Banco De Sabadell Sa Ord

Good morning all and welcome to the Sabadell results presentation for the first quarter 2025. Today, we are joined by our CEO, César González Bueno, and our CFO, Sergio Palavecino. The presentation will take the same structure as previous quarters. Our CEO will begin by outlining the key developments of the quarter, followed by a discussion on the most significant topics. Next, our CFO will cover financial results and balance sheet developments before our CEO concludes with some closing remarks. Finally, we will open the floor for a live Q&A session. I will now hand over to César González Bueno to kick off our presentation.

Thank you, Juk. Good morning, everyone. I will start going through the key elements of this quarter in slide 4. The strong momentum in commercial activity continues. Performing loans grew by 5% and customer funds increased by more than 6% on the year. Secondly, asset quality remains strong. The NPL ratio fell to a new low of 2.67%, which is 79 basis points less than in the previous year. This translates into a substantial reduction of the cost of risk. At the end of the first quarter, the group's total cost of risk stands at 35 basis points. Thirdly, NII declined by 1.3% year-on-year due to lower interest rates and de-risking carried out. It remains resilient in a lower interest rate environment. Fourthly, on the 31st of March, we started the first of our two share-by-backs programs, which together amounted to $1 billion. As of 2 May, we have already repurchased 213 million euros, representing 21% of the 1 billion announced and 86 million shares. Once we conclude the first programme of 247 million, we will redeem the corresponding shares without waiting for the end of the second programme, which amounts to 755 million euros. Last but not least, our common equity tier 1 fully loaded ratio reached 13.3 with 29 basis points of capital generation in the quarter. This proves the strength of our capital business model, which focuses on capital return. We can generate significant amount of capital while funding our loan book growth. And remember, this is after accruing a 60% payout for our shareholders. The return on tangible equity stood at 14.1% on a recurrent basis. This is excluding the positive one-offs booked last year and including the equivalent amount of the bank tax for the last 12 months. We are well on track to meet our year-end target. Moving on to slide 5, I would like to point out that we are growing with lower risk to deliver healthy capital generation. I think this is a key element of the way we manage. On the left-hand side of the slide, you can see that our loan book XTSB is increasing at mid-single-digit rates, while probabilities of defaults of new lending are decreasing by double digits across all segments. In simple terms, we are de-risking our loan book. This translates into a lower loan yield, yes, but with a lower cost of risk. Therefore, there's a neutral impact on profitability while improving risk-adjusted return on capital. which is one of the key metrics that guides our actions. This allows to generate more capital and support a higher distribution capacity. This is reflected in our improvement of 100 million euros in our shareholder remuneration for 2025 to reach the 1.3 billion. As profitability remains strong, we are reconfirming our return on tangible equity guidance of close to 14% at the end of this year and above 14% in 26. In slide 6, we see the evolution of business volumes. The loan book continues to show strong momentum, growing by 0.9% in the quarter or 1.4% at constant exchange rates. On a year-on-year basis, it grew by 5%. Performing lows in Spain increased by 1.6 in the quarter and 5.5 year-on-year. In the UK, we see a mostly flat evolution in the quarter and a 2% increase year-on-year. Assuming a constant exchange rate, the yearly evolution has actually been flat, in line with our guidance. International businesses remained flat in the quarter. but had a positive evolution of 2.7% at constant effects. Year on year, growth reached double digits. Moving to the right hand of the slide, on balance sheet funds remained broadly stable in the quarter and grew by 4.5% year on year. Of balance sheet funds grew by 3.1% in the quarter and by 12.9% year on year. On slide 7, lending origination. It remains strong in Spain. New mortgages grew by 81% year-on-year, despite a 5% decrease in the quarter due to seasonality. New consumer loans grew by 26% year-on-year, remaining stable in the quarter. New loans and credit facilities to SMEs and corporates increased by 1%, comparing with Q1, while decreasing the quarter due to seasonality. Finally, origination of working capital finance increased by 2%, compared with the previous year, and was also affected by seasonality in the quarter. On slide 8... we see that the payment-related services remain strong in Q1. Car turnover increased by 6% year-on-year, while point-of-sale turnover increased by 5%. Quarter-on-quarter turnover decreased in both cases due to the normal seasonality. In the bottom half of the slide, we can see the evolution of customer funds in savings and investment products. They increased by 700 million euros in the quarter, driven by an increase of 1.4 billion in off-balance sheet products. Moving to slide 9, performing loan book excluding TSB. Despite the numbers that we saw before, I think the key element is what is the stock, and the performing loans in Spain increased by 1.6% quarter-on-quarter and by 5.5% year-on-year. This is the result of the positive evolution of lending origination together with a higher percentage of credit lines drawdowns. The mortgage book grew by 1.2% quarter-on-quarter and by 4.9% year-over-year. The stock of consumer loans grew by more than 20% year-on-year. Regarding SMEs and corporates, the loan book grew by 1.4 in the quarter and 4.8 in the last 12 months. Finally, the public sector also showed a positive evolution both in the quarter and in annual terms. On the right-hand side of the slide, you can see our international business performance. As I said previously, We had a positive evolution of 2.7% at constant effects in the quarter. In annual terms, we posted an increase at constant effects of 14%. All in all, performing loans excluding TSB grew by 6% year on year. This is in line with our guidance of mid-single-digit growth in the year. Let's move now to the UK business on slide 10. In Q1, new mortgage lending increased by 22% quarter on quarter and by 12% year on year. The loan book, nevertheless, remained stable as expected. New mortgage lending was partially fostered by the stamp duty changes that came into effect on April 1st. Mortgage applications, which are a leading indicator of future new lending, continue to rise. This will contribute to maintaining our mortgage loan going forward. Total customer deposits remain stable in the quarter, growing at around 1% year-on-year. We are seeing a reduction in switches from current accounts to savings accounts. This is aligned with a reduction in the remuneration of our savings products in January after the Bank of England cut interest rates in November last year. This explains the four basis points improvement in deposits costs quarter on quarter. Following another rate cut in February, we reduced savings product rates again on April 1st, and we will see its impact in Q2. If we now go to TSP's financial performance, contribution to the group net profit continued to improve and reach 94 million euros in the quarter. Going through the main lines of the P&L, NII increased by 2.4% this quarter, mainly due to the structural hedge contribution and a change in mortgage income recognition. This offsets fewer days in the quarter, lower mortgage spreads, and base rate cut. On the other hand, costs declined by 2% quarter-on-quarter and by 7.3% year-on-year, continuing the downward trend that was driven by the efficiency initiatives carried out last year. All in all, TSB's net profit amounted to £74 million. This figure includes a positive one-off item of £22 million net of taxes recorded under the other operating income line. This is due to a negotiated recovery under indemnities from a third party related to financial services support. All of these numbers bring us to a total return on tangible equity of 12.5. This is with a core tier one that reached 15.2 after the capital distribution of 300 million pounds to Banco Sabadell in the first quarter of the year. These Q1 results are aligned with the guidance that we provided for 2025. On slide 12, summary of groups, financial performance, and that will conclude this section before I pass it on to Sergi. NII declined by 1.3% year-on-year, while fees grew by 1.3%. Costs grew slightly by only 0.09%. Provisions decreased by more than 29% in the year, underpinned by improved asset quality and in line with our strategy and management actions. All in all, we posted a net profit of 489 million euros, resulting in a recurrent return on tangible equity of 14.1. We are well on track to meet our guidance. In terms of solvency, our capital ratio stands at 13.3, which compared to last quarter is an increase of 29 basis points. And now let me hand over to Sergio, who will talk us through the financials of the bank in more detail.

Thank you, Cesar, and good morning, everyone. Let's now move on to the financial results on slide 14. We recorded net profit of 489 million euros in Q1, which is a year-on-year increase of 58%. It is worth mentioning that this comparison is affected by a difference in the amount and the way we have recognized the Spanish banking tax. Last year, a bank levy of 192 million was recorded in full during the first quarter within the other income and expenses line, whereas this quarter the figure recorded is 31 million euros, which is 25% of the full year expected amount. It has been recognized under the taxes heading as it is now a tax rather than a levy. On top of that, and setting eyes on the recurrent items, our results were primarily underpinned by a reduction in provisions, which continues to reflect our solid risk management practices, as we will discuss in more detail later. The net profit represents a return on tangible equity of 14.1% on a recurrent basis, well aligned with our 14% guidance for year-end. We will now go through the different P&L items in more detail. Starting with NII on page 15, this line decreased by 1.8% quarter-on-quarter on a like-for-like basis and by 1.3% year-on-year, mainly explained by lower interest rates in the eurozone. On the top right-hand side of the page, you can see the drivers that explain the quarterly evolution. moving from left to right. Last quarter we recorded €1275 million in NII, so when excluding the €36 million positive one-off, we get an underlying figure of €1239 million. Customer NII had a negative contribution of just €2 million, mainly due to a minus €19 million impact stemming from a lower customer margin, due to the long book repricing at a lower rate. This impact has been mostly offset by the increase in the volume of loans and deposits during the quarter. The FX was neutral, with small movements in the most significant currencies in which the bank operates. Regarding ALCO, liquidity and wholesale funding, we have seen a net impact of minus 5 million euros, mainly attributed to liquidity, reflecting the lower ECB deposit facility rate. Finally, the day count represented an impact of minus 12 million, while other items accounted for minus 4 million. I would like to highlight that customer spread decreased by just two bips to 305, and net interest margin increased by two basis points to 202, showing low sensitivity to interest rates. Now, moving on to fees. This posted a marginal quarter-on-quarter decrease, primarily driven by lower car-related fees at TSB. Excluding TSB, fee levels remained broadly stable, even when factoring in the success fees recognized in Q4, which amounted to $12 million. On an annual basis, fees increased by 1.3%. The annual evolution of this line has been also impacted by a reduction in TSB. Excluding TSB, fees increased by 12 million, represented year-on-year growth of circa 4%. This performance was supported by a stronger asset management business and insurance. Now, moving on to cost. On the next page, this quarter total costs were well under control and decreased by 2.3%, but they posted a small increase of 0.9% year-on-year, in line with our expectation. Excluding TSB, expenses remained flattish in the quarter, as lower administrative costs offset the staff cost inflation. At TSB, the evolution of expenses during both the quarter and the full year reflects the realization of cost synergies from the efficiency plan in the UK. On the next page, we cover cost of risk. On the left-hand side of the page, we see that credit provisions, including TSB, remain broadly stable quarter on quarter, despite the release of €54 million of provision EQ4 related to extraordinary items. The positive trend is even sharper on an annual basis, with credit provisions down by more than 50%. This reflects the benefits of the initiatives implemented in the credit risk management processes, resulting in a stronger asset quality. In the case of TSB, the quarter-on-quarter increase is due to some provision releases recorded in Q4, following the update of the macroeconomic scenario in the UK. Looking at the breakdown of total provisions on the top right-hand side, we can see that 77 million euros of loan provisions that I have just explained. Then, 14 million euros of foreclosets provisions, 33 million of MPA management costs, and 23 million of other provisions, mainly related to litigation, all of which are in line with the expected run rate. Therefore, overall, the group's credit cost of risk stood at 18 basis points, while the total cost of risk for the quarter stood at 35 basis points, which implies an improvement of 7 bps versus last quarter. Now, moving on to the next section, we will discuss asset quality, liquidity, and solvency. Starting on page 20. I'm pleased to confirm that the NPL ratio continues to fall with each passing quarter, having dropped to 2.67%, which is 17 basis points below last quarter's figure. Gross inflows of NPLs have also reduced materially, roughly 30% on a year-on-year basis. The coverage ratio keeps on improving and reached 63%, increasing by 4 percentage points in the last 12 months. Looking now at the table on the right-hand side of the slide, we can see that Stage 2 exposures dropped by more than €1.6 billion in the year and by more than €450 million in the quarter. We also managed to reduce our Stage 3 loans by more than $1.1 billion in the year and by $250 million in the quarter. Now, in the next page, we would also like to point out that the current level of net MPAs as a percentage of total assets is already below 1%, reflecting a massive improvement. In terms of foreclosed assets, the stock has continued to decline both quarterly and in annual terms. 94% of them are finished buildings and we sold around 24% of our foreclosed asset portfolio in the last 12 months at a premium of 12% on average. As a result, when we look at total MPAs, we can see that the pace of its reduction has accelerated to 19% year-on-year. On top of this, the coverage ratio has increased by more than 3% as points in the last 12 months. Turning now to liquidity on the following slide. As you can see, the group benefits from a solid liquidity profile, while credit ratings continue to improve. Let me highlight the two recent upgrades. Firstly, Fitch raised our long-term credit rating by one notch to BBB+. And then Standard & Poor's also raised our rating by one notch to AA-. Both upgrades reflect the agency's view that Banco Sabadell has strengthened the profitability of the business franchise and in a standalone credit profile. Along with these upgrades, our outlook is still rated positive by Moody's. Turning now to page 23, we can see our current embryo position. This quarter, the new embryo and subordination requirements for 2025 have come into force. As it can be seen, Sabadell has an ample buffer above the requirements in all embryo ratios. Regarding our funding plan, we expect to keep 81 and tier 2 buckets completed. In terms of senior debt, our intention is to keep the current embryo buffers. And regarding covered bonds, we will issue when we see an opportunity to do so, both in Spain and in the UK. On top of that, we have not used SRT this quarter, but we plan to keep using it in the coming quarters in order to actively manage capital and risk exposures. On the next page, we show the evolution of capital ratios. Our fully loaded CET1 ratio stood at 13.3%, having increased by 29 basis points in the quarter after occurring 60% dividend payout. Looking at the quarterly evolution in more detail, let me highlight that the organic capital generation was 65 basis points. Then, the accrual of a dividend payout ratio of 60% and the 81 coupons deducted 41 basis points. The fair value reserve adjustments were marginally positive, while risk-weighted assets growth consumed 10 basis points in a context of long growth. Finally, the implementation of Basel IV had a small positive impact on our capital ratio of 12 basis points. Last but not least, we show shareholder value creation on the right-hand side of the page. Tangible book value per share increased by more than 14% year-on-year, including the distribution of 23 cents per share paid out in cash dividends over the last 12 months. In the next page, which is the last one of this section, we show that total shareholder remuneration for 2024 and 2025 has been improved once again to 3.4 billion euros, which is 100 million higher than expected before. That's the combination of 2.1 billion distributed last year, of which we are still executing the share buybacks, and the improved figure of this year of 1.3 billion euros. This improvement is driven by higher capital generation than expected, resulting in larger excess capital over the 13% CET1 threshold. The 1.3 billion total shareholder remuneration expected for 2025 is equivalent to almost 10% of our market cap. Before ending with this page, on the back of the current share buybacks, the outstanding number of shares is expected to be reduced to 5 billion. And more importantly, we expect an accretion of earnings per share and dividend per share of 7.5% once the programs are completed. With this, I hand over to Cesar, who will conclude our presentation today.