questions you may have in the Q&A session. As a reminder, if you would like to ask a question, please press star 5 on your phone. And with this, I will hand over to Mr. Grissi. Hector, the floor is yours.

MR. Thank you, Begonia. Good morning to everyone, and thank you for joining us. First, let me share with you what we will focus on today. First, I will talk about our Q1 results on the context of our strategy. Jose will then review our financial performance in greater detail, and then I will conclude with some final messages. Let's start with Q1. Q1 was another very strong quarter for Santander. Positive contributions for all our businesses, demonstrating the strength of our strategy and our business model. We are presenting a profit of 2.9 billion. That's an 11% increase versus Q1-23, 9% in cost and euros, As Begoña said, excluding the impact of the temporary levy of revenue paid in Spain, recorded in full in Q1, if you include that, this was another record quarter. Our customer focus and scale are driving profitable growth. Over the last year, we welcomed 5 million new customers, and our revenue in Q1 increased close to double-digit year-on-year in constant euros, and that's supported by all global businesses and the regions. We are executing on a transformation plan, which is already supporting efficiency improvements leading to growth in profitability, and as a result, our efficiency ratio improved 1.4 percentage points year-on-year to 42.6%, and net operating income has grown double-digit year-on-year for the last eight quarters. Our return on tangible equity rose 55 basis points year-on-year to 14.9%. Even more, 16.2% if we analyze the impact of the temporary levy in Spain. Finally, our solid balance sheet. With some capital ratios and robust credit quality, it contributed to strong profitable growth. And more importantly, to shareholder value creation. TNAF plus dividend per share grew by 14% year-on-year from a combination of higher profit, increased shareholder remuneration, and fewer shares due to the buyback programs we have and we are still executing. In the last 12 months, we increased TNAF by more than $4.5 billion. If we take a quick look at our income statement, as we usually do, we present growth both in current euros and in constant euros, although there were no material differences between them this quarter. Part of the reason is that for the first time, the variations in constant euros applied to all countries except to Argentina, which is in current euros, to mitigate distortions from the hyperinflation. Our P&L was strong from top to bottom. Number one, strong top-line performance driven both by NII record fees supported, as I said, by all the global businesses and regions. Second, revenue grew while costs remained flattish in real terms in line with expectations and relatively stable over the last three quarters. Third, we demonstrated the sustainability of our results with 11% growth in net operating income. Fourth, and low-loss provisions continue to normalize as expected. Finally, as I mentioned earlier, during the first quarter we recorded a 335 million charge related to the temporary levy in Spain, which was 50% higher than in 2023. Excluding this impact, profit rose 14% year-on-year, implying a growth of 12% in constant euros. Jose will go into more detail into these points later on. As you can see, this is a great start of the year and we are well on track to achieve our 2024 targets. Targets that we comfortably rate the rate. Good business dynamics supported high single-digit revenue growth. Our efficiency ratio improved even as we're investing for the future through one transformation and it is already better than our target in 2024. Cost of risk remained fairly stable, in line with our target of keeping it around 1.2% at the end of the year. The fully loaded CET1 ratio remained at 12.3% in Q1, having profitably grown our business organically and accrued distributions in line with our 50% payout, and we have absorbed regulatory impacts. We are comfortably in line with our target of keeping it above 12%, even after Basel III implementation. And Narote grew year-on-year 16.2%, putting us on track to reach our target of 16% for 2024. As you can clearly see, we're achieving these results backed by the operational leverage provided by One Transformation, which is improving both revenue and cost. The efficiencies we have captured and the impact of our active spread management have already contributed 174 basis points of improvements since 2023. Our global businesses continue to contribute to the group's profitability and have delivered 88 basis points in efficiency gains. Our initiatives to better serve our multinational corporates and SMEs through our regional coverage model continue to grow well. with revenue increasing 5% year-on-year. Finally, our proprietary and unique global technology capabilities have already generated 63 basis points in efficiency savings so far. Our global approach to technology has allowed us to capture $50 million in additional savings in Q1, for a total of $237 million since 2022. This has been mainly driven by the deployment of Gravity, by new global agreements with vendors, and process optimization in operations and implementation of the new IT and Ops shared services. A business group overview shows that our common operating model supports value creation based on profitable growth. From the creation of a best-in-class customer experience and operational leverage from our global platforms and common tech, this is helping us to accelerate the achievement of our investor day targets. This operational leverage is already very evident in our retail and consumer businesses, where the efficiency ratios improved close to 400 basis points and 200 basis points year-on-year, respectively. In CIB, we are building a world-class business, leveraging our ISOs expertise to roll our U.S. franchise without changing the risk profile, proof of which is the revenue, which grew 5% and reached another quarterly record, supported by the good performance in the U.S. and strong client flows. Wealth continues to grow strongly, improving both efficiency and profitability. And finally, in payments, where we are managing more than 100 million cards group-wide, we are seeing good activity trends. In Q123, we had a one-time revenue from a commercial agreement with one of our partners in Brazil. Excluding this impact, revenue grew 7% and efficiency remained flat year-on-year, despite our investments in deploying our global platforms. Now, let's look at each business in greater detail. First, our goal in retail is to become the number one bank for our customers, which is key to our strategy. At the same time, our retail business is a great example that demonstrates the benefits we are generating from one transformation, as operational leverage has significantly improved the efficiency ratio. First, we continue to innovate to offer the best customer experience. For example, in Spain, our new digital onboarding is contributing to 630,000 increase in net new customer year on year, while Santander Key already enables more than 4 million customers to approve transactions securely with a single click using biometrics. Second, we continue to implement a common operating model across our banks. increasing automation to free up time for our people to focus on commercial activities. As a result, dedication of resources to non-commercial activities have dropped by 4% in the last nine months. Third, the deployment of our own global platform continued in Q1, and Gravity is already operational in Spain, the UK, Chile, and the U.S., From a financial perspective, this is also a great moment for retail. We are managing margins very carefully to make the most of the tailwinds from higher for longer interest rates in Europe and at the same time benefit from our negative sensitivity to interest rates in South America on top of the strong operational leverage that we are obtaining from One Transformation. As a result, our profit grew 22% year-on-year with the following three things to highlight. First, double-digit revenue increase driven by good performance both in NII and fees, with all the regions growing year on year, especially Europe and South America. Second, costs under control, flat in real terms, as the benefits from our transformation in some units are offsetting the impact of inflation on salaries and investments. And third... provisions dropping slightly, with cost of risk fairly stable at the comfortable levels across all the group. The execution of the strategy is driving profitability improvements, with ROTA increasing three points to 17.6%. In consumer, we are working to become the partner of choice for our customers. We offer best-in-class global solutions which are integrated to our partners' processes. Last year, we launched a new digital onboarding to peer direct auto players, which has been received well because it allows our customers to compete their vehicle acquisition and financing fully aligned. We're also progressing well on simplification and automation, supporting a 15 basis points decline on our cost to total volumes ratio. Deploying global platforms is key to scaling our business, reducing our cost to serve and improving profitability. We recently announced the launch of Open Bank in North America this year, which will result in having a national deposit gathering platform for the U.S. Consumer is also delivering operational leverage with not operating income growing by 7% year on year, driven by the following three elements. First, an increase in revenue due to positive commercial dynamics with volume growth, mainly in Europe and Brazil, good and agile performance, and 22% fee growth, mainly from insurance. Second, costs dropped 4% in real terms as a result of the execution of our strategy and efficiency plans we implemented last year in a more complex interest rate environment. Third, Provisions increased year on year mainly due to the expected cost of risk normalization in the business both in Europe and the U.S., though still below the historical averages, as well as some impact from volumes and regulation. Last year, we started to prioritize profitability over volumes, so we are originating at high ROAS. The increase of volumes and good profitability levels of the new business makes us confident that profit will be growing close to double-digit year-on-year by the end of 2024, even after the normalization we expect on provisions. As you can see, we are building a world-class CIB business to help our clients that leverages our strengths to grow profit. while maintaining at the same time the same risk profile and is well under control. We are deepening our client relationships and increasing our capabilities in the U.S., building on areas of expertise to accelerate growth across all regions. We had a good start of the year and we have a very strong pipeline, with markets also performing strongly across the asset classes. As a result, revenue CID in the U.S. grew 35% year-on-year. Also, we continued expanding and strengthening our centers of expertise, including key industry groups such as energy transition, healthcare, among others, and product teams such as M&A and ECM. At the same time, active capital management continued to support graded origination and high profitability levels. Our business through CIB is capitalized, very much linked to customers, and with fees growing at a good pace year on year. CIB had a good result in Q1, with revenue up 5% year on year, even after the record in Q1 in 23, making Q1 24 the best quarter ever for the business. Almost all of our growth came from customer flows and was mainly supported by strong performances in global markets and global banking, both in global debt finance and corporate finance. Additionally, we're investing to expand our business to drive additional efficiency gains and further improve our profitability. As for wealth management and insurance, We continue our journey to build the best private banking and insurance manager in both Europe and the Americas. First, in Q1, Euromoney once again named us the best private bank in LATAM and the best international private bank in eight countries. Second, a major driver for growth is wealth, is collaboration with other businesses, especially retail and CIV, by capturing network benefits. Third, we are developing global platforms across the three businesses while we digitalize our distribution and advisory capabilities to improve customer experience and promote growth. One example is the development of a global investment platform which we began in Q1 and will enable our clients to manage any kind of investment across all countries. In summary, Customer experience, efficiency, and time-to-market improvements are accelerating growth, helping us to maintain our high profitability levels. Attributable profit grew double-digit on the back of strong private banking activity in a favorable interest rate environment, with a total fee contribution from Santander Asset Management and Insurance growing at or close to double-digit, while cost remained fairly stable in real terms. As a result, efficiency improved 4 points year-on-year and Rotter rose 9 points to 80%. Finally, payments. We have a unique position as we are on both sides of the value chain. Issuing, where we manage more than 100 million cards group-wide, and merchant acquiring. We are gaining market share as we strengthen GetNet's value proposition for customers through continued product development and a greater offering of value-added services. Growth of active merchants has been particularly strong in countries where GetNet has been mostly rolled out, such as Chile, Spain, or Portugal. We continue to migrate significant volumes of payments to the Pagonex global platform to leverage on the group's scale. Around 1 billion annualized transactions are already running through the new global platform, and we expect to double this volume by the end of the year. Also, we have started to deploy PLART, our Global TARTS Platform. We have more than 45,000 debit cards managed already in PLART, and we're starting the migration of the debit portfolio with 1.5 million cards in dual-run in Brazil. And we have launched a friends and family pilot in Chile. From a financial performance perspective, payments delivered a strong quarter, with good underlying revenue trends in both businesses, which combined with a positive performance of provisioning cards, dropped 22% year-on-year profit growth. Finally, Pagonex's EBITDA margin reached 17%, showing good progress towards reaching our 30% target by 2025, which we set our last investor day. Cost efficiency and CapEx optimization will continue to drive profitability in the coming quarters. As I mentioned in my opening remarks, the result of our strategy and our strong first quarter is aligned with our new phase of our shareholder value creation. Q1 has led to outstanding profitability growth and double-digit shareholder value creation for the fourth consecutive quarter. As I mentioned earlier, Rote was 16.2% if we analyze the Spanish bank levy, up 93 basis points year-on-year, reflecting the high levels of new business profitability. Earnings per share rose to 17 cents, up 14% year-on-year, supported by a strong profit generation and a lower number of shares following the buyback programs we have and are still executing. Finally, In the quarter, we delivered 14% growth in shareholder value creation, reflecting our disciplined capital allocation and the impact of the share buybacks. Buybacks continue to be one of the most effective ways to generate value for our shareholders. If we include in full the share buyback that is currently underway, we will have bought back around 11% of our outstanding shares in the last three years. providing a return of investment of approximately 19% to our shareholders. I'll leave you now with Jose, our CFO, to go into more detail on our quarterly financial performance. This is Jose.

Thank you, Hector, and good morning, everyone. I'll go into more detail on the group's P&L and capital performance. Let me first remember that we are presenting growth rates both in current and constant euros. and also that the full impact of the Argentine peso devaluation last December for the whole year was accounted for in the fourth quarter, which introduces some distortions quarter on quarter. Let me also, as Sector has mentioned, highlight that we are presenting constant – what we present here as constant is constant – That means local currency for all countries but Argentina. Argentina is in current. By doing that, we try to avoid the impact of hyperinflation. But also by doing this, we are lowering the growth rates that show as constant. For instance, net profit, instead of growing 9%, with Argentina in constant, is growing 13%. NII is growing 20% instead of 16%. Fees would be up 8% instead of 5%. Or total revenue would be increasing 12% instead of 9%. So, you know, we are trying to be transparent and trying to show the underlying performance of our business without taking into account the impacts of hyperinflation in Argentina. But let me go to the main components of the P&L. As Hector said, we are reporting exceptional results for the first quarter. We are starting to see the benefits of our transformation programs in terms of operating leverage in retail and consumer, and obviously the very positive momentum we are experiencing in both Europe and Latin America at the same time. Revenue grew 10%. Actually, 12% if we only look at customer revenue. supported by a strong NII, highest quarterly fee income in our history, while costs were fairly stable for the third quarter in a row. Net operating income grew 11% year-on-year. Cost of risk remained fairly stable, supported by strong labor markets and risk management. Provisions increased slightly due to the expected normalization in some countries, but we see no as a quality pressures anywhere. Additionally, we had a higher impact from taxes year-on-year, driven mainly by stronger performance in Brazil, where we have a higher effective tax rate than the group average, and also the fact that the temporary levy in Spain is not tax deductible from the corporate tax level. The full impact of this tax levy in Spain is accounted for in the first quarter and is 50% higher than last year. As you can see on the right-hand side, excluding this impact, profit would have increased 14% year-on-year or 9% quarter-on-quarter, and Q1 would have been another record high. Let me break down the P&L. Starting with revenue, there was a strong growth driven by customer revenue again this quarter, which made up more than 95% of our total revenue and explained almost all of the growth in the quarter. Year-on-year, revenue increased 9%, with all businesses and regions contributing. This growth was primarily supported by our retail business, which is growing at double-digit rates, with good performance in net interest income and fees across regions, and consumer, driven by our good profitability levels in new businesses and a strong volume growth in Europe and Latin America. CIB also had a great performance, as revenue reached an all-time high in the quarter, backed by outstanding performance in the U.S., We also delivered double-digit revenue growth in wealth driven by solid commercial activity in private banking and in asset management. Payments is also showing very good underlying trends year-on-year as both pago next and cards are growing if we exclude the one-time positive impact recorded in Brazil in the first quarter of last year as Hector has explained. Finally, the corporate center, high liquidity buffer remuneration, was compensated by the negative impact of FX hedging. Most of our revenue growth came from NII, which continued growing in the quarter, particularly in retail and consumer, representing 82% of Group's NII. It went up 16% year-on-year on the back of active price management in retail in Europe, especially deposits, and also in Mexico, and the benefits from the negative sensitivity to rates in South America, both in retail and consumer, and the fact that now forward rate curves in Europe are a bit higher. In terms of profitability, we have improved net interest margin year on year, even if we exclude Argentina. This was mainly explained by higher yields on assets, as we actively manage credit spreads to... take the most out of the interest rate environment. These gains from credit yields more than outweighed higher funding costs, which we were able to contain thanks to our disciplined deposit remuneration in Europe and deposit repricing downwards in Brazil, leading to a notable margin expansion. The only country where we saw slight increase in betas in the quarter was the U.K. Going forward, we expect the positive momentum in Europe to continue. We expect to benefit from the interest rate cuts in South America, and we expect an improvement in our consumer business throughout the year, boosted by high profitability levels of the new origination. As a result, very good NII outlook for the year. In the context of low-fee income growth in general, because of subdued loan demand and weaker consumer activity, we generated record net fee income of $3.2 billion in the quarter, even if we exclude Argentina, growing strongly quarter-on-quarter despite strong seasonality in payments in the fourth quarter. We also delivered solid growth year-on-year, supported by most of our businesses, with retail growing 9%, driven mostly by higher activity in Brazil, outstanding performance in consumer, fueled by insurance, CIB also growing from very high levels in the first quarter of last year, especially in the US, on the back of our strong dynamics in DCM and customer-related markets activity. Wealth also had a great performance, particularly in private banking, higher volumes in asset management and protection business performance in insurance. Payments was impacted by the usual seasonality from Christmas and Black Friday in the fourth quarter, and the aforementioned one-time positive fee recorded in the first quarter of 23 in Brazil. In terms of efficiency, significant improvement in our ratio to 42.6%, which remains amongst the best in the sector. As we have already mentioned, structural savings from our transformation are already becoming evident in terms of operational leverage, especially in retail and consumer. as costs remained stable at around $6.5 billion for the last three, four quarters. Average inflation continued its gradual decline across our footprint, dropping from 12% a year ago to 4% in the fourth quarter, and we were able to maintain costs fairly flat in the year in terms of real terms. despite the lacked effects of higher inflation on salaries and other costs and our investments in transformation. By business, costs remain well under control in retail, consumer and wealth, which represents 75% of our total cost base. However, total cost rose 5%, reflecting our strategy to reinforce our CIB franchise and develop global payments platforms. We expect a structural operational leverage from our new operating model to become even more evident in the coming quarters and years. Credit quality, as I have mentioned, no signs of any pressure in terms of credit quality, which remains robust. with cost of risk fairly flat in the quarter across our footprint in line with our expectations. By global business, credit quality remained stable at low levels in the quarter in retail, which represents 50% of the group's long-lost provisions, with some underlying trends across the different countries. Cost of risk improved in Spain, remained at very low levels in the UK, while Mexico continued to normalize in line with expectations. In consumer, which represents around 36% of groups' loan loss provisions, cost of risk normalized to 2.12%, also in line with our expectations, but still below the historical average, both in DCB Europe and in the U.S., which is still five percentage points below 2016 levels. Going forward, we are confident that our cost of risk will remain around 1.2% in 2024, as trends in consumer and Mexico towards more normalized levels are expected to be offset by better performance in retail, especially in Brazil, improving mostly in the second half of the year, Spain that will be stable, and in the UK that will also remain at very low levels. Closing with capital, our fully loaded capital ratio remained at a very comfortable level of 12.3%. backed by a strong capital generation and significant risk-weighted asset mobilization. This quarter, we generated 32 basis points organically after having absorbed five basis points due to the temporary leave in Spain and an increase in risk-weighted asset density related to a changing mix. We recorded 22 basis points charged for shareholders' remuneration in line with our 50% payout. There are also 24 basis points from regulatory charges related to the maturity measure of CIB models, which is expected to be temporary and revert next year with the implementation of Passive 3. Finally, there was a 14 basis point positive impact, mainly related to intangibles and evaluation of available for sale portfolios. We continue to deploy capital to the most profitable growth opportunities and expand our asset mobilization capabilities to maximize capital productivity. Our disciplined capital allocation is resulting in a new book, Return on Risk-Weighted Assets, of 2.8% in the quarter, well above that of our back book and higher than last year's. We created a centralized asset management desk with the aim of optimizing capital deployment. Last year, we disposed of an amount of capital risk equivalent to $30 billion in risk-weighted assets at a cost of capital of around half of that of the new origination. Our target this year is to do even more. That's all from my side, Hector. Over to you.