Banco De Sabadell Sa Ord

And thank you for joining us for Sabadell Results presentation for the full year 2024. My name is Lluc Sass, I'm the Head of Investor Relations and Ratings, and presenting today are our CEO, César González Bueno, and our new CFO, Sergio Palavecino. Today's presentation will take the following structure. Our CEO will start by going through the key developments of the year before providing some details on the most significant topics. Our CFO will then discuss financial results, asset quality, liquidity, and capital, before our CEO concludes with some brief closing remarks, including the main achievements in 2024 and the guidance for 2025. I will now hand over to César González Bueno to kick off our presentation.

Thank you, Juk. Good morning, everybody, and welcome, Sergio, to your first of many. To come, quarterly results presentation as CEO at Banco Saudi. Let's start by going through the key messages of the full year 24 on slide 4. Today we wrap up a good exercise with a remarkable commercial performance that has led to record financial results. First of all, commercial activity has posted strong momentum, closing better than anticipated. Performing loans grew by 4.7% and customer funds by 7.1% on a year-on-year. We have gained market share. Secondly, NII remained resilient in a lower interest rate environment with growth of 5.5% year-on-year, excluding the 36 million euros of extraordinary interests. Customer margin increased by 8 basis points. Thirdly, asset quality continues to improve. Total NPAs decreased by 16% in the year, while the coverage ratio increased by 3 percentage points, reaching 59%. Group total cost of risk stands at 42 basis points, an improvement of 13 basis points over the year. Fourthly, we have delivered record annual net profit of 1.8 billion euros. This implies a return on tangible equity of 14.9%. On the back of the positive results and the sustainable growth prospects, the board proposes total shareholder remuneration that combines two elements, a total cash dividend of 2044 euros per cent per share and a share buyback for a total amount of 1 billion euros equivalent to almost 19 euro cents per share. This proposal will have to be approved by our AGM which will take place on the 20th of March in Sabadell. Finally, courtier one ratio stands at 13% once we have deducted 100 basis points related to the distribution of excess capital to be approved by AGM and already approved by ECB. On slide five, I think it is clarifying and helpful to break down the extraordinary elements of the year. although they remain part of the natural dynamics of the business and improve our capital position. On the left-hand side, there are one-offs generated in TSB pre-Q4. One-off restructuring costs at TSB, 32 million euros negative before tax. This will continue driving cost savings in 2025. Other one-offs at TSB, 29 million euros positive before tax. This is an insurance recovery, partially offset by the fine received for the treatment of customers in areas. On the right-hand side, there are several 4Q one-offs. The first one, 36 million euros positive before tax of extraordinary interests in arrears. This is related to the favorable resolution of a litigation case concerning an outstanding NPL of 360 million euros. 54 million euros positive before tax due to the released provisions related to that NPL. That was positive, partially offset with a negative. of a top-up of provisions related to the floods in Valencia. And finally, tax rate had a positive impact of 50 million euros, mainly due to the recognition of certified technological innovation deductions originated in previous years following recent Spanish Supreme Court's position on the matter. All in all, total one-offs for the year amounted to 109 million euros positive after-tax. Therefore, excluding these extraordinary impacts, a return on tangible equity would move to 14%, exceeding our guidance for the year. On slide 6, we see the evolution of policy. Business volumes. Total performing loans keep gathering momentum and increased by 1.7% in the quarter, which represents 4.7% growth in the year, or 3.5% at constant FX. Total customer funds increased in the quarter by more than 3% and by more than 7% in the year. On-balance sheet funds posted a 5.4% increase in the year, while off-balance sheet funds grew by almost 14%. If we go to slide 7, to the lending origination in Spain, in Q4, new mortgages grew by more than 100% year-on-year and by 7% quarter-on-quarter. In 2024 overall, new mortgage production increased by 53% compared to 2023. Let me emphasize that this growth... is healthy. For instance, the risk-adjusted return on capital, or RAROC, remains stable in the quarter, but nevertheless shows a clear improvement over recent years. And both loan-to-value and affordability ratios remain at low levels. New consumer loans in the quarter grew by 33% on a year-on-year basis and by 5% quarter-on-quarter. Around 90% of the origination comes from pre-approved loans to targeted customers. New consumer lending in the whole year increased by 21% after several years of sustained growth. Quarterly loan origination and new credit facilities in business banking increased by 46% year-on-year and by 44% quarter-on-quarter. In 2024, it increased by 31% compared with the full year of 2023. Finally, new production of working capital slightly increased in Q4, while is slightly down comparing to full year 2024 versus 2023. This is in line with what we have been predicting, that the mid- and long-term lending would grow and that we would gain market share, and the working capital had grown strongly in the past and would stabilize. So we continue to see, all in all, the positive trend in commercial activity in Spain in Q4, posting what we believe is a great performance in the overall 24th. On slide 8, payment-related services continued to perform well in Q4, both in cards and retailer payment services. In 2024, overall cards turnover increased by 7% and point-of-sale turnover increased by 8% compared to 2023. Customer funds in savings and investment products in Spain reached a total of 66.4 billion euros in December 2024. This represents an increase of 3.2 billion euros in the quarter, driven by an increase in term deposits of 1.9 billion euros and 1.3 billion euros in off-balance sheet products. On slide 9, performing loan book by segments and products excluding TSB. Here we see that performing loans in Spain increased by 3.8% in the year. This means a gain of market share. And this growth confirms the turning point that we started to observe at the beginning of 24 after more than a decade of deleveraging in Spain. And we have taken that wave as we predicted we would do. The mortgage book grew by 3%, supported by higher demand. The stock of consumer loans maintains its positive momentum and grew by 19% in 2024. and the SME and corporate loan book increased by 3.8% in 2024, underpinned by the medium and long-term loan growth as I just mentioned. Moving to our international business, the loan book grew by 11.2% year-on-year, or an 8.8% at constant effects, supported by Miami and other foreign branches. We move now to slide 10, TSB. In Q4, the new mortgage lending grew by 7% quarter-on-quarter and by 5% year-on-year. If we look at the full year 24, new mortgage lending grew by 19% versus 23, thus enabling the loan book to remain flat in the year, as expected. Total customer deposits remained stable in the year. However, the trend of customer fund transfers from current accounts into savings reversed in the quarter. This is aligned with a reduction in the remuneration of our savings products at the end of September, which explains the improvement in the cost of deposits by three basis points quarter on quarter. If we move to slide 11, TSB contribution to the group reached 253 million euros. This is the highest contribution of TSB since its acquisition, despite we mentioned that this year 24 was a transition year. Going through the main lines of the P&L, NII decreased in the year, but it is worth to note kept increasing in Q4, supported by higher structural hedge income and the commercial activity. Recurrent costs decreased by 3.7% in the year, having benefited from the efficiency plans carried out. Provisions performed very well in a more positive macro environment in the UK and declined by 52% year on year. All in all, net profit reached £208 million, increasing by 19% versus 23%. On top of these positive results, we will optimize our capital structure at TSB by distributing a total dividend of £300 million to the group later this month, which includes £200 million of excess capital after the issuance of £250 million of 81. These actions bring Q1 to 15.4, closer to the mark market benchmark levels. In terms of profitability, return on tangible equity reached a double digit of 10.6%. On slide 12, TSB has specific levers to improve net profit going forward. Regarding NII, the cost of deposits has started to marginally decline and will partially offset offset mortgage margin compression, while loan volumes are expected to remain stable. Structural hedge is expected to be the main driver of NII. Its contribution will increase by around a hundred million pounds in the year. All these factors combined result in high single-digit growth of NII in 2025. Regarding costs, efficiency measures implemented in the last year will drive a 3% decline of our total cost in 2025. In terms of provisions, cost of risk will normalize to levels below 20%. The mortgage book represents above 90% of TSB's loan book. It's a business with a low cost of risk. We consider this to be the run rate going forward. Considering these dynamics, we expect TSB net profit to increase at a rate in the mid-teens in 2025 and keep improving beyond. Slide 13. Let's summarize group P&L for the year. We have reached an all-time high yearly net profit above 1.8 billion euros. NII grew by 6.3% year-on-year, while fees declined by 2% and recurrent costs grew by 2.7%. Our core results, which include NII plus fees minus recurrent costs, reached 3.3 billion euros, increasing by 6% on the year. Provisions decreased in the quarter, underpinned by improved asset quality. All in all, we posted a net profit north of 1.8 billion euros. Return on tangible equity reached 14.9%, while our capital ratio stood at 13% after deducting 100 basis points of excess capital distribution to shareholders. In fact, core tier 1 stands at 14% before distributions, which implies a capital generation of 83 basis points over the year. Altogether, a remarkable performance which reflects the strong momentum of our commercial and financial footprint. And last but not least, these excellent financial results were achieved while maintaining our commitment to sustainability. We are making significant progress towards our 2025 goals, which are built on four pillars. advances as a sustainable institution, supporting our customers in their transition, providing investment opportunities that drive sustainability, and collaborating to build a more sustainable society. In 2024, Sabadell has been included in the Dow Jones Sustainability World Index. This index selects the top 10% of companies worldwide in terms of sustainability, evaluating them across governance, environmental, and social dimensions. Additionally, we have established decarbonization pathways for the 11 most carbon-intensive sectors, having included four additional sectors in 2024. Finally, I would like to point out that our ESG performance is attracting recognition from numerous sources, while Sabadell stands out among some of the most highly reputed ESG ratings within the industry. On slide 15... Shareholder remuneration for 2024 and 2025 has improved to 3.3 billion euros, which is 400 million euros higher than the figure we last reported to you. This amount is equivalent to 61 cents per share. Let me break down this 3.3 billion. Our 60% payout applied to 2024 results implies a total dividend of 1.1 billion euros that will be 100% in cash. This is composed of an interim dividend of 429 euros that was already paid in October 1st, 2024. Therefore, we will distribute a final dividend of 667 million euros. On top of that, at the beginning of last year, and let me emphasize this, it was at the beginning of last year, far before any expectation of a tender offer, the board of directors made a structural commitment to distribute excess capital above 13% core tier 1, which is a conservative number. Following this, we are happy to announce that 755 million euros representing 100 basis points of Courtier 1 will be distributed in the form of a share-by-back subject to AGM approval. But on top of this, and alongside with this excess capital distribution, we will resume the suspended share-by-back process for 250 million from the last year results, which had already been deducted from capital. And with this, we reach a figure of 1 billion euros in share-by-backs, of course, subject to AGM approval. It is important to highlight, as I mentioned before, that we have already obtained ECB approval. Adding together the cash dividend and the share-by-back, total shareholder remuneration on the back of 2024 results is 2.1 billion euros. Then we expect shareholder remuneration for 2025 to reach 1.2 billion euros, including both the payout and excess capital. Let me highlight that on the back of our financial plan, the board of director expects this 1.2 billion euro remuneration as a recurrent annual distribution to our shareholders going forward. In slide 16, we have drawn a calendar showing how we expect to distribute the 61 cents per share. An interim dividend of 8 cents per share was paid in October 24. A final cash dividend of 12.44 cents per share will be distributed after its approval by the AGM to be held on the 20th of March. Therefore, the total cash dividend for 24 equals 20.44 euros per share. This implies a remarkable increase of 241% versus 23%. The excess capital distribution plus the resumption of the suspended share by back represents 18.7 cents per share. It can start being executed once the annual shareholder meeting approvals are obtained on the 20th of March. We are also submitting an update of our remuneration policy to the annual general meeting aiming to distribute three dividends per year. Thereafter, interim dividends in 2025 will be paid in August and December. The final dividend plus any potential additional excesses of capital will be distributed after the 2026 AGM. All in all, total remuneration to shareholders charged to 24 results is 39 cents per share, while we expect 22 cents per share to be charged to 2025 results. Adding both together, it would be 61 cents per share. Let me highlight that the expected remuneration to be received by shareholders for the next 13 months amounts to 53 cents per share. And this represents in 13 months, 22% of Sabadell's market cap. With this, let me hand over to Sergio, who makes his debut today, although you've known him for a long time. Sergio is a seasoned manager. He has been very successful, and it's great to see you here on this table today, Sergio.

Thank you. Thank you, Cesar, and good morning to everyone. It's a real pleasure to be here. Okay, now with the microphone. Thank you. Thank you, Cesar, and good morning to everyone. It's a real pleasure to be here with all of you today. Indeed, I have been at Sabadell for more than 20 years in different responsibilities, all of them related with finance. Now I'm eager to continue contributing to this project. But enough about me. Let's talk about our financial results. We recorded net profit of 532 million euros at the group level in Q4, taking our full year net income to a total of 1,827 million euros. or more than 1.7 billion, excluding all the one-offs this quarter that we have already disclosed. As Cesar has just mentioned, this represents Sabadell's highest annual net profit ever. This level of profitability represents a return on tangible equity of 14.9% or 14% in recurring basis, beating our guidance for the year. I'd like to point out that this performance was underpinned by the evolution of our core results. As you can see in the bottom line of the table, which posted an increase of 6% year-on-year, driven by growing NII and our ability to contain cost. The progress of these core results, along with the material reduction in provisions, which were down by 22%, allowed us to record a bottom line figure north of 1.8 billion euros. We will now go through the different items of the P&R in more detail. Starting with NII on slide 19. Group NII increased by 1.7% in the quarter. If we exclude the 36 million of extraordinary interest in order to focus on the underlying trend, NII declined by 1.2% in the quarter as the arrival downward repricing accelerated. In the year, NII showed a 6.3% increase, or 5.5, excluding the one of meeting our mid-single-digit growth target for the year. Looking at the black stacked bar on the chart on the left, which is TSB's NII, you can see that TSB contributed an additional 10 million euros to the group's NII in the quarter. We believe that TSB will keep increasing its contribution to the Group's NII going forward. Now we can see the different moving parts of the NII bridge on the top right hand side of the slide. Moving from left to right, Customer NII had a negative contribution of 21 million euros, as it was impacted by an increase in quarterly average deposit volumes and consequently a higher cost in absolute terms. Lower loan yields reduced NII by just 5 million euros despite sharp Uribe repricing in the quarter that was partially upset by the new loans mix. Deposit cost was only one basis points lower as the pass-through of lower rates is just starting. Quarterly average volumes contributed only with 1 million euros because growth was rather back-loaded in the quarter. The FX effect was positive and added 5 million euros, mainly due to the appreciation of the sterling. Moving along to the right, we see a combined net impact of 17 million euros. Within this, we had tailwinds from higher alcohol contribution and higher excess liquidity. The higher volumes in liquidity came from the aforementioned increase in the volume of deposits. These were partially offset by a higher wholesale funding cost due to more net new issuances in the quarter. Finally, as mentioned before, there was a positive impact of €36 million in the form of a one-off related to interest on arrears, while the other category had a negative contribution of €10 million. As you can see in the bottom left part of the slide, our customer margin increased by 8 basis points in the year, to 307 basis points, excluding the one-off. This is thanks to the low NIA sensitivity of our loan book with a higher proportion of fixed rate loans and a cost of deposit that has remained broadly stable throughout the year. In terms of NIEM, we closed the quarter at 200 basis points, similar to levels one year ago. Moving on to the next slide, we believe that Sabadell's NII will be resilient in the lower interest rate environment. Let me explain the main NII moving parts. Let's first have a look at Sabadell excluding TSB. For several reasons, we believe that loan growth in Spain will continue during 2025 and possibly beyond at similar rates, and that's at similar rates to the ones we've seen in 2024. Also, we believe that the weight of fixed rate exposures, which represent 60% of the loan book, combined with the new business mix makes us relatively less sensitive to interest rate movements. Therefore, despite the decrease in rate, the loan yield is expected to remain at levels of around 4%. This decrease will be partially offset by a lower cost of deposits, dropping below 1% in cost. held by front book rates on term deposits that would continue to be below the back book rates. As a result, customer spread is expected to remain resilient above 300 basis points. Regarding non-consumer items, non-customer items, sorry. On the one hand, excess liquidity deposited at the ECB will be remunerated at lower rates. On the other hand, floating rate issuances in wholesale funding, together with increased contribution from the ALCO, will serve to partially reduce the impact from lower rates. With all this, we expect NII at Sabadell XTSB to decline by low single digit in 2025. This is excluding, of course, the positive one-off in 4.24. For reference, this one-off we recognize this quarter represents circa 1% of NII ex TSB on an annual basis. Let's now take a look at TSB. NII in 2025 will show an increase in the high single digits, mostly driven by a larger contribution from the structural hedge, which will imply an incremental contribution north of £100 million. The rest of livers should be broadly neutral. Loan volumes will remain flattish, while the lower cost of deposits will offset mortgage spreads on new lending, which are expected to remain below the back books. To conclude, on the back of all these moving parts, we are expecting a resilient NII that will remain above 4.9 billion euros in 2025. And that's a level very similar to the current consensus. Leaving the NII in line to one side and moving on to fees. Group fees declined in the year by 2.1%, which represents a better performance than the circa 3% decrease that we guided for. On a quarter-on-quarter basis, we recorded a positive evolution of 3.3%, driven by the expected Q4 seasonality related to asset management and insurance business success fees, which represented 12 million euros. Regarding the year-on-year evolution, the performance was mainly driven by lower current account maintenance fees, as we have been keen on waiving some fees to secure transactionality in a high interest rate environment. On the other hand, asset management fees posted growth in the year, on the back of a stronger performance from capital markets, as well as net inflows from mutual funds, as Cesar mentioned earlier. Going forward, we expect now fees to increase by low single-digit figures in 2025. This will be basically underpinned by service fees as we expect higher levels of customer transaction and commercial activity, all supported by a strong economic backdrop in Spain. Moving on to the cost in the next slide. Recovering costs remain broadly stable in the quarter. In year-on-year terms, they rose by 2.7%, broadly in line with our guidance. As you can see on the right-hand side of the slide, the cost-to-income ratio improved by almost 3 percentage points in the year, even including restructuring costs. At the group level, the cost-to-income ratio for 2024 stood at 48.7%, while XTSB it was just 43.5%. For 2025, we expect our total cost base to increase by just 1%, thanks to, and more other things, the cost management initiatives launched in TSB. That's equivalent to a growth below 2% when considering all recurring costs. Moving to slide 23, we cover credit cost of risk and other provisions. In 2024, the group's credit cost of risk stood at 26 basis points, or 29 if we exclude the release of 54 million euros of provisions linked to extraordinary items that Cesar explained earlier. Likewise, total cost of risk amounted to 42 basis points, or 45 if we exclude extraordinary items. These numbers confirm the continuous improvement in credit quality trends that led us to upgrade our initial guidance for total cost of risk in 2024 from 55 basis points to 45. And we are happy to say that we have delivered on the improved guidance. Looking at the breakdown of total provisions in the quarter on the top right-hand side. Firstly, we booked €52 million of loan loss provisions in the quarter which, if we exclude the positive one-offs, amounts to 106 million euros. The next two items are 11 million euros of foreclosed asset provisions and 36 million of MPA management costs, both of which can be considered a run rate. And finally, other provisions, which stood at 53 million euros, mainly relate to litigation and other provisions. Moving on to the following slide and continuing with the breakdown of total provisions in the year. Firstly, credit cost of risk weighs the most, with 26 basis points out of a total of 42. Going forward, we expect it to remain broadly stable throughout 2025, driven by positive credit quality trends, as we have just said, with a diversified and sound balance sheet and already settled evolution of our risk management actions. The remaining provisions, namely foreclosed asset provisions, MPA management costs and other provisions, accounted for 16 basis points in 2024. We foresee a gradual improvement in the coming year. Therefore, overall, in 2025 we expect total cost of risk to improve to circa 40 basis points. or to put it in absolute terms total provisions should stay at similar figures to last year's moving now on to the next section i will walk you through asset quality liquidity and solvency Let's start with the evolution of non-performing loans on slide 26. I'm glad to say that the NPL ratio is already below 3%, being the lowest level since 2009. This is the result of a continuous improvement of risk management on different fronts. Firstly, in new lending, where we have improved our risk-granting processes, gradually reducing the probability of default, combined with less gross inflows of MPLs. And secondly, on the recovery side, by using best practice from leading recovering agencies, deploying specialist recovery managers for situations involving vast sums, and conducting MPL sales, among other things. On top of that, this quarter, we recovered €360 million on an MPL following a legal dispute. The reduction of MPLs is also in line with the improvement in Stage 2 loans, which declined by more than 1.5 billion in the year. Finally, the coverage ratio also keeps improving and considering total provisions, it reached 62%, increasing by more than 3 percentage points in the last 12 months. Moving on, in terms of foreclosed assets, the stock has declined by a remarkable 14% year-on-year, falling to levels already below 850 million. More importantly, 21% of the stock has been sold during the past 12 months, at an average premium of 10%. This is a testament of two things. First, that we are continuously selling these assets. And second, that they are properly marked to market on our balance sheet. Overall, total NPAs, which include both NPLs and foreclosed assets, are down by 16% year-on-year. Gross and net NPAs ratio stand at 3%, 3.3% and 1.4% respectively, improving both in the quarter and in the year. To sum up, as you can see in the bottom right part of the slide, net MPAs represent just one percentage point of our total assets. The next slide shows exactly how asset quality has improved over the last two years, with a favorable combination of the three elements, an MPL ratio that is steadily going down, Cost of risk that is also improving quarter after quarter. And at the same time, an increase in coverage ratio. In other words, lower cost of risk is not being achieved by reducing coverage. In fact, it is the opposite. We believe this compelling trend supports our guidance for total cost of risk at around 40 basis points for 2025. Moving now to liquidity on the following slide. The group's position improved further in the quarter and remains at very comfortable levels. This is reflected in the 48 billion euros of high liquid assets, which increased by 2 billion during the quarter from a strong inflows of customer deposits. The LCR stood at 210% for the group, while the NSFR stood at 142%. As a matter of fact, the loan-to-deposit ratio ended the quarter at 93%, even lower than the previous quarter, showing remarkable success in our customer deposit business. Regarding credit ratings, I would like to remind you that we have benefited from several improvements in the last year, namely one notch upgrade by S&P and Moody's, and more recently also by Fitch in the last quarter. Turning now to slide 30, we can see our current MREL position. Firstly, in December, we received the new EMBRL requirement, applicable to 2025, which reduced the risk-weighted asset base requirement by 38 basis points for total EMBRL and by 147 basis points for subordinated EMBRL. This reduction is based on a 20% scale-down of the market confidence charge. which reflects a positive assessment by the regulator of the progress made by Sabadell in enhancing the bank's resolvability. With that requirement in mind, we are comfortably meeting all new MREL obligations, both in risk-weighted assets and in leverage ratio exposure. It is important to note that we issued a total of over €5 billion last year across the capital structure, as well as through liquidity instruments, namely covered bonds. We also carried out three significant risk transfer transactions during the year, using both synthetic and cash equity sessions, all of them approved by the ECB. For 2025, in terms of our funding plan, our intention is to keep the AT1 and TA2 buckets completed. Then, in terms of senior debt, we want to keep the current buffers above requirements, so we will roll over any bonds that become ineligible. Regarding covered bonds, we will issue both in Spain and in the UK when we see an opportunity for it. Finally, we will keep actively managing capital through securitizations, with significant risk transfer, in the face of a more dynamic outlook in terms of loan growth. The next slide shows the capital generation in the quarter. Following the announcement of the excess capital distribution equivalent to one percentage point, our fully loaded C2E1 stands at 13% after having generated 24 basis points in the quarter and more importantly, 83 during the year. When we look at the quarterly evolution in more detail, First of all, we can see an organic capital generation of 30 basis points, including the accrual of a 60% dividend payout. Secondly, the fair value reserve adjustment represents minus 8 basis points. Thirdly, risk-weighted asset growth had a marginally positive impact, since the larger loan book since the larger loan book was offset by the release obtained through significant risk transfer. Transaction completed at the end of Q4. Therefore, the pre-capital distribution CT1 ratio stood at 14%. Following the commitment of the Board to distribute the excess capital above 13%, we are delivering exactly what we promised. Finally, with all the information that we have today, the implementation of Basel IV won't have any negative impact on our capital ratios. With all this, the CET1 ratio ended the year at 13%, with a comfortable MDA buffer above 400 basis points. Last but not least, on the right-hand side of the slide, we show shareholder value creation. tangible book value per share increased by more than 14% year-on-year, including the distribution of 11 euro cents in cash dividends. And with this, I hand over to Cesar, who will conclude our presentation today.