Banco De Sabadell Sa Ord

Good morning, and thank you for joining Sabadell's results presentation for the fourth quarter and the full year 2025. We are joined today by our CEO, César González Bueno, and our CFO, Sergio Palagecino. The presentation will follow a similar format as in previous quarters. First, our CEO will walk us through the key highlights of the year. Then, our CFO will go into the financials and the balance sheet before our CEO concludes with closing remarks. Finally, we will open the floor for a live Q&A session where you can ask your questions. So, Cesar, over to you.

Thank you, Juk, and good morning, everyone. We announced yesterday that the Board of Directors of the Bank and I have agreed on my resignation as Sabadell CEO, while Marc Armengol has been appointed new CEO. These changes will take place around May, following our AGM, and once regulatory approvals have been obtained. Until then, I will remain Salvador's CEO, and Marc will remain TSB's CEO. And I think now is the right moment for me to step down, and I say that absolutely sincerely. Our current strategic plan is solid and well-defined and supported well. by everyone, including Mark, who has been a great part of its construction. Targets for 26 and 27 are ambitious, but achievable. And we are in course. And now it's all about execution, execution and execution of the current plan and planting seeds for an exciting future. Therefore, the bank is on the right track. to deliver its targets. And just very briefly, on a more personal note, look, I had opted for retirement six years ago. And the opportunity of joining Sabadell was so tempting that I couldn't let it pass. I was called for this project. I could not refuse. It has been far more exciting and rewarding than I could have expected. And I think now it's the time to go. But on top of delivering on our plan, Sabadell also needs to start thinking about this future beyond 2027. There's an increasing number of opportunities from banks arising from technology in general and from artificial intelligence in particular. I think we have done a tremendous development in digitalization, but AI goes beyond, and that plan needs to be accelerated, and it will transform the bank, not in the next year, but in the years to come, and this transformation will be profound. My dear and friend Mark Armengol is the perfect CEO to deliver our targets for 26 and 27 because he has the managerial skills. But beyond, Mark brings strategic vision and delivery, combining CEO experience with developing and executing corporate strategy in the U.S. and in U.K. He has proved his commercial mindset at TSB, where he has improved competitiveness by getting even closer to customers. He also brings exceptional technological, operational, and digital expertise, from business integrations to large-scale transformations in Spain, UK, US, and Mexico. And very important, he knows everything about Sabadell. is definitely not a newcomer. As a matter of fact, this is the first internal CEO appointment since Sabadell went public over a quarter of a century ago. And I think this proves maturity for this great institution. All in all, now is the right time for the bank to address this change. It is the right moment for me, and it is the right moment for Mark. And before moving to the result presentation, let me repeat it one more time. We have announced my resignation and the appointment of a new CEO, but we remain fully committed to delivering our plan and reaching our financial targets for 26 and 27. Key messages for the next full year. We are in page 4. Given that the TSB sale is expected to be completed during the second quarter of 2026, we are presenting figures with reference to the ex-TSB perimeter. First, volumes grew at mid-single digit during the year, performing loans increased by 5.4% and customer funds by 6.4%. Second, core revenues performed in line with expectations, with NII at 3.6 billion euros while fees were up by 3.6 year-on-year. Third... Asset quality continued its positive trend. Total cost of risk declined by 16 basis points and stands at 37 basis points. Moreover, NPAs decreased by 17% year-on-year, while the NPA coverage ratio stood at 64%, up two percentage points versus last year. Fourth, this year's shareholder remuneration is €1.5 billion. We have already distributed €700 million through two interim cash dividends, and in addition to this, we will allocate €800 million to a new share buyback program. We have already received authorization from ECB, and the program will start on Monday. Finally, return on tangible equity stands at 14.3%, and the quarter-one ratio is 13.1%. after deducting the excess capital that will be distributed. During 25, before dividend accruals, we generated, I think this is a big number, 196 basis points of capital. Slide five. And this is a little bit of a reason why. Let me explain why Sabadell is well positioned to keep improving its profitability looking forward. We have a clear strategy that supports profitable growth as we shared last July during the presentation of our strategic plan. Our ongoing transformation focuses on delivering growth alongside improved asset quality. Although this means marginally lower loan yields, these are more than offset by a much lower cost of risk. Overall, this results in both profitable growth and stronger capital generation. This is a structural change. and permanent looking forward. Let me explain a little bit further on this. I mean, the probability of default is now at the levels of which we want it. That is done. And the impact on the P&L is immediate because, of course, you lose income because you're doing less risky assets. But the benefits of that come over time, and it depends also on the duration of the different portfolios. We will still see tails for a long time in terms of and different in the different products we will see tails of improvement of the risk cost and we will see tails of improvement of the capital generation due to this and this is perfectly in line as we said with the strategy and I think it will yield over the course of the year and furthermore it makes the bank very sound but however I'm now going to the right-hand side of the slide. Following the tender offer period, our business was a bit less dynamic than expected for a time. And we have now clearly regained our commercial momentum. For instance, month-on-month evolution of unbalanced sheet funds in December 25 was better than in December 24. And new lending to SMEs was also higher in December 25 than 24. And Furthermore, and this is meaningful, customer acquisition in December 25 was also significantly higher than in 24. To sum up, we have solid fundamentals and a clear strategy that will support profitable growth and capital generation going forward. Let's go to slide six. Performing loans excluding TSV remain flattish quarter on quarter and grew by more than 5% year on year. At TSV, lending volumes at constant effects remain flattish in the quarter as expected. Moving on to customer funds. On balance sheet funds, we gained momentum and increased by 3.4% in the quarter. And this momentum, as we just saw, was more towards the last part of the quarter. Of balance sheet funds, also continued to perform well, rising by 1.9% in the quarter and 14% on the year. All in all, in 2025, we increased our loan book by 6 billion euros and our customer funds by 11 billion XTSB. This represents mid-single-digit growth, which is in line with our guidance, and this in combination with the growth of capital, because growing capital generation, but not growing the business, is not as attractive as doing both things at the same time. Let's move to slide 7, loan origination in Spain. In Q4, new mortgages decreased by 3% year-on-year. We have been reducing our market share in new mortgage lending over the past few months, as front book yields have compressed. We remain focused on managing our new lending through risk-adjusted return on capital, ensuring that growth is delivered in a profitable manner. New consumer loans in Q4 increased by 8% on a year-on-year basis. In the whole year, new lending of consumer loans increased by 16%. Quarterly new loans and credit facilities granted to SMEs and corporate decreased by 15% year-on-year. This results in a slight decline of 5% if we compare with the full year of 25 with 24. On the other hand, origination of working capital finance remained broadly stable in the year. All in all, a strong performance in new lending during the year delivered long book growth across all products and segments. If we move to slide 8, regarding payment-related services in 2025, cart turnover increased by 6% year-on-year, while point-of-sale turnover increased by 2%. Let me share that the merchant acquiring business will remain within our perimeter looking forward. Therefore, we will keep this fee income stream. Regarding savings and investment products, we reached a total stock of €70.6 billion in December 2025. This represents an increase of 4.2 billion euros in the year, driven by an increase in off-balance sheet products of 6.5 billion, most of it becoming 4.6 billion coming from net inflows. In slide 9, the breakdown of performing loan book across segment and geographies, excluding TSB. In Spain, performing loans fell by 0.9% in the quarter. Mortgages and consumer loans posted positive growth in the quarter. On the other hand, SME and corporate lending fell by 3.6% quarter on quarter, mainly due to the fact that these firms have been drawing less heavily on their credit facilities. Year on year, performing loans in Spain increased by 5.2%. The mortgage book grew by 5%. Consumer loans delivered double-digit growth. and the stock of SME and corporate loans increased by 2.4%. International operations also delivered strong momentum, with performing loans rising by approximately 15% year-on-year at constant effects. If we move now to slide 10, the UK business. As expected, TSBs performing loans and customer deposits remained broadly stable both quarter-on-quarter and year-on-year. Looking at the main lines of the P&L, NII increased by 7.2% in the year, in line with high single-digit guidance. Fees, which are less relevant for the UK business, declined by 15% year-on-year. Total cost decreased by 2.6% in the year, also in line with the guidance. in line with the 3% decline guidance. Provisions increased by around 50% year-on-year. Let me remind you that in 2024, TSB recorded releases related to the improvement of macroeconomic assumptions. The resulting cost of risk in 2025 was 13 basis points, considerably better than the 20 basis points guidance. All in all, TSP's net profit reached £61 million in the quarter, translating into almost £260 million for the full year. This implies growth of around 25% in 2025. Standalone return on tangible equity was 13.5%, despite maintaining a high level of solvency with a Q1 ratio of 16.7%. Finally, tangible net asset value increased by £154 million between April and December. This, together with the additional TNAV to be generated until the closing of the transaction, will be added to the £2.65 billion sale price, ensuring that TSB continues to contribute to Sabadell until the transaction closes. On slide 11, a summary of our results. In 25, we posted net profits of 1.8 billion euros. This represents a 3% decline year-on-year. It is worth noting that when adjusting 2024 net profit for extraordinary items, net profit actually increased by 3.4% year on year. All lines have been performing in line with the expectations. Sergio will explain the P&L in more detail shortly. To conclude, To conclude this section of the presentation, I will outline our shareholder remuneration. The amount for 2025 has been improved to 1.5 billion euros. This is 9% of our market cap. 2025 remuneration includes 700 million euros in cash, which have already been paid, and 800 million euros in share buyback. Last year we paid two interim cash dividends, one in August and one in December, of €350 million each. These distributions will be followed by a final dividend of €365 million, as well as a €435 million of excess of capital. This amounts to €800 million via a share-by-back program scheduled to begin next Monday. Note that, exceptionally, the final dividend will be distributed entirely through a share buyback. The main reason is that we believe that the stock is currently trading at a discount to its fair value, making a buyback the best option to reward our shareholders. We expect to distribute 2.5 billion euros across 26 and 27, which also represent 9% of the market cap each year, once we deduct the extraordinary dividend related to the sale of TSB. All in all, we are on track to deliver on our commitment to distribute a cumulative €6.45 billion of remuneration over 2025 and 2027. On top of that, we reiterate our commitment to deliver an annual cash dividend per share above 2020. I will now pass the floor to Sergio, who will provide a more detailed overview of the bank's financial performance.

Thank you, Cesar, and good morning, everyone. Let me begin by presenting the full detailed P&L. As we will explain during the presentation, the annual performance shows an alignment with our year-end targets. we recorded a net profit close to 1.8 billion euros, or 1.46 when excluding TSB. Before we go through each line, I'd like to highlight a few extraordinary items and reclassifications recorded this quarter. Firstly, on the trading income line, we recorded an expense of 15 million euros related to the exchange rate hedging on the full proceeds from the sale of TSB. This impact will be recurrent until the transaction closes. Secondly, and following the termination of the agreement to sell the merchant acquiring business, we have reclassified 23 million euros from other provisions to depreciation and amortization. The impact of this on net profit is neutral. Finally, on the gain on sale of asset line, we adjusted 20 million euros related to certain IT and software assets. We will now review the main P&L items in more detail, focusing on Sabadell's performance excluding TSB. Starting with NII on slide 15, we recorded 3.6 billion euros in NII for the year, fully aligned with our guidance. In the quarter, Sabadell's TSB delivered close to 900 million euros, broadly stable versus the previous quarter. Now, let's look at the top right-hand side of the slide to understand the drivers behind this quarterly evolution. Moving from left to right, customer NII had a positive impact of 2 million euros. Within this, the customer margin decreased by 7 million due to the negative repricing of variable rate loans, although interest rate pressure on loan yield has already eased significantly. The good news is that volumes more than offset the customer spread compression. Alcohol liquidity and wholesale funding contributed by 3 million, supported by lower refinancing needs and lower spreads. Other items had a combined impact of minus 9 million euros. This mainly reflects the negative impact of certain interest rate hedges related to the fixed rate mortgage portfolio. TSB added 11 million positive hedges this quarter, reaching 314, as the contribution from the structural hedge was higher than the depreciation of the sterling. For 2026, we expect NII to increase by more than 1%, with a clear acceleration throughout the year. In fact, we expect NII to bottom in first quarter 26, mainly due to fewer calendar days and the final repricing of the viable rate loans. From that point, it should grow steadily quarter after quarter, being the fourth quarter of 20 seeds mid-single digit higher versus the fourth quarter of 25. For these estimates, we are assuming interest rates to remain at the same levels as at the end of 2025. We are expecting volumes to perform in line with what we have seen this year, around 6% growth in loans and between 3% to 4% in unbalanced funds. Loan yield could decline some basis points in the first half of the year, but should return to current levels driven by higher growth in consumer and SME lending. On cost of deposits, we still see room for further improvement as we reprice the last part of the term deposits. And finally, the impact from the sale of TSB bonds in the ALCO portfolio will be offset by savings in wholesale funding, as we will have lower embryo funding needs after the sale. Leaving the NII line aside and moving on to fees. Fees and commissions within the XTSB perimeter increased by around 4% year-on-year. Asset management and insurance fees were the main contributors, growing by 15% year-on-year. This performance was driven by a strong volume growth in off-balance sheet funds, fully aligned with what we presented at our Capital Markets Day. The fourth quarter was the strongest of the year, with XTSB fees rising by 6% quarter on quarter, supported by strong commercial activity and decisional uplift in asset management and insurance fees, including a success fee component of 12 million euros. Looking ahead, we expect fees to increase by mid-single digits in 2026. This growth will be, again, largely driven by asset management and insurance fees. Moving on to the cost on slide 18. Total XTSB cost increased by 44 million euros in the quarter, mainly driven by two factors. First, a reclassification of 23 million from other provisions to amortization, following determination of the merchant acquiring agreement with NEXE. Consequently, going forward, the quarterly run rate for XTSB amortization line is expected at around 100 million euros. And second, the special remuneration in shares to all employees related to the end of the takeover bid amounting to 16 million euros. All in all, total costs at XTSB increased by 2.5% year-on-year. This evolution is totally consistent with the target of low single-digit growth, despite the reclassifications recorded at the one of personal costs I have just explained. For 2026, we expect total cost, including amortization, to grow by around 3%, fully in line with the strategic plan targets. Moving on to slide 19, we will now cover credit cost of risk and other provisions. Total cost of risk for the year 2025 was 37 basis points, better than the already improved guidance of 40 basis points for the XTSB perimeter. Meanwhile, credit cost of risk fell to 24 basis points, which represents 9 basis points reduction in the year. Now, looking at the bridge of the different components of the total provisions for this quarter, on the top right-hand side, we booked 107 million of loan loss provisions excluding TSB. Then, we add 8 million positive impact by driven impact driven by real estate asset disposals, sold at an average double-digit premium. MPA management costs remain in line with the usual round rate. Other provisions, mainly related to litigations and other asset impairments, were impacted this quarter by the 23 million reclassification previously mentioned. And finally, TSB provisions were 18 million euros this quarter. For 2026, we expect total cost of risk to remain at around 40 basis points, underpinned by positive asset quality dynamics and the gradual impact of our risk management measures. This better asset quality will offset the potential shift in business mix, as we expect stronger growth in companies and consumer lending. Moving on, in the next section, I will walk you through asset quality, liquidity, and solvency. On slide 21, we can see that non-performing loans and coverage ratio continued to improve during the year. Within the XTSB perimeter, MPLs decreased by close to 700 million euros over the year, demonstrated continuous success in portfolio de-risking and proactive credit risk management. As a result, the MPL improved 66 basis points to 2.65%. the reduction in MPLs is also consistent with the improvement in Stage 2 loans, which declined by more than 1.3 billion in the year. Finally, the coverage ratio increased by 3 percentage points, reaching 69%. Moving on, in terms of foreclosed assets, net MPAs as a percentage of total assets remained comfortably below the 1% threshold, confirming the bank's structurally improved risk profile. The stock of MPAs declined by 15% year-on-year, equivalent to more than 800 million euros in absolute terms. Meanwhile, the coverage ratio has improved by 2 percentage points. The sales of real estate assets continued their positive trend, as 23% of the stock was sold over the last 12 months with an average premium of around 10%. On slide 23, we are happy to see the continued improvement in asset quality over the past two years, explained by three favorable dynamics. A consistently declining MPL ratio, a quarter-on-quarter improvement in the cost of risk, along with a higher coverage ratio. Turning now to liquidity and credit ratings. In short, liquidity buffers have remained broadly stable over the year, with credit ratings improved, as you can see on this slide. Standard & Poor's upgraded our rating by one notch to A- with a positive outlook. During the year, Moody's and Fitch also upgraded our rating by one notch to BAA1 and BBB, respectively, both with a stable outlook. Turning to the next slide, we can see our current emblem position, which stands well above the required levels. It is also in line with the buffer of more than 200 basis points set as a threshold in our strategic plan. It is important to note that in 2025, we issued a total of 3.1 billion euros across the capital structure, as well as through covered bonds. We also carried out three securitization transactions with significant risk transfer during this year, using both synthetic and cash instruments. Let me highlight that once the TSV sale is completed, we will deconsolidate TSV's risk-weighted assets, and therefore our funding needs will be lower this year. know that we currently have excess buffering in 81, even excluding the 500 million issuance that we have just announced that it will be called in March. On the next slide, we can see that we have been able to generate 196 basis points of capital while growing our loan book at mid single digits. Looking at the quarterly evolution in more detail, we recorded 20 basis points of capital generation before deducting the accrued dividend. This includes 25 basis points from organic seed to one generation after deducting 81 minus 6 basis points from higher risk weighted assets, mainly from the update of operational risk, representing minus 14 basis points, and partially offset by the release obtained through the SRT transaction completed in Q4. Then, the accrual of a 60% dividend payout ratio had a minus 29 basis points impact, bringing the capital ratio to 13.65%. Given that we are distributing €435 million of excess capital, 54 basis points must be deducted, which takes the CT1 ratio to 13.11%, and implies an ample MDA buffer close to 400 basis points. With that, I will hand over to Cesar, who will conclude today's presentation.