Banco Do Brasil Sa S/Adr

Good morning and welcome to Sabadell's results presentation for the third quarter and first nine months of 2025. Today, we are joined by our CEO, César González Bueno, and our CFO, Sergio Palavecino. The presentation will follow a similar structure to previous quarters. Our CEO will start by sharing strategic priorities and then discuss the key developments of the quarter. Next, our CFO will provide a detailed review of financial performance and the balance sheet, before our CEO concludes with closing remarks. Finally, we will open the floor for a live Q&A session to address your questions. So, Cesar, over to you.

Thank you, Juk. Good morning, everyone. Before sharing the results of the third quarter, I will start my presentation today with a reflection on Sabadell's evolution since 21, as well as the prospects for the upcoming years. In slide four... In early 2021, we launched a strategic plan focused on transforming each one of our businesses through specific levers for each one. This transformation would support the financial turnaround of the group. Since then, we have executed the strategy in a decisive and accelerated manner. We have talked about this many times. I won't elaborate into the details now. As a result of our transformation, a solid financial turnaround has been delivered. Return on tangible equity has jumped from 0% in 2020 to the current double-digit figures, which are above our cost of capital. By the way, our transformation process and financial turnaround has not been affected by the hostile takeover bid, which we have been dealing with over the last year and a half. In July 25, we presented our new strategic plan. An important milestone is the sale of TSB at very attractive multiples, which crystallizes the value created since we acquired TSB in 2015. The sale was signed with Santander and approved by our shareholders last August, and we expect the closing early next year. The new strategic plan is focused on growth and shareholder remuneration, as Sabadell has not reached its potential. In terms of profitability, we expect return on tangible equity to keep growing and reach 16% by 2027. We reaffirm all the objectives of the strategic plans in terms of return on tangible equity, growth and shareholder remuneration. On slide 5, we have a quick reminder of the key elements that underpin our equity story. First, Spain. Following the sale of TSB, the vast majority of our businesses is now in Spain, one of the fastest growing economies in Europe. Second, growth. Our approach is clear. Prudent market share gains while preserving asset quality and pricing. Third, execution. We have a solid track record of delivering results since 2021. We are confident we will deliver on our current targets. And fourth, shareholder remuneration. We have a proved and strong ability to generate capital while growing our lending book. We will leverage on this to offer an attractive shareholder remuneration in the upcoming years. In slide 6, we are reminding the financial guidance for 2027, which we announced in July and we confirmed today. To summarize, our return on tangible equity for 2027 is 16%. We also announced cumulative shareholder remuneration between 2025 and 2027, and we expect it to amount to 6.3 billion euros. And in September, we actually improved our expectations on shareholder remuneration from this 6.3 to 6.45 billion euros. In slide 7, we provide more color on shareholder remuneration. The expected 6.45 billion euros include recurrent distribution based on a 60% payout ratio. This is executed through two interim cash dividends per year plus one final cash dividend. On top of the 60% payout, we are planning to distribute excess capital above the 13% Q1 threshold. Finally, we will distribute the extraordinary dividend from the sale of TSB once the deal is closed. As you can read in the bottom right-hand of the slide, we reaffirmed that yearly cash dividends per share in 25, 26 and 27 will be higher than cash dividends per share paid in 2024, which was 20.44 cents. And now let's move to the third quarter results highlights. In slide 9, the key messages of the quarter. Third quarter results are on track to meet 2025 guidance. A recurrent return on tangible equity, that is, excluding one-offs and extraordinary items, stood at 14.1%. Quarter 1 reached 13.7%. We kept generating capital in the quarter and in line with our strategy. I will later elaborate on this. Commercial activity continued to accelerate. Both performing loans and customer funds grew by around 8%, excluding TSB. Core revenues remained in line with expectations. NII is on track to meet the 3.6 billion euros target for 2025. Fees grew by 3.7% year-on-year. Asset quality continues to improve. Total cost of risk stands at 37 basis points, decreasing by 18 basis points year-on-year. Finally, we are pleased to confirm a second interim cash dividend of 7 euro cents per share, Payable on December 29. Let me remind you that 2025 shareholder distribution amounts to a total of 1.45 billion euros. On slide 10 we turn to volumes. One more quarter we delivered strong growth both in loans and customer funds. Performing loans XTSB grew by 1.2% in quarter-on-quarter, even with expected third-quarter seasonality. On a year-on-year basis, loans XTSB grew by above 8%. On the right-hand side of the slide, total customer funds XTSB grew by 1.5% in the quarter and by 7.8% year-on-year. This is mainly driven by off-balance sheet funds, which grew by more than 15% year-on-year. Regarding TSB, volumes in euros were impacted by sterling depreciation, but remained fairly stable at constant FX both quarter-on-quarter and year-on-year. All in all, at constant FX, group performing loans grew by 5.9% and customer funds increased by 6.4%. If we move to slight origination, and we talk now about loan origination in Spain, let me start with new mortgages. Origination in the first nine months of the year increased by 26% compared to 24%. Mortgage origination in Q3 decreased by 12% quarter-on-quarter driven by seasonality. Our volumes of new mortgage origination remain reasonable. Our new lending market share is in line with our stock market share. Furthermore, we keep managing risk-adjusted return on capital rigorously for new mortgages to make sure growth is delivered in a profitable manner. Moving to new consumer loans, we continue to perform well, growing origination by 19% in the first nine months of the year versus previous year. In new loans and credit facilities to SMEs and corporates, there was the expected quarterly seasonality. Year on year, evolution has been broadly stable. Finally, third quarter origination of working capital finance declined slightly compared to Q2. However, it increased 3% year on year. Yearly cumulative origination in SMEs and corporates remains broadly stable compared to 24. All in all, current levels of new lending in all products allow for growth of the loan book. On slide 12, performance of payment systems remains strong. On the first nine months, cards turnover increased by 6% and point-of-sale turnover rose by 2%. We can see a slower growth in point-of-sale turnover. Taking into account our already strong market share in this business, we are now focused on pricing and profitability. This approach has resulted in a reduction of certain exposures with very low margins, but we have increased total fees coming from this business. In the bottom half of the slide, you can see the evolution of savings and investment products. They grew by 4.8 billion euros in the year, driven by an increase of 6.8 billion euros in off-balance sheet products. On slide 13, we show the breakdown of performing loan book XTSB across segments and geographies. In Spain, our performing loans were up by 0.9%, quarter on quarter and by 7.6% year on year. All segments and products keep growing. The stock of mortgages grew by 5.6% year on year, consumer loans by 19% and SMEs and corporates grew by 6.2%. International operations were equally strong, with performing loans up by 11% year-on-year. In sum, performing loans XTSB grew by 8.1%. In slide 14, I will elaborate on our strategy to enhance capital generation while growing loan books. I think this is a crucial element of our strategy, which we have shared before. We keep growing our books significantly, yes, but on the left-hand side of the slide, you can see that the probabilities of default of new lending originated in 25 are much lower than those of new lending originated in previous years. This is the result of our approach to create growth, as we explained in the presentation of our strategic plan in July. In the last few years we have been working very significantly on improving our risk models and processes. We have done this on a portfolio by portfolio basis. Once the risk origination capabilities of a given portfolio were improved, we fostered lending growth in that particular portfolio. Furthermore, the quality of the risk we are granting after improving our models and processes is much better as we are able to skew new lending towards low-risk segments in each portfolio. On the right-hand side of the slide, you can see a simplification of the implications of our strategy. In each portfolio, we might be obtaining... lower loan yields, but at a lower cost of risk, as the resilience of our franchise improves and we generate more capital. As a matter of fact, we have already generated a very handsome figure of 176 basis points of capital year to date. This is fully in line with guidance that we shared in our capital markets day of 175 basis points per year. And this is for the first nine months of the year, the 176 basis points. Let's turn now on slide 15 to the UK business. As expected, volumes remained broadly stable in the quarter. Net profit of TSB reached 59 million pounds in the quarter, which translates into almost 200 million pounds in the year. That brings its contribution to Sabadell to 242 million euros year-to-date, up by 44% year-on-year. Standalone return on tangible equity was 13.8%, despite having a high solvency that remained strong with a quarter one of 16.3%. Finally, the TNAV increased by 104 million pounds between April and September. This will be included in the final proceeds coming from the sale of TSB to Santander, ensuring TSB continues to contribute to Sabadell until the transaction closes. On slide 16 we can see a summary of our Q3 results. Net profit ex-TSB amounted to more than 1.1 billion euros, in the first nine months of the year. Net profit of the group reached almost 1.4 billion. This implies a recurrent return on tangible equity of 14.1. This level of profitability allows us to grow our loan book while accruing a 60% dividend payout and still generate capital. We have already, as I said before, generated 176 basis points of capital year-to-date and And indeed, this is a high capacity to generate capital, and it is a key factor supporting our high shareholder remuneration. And with this, I will now pass the floor to Sergio, who will provide a more detailed overview of the bank's financial performance.

Thank you, Cesar, and good morning, everyone. Let me start by showing the detailed P&L for the quarter and for the first nine months of the year. As always, we have prepared the full group P&L as well as the P&L XTSB, which will be the relevant perimeter going forward once we close the TSB sale. The performance of the different lines of the P&L is aligned with our year-end guidance, and we will review them in a minute. Whilst we are on this slide, and before going into the detail of each of the lines, I'd like to point out that on the trading income line, this quarter, we recorded an extraordinary gross expense of 23 million euros. This reflects mainly two items, minus 8 million one-off related to liability management and minus 15 million related to FX hedging on the entire proceeds from the sale of TSB, which will be quarterly incurred until the transaction is closed. We will now go through the different P&L items in more detail, focusing on Sabadell's performance excluding TSB. Starting with NII on slide 19, I'd like to highlight that the net interest income is broadly stable this quarter and future growth will be primarily driven by volumes. Excluding TSV, NII closed at 899 million euros in Q3, reflecting a marginal quarter-on-quarter decline of 0.8%. Now let's look at the top right-hand side of the slide to understand the drivers behind this quarterly evolution. Moving from left to right... Customer NII had a negative impact of minus 5 million euros. Within this, the customer margin decreased by 24 million, mainly due to lower loan yield. However, quarterly average volumes of both loans and deposit had a very positive impact in the quarter, contributing... 8 million and 12 million euros positively, respectively. The FX effect was marginally negative, subtracting 1 million euros due to the depreciation of the US dollar. The excess liquidity and other items had a combined impact of 19 million euros adverse. This reflects the combination of reduced excess liquidity used to finance volume growth invested at a lower ECB deposit facility rate. Wholesale funding costs contributed positively with 14 million euros, supported by lower funding needs, the maturity of early amortization of expensive instruments and the benefits of the floating rate hedges. And finally, one additional business day in the quarter had a marginally positive impact of 3 million euros. Overall, we can see that the positive contributions from larger volumes and lower wholesale funding costs helped offset the drag from lower customer margins and reduced liquidity contribution. TSB added €303 million, in line with Q2, as the higher contribution from the structural hedge was fully offset by the depreciation of the sterling. All in all, we are on track to meet our 2025 NII XTSB guidance of 3.6 billion. Let's now move on to the fees on the next slide. For Sabadell, excluding TSB, the quarter saw a decrease of 4%. This was mainly due to the usual seasonality in the quarter, particularly in credit risk, as well as service banking fees, which were lower during the summer season. However, year-on-year performance remains positive, with fees growing by 3.7%. This growth reflects strong contributions from asset management and insurance products, which continue to support fee income. Based on this going forward, we confirm that we remain on track to meet our guidance of mid-single-digit fee growth in 2025, excluding TSB. Now moving on to costs on slide 21. Total group costs remained contained, reflecting disciplined cost control and supported by depreciation of the British pound. On a year-on-year basis, costs remain broadly stable, increasing by just 0.5% year-on-year. In this context, we confirm again our guidance of low single-digit growth in cost, excluding TSB. On the next slide, we cover cost of risk and provisions. The cost of risk continues to evolve in line with our year-end targets, or even better, reflecting prudent credit risk management. Looking at the bridge on the top right-hand side of the slide, from left to right, we booked €88 million of long-loss provisions excluding TSB during the quarter, which leads to a credit cost of risk of 21 basis points in the year. Next, a positive of 5 million euros in provisions driven by foreclosed asset provision releases along with capital gains on real estate assets. MPA management costs and other provisions mainly related to litigation and other asset impairments in line with the usual run rate. Finally, TSB provisions contributed $16 million this quarter. All in all, total provisions equate to a cost of risk of 37 basis points when excluding TSB. And looking ahead, we expect the total cost of risk, again excluding TSB, to remain in line with our full year guidance, or a touch better. Slide 24 provides a closer look at non-performing loans, which continued to improve both quarter-on-quarter and year-on-year. The NPL ratio for the XDSB perimeter declined further to 2.75%, representing a quarter-on-quarter reduction of 6 basis points and a year-on-year reduction of 96 basis points. Meanwhile, the coverage ratio remained broadly stable during the quarter and increased by 5% points over the year, reaching almost 70%. This once again confirms that our cost of risk is improving, but not at the expense of our coverage ratio. Looking at the exposures and coverage level by stage on the right-hand side, we can see that stage 2 and stage 3 exposures at XDSB level decreased by circa 1.8 billion and 1 billion euros respectively over the last 12 months, which I believe are remarkable figures. Moving on to the next slide, we can see that the stock of foreclosed assets continue to decline quarter after quarter. This is virtually a runoff portfolio with very limited entries and sales over the last 12 months of 20% of the stock at an average premium of 11%. Total MPAs, which include both MPLs and foreclosed assets, decreased by 19% year-on-year. To sum up, over the past 12 months, we have seen a strong improvement across all the three pillars of asset quality. Firstly, MPAs are down by around 20%. Secondly, the coverage ratio has improved by 4 percentage points. And all this has been done provisioning less. Turning now to liquidity and credit ratings, all indicators show that we ended the quarter with a very solid liquidity position, as you can see from the slide. With the loan-to-deposit ratio XTSB showing a slight increase to 94%. Moving on to the credit ratings, Moody's upgraded Banco Sabadell's long-term rating to BAA1. This upgrade reflects the bank's improved solvency, supported by the continued enhancement of both asset quality and profitability compared to past performance. Also, Fitch affirmed our long-term rating at BBB+, giving it a stable outlook once the hostile takeover bid is over. On the next slide, we present our current embryo position. We are comfortably meeting our embryo requirements in terms of both risk-weighted assets and leverage ratio exposure. In addition, we have built a solid management buffer across all requirements, which eases our funding plan needs and will help to reduce wholesale funding costs in the coming quarters. In the last quarter, we issued one senior non-preferred and one SRT transaction. And for this fourth quarter, the last one of the year, we expect one more SRT transaction to take place. Turning now to capital. At the end of September, our CT1 ratio reached 13.74%, reflecting an increase of 18 basis points during this quarter. Looking more closely at the quarterly evolution, we recorded 49 basis points of capital generation per dividend accrual. This includes 60 basis points from organic CT1 generation after deducting 81 Q points. Zero impact from fair value reserve adjustments. Minus 11 basis points from risk-weighted assets growth. Then the accrual of a 60% dividend payout represents an impact of minus 31 basis points. Now, looking at the right-hand side of the slide, in terms of available capital to meet the announced shareholder remuneration, we already have 3.7 billions of accrued and non-paid dividends plus excess capital above the 13% CT1 ratio on a performer basis. This means after the sale of TSB. This capital has already been generated. Now, let's talk about the expected distributions on the next slide. we expect to distribute 3.6 billion euros in the next six months, which is equivalent to more than 20% of our current market cap. This amount is the result of a second interim dividend of 350 million euros already agreed by the board, and that is 7 euro cents per share in cash, which will be paid on December 29th. This will be followed by the final dividend plus the excess capital over 13% CT1 to be paid after the annual general meeting. The estimated amount is around 750 million and its composition, which may combine a cash dividend and a share-by-back, still needs to be defined by the Board of Directors. Finally, the extraordinary cash dividend of 2.5 billion that will be paid on the last day of the month following the closing of the TSV sale. As we have seen in the previous slide, the capital required for this remuneration has already been generated. I will now conclude my part of the presentation by highlighting our shareholder value creation and the impact of TSB sale on Sabadell's current valuation multiples. Sabadell continues to deliver strong value creation for its shareholders. This is reflected in a 17% year-on-year growth in tangible book value per share, plus the dividends distributed over the last 12 months. And finally, given the importance of the extraordinary dividend related to the sale of TSB, let me share one aspect about the valuation. When we look at the 2027 consensus estimates, the Sabadell perimeter obviously already excludes TSB. Therefore, in order to accurately compare that figure with the current market cap, this extraordinary dividend for the sale of TSB must be adjusted for. So when adjusting for the 2.5 billion extraordinary dividend, the market cap is 14.5 billion euros. This adjustment obviously does affect the valuation metrics, particularly price-to-earnings ratio. When using the adjusted market cap, as of November 11th, Sabadell's PE is below 9 times and compares to an average of more than 10 times for Spanish peers. And with this, I'll hand over to Cesar, who will conclude today's presentation.