Banco De Sabadell Sa Ord

The presentation will be given by our CEO, Cesar Gonzalez-Bueno, and our CFO, Leopoldo Alvear. They will cover the main highlights and details of the commercial and financial performance in the second quarter of the year. The presentation will be followed up by a Q&A session. We have a schedule around an hour and 15 minutes for the whole session. Let me now hand it over to our CEO, Cesar Gonzalez-Bueno.

Thank you Gerardo. Good morning everyone and welcome to Sabadell's second quarter 24 results presentation. I would like to start by sharing our view on Banco Sabadell's profile, its performance and its prospects. Sabadell is a simple, low-risk and increasingly profitable bank with further value to be unlocked. Why do we say that? First, profitability keeps improving and has not peaked yet. Even though our return on tangible equity has increased significantly over the last three years, it hasn't reached its peak. As a matter of fact, we have improved again our ROTE, Return on Tangible Equity, guidance for 2024 and 2025. Second, our improved profitability is sustainable over time, and we have high visibility on future earnings. On the one hand, 97% of our profit comes from Spain and the UK, so we have negligible exposure to volatility emerging markets. On the other hand, we have clear levers which support our profitability looking forward. Third, our commitment to shareholders' remuneration is strong. As a proof of that, an interim cash dividend will be paid in October 24. Moreover, we have improved the prospectus for capital distribution over 24 and 25 results. Fourth, the transformation deployed over the last three years will keep delivering results in the upcoming future, and we are already boosting growth. We are very proud of our top-performing SMEs franchise, recognized by the market and by our customers as a leading franchise. Transformation has significantly improved our capabilities and value proposition in all business units, as we have repeatedly shared with you over the last three years. As a result, commercial momentum is strong and volumes are growing steadily with good margins and improving asset quality. All in all, very positive momentum and great prospects for Banco Sabadell. Moving to the second quarter results in slide 5. Let me share some key messages of the quarter. First of all, commercial activity is performing well. As an example, performing loans grew by 3% quarter on quarter. Secondly, net interest income increased by 2.5% quarter on quarter. Customer margin currently stands at 3.18%, an increase of nine basis points in the quarter. Thirdly, asset quality remains strong, with a remarkable 5% increase of NPAs while increasing coverage by one percentage point in the quarter. This asset quality improvement is impacting positively on the total cost of risk currently standing at 46 basis points. Fourthly, group net profit reached €791 million in the first half of 2024. DSB contributed with 95 million euros. On the back of this solid progression, our return on tangible equity stood at 13.1%, and our common equity tier one fully loaded ratio reached 13.48%, increasing by 18 basis points in the quarter. Finally, as I will explain with greater detail, Later, the Board of Directors has decided to increase our payout ratio to 60% and has also approved the distribution of an interim dividend of 8 cents of euro per share. On slide six, evolution of performing loans. Loans increased by 2.9 quarter on quarter, 2.7 at constant effects. We observed this increase across all geographies, segments, and products. Moreover, the good performance in the quarter supports a turning point in the annual trend. In this regard, lending volumes increased by 0.9% year-on-year or 0.5% at constant effects. On balance sheet funds, at the right-hand side of the slide, increased by 1.1% in the quarter. Of balance sheet funds, increased by 3.4% in the quarter, driven by positive net inflows and market performance. All in all, total customer funds increased by 1.6% in the quarter and by 2.1% in the year. Slide 7. Lending origination to individuals in Spain. New mortgages in Q2 increased by 65% quarter-on-quarter and 37% year-on-year. In the first six months of 2024, new mortgages increased by 14% compared to 2023. Let me remind that early-stage applications in Q1 already anticipated this significant increase of mortgage origination in Q2. As you can see, applications keep growing in Q2, so we expect our positive momentum in new mortgages to continue. I would like to emphasize that we are growing in a healthy way, as key indicators show. The risk-adjusted return on capital, RAIROC, of new mortgages remains stable in the quarter. New mortgages at fixed rate increase, and both loan-to-value and affordability remain at low levels. Regarding new consumer loans, we continue to perform remarkably well. In the first half of 2024, new lending increased by 17% year-on-year. Front book yields in Q2 are at the same level than in Q1, and 86% of the origination comes from pre-approved loans to targeted customers. To sum up, strong and healthy growth in both mortgages and consumer loan origination. Now let's go to slide 8, lending origination in business banking. New loans and credit facilities in Q2 increased by 23% quarter on quarter and by 26% year on year. In the first half of 2024, they increased by 35% compared with 2023. Working capital financing at the lower left-hand side of the slide increased by 8% quarter-on-quarter, while it's a little bit below 2023. As we explained in the previous quarter, we are observing stabilization here after posting relevant increases during 2022 and the first half of 2023. As I just explained, for mortgages and consumer lending, there is a strong and healthy growth in business banking new lending. The railrock of our portfolio remains stable, and the percentage of new lending granted to target customers keeps increasing. Looking forward, demand for mid- and long-term borrowing may be structurally higher. First of all, we observe a healthy starting point for the Spanish business sector as corporates and SMEs have undergone a huge deleveraging process over the past decade. Furthermore, the Bank of Spain is predicting that gross capital formation, a proxy of capex of private investment, will grow at positive rates above 2% in 2024 and at the following years. In brief, we are currently more optimistic on business lending volumes than we were at the beginning of the year. Moving to slide 9, in the first half of 2024, cart turnover increased by 7%, while point-of-sale turnover increased by 10%, compared to the previous year in both cases. Payment-related services continue to perform remarkably well. In the bottom of the slide, we can see the evolution of customer funds in savings and investment products in Spain, which reached a total of 60.6 billion euros in June 24. This represents an increase of 1.9 billion euros in the quarter, mainly driven by 1.4 billion increase in off-balance sheet products. Having reviewed the performance of payment service in slide 10, I would like to update you on the status of our agreement with Nexi. All regulatory approvals have already been obtained and the deal will be closed after the hostile tent offer ends. Thus, we expect the closing and the capital gain to take place in 2025. Let me highlight that postponing the closing of the deal will have no negative impact in the 24 P&L beyond the aforementioned delay in the accounting of the capital gain. In that sense, I would like to remind you that we never took this capital gain into consideration in any of the guidance we have been sharing with you, nor it is now included in our 2025 plan. Our guidance is always provided on the back of recurrent profits. In slide 11, we see the performing loan book XDSB. Performing loans in Spain grew by 3% quarter on quarter, with all products and segments growing in the quarter. Mortgage lending has now grown, supported by the strong levels of new lending we reviewed just a minute ago. Year on year, the mortgage book will still deleverage, but at a slower pace than we have been seeing in recent quarters. The stock of consumer loans maintains the positive momentum observed in previous quarters. The SME and corporate loan book also increased in the quarter due to the high dynamism we have just discussed. As a result, year-on-year variation is already flat. Finally, other lending is positively impacted by the seasonal effect of the Social Security payroll, which will revert next quarter. In the right-hand side of the slide, our international business loan book grew significantly with quarterly and yearly growth in our three international businesses ex-TSB. Moving on to the UK, in slide 12. Strong new mortgage lending keeps driving growth of the lending stock, which grew by 0.3% in the quarter. On the liability side, the gradual trend of customer funds switching from current accounts to savings accounts largely explains the increase in the cost of deposits. Cost of deposits at TSB closed the quarter at 152%, five basis points above last quarter's cost. However, this increase is much, much lower than in previous quarters, especially the ones of 23. In slide 13, we review TSB's financial performance. TSB contributed €49 million to Group's net profit this quarter. Accumulated contribution of the year stands at €95 million, equivalent to half of its contribution in 2023. NII grew by 1.3% on the quarter. Positive dynamics are gradually kicking in, mainly due to the larger volume in mortgages and to the structural hedge, which is just starting to increase its contributions. On a first half of the year comparison, NII decreased year-on-year as it bottomed in Q4-23, but it has already started to pick up. Fees are down year-on-year in the first six months, affected by a one-off this quarter related to cards. Total recurrent cost decreased by 2.7% year-on-year, in line with our guidance of 3% reduction for the whole of 2024. Provisions in the first six months add up to £24 million, with a total cost of risk of 13 basis points. In terms of solvency, TSB has achieved a 16.3 quartier one fully loaded. Return on tangible equity for TSB stands at 7.5%. Adjusted to the benchmark capital ratio of our UK peers, that would be equivalent to 8.9%. As we have said earlier, this year, 2024, is a transition year for TSB, so TSB is performing as expected. However, the prospects are very positive, as we are explaining in the next slide. If we go to slide 14, we present the main levers for TSB to improve its profitability in 2025. We see TSB's return on tangible equity back to double digit in 2025 and from then onwards. Regarding NII, the structural hedge shall contribute with a delta above £100 million in 2025 and even higher in 2026. This significant tailwind, along with increased volumes, should lead NII to grow at a high single digit in 2025 and 2026. On the cost front, TSB will benefit from £53 million in savings, 77% of which are due to materialise in 2024, with the rest coming through from 2025. This leap forward in cost contention, together with the evolution of NII, shall bring TSB's cost-to-income ratio closer to its peers. In terms of provisions and impairments, we see no pressure on cost of risk. It shall remain at 20 basis points, a stable level. We can consider 2023 provisions as the run rate going forward. In slide 15, we present a summary of our financials on a group basis. We recorded net profit of 483 million euros in the quarter, which drove our half-year net profit to 791 million euros, 40% more than last year. These results entailed a return on tangible equity of 13.1%. Our core results, which include NII plus fees minus total recurrent costs, grew by 11% year-on-year. In this regard, NII performance was very positive. It grew by 2.5% in the quarter and by 9.8% in the first six months of 2024 compared to 2023. Provisions decreased by 16.9% in the year, underpinning by improved asset quality and benign macroeconomic environment. In terms of solvency, our capital ratio stands at 1348%, which implies a solid increase of 61 basis points in the last 12 months. And finally, I would like to emphasize that today we are announcing an increase of our payout ratio to 60% and the distribution of an interim cash dividend of 8 cents to be paid on October 1st. With this, let me hand over to Leo, which will cover the financials of the bank in more detail.

Thank you, Cesar, and good morning, everyone. Now, moving on to the financial results and starting with slide 17, we show the quarterly and half-year results evolution. Net profit in Q2 reached 483 million euros, having increased by more than 55% Q on Q. When added to the first quarter results, half-year profits stand at 791 million euros, more than 40% higher than last year's first half figure. The aforementioned net profit represents 12-month rolling return on tangible equity of 13%, 13.1%. In terms of P&L, we will take a closer look at the figures in a minute. But before we do, I would like to say that overall, the quarterly evolution evidences the good momentum of the business. As we see, NAI grew 2.5% in the quarter, with a year-on-year growth close to double the rates at 9.8%. This evolution was primarily driven by higher customer margin in all geographies, as well as increased average volumes at group level. Despite the expected pressure on fees, core banking revenues grew at 1.6% in the quarter and 6.8% on a year-on-year basis. Total costs increased by 1.7% Q&Q, while the year-on-year 2.5% increase remains within our guidance for the year. Taking a look at our core results, this is the addition of NII plus fees minus costs. They grew 1.6% Q&Q and 11% in the year. These core results, combined with a continued downward trend in provisions consistent with enhanced risk management actions and benign context for asset quality, as we anticipated, drove the aforementioned increase in net profits. We will now go through different P&L items in more detail. Starting with NII in slide 18, group NII increased by 2.5% on a Q&Q basis and shows a sound year-on-year growth of 9.8%. On the top right-hand side, you can see the drivers that explain the quarterly evolution. Moving from left to right, customer NII was by far the main driver, contributing €48 million. Within it, customer margin added €34 million, explained by the repricing of the loan book, and specially, by a very controlled cost of deposits. Volumes had also a very positive impact in the quarter, experiencing an acceleration that brings the contribution of 13 million euros. This supported the good dynamics observed in the loan book that Cesar mentioned earlier, and FX was marginally positive and added 1 million euros. Alcohol contribution has been neutralized by lower contribution from the excess liquidity. In terms of alcohol, we had an increased fixed income portfolio in the quarter by 0.5 billion. And this, along with the management of some hedgers, has allowed us to further reduce NII sensitivity to downward rate movements. The higher hostel funding costs are explained by new issuances, totaling more than €3 billion YTD, together with fewer maturities in the quarter. And finally, other items represented an impact of €4 million. Moving to the following slide, we show that NII keeps performing better than what we estimated at the beginning of the year. As we have seen in the previous slide, one of the main drivers of this NII outperformance is the evolution of our customer margin. Customer margin at group level improved by nine basis points in the quarter, supported by an increasing loan yield and, very important to note, a cost of customer funds that reduces one basis point in the quarter. Loan yield gained eight basis points, still driven by the last distribution contributions from Euribor repricing, but also underpinned by the rollover of fixed SME rate loans into new higher yields. On the right-hand side of the slide, you can see that Spain is also contributing positively in terms of customer margin, driven by a loan yield that gains three basis points and a cost of deposit that only increases one basis point. This contained cost of deposit evolution in Spain. It's driven by lower front book prices below back book yield, as well as low migration from side accounts to term deposits. This positive performance of the customer margin, both in Spain and group level, allowed to offset the negative contribution from capital markets and ALCO, explained earlier, and drive NIM to business point ahead to 2.1%. With all this in mind, with Javier behind us, together with the observed growth in dynamics and volumes, we revised upwards our guidance and believe that Group NII in 2024 will grow by mid-single digit. Moving on to the next slide, we show why NII will keep on growing in 2025. As usual, we have split NII in three different reprising blocks. First, customer NII excluding TSB. Secondly, the contribution of capital markets. In other words, ALCO, wholesale funding, and excess liquidity. And third, TSB's evolution. We still see the ex-TSB customer margin contributing negatively, but... we see it more favorable than last quarter due to several factors. On the one hand, the interest rate environment is more supportive than what we had taken into account in our budget. You can see that current e-river levels for 2024 and 2025 are higher than what we had budgeted at the beginning of the year. And on the other hand, we see commercial activity substantially more dynamic than what we had budgeted for the year. And beyond this contribution in 2024, this shall be especially supportive for 2025's NII. Year-to-date, we are growing our performing loan book by 4%, whereas we have budgeted a negative evolution in 2024 and a very small growth for 2025. With regards to ALCO, wholesale funding, and excess liquidity, we continue to see them overall as positive contributors in NII in 2025, as we further reduce our NII sensitivity to interest rate movements. And finally, NII TSB should increase in 2025 by a high single digit, mostly driven by higher contribution coming from the structural hedge. That would imply an incremental contribution in 2025 north of 100 million pounds. This positive lever will also be supported by positive loan growths, thus offsetting other potential headwinds. To conclude, on the back of all these moving parts, we are upgrading our 2025 guidance and now estimate that NII in 2025 will be higher than in 2024. Leaving the NNI line, let's move to fees. First, let me remind you as a context that in 2023, Banco Sabadell, excluding TSP, was the Spanish leader in terms of fees over either RWAs, business volume, or total assets. The line posted a decrease of 1.4% in the quarter and a decline of 3.3% on an annual basis. This performance in the quarter was mainly attributable to €5 million negative impact from card costs treatment in TSB. Excluding this impact, fees would have been broadly stable in the quarter, driven by a steadiness in credit fees and asset management fees and a slightly better performance of services. Finally, it is important to mention that these fees include a contribution from our merchant and client business. As explained by Cesar, the closing of the deal with Nexi will be postponed until the tender offer ends. Therefore, we will continue to receive fees for this activity, although, as you know, and we have guided before, this is a neutral impact in the bottom of the P&L. Maintaining the good perimeter implies an upgrade of guidance and pushes upwards from a mid-single-digit decline to a 3% decline. Now, leaving the revenue lines to one side and moving to costs on slide 22, this quarter, total cost increased by 1.7%. In our year-on-year terms, cost increased by 2.5%, well in line with our guidance for the year. As you can see on the right-hand side of the slide, the cost-to-income ratio improved this quarter half of the year by almost four percentage points when compared to the first half of 2023's ratio. Excluding TSB, the cost-to-income ratio stands at 42.2%. In this context, we are confirming our guidance for 2024 of 2.5% growth versus 2023's recurrent costs. In the following slide, we cover cost of risk and the other P&L items between pre-provision profit and profit before taxes. The group's credit cost of risk stood at 33 basis points supported by the good evolution of asset quality, as we will review later, the results of management actions taken in the past, and a supportive macroeconomic backdrop. Group total cost of rates for the quarter stood at 46 basis points, which implies an improvement, this is a reduction, of 9 basis points versus 2023's year-end, and is ahead of our expectations. Take a look at the breakdown of total provisions on the top right-hand side. From left to right, we can see that we booked €109 million of loan loss provisions, equivalent to the 33 basis points that I just mentioned. 10 million euros in real estate assets impacted by branch mergers that offsets recurrent foreclosed assets sold at a premium. 35 million euros of MPA management costs as a running level. And finally, other provisions which are mainly associated with litigations and other asset impairments, which stood at 27 million euros. Now, going forward, the more favorable macroeconomic context for household and companies, together with our idiosyncratic risk management actions, lead us to improve our guidance, as we now see that cost of risk should remain below 50 basis points, not only in 2024, but also in 2025. In summary, as we can see on slide 24, the risk management actions that were put in place in the last few years are already yielding positive results. Let me share with you the developments we have seen on the consumer loan portfolio, which was our first focus back in 2022. In 2021, we noticed that the default levels in our consumer loan portfolio were excessively high, and therefore we stopped this activity and undertook a review of the lending process. We deployed new models, refocused the whole business on a more pre-approved risk approach, and then relaunched the activity. A reflection of the success of these efforts is the reduction of cumulative default rates shown on the right-hand side of the slide. As you can see, consumer loan default rates have been declining consistently across vintages since 2021, driven by better discrimination of creditors within our risk origination models. Now, on the back of this success, we have replicated the process and strategy in other segments. Although it is still very early to appreciate the full impact of this new risk management approach, as it has only been in place for a few quarters, we can already see improvements in the profitability of default levels as the first half averages of the new lending across all segments are materially lower than in 2023. In this context, we believe that the improved credit risk profile of the new lending across segments will continue driving lower provisions in the future. Now, moving on, in the next section, I'll walk you through as a quality, liquidity, and solvency. In the first slide of this section, number 26, we take a look at the group's non-performing loans, which showed a material decrease of almost 5% in the quarter, bringing the NPL ratio down to 3.2%, while the coverage ratio increased by one percentage point to a stand at 60%. On a year-on-year basis, the stock of NPLs has decreased by 8%, proving that ASA quality has remained more resilient than anticipated. with figures for the half year looking substantially better than our budget. Looking at the exposures by stages and by coverage, on the right-hand side of the slide, our Stage 2 exposure as a percentage of the total loan book dropped by 82 basis points year-on-year, reflecting a reduction of more than $1.3 billion. We also managed to reduce the Stage 3 loans by around €450 million in the year, driven by a reduction of NPL entries, as well as more recoveries. Moving on to the next slide, we can see how stock of foreclosed assets has been reducing quarter after quarter. When we look at this development on an annual basis, the reduction amounts to 17% of the stock. 95% of these assets are finished buildings, while coverage remained broadly unchanged at 39%. During the last 12 months, 20% of the stock has been sold, with an average premium of 7%, which shows that these assets are properly marked to market in our balance sheet. Overall, total NPAs, including both NPLs and foreclosed assets, are down by 9% year-on-year. Our gross NPA ratios stand at 3.7% and 1.6%, respectively, improving both in the quarter and in the year. In other words, in the last 12 months, we have seen a significant positive evolution of all the asset quantity cycle. where MPAs were down 9%, while coverage was up 4 percentage points, while cost of raises coming down, among other factors, because the good development of the new vintages, which are expected to continue. Turning now to liquidity and credit ratings. As you can see, the group once again ended the quarter with a very comfortable liquidity position. Our LCR remains at sound levels, close to 200%, while our NSFR reached 146%. Loan-to-deposit ratio stands at 96%. Total liquid assets remain broadly stable at 59 billion euros, of which 44 billion euros are high-quality liquid assets. Moving on to the credit ratings, I would like to highlight the recent upgrade of our Fitch rating to BBB, underpinned by our position as an established SME franchise, by our strengthened profitability, adequate funding, and capitalization. Furthermore, S&P has upgraded our outlook from stable to positive, driven by the significant improvement in profitability by Spanish banks during 2023. Altogether, in the last three years, the bank has benefited from four notches uplifts and two outlook upgrades to positive from the rating agencies that cover us. Turning to the following slide, we can see our current embryo position. We are comfortably meeting embryo requirements in terms of both risk-weighted assets and leverage ratio exposure. And we're already compliant with both the absolute and subordinated requirements. On top of this, we have built a comfortable management buffer across all requirements, which eases our funding plan needs for 2024. During the first half of the year, we have printed north of 3.2 billion euros across the capital structure, including tiered tuitions, senior preferred, senior non-preferred, and a couple of cover bonds. Turning now to capital. With the publication on the 19th of June of the final capital regulation documents, CRR3 and CRD6, after the final approval by the Parliament and the Council, we can now update our view on the impact of Basel IV. With all the available information and on the back of the current balance sheet and P&L and capital models, we estimate now the impact for Sabadell to be 20 basis points. The initial impact, as you may remember, was to be 50 basis points. Let me explain the two main differences that bring this down to 20. Firstly, we had been conservative and applied LGD floor to the whole loan portfolio, including both the performing loans and the NPL's RWAs. The final CRR3 text clarifies that this floor is only applicable to the performing portfolio's RWAs. This has an impact of a reduction of 20 basis points. Secondly, the dynamics in balance sheet and P&L have reduced the impact both in credit and operational risk going forward, since part of this impact has already been anticipated in 2024. This represents a further reduction of 10 basis points. In total, the capital impact of Basel IV has been reduced by 30 basis points, or 250 million euros. This is to 20 basis points, and this impact, let me remind you, will be recorded in January 2025. Let me share with you our solvency position. At the end of June, our fully loaded CET1 ratio reached 1348%, having increased by 27 basis points year-to-date, of which 18 basis points were gained this quarter. When we look at this quarter's evolution in more detail, we see an increase of 44 basis points derived from organic capital generation, which more than offsets the establishment of the payout in 60% from the previous 50, the small impact from the fair value reserve adjustments, as well as higher RWAs in a context of loan growth in the banking book. From a regulatory perspective, the CT1 ratio stood at 1348% on a phasing basis, which implies an MDA buffer of 454 basis points. This level of CT1 places us already above the threshold of excess capital distribution. Finally, in terms of shareholder value creation, tangible book value per share increased by 14% year-on-year, including the distribution of 6 euro cents through cash dividends based to shareholders in the last 12 months. Moreover, we identified the impact of the 2022's share buyback program and the executed part of the 2023's share buyback, suspended after the tender offer, which are equivalent to 5 euro cents per share. Moving on, in the next section of closing remarks, I will walk you through the first two slides and then Teso will take the floor to the end of the presentation. I would like to recap on our new updated guidance for 2024 in slide 23. With two quarters already behind us and most relevant variables turning out to be better than our initial budget, we are upgrading some of our 2024 guidance. Looking at our financial performance, NII grew in the first six months of the year by more than 9% year-on-year, and this makes us more confident that we will outperform our initial guidance. Therefore, we are raising our NII growth target for the year from circa 3% to mid-single-digit growth. Fees decreased by 3.3% on an annual basis. Due to the temporary delay of the Merchant Acquirement Partnership, we revised our year-end guidance upwards from a mid-single digit to a 3% decline. We reported total recurring costs increase of 2.5% this quarter, and we confirm this target for year-end. Total cost of risk for the first half reached 46 basis points, and we believe it will end the year below 50 basis points, which represents an improvement of 5 basis points versus our latest guidance. All this has brought our return on tangible equity up to 13.1%, which is already above our initial year-end profitability target. And therefore, we are grading our return on tangible guidance to above 13%. And finally, also very important, we see this profitability sustainable. And that's why we are also guiding our return on tangible in 2025 to be above 13%. This guidance upgrade is what we have been doing in the previous years. Once we gained confidence on the macro uncertainty, it was reduced, as we can see in the next slide. At the beginning of 2022, we guided for return on tangible north of 6%, which we upgraded six months later to north of 7%, and we finally ended the year with a return on tangible of 7.8%. Last year, 2023, a similar story. At the beginning of 2023, we provided a guidance for year-end above 9%, and for the next year, 2024, higher than in 2023. During the following quarters, we improved twice this guidance, as we had visibility and confidence that we could beat them, as we finally did. In January this year, we provided guidance for 2024, but we didn't give it for 2025 because there was significant uncertainty on the evolution of interest rates. In April, once interest rate curves stabilized and there was more visibility, we upgraded 2024's guidance as well as guided for 2025's profitability. Finally, this quarter, we have greater guidance again for 2024 and 2025, once we have seen the evolution of rates and commercial activity during the first half. We are already meeting the target set for the year, with Q2's return on tangible at 13.1%, and we have confidence that we will be able to meet or even surpass it, as we have done in the last three years. And with this, I hand over to Cesar, who will conclude our presentation today.

Thank you very much Leo. I've really enjoyed this guidance story that you've given us because it proves that we have always been conservative in looking forward and that we have been over delivering and that's what we plan to do. But let me now, on the back of this guidance and the final Basel IV impact, let me share with you what this all means in terms of shareholder remuneration in slide 35. First, let me remind that our Board of Directors already committed on February 1st to a payout on the back of the recurrent yearly results, plus a recurrent distribution of excess capital above 13%, Court Tier 1, fully loaded post-Basel IV. So there's nothing new now. On May 6, before the unsolicited tender offer, we shared with you that as of that date, that distribution capacity represented 2.4 billion euros over 2024 and 2025. But today we are updating this figure. On one hand, as we explained earlier, the expected impact of Basel IV will be lower, therefore increasing our excess capital figure by 250 million, as Leo explained before. This increase drives the remuneration to 2.65 billion euros. Additionally, we still have 250 million euros of the suspended share by back, which have been already deducted from capital, pending to be distributed to shareholders. When we add this, we reach a figure of 2.9 billion euros, or, in other words, 53 cents per share. This represents 27% of Sabadell's market cap as of July. But furthermore, we believe that there is upward potential to bring this figure higher on the back of our improved ROTE, Return on Tangible Equity, guidance for both 2024 and 2025, which we have not included in this 2.9 billion euros. In slide 36, we share now kind of a calendar how we expect to distribute the 53 cents per share. First, on the back of our capacity to remunerate shareholders and the firm commitment of our board, to do so, we are announcing that the board approved increasing the payout ratio to 60%. the upper range of our dividend policy. The Board has also approved an interim dividend of 8 cents of euro per share. This interim dividend represents a total amount of 429 million euros. More importantly, These 8 cents only represent the first 15% of the total 53 cents. The remaining amount to reach these 53 cents per share will be distributed as is shown on the slide. As closing remarks on slide 37, I would like to share and briefly recap the five relevant messages around Banco Sabadell. First, lending volumes are growing across different geographies, products, and segments. We have positive prospects in this regard. Our NII is resilient with clear levers to support it looking forward. Third, the deployed risk management actions are leading to cost of risk and asset quality improvements. This is the result of years of work. Fourth, our above 13% return on tangible equity is sustainable over time. And fifth, Sabadell has a large capacity to recurrently generate capital and is firmly committed to distribute it to shareholders. With this, I hand over to Gerardo to kick off the Q&A session.

Thank you, Cesar. We will now begin the Q&A session. Please remember to press star six to unmute your lines. Operator, could you please open the line for the first question?

I have three. The first one is on the loan market. You've been saying previously that it was competitive and you've been protecting your margins. Now the new production has accelerated notably across all the segments. And my question is, what drives this pickup and has your view changed? And the second one is on cost of risk. What was the impact of risk model updates on the cost of risk in the second quarter? And then the last one is on Nexi deal. I know this is not your central scenario, but I was wondering if there is any breakup clause that implies fines in case you decide to walk away from the deal. Thank you.

Okay, let me take the first one and the third one. The loan growth is on the back of a ton of things that have been done to prepare for this. And actually, we announced that this was our expectation. We said very clearly in 23 that in a market that was not growing, where we only saw a the elements that are related to consumption. So we saw consumer lending growing and we saw the working capital growing in 22 and 23. And we saw a very... weak demand on mortgages, which is an investment for individuals, and we saw also very weak investment in mid-term and long-term capex investment from enterprises. And we said very clearly at the end of 2024 that we had the expectation that this might change in the future and that we were ready for growth when the market grows. I think that's sound strategy, to grow even more than the market grows when the market grows and not to try to gain market share when the market shrinks because it affects certainly your margins and even you can put at risk your cost of risk, no? And we have executed exactly on that. We have, if I may so, on the SMEs, we have done a lot of pre-authorizations. So we have calculated the expected loss For every client, you have to remember that one in two of the SMEs are clients of Bank Sabadell. So we know them very well. And what we have been is very proactive at calculating the probability of default of each and every one of them, understanding their needs, and being very proactive at providing the alternative sources of financing as they need them. In mortgages... EXACTLY ANALOGOUS, NOT EXACTLY THE SAME, BUT EXACTLY ANALOGOUS. THE PROCESSES HAVE BEEN THOROUGHLY TRANSFORMED WITH SPECIALISTS. WE HAVE DONE A MUCH BETTER SEGMENTATION OF PRICING ADJUSTED TO RISK, THE CROSS-SELLING OF THE DIFFERENT PRODUCTS THAT ARE RELATED TO IT, AND WE HAVE BEEN ABLE TO CONVERT AND TO INCREASE DRAMATIC, SIGNIFICANTLY DRAMATICALLY IS AN EXAGGERATION, significantly the conversion rate based on much better processes. So this loan growth is just what we were aiming for, and we are very happy to express that we have been successful at executing it. I don't know if you want to add anything on this one, Leo? No? It's fine? I think it's fine. Okay. So, Nexi, there are no breaking clauses. I think we are both absolutely committed what we have just put the deal on hold. And this just makes sense. I mean, in the middle of a hostile takeover, it doesn't make sense to engage in a significant change of any major activity. And it is with pleasure that I have to announce that we remain committed, that the discussions have been very healthy, and that we have just remained with exactly the same agreement, just postponed until the end of the tender. So, expectedly, it will happen in around mid-2025.

And regarding your question about cost of risk, I think the evolution of cost of risk has been slightly better than expected, but within the trend. We said from the beginning of the year that cost of risk was going to come down. Q1, it was 50 basis points, and now we're coming down a little bit. Why? Basically, I would say the new production, the new lending, it's been more supportive, as we tried to show on the slide, with the decline in PDs on the one hand, This also drives that individual analysis from a risk standing point has been having a very good performance, as companies are having a very good performance in the last quarters slash years. The models have been reasonably stable, Q and Q, so nothing of any interest in that regard. And we're not seeing any kind of early warning indicators at all, as we have been discussing in the last few quarters. When we look at earliest KPIs, such as 30 days in arrears, as a matter of fact, we're performing better than last year in mortgages and consumer loans, and absolutely in line in terms of SMEs and corporates. So I think to start with, the starting situation is very, very healthy, as we have discussed before. The Spanish economy has undergone a huge deleveraging exercise in the last 10 years. So the starting point in terms of leverage is very, very low for both households and SMEs and corporates. Plus, we've been working very hard in the last three years to improve our risk procedures in order to improve the quality of the new lending, and we're starting to see that. And the macro, it's very supportive going forward, unless there's a change that we cannot foresee right now. So the combination of these three factors, macro, internal management of risks, and the back book, pretty healthy back book, 60% of mortgages are fixed. Remember that. We are very confident that cost of risk will keep on having a very good evolution in the coming quarters, just like the trend that we have been seeing in the last few.

Thank you. Just for the record, I think that was Max, wasn't it? So, operator Jess, please, let's go to the next question.

Next question is coming from Ignacio Ulari from the BMP Paribas exam. Please go ahead by pressing Start Note 6.

Hi, good morning. Thanks for taking my questions. I have two questions, one on NII and another one on capital. So, looking to the cost of deposits in the quarter, there has been a very good performance in Spain. I just wanted to see how do you see that evolving, both in terms of pricing of deposits and the mix of total stamp deposits. On NII as well, I would like just to have your sense about the competitive landscape in mortgages and business lending. How do you see the market evolving? deciding currently in these two segments. And the second question is on RWA growth. We have seen a 1% quarter-on-quarter growth in RWAs, but a 3% growth in lending with very strong consumer lending and SME lending. Just wanted to see if there was any effect in the quarter and how should we expect about RWA growth going forward in terms of the capital distribution on the 2.65 billion euros or 2.9 billion distribution that you have announced today. Thank you.

Should I take the one on deposits and you might as well want to talk about volumes and competition? Okay. So in terms of deposits, yes, the evolution has been, again, probably better than expected. From the beginning of the year, we said that the cost of deposits was going to grow this year by much, much, much less than in 2023. And the evolution has been very benign. We've already seen some rate cuts. So from here onwards, I expect things to perform in line with what we have seen so far. We might see in some quarters some volatility and some increase because we are doing more campaigns, if you wish. of digital deposits or whatever, just like all the banks are doing. But all in all, I expect the evolution of deposits to be fairly subdued. For example, in Spain, I believe the cost of deposits shall remain well below 1% for the year end. And this was our budget. We might even do it slightly better. It's what we're doing in the first half. So the trend... seems to be quite resilient, if you wish. Let's remember that around 45% of our deposit costs are concentrated in three business segments, private banking, institutionals, and public sector. And in those sectors, the beta is very, very high. In other words, they are basically linked to Euriber. So basically, as rates start to go down, the cost of those deposits will have already started to go down.

Yeah, it's on competition. I think competition is intense, both in mortgages and SMEs. I think we got ready early. I think we were very focused on the transformation of the bank and got ready for this increase in demand that we anticipated could come and that de facto has come. It's difficult to know market shares because the numbers are published with some delay, but I think we are gaining a bit of market share. And that is precisely in line with what we have decided. I think we are in a sweet spot in terms of size and market share, which allows us to have the critical mass, but at the same time, the ability to grow market share by being the fourth largest bank in Spain. If we talk about SMEs, the new lending in loans and credit facilities increased by 23% quarter on quarter and are up by 35% in the first half. And this is on the back of higher demand, but I think also that we're getting a little bit of market share. As I said before, note that one in two SMEs are Sabadell customers, and that we are leaders in the NPS segment, and that we have pre-approved their needs so that we can be much more proactive. We have very high market share in some specific products. You have to remember that we have 20% point-of-sale terminals. and more than 30% of the export-import activity. And therefore, by focusing on the target customers, And this represents 84% of the new lending in first half is what allows us with this focus to grow a little bit more than our peers. And I think Leo mentioned in his presentation, because this is very important, that this is not the time to do things that we might regret in the future. On the contrary. The probabilities of default in the new origination in 24 are 20% below last year's. And this is well reflected also in the cost of risk. And the outlook for 24 is positive. We expect to continue growing. On mortgages, well, clearly better than we forecasted. The new lending increased by 14% in the first six months, as the loan demand has been recovering quarter after quarter. And even the monthly evolution of the new lending denotes acceleration when we look at the latest months. The new applications are also growing and we are optimistic. Again, here the transformation has been very significant in how we have built the offer, in how we do the conversion through the specialists. in how we price, in how we provide additional products and services. And we have seen that also with a clear reduction of the probability of default, very significant over the year, over the first half versus last year, and also with stable or even increasing rate rocks on this new production. So it's healthy growth.

And regarding your question on RWAs, we saw an increase of RWAs in just north of 1%, these 13 basis points, while the loan book grew, I think it's 2.9% in the quarter. Of course, within the RWAs movement, there's a number of moving parts, because there's not only credit, you also have market, you also have operational risk, etc., etc., So I think it's more or less in line what we should be expecting, perhaps a little bit more, but nothing material to report in the quarter.

And therefore our guidance of the 2.9, because we think that we can handle growth and the growth of risk-weighted assets and at the same time that the excess of capital will be clearly above the consumption of capital in terms of risk-weighted assets.

Thank you. Operator, let's please move on to the next caller.

Next question is coming from Francisco Riquel from Alondra. Please go ahead by pressing star six.

Yes, hello. So thank you for taking my questions. So follow up here in terms of margins. I see that long growth is picking up, but I wonder if you can reassure that this growth is not coming at the expense of margins. You mentioned in your presentation about Rayrock, which is stable, but Rayrock is also a function of cost of risk, which is coming down, and risk weightings, which are also falling, but I wonder more in terms of pricing. You can share with us probably front book versus back book dynamics for the main categories, so you can reassure. about the pricing dynamics in the new business. Also in the cost of deposits in Spain has gone up two basic points, even if the shift to the time deposits has stabilized. So I wonder if you are increasing the remuneration of the demand deposits here. And if you can share the assumptions of the deposit beta embedded in your NII guidance. And beyond the margins of the new business, I wonder also about the cost of risk of the new business, because you have also booked some trading losses in Spain after selling substandard loans. So how do you reconcile this with your guidance of falling cost of risk? Thank you.

Okay, so, I mean, regarding the... There were, I don't know, like 25 questions, Paco, but I'll try to address all of them. So, regarding the margins evolutions and loan growth, how are we reconciling that? Yes, as I said, we tried to explain RAIROC is stable. Of course, the numbers within RAIROC are moving, but also... the clients that we are approaching. As we tried to explain at the beginning of the year, and certainly Q1, we are trying to foster our growth within the segments of clients where we want to grow. And therefore, we are trying to increase the quality of our clients, if you wish. We're trying to lend more to those clients who have better risk scorings. So this can allow at some points to reduce prices because you're lending, for example, in mortgages, this is a good example, to a client who has a better income and or is also doing some cross-selling because he's taking on board some other products like insurance cards, et cetera, et cetera. But all in all, the prices are more or less above the stock all through the different segments. So honestly nothing very significant from Q and Q aside from the fact that rates have started to go down and therefore those prices that are floating are also obviously taken into account. the evolution of rates. As per the deposits that you mentioned, yes, they went up to basis points in the quarter. In Spain, as I said, we may be seeing some volatility from some quarters to others because we may be including As I mentioned, among other things, the campaigns of digital deposits that we have been doing since 2022. So some quarters have a slightly higher cost than others. In any case, the current cost of deposits is well below what we expected initially. at the beginning of the year and we believe that the cost of deposits as I said in Spain which are currently at 83 basis points should be well below 1% by the end of the year. And in any case, the front book yield of term deposits is already below the back book for already two consecutive quarters.

From a general perspective, I think that when we joined the bank, the bank was managed basically by margins. And what we have done is transform the bank and the measurement and how our commercial people look at their commercial activity. We have transformed it into RAROC. And RAROC includes everything. And that is the right measure. So if you do a better pricing for a mortgage because it has a lower risk, And because it has cross-selling, as effectively Leo was mentioning, that is captured in the RAROC. And that is how we are managing based on contribution to the profitability. And in SMEs, we are pushing it even one level higher. What we are doing is calculating the value creation per account per manager. And I think this is becoming... Well, I don't know if state of the art, but very, very developed way of management. So we calculate the contributions or the income. We deduct the costs. We deduct the cost of risk based on the probability of default and the expected loss. And then we subtract also the cost of capital, and that gives a number in euros. And we can see for each one if there is value creation or not. So on an aggregated basis, I understand that we have to look at the P&L on the different components, but what we're managing is for value. And I think that is precisely what is going to make us even stronger in the future.

I think there was a question regarding volatility on trading. There's always volatility in this line. I think in Q1, for example, it was a higher number due to some extraordinaries. Normally, we're going for 10, 15 million euro number per quarter as an average. If you wish, for the year, that will be more or less what we have made in the first half of the year as an average. And regarding the question of whether we are including here the losses from disposals, no, all the accounting regarding disposals of MPLs, it's included in the cost of risk line and as it is included in our guidance also.

Thank you. Operator Les, please move on to the next question.

Next question is coming from Carlos Peixoto from CaixaBank. Please go ahead by pressing star six.

Hello. Good morning. A couple of questions from my side as well. The first one would actually be on funding costs. I see that in 2025 there will be roughly €2.8 billion of debt maturities, which currently bear an average of 1.2% cost, if I'm reading your slide correctly. I was wondering what are your expectations on the cost for refinancing these maturities and whether this is already fully incorporated in 2025 NII outlook or whether it's something that will actually hurt more 2026 NII. Then a second question on the deposit costs. So if I'm reading this correctly, basically you have a one basis point decline quarter on quarter on deposit costs for the group. When we exclude TSP, it was actually down three basis points from the Excel file that you sent, but Spain standalone was actually up one basis point quarter on quarter, the deposit cost, I mean. So was Mexico basically the sole responsible for the decline in deposit costs, or are there here any other geographies that are relevant, and basically how many volumes in these other international operations in terms of deposits, I mean, do you have? And then, if I may, just a final question on the shareholder remuneration targets. So, basically, you mentioned that you could be upside to the 2.9 billion, given the upgrade you have today on the ROT targets for 2024 and 2025. I was wondering here what was behind the decision not to incorporate this as well already in the shareholder remuneration package? Was it uncertainty regarding RWA evolution or any other rationale that could be here, or was it just conservativeness? Thank you very much.

Thank you. Let me start with the third one, with the capital remuneration of the 2.9. If you look at it in reality, it's based on the 2.4 that the board announced months ago. And that was a number and a figure that was based on the budget that was finalized in January 2024. So we haven't added any improvement in the prospects because we want to wait until we have a higher visibility around that in order to include it in the 2.9 estimate. Why have we included now the 250 million of the share buyback that has not been paid out yet? Because this is the first instance in which we see you after the tender, after the hostile takeover from BBVA, which stopped de facto that payout. It was 360 million of share-buy bags, of which we paid 90 million, or we repurchased 90 million before the hostile takeover came into place, and this is the first opportunity in which we see you, and we therefore confirm that And that is the only one that is a one-off that will be added to the total remuneration over the next two years, over 2024 and 2025. And the other 250 are Basel IV. And it was only, I think it was the 19th of June, that the latest rulings were approved. Our initial 50 basis points were based on a conservative approach, based on the potential interpretation of how things were developing, and at this point in time, we see, with thorough calculations, and this is very recent, this is from the 19th of June, so the first time that we are in front of you, we also announced that change. So to go from the 2.4 basis points which is our old estimates based on our old budgeting exercise that we finalized in January, we have only added automatically the news that have occurred since then. And we have not yet included the improvement of the guidance to above 13% return on tangible equity because, as always, we are conservative and we want more assurance, and we will do that in the future.

Carlos, regarding your questions on the wholesale funding, basically most of the maturities that we have next year are swapped. In other words, we are already paying both the URIBOR and the spread. So we think that the cost next year should be fairly stable to this year, if not even better and smaller. And regarding your question with regards to the deposits, yes, in the U.S. and in Mexico, U.S. being our Miami franchise, most of the deposits are linked to rates. So they do move instantly with the rates. And that is a little bit of what has happened in the quarter.

Thank you. Operator, let's please move on to the next question.

Next question is coming from Ignacio Ferreira from UBS. Please go ahead by pressing star six.

Hi, good morning. Thank you for taking my questions. I've got two. One is similar to the one Carlos has just asked on the deposit side, but on the lending part of things. If I look at your ex-TSB loan yield, I think it's up six basis points in a quarter, but in Spain it's only three. So trying to understand what has explained the disproportionate increase of loan yields outside of Spain in international units. And then the second one actually is on TSV. I mean, excluding the contribution of the hedge, how do you think in a potentially or likely full rate environment in the next 12, 13 months, how are you expecting customer spreads to evolve? Thank you.

So first regarding the loan yield, yes, in Spain it went up by three basis points. Basically in TSB it went up around eight basis points, a little bit more actually, over more than 10 basis points in the quarter. And then there was also a little bit of increase in the international business, if you wish, around five basis points. So it's moving parts. All geographies are moving up. Some are moving faster than others. And the fact that Spain is still positive, in my opinion, it's fairly good news, if you wish. As for the evolution of TSB, we have a very clear view of TSB as a whole, because of the pretty significant contribution coming from the structural hedge that will kick in not only in 2025, but also in 2026 and 2027. Nevertheless, what we've seen is that the customer spread should improve in the coming quarters, just like what we have seen in Q2 versus Q1. The bottom for NII and TSB took place at the end of last year, in Q4, Q4 23. It already grew a little bit in Q1, it has grown in Q2, and we're expecting that NAI will keep on growing for the remainder of the year, and of course in 2025, among other things, on the basis of this new delta coming from the structural hedge. Volumes are already stable, so at least we're not leveraging on that part. Margins in mortgages keep being pressured, but they are stable or going up a little bit, although still slightly below the buck book. So all in all, the prospect for TSB, in my opinion, for NII, it's certainly a positive one in the coming quarters.

Indeed, I think everything is going in the right direction and I think the fact that the contribution of TSB up to the first half is half of what it was last year and that the group is able to perform very well. It just makes me optimistic that this is going to turn around. And everything is looking good. Volumes are looking good. Action on costs are looking good. Margins are looking improving. The structural hedge, which is consistent with how the UK banks manage, is coming and is coming strong. And furthermore, there is a continuous transformation at the TSB of which we should see. further developments in the future, but it's early to talk about that. So we are very optimistic about the franchise, to tell you the truth.

Thank you. Let's please move on to the next question.

Next question is coming from Borja Ramírez from Citi. Please go ahead by pressing star six.

Hello. Good morning. Thank you for taking my questions. I have two. The first is on the RLA growth in the quarter. So your credit RLAs grew by 1% quarter over quarter, but the gross loans increased by 3% quarter over quarter. And if I look at the growth in Spain, half of the quarter over quarter loan growth was driven by consumer corporates and SMEs. So I would like to ask, if you have any RLA optimization that you are implementing or what is driving the low RLA density of the new loan growth. And then my second question would be in the 2.4 billion of capital generation for 2024 and 2025. Could you give a bit more detail on what is included there in terms of the RLA growth, any optimization? So what is included there? Thank you.

Let me start with the high level of the second question. In the 2.4 billion, as I said before, it is just the result of the budget that was finalized in January, so far before any event that has occurred afterwards. And I have to say that it had, at that point in time, low estimates in growth of assets, moderate estimates in terms of liabilities, and as Leo presented during the presentation, the performance of the growth on the asset side has been very significant. But another thing that has been very significant, and that is not included in the 2.4 because we have kept constant that figure based on the approval of the budget that was done in January, as I said before, January 24th. ANOTHER THING THAT HAS IMPROVED SIGNIFICANTLY ARE THE MARGINS ON THE BACK OF GOOD COMMERCIAL ACTIVITY BUT ALSO A BETTER ENVIRONMENT FROM A RATE PERSPECTIVE AND ALSO BETTER PASS THROUGH OR LESSER PASS THROUGH THAN WE EXPECTED AT THE TIME OF WHEN WE BUILT THE BUDGET. So as I mentioned before, I think this figure, which we have not updated, could be and could prove conservative as we move forward.

Sure. Getting to details, if you wish, with regards to RWA growth again, as I tried to explain before. So the loan book grows by 2.9% in the quarter. This quarter is every single quarter, second quarter. In Spain, we have an impact coming from the Social Security of around 700 million euros, which is something that comes in at the end of June and goes out at the beginning of July for all banks. This is a double pay of the pensions. And this doesn't have any impact on So we're talking about then that 2.9 would go to 2.3%, perhaps. Growth in lending, our RWA's are growing 1%. As I said, nothing very special in the quarter. I would say this is more or less business as usual, also taking into account, you know, the project capacity. of the macro environment, which is benign. So nothing, honestly, very material. I think it's business as usual.

Thank you. We're slightly over the scheduled time, so we will try to squeeze a couple more questions. Operator, let's please give access to the next caller.

Next question is coming from Brita Shmi from Autonomous. Please go ahead by pressing star six.

Yeah, hi there. Thanks for taking my questions. My first question will be on the strength of your commitment to the capital distributions. So can we assume that irrespective of the offer or the timing of any offer, you intend to meet the calendar even if any distributions were adjusted in an offer? The second one would be if you could just share some color of the mood amongst your SME clients. Is there any sort of uncertainty over Sabadell as a lending partner, and how are you discussing this with your client base? And the third one, I don't know whether you have the figures yet, but can you update us on your current fair value adjustments on assets and liabilities for Q2, please? Thank you.

No, I think the commitment and the strength of the capital distribution is previous to any movement on the side of BBVA. If you recall, Rita, we decided, I think it was in the results announced at the end of the year, that anything above 13% would be distributed. I remember that at that time many of you thought that we were not aggressive enough and that 13% was not a demanding figure enough, but we took at the time into consideration that we understood that the countercyclical buffer was coming our way and we wanted to be prudent and we wanted to remain at MDA buffers that would be that would be strong so there's nothing there's nothing new under the sun except uh... the fact that uh... the numbers are falling into place and we are quantifying a decision that was already made by the board Actually, at the demand of the investment community and the analyst community that wanted, and we thought it was fair, that we declared a clear amount and a clear commitment of what we thought was the amount above which we considered that there was excess capital at the bank. That's exactly what we've done. And based on the current numbers, using the previous budget plus the better forecast on Basel IV plus the 250 non-distributors, we got 2.9. But there's nothing but predictability and automation in the numbers that we are sharing.

And I think it's important to mention that we were clear about this with the market before the tender took place. So already in January, we were talking about distribution excess capital above 13%. And we have been doing a 50% payout for the last two or three years. So basically, the only thing that we have done is to put numbers onto the commitment of the board. And as per the

I think you asked also... Let me first, the uncertainty around SMEs and as clients. You were going to go to the... No, I was still... Sorry.

I think she asked also about the certainty of whether we can really meet the calendar within or still having a tender process. And the answer is clearly yes. We have already executed an interim dividend of 8 cents. which will be paid in October. The reminder, as always, will be after the AGM, the natural AGM, the regulatory AGM, the recurrent AGM that will take place through the course of March. And at that AGM, the Board of Directors will submit a proposal for dividends. both for the final dividend on the basis of the 60% of the payout and also for the excess capital, above 13% CD1 fully loaded post Basel IV, which is a pro forma 13.2, and also to re-engage with the share buyback that had been stopped due to the course of the merger. So yes, we have all the tools to execute that compromise within the normal procedures.

Let me see if I understood correctly your question about the uncertainty for SMEs. I understood that you said, well, are they worried to deal with us in case we disappear or something of that sort? That's the way I understood the question. If it's not that, please. That's it? Yes. Okay. So basically I would say that it is exactly the opposite. It's fun because I'm going around Spain with Carlos Ventura which is head of the SMEs and corporates and all the network and we have been going around. And usually you find commercial people who are always complaining, oh, the market is so tough. We will meet the targets, but it's so difficult and so forth. And in this case, it's exactly the opposite. They are saying that clients are trying to help. You have to understand that there's a very clear demand for Sabadell, who has a very high NPS, the highest NPS in SMEs. and they want the bank to stay and they want to help. And therefore, we are finding, I have to say, in the words of our commercial people, we're finding it a little bit easier than usual.

And I think the final question was about the fair value adjustments. I think putting on the annex of the presentation, the fair value adjustments of the hold to collect portfolio of the ALCO book, that one, it's around 1.3 billion or 70 basis points. As per the fair value adjustment of the loan book, basically it's related to the fixed rate mortgages in Spain and the U.K., we're talking about 3.5 billion euros.

Thank you. And with this, we'll give access to the last call of the day. Operator, please.

Last question is coming from Hugo Gruth from KBW. Please go ahead by pressing star six.

Hi, thank you for the time. Just three quick questions. So, Just on the thought process on the distribution of excess capital, why can't you have an earlier EGM to accelerate the distribution of excess capital since you now have that clarity on Basel IV and you're ready with, in a way, the excess? Second, the ROTE guidance for 2025, does that assume any distribution of excess capital? And third, on the cost of risk, do you think it can continue to decrease year on year? So lower cost of risk in 25 versus 24? And how low do you think the cost of risk can be? Thank you.

So we debated having an extraordinary or not having an extraordinary AGM. In reality, we want to behave as normal as possible. We remain in our perimeter. We don't do anything strange things. It's all about performance, performance, performance. And as the AGM is established, the ordinary AGM is established on the date in which it is established, and we think we will reach that time in order to distribute the capital. That's exactly what we are doing. The second question, the second part of that, I didn't fully get, Leo.

No, I think the second question was regarding return on tangible equity, if I recall correctly. Yeah, so... So, yeah, you were asking whether we were including the distribution of excess capital within those numbers. I think we are very comfortable with north of 13% return on tangible equity for next year. And depending on whether you include or not the excess capital, that number could be higher. But, yes, we are committed to 13% for certain.

And on the cost of risk, I think we see a trend, a continuous trend going down. Of course, this depends also on the macro environment, but for the time being, it is benign. The new production is better, the quality of the new production is better than the quality of the book. So the only rational thing to see all the rest being equal is a declining cost of risk over time. And that's why we're being prudent and we're just projecting that it will be stable and that it will be below 50 basis points. But again, I think we like to be prudent in our projections.

Thank you. Thank you all for your questions. Thank you, Cesar and Leo, for all the answers. I believe we might have left a couple of you out, but we do not have any more time. Let me, in any case, remind you that the full IR team is available for any further questions you could have. And with this, we wrap up the Q&A session. Once again, thank you all for your participation and for joining us today.

Thank you very much. Thank you. Bye-bye.