Banco De Sabadell Sa Ord

Welcome to 7-8 Results presentation for the first quarter of 2026. Joining us today are our CEO, César González Bueno, and our CFO, Sergio Palavecino. The presentation will follow the same structure as in previous quarters. Our CEO will begin by highlighting the key developments of the quarter and discussing the most relevant topics. Then, our CFO will review financial results and the evolution of the balance sheet. The presentation will conclude with closing remarks from our CEO after which we will open the floor for a live Q&A session. So, Cesar, over to you.

Thank you, Juk. Good morning, everyone. I will begin by outlining the four highlights of the quarter, which we will discuss in more detail during today's presentation. First, the sale of TSB is now complete. Therefore, we will pay the extraordinary cash dividend of 50 euro cents per share at the end of May. Second, as we already anticipated, Q1... will mark the bottom of four core revenues. We expect these items to increase in each quarter over the course of the year. Third, we have launched an early retirement plan, which will improve efficiency in 26, but mainly in 2027. Fourth, we commit our full year guidance. Indeed, beyond the ups and downs of any given quarter, we have a sound, secure, and proven growth strategy to deliver a 16% return on tangible equity in 2027. Slide 5 shows the key financial messages for the quarter. Just to remind everyone, all figures and results presented now exclude TSB. Supported by strong commercial momentum, performing loans and customer funds recorded year-on-year growth in the mid-single digits. In this context, core revenues are expected to have reached in this quarter their lowest point of the year. We see core revenues improving going forward as replacing pressures on NII ease and fee performance normalizes. Recurrent costs performed well in the quarter and reached 569 million euros. We recorded one-off costs in the quarter of 55 million euros related to the early retirement program underway. Our fundamentals remain solid. Our recurrent return on tangible equities stood at 14.1, and our capital position remains strong with a quarter one at 13.2%. This performance is underpinned by strong asset quality that keeps on improving. Cost of risk and total NPAs both showed a reduction year on year. We continue to build up our Stage 3 coverage, which now stands above 70%. Finally, as I said before, we will distribute €0.50 per share as an extraordinary dividend by the end of May. In parallel to this cash dividend, we keep executing our share-by-back programs. We have already completed 267 million euros out of the approved 800 million euros. On slide six, financial implications of the now-completed TSV reduction. Let me start with the state proceeds. The initially agreed price was 265 billion pounds. This figure was agreed to be increased by the tangible net asset value generated since April 25. Taken together, this results in a final sale price of 2.9 billion pounds. Now, let me emphasize the strategic and financial merits of the transaction. Firstly, the sale has generated significant value for shareholders. Transaction multiples are above both peer transactions and Sabadell's own trading multiples. In addition, the transaction is expected to generate more than 400 basis points of capital. This is driven by capital gains of more than 300 million euros and the deconsolidation of risk-weighted assets. As approved at the Extraordinary General Meeting held last August, we will return this capital to shareholders. Accordingly, we will pay an extraordinary dividend of 50 cents per share on the 29th of May. To conclude, following the sale of TSB, Saladel now represents a more focused and simplified equity story with a clearer strategic profile centered in Spain. In slide 7, we see the details of the early retirement plan. We executed our last efficiency program, as you remember, back in 2022, which included an early retirement plan. Since then, Circumstances such as the demographics of our workforce prevented us from executing additional early retirement plans. Circumstances have changed and a structured early retirement plan is already being implemented in 2026. Importantly, this approach supports workforce optimization in line with the evolving business models and digital transformation. In terms of financial impact, we will incur in one-off costs in 2026 of approximately 90 million euros. Meanwhile, we will generate gross annual savings of approximately 40 million euros. Approximately one-third of these savings are expected to materialize in 2026, as the program is rolled out, with a full run rate savings achieved in 2027. On slide eight, we talk about new lending. Starting with mortgages, new lending decreased by 24% year on year. We remain focused on managing new lending through risk-adjusted return on capital, ensuring that growth is delivered in a profitable manner. As a result, we have continued to reduce our market share in new mortgage lending over the past months as front book yields have compressed. Origination of consumer loans decreased both year-on-year and quarter-on-quarter. We introduced changes to the application process this quarter, which temporarily impacted on conversion rates. We have already improved the process again, and conversion rates and origination volumes are picking up again. Quarterly new loans and credit facilities granted to SMEs and corporates increased by 1% year-on-year and by 5% quarter-on-quarter, while working capital performance was more subdued. Overall, as we share on the next slide, these volumes of new lending allow us to continue growing our loan book. On slide 9, we see the loan book and starting with Spain on the left-hand side of the slide. Performing loans increased by 0.8% on the quarter with positive growth across all segments. Performing loans in Spain increased by 4.3% year on year. Our international operations are experiencing good momentum as well with performing loans rising by more than 7% quarter on quarter and by double digit figures year on year. Overall, our total loan book showed a positive trend during the quarter growing by 1.6%. Annual growth rate reached 5.6%. Moving on to customer funds on slide 10. First, on balance sheet customer funds, XTSB remained broadly stable quarter on quarter and increased by 4.3% year on year. The Spanish perimeter showed an increase of 4.7%. Second, of balance sheet funds, also remained broadly stable in the quarter, as market volatility has had a dampering effect on net subscriptions. We posted an increase over 10% on a year-on-year basis. All in all, total customer funds grew by 5.9% year-on-year. Looking at unbalanced sheet funds breakdown on the right-hand side of the slide, non-remunerated deposits reached 83.9 billion euros. Those non-recurrent and those non-remunerated deposits are almost completely located in Spain. This highlights the high proportion of low-cost funding within our deposit base. The cost of customer funds stood at 78 basis points in the quarter in the ex-TSB perimeter. Let me note that this includes higher yields in U.S. dollars and Mexican pesos. Therefore, the cost of customer funds in Spain was significantly lower and stood at 59 basis points. On slide 11, we make a summary of our quarterly results. We recorded a net profit of 284 million euros or 347 million euros including the contribution from TSB. Let me emphasize two points. Firstly, as I had previously explained, Revenues have bottomed out with improvements expected in the coming quarters. Secondly, quarterly results include €70 million pre-tax in one-off charges, non-recurrent costs related to efficiency initiatives, and FX hedge on the proceeds from the sale of TSV. Underlying profitability remains solid and recurrent return on tangible equity is to that 14.1%. This keeps us on track to reach our full year guidance of 14.5%. And with that, let me turn it over to Sergio.

Thank you, Cesar, and good morning, everyone. Let's move on to the financial results on slide 13. Before going through the different lines of the P&L, I would like to explain the extraordinary items that Cesar has just mentioned. First, within the trading income line, we recorded an expense of 14 million euros related to the foreign exchange rate hedging of the full proceeds from the sale of TSB. Once the sale has been completed, next quarter we will record only 5 million euros corresponding to the month of April. Second, we recognized 55 million euros of non-recovering costs related to the early retirement program in Spain. Recurrent ROTE stands at 14.1%, which is in line with our expectations and our year-end target of 14.5%. We will now review the main P&L items in more detail, focusing on Sabadell's performance, excluding TSV. Starting with NII on slide 14, NII bottomed out this quarter as expected, decreasing by 2.5% quarter-on-quarter and by 3.5% year-on-year. which is mainly explained by the final headwind of lower interest rates repricing as well as the seasonality of Q1. On the top right-hand side of the page, you can see the drivers that explain the quarterly evolution. Moving from left to right, customer NII had a negative contribution of 8 million euros due to lower customer margin. This was driven by long book repricing at lower rates, and a slightly higher cost of deposits following the success of the last digital current account campaign. Then, the day count effect on customer NII resulted in a 6 million euros negative impact. Regarding alcohol liquidity and wholesale funding, we have seen a net impact of also minus 6 million, mainly attributed to liquidity, reflected increasing borrowing in dollars and Mexican pesos, which carry higher interest rates. Going forward, this will no longer be a headwind, and we are expecting tailwinds from customer NII as explained in the next slide. Indeed, looking ahead on the left-hand side of the page 15, the expected quarterly revolution throughout 2026 is shown. As anticipated, after reaching a low point this quarter, we now expect NII to grow at a low single visit rate quarter-on-quarter. From there, NII should increase steadily over the year, ending the fourth quarter of 2026 with a mid-single-digit increase compared with the fourth quarter of last year. This outlook is based on the current macroeconomic environment, where we are assuming interest rates will stay at higher levels than we had previously expected. The slightly higher rate environment, together with ongoing uncertainty and volatility, may affect loan volumes. we now expect growth to be slightly below our initial plans, but still at mid single digits. At the same time, unbalanced customer funds are expected to grow between three to four percent. Higher interest rates should support low yields with a steady quarter-on-quarter improvement, starting from the beginning of the second quarter already. Regarding deposit costs, we now expect a lower pass-through compared with our existing book which should support customer spread. Overall, customer spread is expected to improve quarter by quarter and reach levels above 290 basis points by year end, slightly better than initially forecasted. Finally, non-customer NII, which includes ALCO, wholesale funding cost, and the liquidity contribution, is expected to remain broadly stable around current levels. Taking all of this together, we are maintaining our NII guidance and continue to expect more than 1% year-on-year growth in 2026. Moving on to fees. This posted a quarter-on-quarter decrease, mainly driven by the absence of success fees recorded in the previous quarter, by seasonality, and by a one-off cost in the payment service business. Looking ahead, we expect this line to improve supported by increasing activity, particularly in the payment service business and in corporate and investment banking, which has already been seen in March. In asset management, we also expect a continued positive trend in net inflows. To sum up, while we acknowledge a slower quarter than expected, we believe this marks a trough that will serve as an inflection point. Looking ahead, we expect fees to increase and land at the lower end of the mid-single-digit growth range. Moving on to cost, the key developments this quarter is the launch of the new efficiency initiatives in Spain. However, let me first focus on the underlying evolution of recurring costs. Total recurring costs decreased by 3% quarter-on-quarter when excluding 55 million of non-recurring costs and, for comparability purposes, also excluding the reclassification related to the end of the agreement to sell the merchant-acquired business at the end of last year. On a year-on-year basis, total recovering costs increased by 3.4%, mainly driven by inflationary pressures on personal expenses, as well as higher amortization and depreciation costs, which already reflect the current quarterly run rate. Looking ahead, as Cesar mentioned earlier, we expect that circa one-third of the total savings from the efficiency initiatives will fit through in 2026. Overall, this evolution is fully aligned with achieving our year-end targets. On the next slide, we covered the cost of risk, which remains at contained levels, supported by solid underlying asset quality, despite increased uncertainty. Total cost of risk for the quarter was 38 basis points, which includes all provisions and impairments across all categories. Looking specifically at loan provisions, the credit cost of risk was 27 basis points. Turning now to the bridge of the different components of total provisions for the quarter, shown on the top right-hand side. We booked 94 million of loan loss provisions after reviewing carefully the macroeconomic scenarios. Then we had 4 million euros of provisions reversal driven by real estate asset disposals at a premium. In addition, we recorded 23 million in MPA management costs and 19 million in other provisions mainly related to litigation. The quarterly evolution of total cost of risk is fully aligned with our year-end target of around 40 basis points, despite increased uncertainty. Moving on, in the next section, I will walk you through asset quality, liquidity, and solvency. On slide 20, we see a continued improvement in both the NPL ratio and coverage levels. The NPL ratio reached 2.55%. representing a reduction of 10 basis points compared to the previous quarter. We can also see that Stage 2 exposure declined by more than 1.2 billion euros year-on-year. Finally, the coverage ratio calculated as total provisions over Stage 3 exposures continued to improve and reach 71%, rising by more than one percentage point during the quarter. In terms of total NPAs in slide 21, you can see the continued reduction of foreclosed assets. We have sold 24% of the stock of foreclosed assets in the last 12 months at an average premium of 8%. At the right-hand side of the slide, we can see that the ratio of NPAs as a percentage of total assets declined to just 0.7% which is a record low. Turning now to slide 22. All liquidity ratios remain comfortably above requirements, with the net stable funding ratio at 135%, and the liquidity coverage ratio at a strong 186%. Credit ratings remain stable during the quarter. All rating agencies have assigned a stable outlook, except for S&P, which maintains a positive outlook, reflecting the possibility to achieve further uplift based on ALAC. I will also highlight that Moody's upgraded our deposit rating in April, and it has reconfirmed our BAA1 long-term rating following the application of the new EU Depositor Preference Regulation. Finally, year-to-date, we have issued 500 million in covered bonds. Given the sale of TSB, this 2026 will be a year with lower MREL funding needs and therefore less affected by potential market volatility. To conclude this part of the presentation, let me walk you through the evolution of our capital ratios during the quarter. This time around, this slide includes both the quarter-on-quarter variation and the expected impact of the TSB sale and the extraordinary dividend on the CD1 ratio. We will start by reviewing the quarterly evolution. This quarter, the CD1 ratio increased by seven basis points while generating 32 basis points before accounting for the dividend accrued. This includes 42 basis points from organic generation after deducting 81 coupons, minus 4 bps from fair value reserves adjustment in the fixed income portfolio due to higher interest rates at the end of the quarter, and minus 6 basis points from higher risk-weighted assets, mainly driven by volume growth in our international businesses, where loans carry higher density. The accrual of a 60% dividend payout ratio had a negative impact of 26 basis points, bringing the CT1 ratio to 13.18%. Now looking at the capital effect of the sale of TSV. The transaction will unlock more than 400 basis points of capital for shareholders as already anticipated when we announced the transaction. The sale generates a positive capital impact of 369 basis points this year, driven by the release of risk weighted assets, a net capital gain of more than 300 million euros and the reduction of intangibles. This will be offset by the extraordinary cash dividend distributed to shareholders, which represent a reduction of 378 basis points, bringing the pro forma CT1 ratio to 13.09%. Finally, the release of operational risk-weighted assets over the next two years will add a further 36 basis points, lifting the pro forma fully loaded CT1 ratio to 13.45%. With that, I will hand over to Cesar, who will conclude today's presentation and probably say goodbye after five very successful years leading Banco Sabadell.

Thank you, Sergio. Continuing after that phenomenal waterfall is very interesting. Thank you. So to conclude this presentation, I would like to briefly review the bank's transformation journey over the last few years. Our growth strategy has proven to be successful and has structurally transformed the bank. First, we are delivering lending growth while reducing the cost of risk. Performing loans have increased by more than $11 billion since 2021, while the cost of risk has declined by more than half. This improvement reflects stronger underwriting standards and a higher quality loan portfolio. Second, the bank is showing a consistent increase in capital generations. Indeed, we are delivering high and sustainable profitability along with strong capacity to remunerate shareholders. In this context, we have committed to distribute 2.5 billion euros of ordinary remuneration over the next two years, representing an average yield of more than 9% when adjusted for the upcoming extraordinary dividend. A solid performance supported by two key levers. We have gradually shifted the organization towards profitability-focused metrics, and we have significantly transformed our risk processes and models. The benefits of these two elements will continue to gradually improve the quality of our loan book over time. Finally, let me emphasize our full commitment to delivering the full value of this plan through 2027. as we enter a new phase under a new leadership. We are well positioned to create long-term shareholder value. To conclude my last quarterly results presentation, I would like to share some words on a more personal note. Looking back at the last five years and a half, I am honestly proud of the results we have achieved. Sabarel was going through difficult times in late 2020. During these five and a half years, we, as a team, have managed to deliver on our strategy. We have deployed a profound transformation of the bank, which has enabled our financial turnaround. And now, I would like to thank you for the interactions we have had during this period. The team and I feel we have been treated with outmost fairness and respect, and I honestly thank you for that. I will now hand it over to Juk to start the Q&A section.

Thank you, Cesar, for your commitment and for everything you have accomplished these years. We will now open the Q&A session. I would kindly ask you to limit your participation to a maximum of two questions. So, operator, could you open the line for the first question, please?

First question is coming from Cecilia Romero from WordPress. Please go ahead, pressing star six.

Okay. Thank you very much for taking my questions. I have two, one on volume growth and the second one on cost. On the first one, on the asset side, loan growth in Spain has been modest quarter on quarter. Will some peers point to raising competition in both corporate semi-deposits How are you seeing competition evolve across SMEs and corporates? And how are you balancing pricing, funding costs, and returns? And how do you think about your appetite to compete in mortgages where cross-selling helps economics? And finally, how do you see growth evolving across segments to deliver mid- to single-digit growth this year? And then on cost, Following the restructuring announcement and the 40 million euros expected annual savings, could you help us understand how this fits within your current cost targets? Are these savings incremental or already factored into your 2027 guide? Thank you.

Thank you very much. So let's go one by one. On corporates and SMEs, I think... If you look at it, we've increased by 5% quarter-on-quarter and 1% year-on-year. And looking ahead, loan demand from corporates and SMEs remains solid. We keep a strong pipeline of medium and long-term loans. Therefore, we are confident that growth will accelerate back to mid-single-digit levels. And the front books and yields and spreads remain stable. You have to understand that the changing model is a long-term element. So the cost of risk going forward will be much lower. There has been a phenomenal transformation in the strategy of the bank. In terms of mortgages, to your question, the average front book yield on new Spanish mortgage lending is currently below swap rates, as you all know. And pricing conditions remain very competitive, even after taking potential cross-selling benefits into account. Therefore, we have intentionally reduced our market share of new mortgages lending from approximately 9% at the end of 2024, when the yields were positive, to below 6% this quarter, when our natural market share is around 7%. And we will continue to adjust our appetite according to market pricing as we have done over the past year. On the consumer lending, I mentioned before that during the quarter, we introduced changes in the application process. And although the demand, the upfront demand remains stable and strong, we have lower conversion rates. We have adjusted for these new changes and now conversion increases. is back to where it was and we expect healthy growth from now on. And in the cost of deposits and in the deposits, I think we've grown healthily in deposits and that has been somewhat on the back of the growth of the digital account. We have been very successful in the growth of the digital account during the quarter. And as we have mentioned many times, this is not to increase the volume of deposits. This is to attract new customers that then become transactional and that allow for further growth. More than 60% of our acquisition is now through digital accounts when it was zero a few years ago. And these clients behave well. They have strong transactionality. More than 50% have payrolls, 45% use payments every month, and 40% use Bithumb through Sabadell, which is a big sign of being engaged with us. And despite the fact that we have done this campaign at a high rate, it has been at the rate that we could obtain in the wholesale market. So it makes lots of sense. I will let Sergi to develop a little bit more on the cost side, but I think we are not, just to make it very brief, I don't think we are adjusting our forecast now despite this one-off. Of course, that would imply that there is some room as the year progresses to review, but for the time being, we'll leave it untouched.

Thank you, Cesar. A couple of comments to the first one, Fethilia. The first quarter is Typically, because of seasonality, probably one of the sort of is lower in terms of volumes. In any case, we've been able to grow a little bit the loans and a little bit the deposits. And when you look at the year-on-year growth rate, it's at the 5.6%, so it is actually absolutely in line with our expectations, and as Cesar mentioned, the pipeline is good, so regarding volumes, as of today, there isn't anything that makes us think that we're not going to grow in line with expectations. And then, as per the cost, to your question, These efficiency initiatives of the early retirement, the 14 million in 2027 was not included in our guidance when we detailed the guidance of 2027 by the different lines. We think it's early to update guidance for lines in 2027 given the different changes that we're seeing in the market. Of course, this is positive because then it allows us to have a buffer, and then we see how inflation plays out in the different lines of the cost. But, again, I think it's a buffer, and we feel optimistic about it. Thank you.

Okay. So, operator, could you switch off the microphones when the analysts are asking the questions? Because we've been told that there's some feedback that analysts cannot hear the questions when they do the Q&A. And we can jump to the next questions. Thank you.

Next question is coming from Francisco from Alantra. Please go ahead, pressing star six.

Yes, thank you. So, I just wanted to say goodbye to Professor and congratulations for the last five years' performance. So, my first question is on NII. You maintained your guidance of plus 1% in 26. But URIBOR rates are now higher than expected, and you used to have a positive sensitivity, so I wonder if you can elaborate on NII dynamics in coming quarters, and what is the offset to the higher URIBOR rates? And in the case the margin uplift is delayed, if you can update on the risk to your 27 NII guidance as well. And my second question is capital distributions, the 90 million euros of restructuring charges that you will book in 26. I wonder if that is compatible with your distribution targets. You did not specify how much of the 2.5 billion will be paid out in 26 and 27, so I wonder if top-up share buybacks will be postponed to 27 after the grinding of operational risk-weighted assets or not. Thank you.

Thank you, Paco, for your questions. Regarding NII, NII sensitivity, you're absolutely right, is a positive one. So when interest rates go up, we expect NII to be higher. Actually, for 100 basis points, immediate uplift in all rates, then we expect a 6% increase in the second year, and the first year is less. So the first year is somewhat more stable. So the first year is more stable, as I said. Looking at the evolution of NII, we initially expected NII to grow by more than 1% and keep on growing into next year, and that was basically based on volume growth, while rates were expected to be stable. This time around, what we are seeing, and when we look at the yield curve to update our expectation, the yield curve was reflecting two hikes from the ECB. So now we have updated our model with two hikes, so the ECB at 2.5, which is definitely higher rates. For the first quarter and the second quarter, volumes are not changing in our view. They are absolutely in line to our expectations. And then I think the question mark is whether at some point at the end of the year might be somewhat less volume. And as in particularly, we are growing a little bit less than expected in mortgages because we want to be really prudent with prices, particularly in this environment. So the movements that we are seeing are not going to affect 2026. Cost of deposits, the market looks good. In the past, this rate has had a very gradual pass-through into the deposit cost, and from everything that we're looking at, this seems to be the case this time around. So the pass-through at the beginning is less than the pass-through that we have in the book, which is close to 30%. And then for 2027, we feel positive, but it's a bit early to say. Definitely the higher yields is going to be a tailwind, and then remains the question mark on volumes that we had expectation for a continuous mid-single digit. And so far, we maintain, but I think we need a bit more time to have visibility in 2027. and also cost of deposits, although we feel very comfortable for cost of deposits. So I think those are the moving pieces that taking all that into account, we feel that the outlook is solid for this year, and then for next year, as said, we feel somewhat optimistic, but it's early to be precise. And regarding capital distributions, 19 million is the one-off cost, but already in the period, we are expecting at the benefits, part of the benefits, 40 million in 2027, 15 million, almost 15 million in 2026. So that combined is 55 million. The net is only 35 million, which net of taxes is less than 25 million. So yes, it's going to have a bit of an effect, but we are talking about less than 1% of the distribution. So we think that at this point in time, there might be some organic capital generation that can offset that small deviation. So we maintain the target of the 2.5 billion distributions, which we have always seen them being higher in 2027 than 2026. In 2026, we have the extraordinary of the TSB distribution, 50 cents. We are actually distributing a little bit more than what is generated in 2026. So it's, I think the balance between timing of the distributions are also quite sensible. Thank you.

Perfect. So let's take the next question, please.

Next question is coming from Max Machine from JD Capital. Please go ahead, pressing star six.

Hi. Good morning. Thanks very much for the presentation and taking our questions. All the best to Cesar in the new chapter. Two questions from my side. The first one is maybe I've missed it, but on the digital campaign for the deposits, Could you give us a bit more color and pricing and volumes you were able to achieve with the campaign in the first quarter? And the second question is on cost of risk. Have you updated your macro models in the quarter? And can you provide us with some comfort that macroeconomic turbulence may not push your cost of risk higher? Thank you.

Thank you very much. Thank you very much. So I think we have never been too transparent on the numbers of the digital account. It's quite successful. And we have now more than 600,000 digital customers. And what I could say is that it has increased overall by around two basis points, the cost of deposits in the quarter. And let me leave it at that. It has been quite successful. We are very happy. And it is fulfilling all its purposes.

And then we also have the questions on cost of risk and macro models.

Yes, thank you, Max, for your question. Regarding cost of risk and the macroeconomic models, we have, of course, reviewed carefully the scenarios and taking into account what is going on, the conflict and the uncertainty. For the basis scenario, we have kept it unchanged. We built this scenario during the second half of last year, and we built it on quite a prudent basis. In our base scenario, we're assuming GDP to grow in Spain 1.7%, unemployment to be a little bit above 10%. Our consensus is delivering today is an expectation of growth above 2% in Spain and unemployment below 10%. while the price of real estate will not be declining. That is the consensus. And we feel that we have seen that the assumptions in our macroeconomic basis scenario are actually more proven than what we're seeing in the market. Of course, this only affects Spain, which is our home market, so we have not changed the base scenario. What we have done is we have changed the probabilities of the upside and the downside scenario. You know that on the IFRS 9, you have the base at the downside and the upside, and we have shift 5% probability from the upside to the downside. And with this, this has triggered a 20 million provision that has been already incorporated in the 94 million of credit loan provisions. So this is actually 10% in the change of probabilities. And for the time being, we will monitor the situation and the development, but for the time being, and as long as the GDP expectation in Spain is maintained at a growth of around 2%, We feel that the scenario is going to be good. Thank you.

Okay, so let's jump to the next question, please.

Next question is coming from Ignacio Largi from PN Paribas. Please go ahead, pressing star six.

Thanks very much for the presentation and all the best of luck for users in your new adventures. One question on fees and one question is on the deposit and interaction with lending. So on fee income, I mean, how should we expect the improvement in coming quarters? Is it mainly driven by an acceleration of the asset management net inflows because you are launching a new product campaign? Or how should we think about fee progression basically in the coming quarters? And the second one on the loan-to-deposit issue, Do you have any target for loan-to-deposit ratio in the long run or in the medium term?

Thank you. On the fee side, I think we are expecting an improvement in the recovery of CIB activity. There were quite a few things in the pipeline that are probably delayed. I think the payment business is also going to to do better and certainly the net inflows in asset under management. And we have already seen a recovery in the first two months, I mean in the first two weeks of March.

Yep.

So if I follow up on those, naturally we expect the three components that we share with you, so credit, services, and asset management, we expect the three of them to grow from this level. Services, you know, the different business lines are working well. We had this one off in the first quarter, and seasonality. Seasonality affects very much our payment service business. And then we mentioned also the corporate and investment banking, which simply was slow in January and February and then started picking up in March. And therefore, the second quarter is expected to be good in terms of activity. So we also expect growth coming from that business line that is going to affect or is going to affect positively the credit, the services, and then finally the asset under management because of the growth in balances. And for the loan to deposit is 92, very stable. It's been very stable already for many quarters where we've been able to grow in loans and sort of 4% in deposits with a higher base of deposits. So at the end of the day, quite stable. If we were in a situation where we had the opportunity to grow the loan portfolio, I think growing up to a loan to deposit in the range of 90% to 100%, it could be no problem. So we would also feel that that's not an issue. However, in our plan, we will try to grow as balanced as possible.

Thank you very much for your questions. Let's jump to the next caller, please.

Next question is coming from Borja Ramirez from Citi. Please go ahead, pressing star six.

Hello. Good morning. Thank you very much for taking my questions. I have two . Firstly, on the net interest income, I saw that your Alcoa portfolio grew by roughly 2 billion euro quarter to quarter, if you could kindly provide details on the yields as which you bought new bonds. And then also, I would like to ask, I think it was mentioned in the previous results call you're going to decrease the cost of digital accounts from 2% to 1%, and there was a 30 million positive NII benefits on basis on this, which could highly confirm this number. And then my second question would be, it is noted regarding the change in the scenarios of the FSNI models. I would like to ask if you could kindly remind me the macro relay provision.

Sure. May I start, Cesar, with the ALCO question? Thank you, Borja. Yes, we have increased a little bit our ALCO portfolio in line with our plan. The ALCO, the size of the ALCO book is related to mainly the ALM, the hedging that we do, the size of our current accounts and deposits, which have been growing. And then on top of this, this year, we, with the sale of TSV, at the ex-TSV level, we are selling the TSV embryo bonds at the ex-TSV and replacing them with cash from the transaction. We wanted to put that money to work partially, so that's why we wanted to increase the portfolio this year. And we have invested in the typical investments that we do, that mean Spain and other core European sovereigns with durations up to 10 years, some of them hedge, so at the end of the day, The duration of the portfolio that we buy is between five to six years and with yields above 3% and in the current environment actually very close to 3.5%. And then as per the online current account, you are absolutely right, we have the intention cut the remuneration on the previous campaigns from 2% to 1%, we did, and that took place in the month of March. So it was only one month in the first quarter and the benefits will keep on coming. The very good news is that after this cut, we're seeing a lot of stability in the balances. So I think it's working, the strategy of buying customers and then keeping the balances. And finally, regarding your question on the macro provision, I think I mentioned that it was 20 million, the provision that we took after changing the probabilities. And Cesar, I don't know if you'd like to add something.

I think you were spot on. I think on the digital account, What we said is exactly that there will be a $30 million saving from the portion of that portfolio that we brought from 2% to 1%, and of that we have seen one month, and that $30 million is over the course of a year. And as you mentioned also, the very good news, as expected, is that the loss of volumes is low. And this proves again that this is a transactional account. It's not a deposit. It's not to maximize returns. It's to have a full current account that at the same time has low costs and full services and at the same time yields something that is above zero. And that is exactly what has happened. And now there are different tiers and that is the strategy around this account. There are different tiers some for acquisition because to create the excitement to move the account, you need a slightly higher rate. But then everybody understands that the current account with a decent remuneration of 1% is attractive enough. And they are becoming transactional. So as I mentioned before, we are very satisfied with the progress of this strategy.

Operator, could we have the next question, please?

Next question is coming from Ignacio Cerezo from UBS. Please go ahead, pressing star six.

Yeah. Hi, good morning, and thank you for taking my questions. Two follow-ups on lending growth. The first one is on the SME and corporate book, the Spanish one. I mean, you've got peers basically growing significantly above that 2%. So I just wanted to follow up a little bit actually on what do you think explains that gap right now. Is it risk profile, risk appetite by Sabadell? Is the fact that the incumbents in Spain have stepped at the pace? Is it related to the fact that your customers are requiring less credit than other type of corporates? So just a little bit of color basically on all that. And then the second one is whether you're seeing actually the international book XTSB as a bit of an offsetting factor against that. We're seeing some degree of acceleration, especially in Miami. and the foreign branches actually. So if you think there is a little bit of offsetting actually coming from the international book and the Spanish book, or you treat those books completely separately. Thank you.

I think reducing the probability of default by 50%, as we have done in new lending, of course strengthens our asset quality, but for a period of time makes the volumes slightly more subdued. And it makes lots of sense to do that, but it's a transition in which we are still somewhat immersed. You have to take into account that that probability of default improvement has a long tail because it will take more than four years to see the full benefit in the SME portfolio, seven years in mortgages, and more than two years for consumer loans. And for sure it's very difficult to separate off all the different factors involved that make that demand a little bit more subdued, but it is our impression that this is the main factor that reducing the probability of defaults of being more demanding on the quality, on the risk or quality of the new loans is having certainly somewhat of a slowdown, which will fade over time.

And regarding the growth abroad, not really. You know, we have good business units abroad, Miami, Mexico in particular. And we do what's right. And whenever we find the right project, so the right returns on capital with the right risk, then we're able to do it. And we're seeing an environment with a lot of activity. in project finance, in structure finance, in the corporates, our corporate customers that are doing business abroad. So we are taking advantage of that activity, but it's not really like that we see sort of offsetting. We don't look things that way, no.

Thank you, Nacho. Let's go to the next question then.

Next question is coming from Pablo de la Torre from RBC Capital Market. Please go ahead, pressing star six.

Thank you for taking my questions. Hopefully, you can hear me okay. I have a couple of follow-ups on costs and distribution and fees. So, the first one was on cost. I just wanted to understand the saving of any remaining one of costs in 2026. and whether the plan now considers any further actions in 2027. And the second one was on distributions. I know you retraded the $2.5 billion in distributions for this year and next, but I just wanted to check that you also reconfirmed the previous dividend guidance of 2026 being above 20.4 cents. And then the last one on fees also, if you just can comment on the previous guidance of double-digit growth in asset management and insurance fee income growth from this year. I think that's growing only at 4% in Q1. Thank you.

You will compliment that, but on cost, we don't see further actions at this point in time in 27, and there will be a progressive deployment during 26, and we will accelerate it as much as possible. So we have incurred already 55 of the 90 million, and you should expect the greatest part to happen relatively soon. And for 27, at this point in time, there's no expectation of That doesn't mean that there couldn't be later on, but at this point in time there are no further expectations. And for the distribution, I think we are confirming everything, everything that we said in terms of distribution, the almost 6.5 of the total of the three years, the 2.5 ordinary, the 50 cents, everything I think is being confirmed.

Indeed, yes. And finally, Pablo, I think you were asking for fees, which I think we've been discussing. And the fee development, I mean, the expected performance of fee remains unchanged to what we said in the first quarter in the, at the beginning of the year and for the year. So we expect fees connected with asset under management to grow. to volume, but then we also expect a higher contribution from the different businesses that we run. And in the presentation, we are acknowledging a slower start than expected. We were sort of expecting maybe a figure similar to the one that we have in the first quarter of last year. And the difference, which is some 7 million, is half that went off and half slow January and February in the import and export business and corporate and investment banking, which has already get back on track from March. And with all this, what we're saying is that we keep on targeting growth that might be close to the mid-single-digit range, probably the lower part of that range. So we're targeting close to 4%. overall growth in the fee line for 2026.

Right, so let's jump to the next question, please.

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

Yes, hello. Good morning. There's a couple of questions from my side as well, basically focused on NII. I'll make a follow-up there. The first one is that your NII guidance is based, or the 1% group, is based on the NII that was provided last year, excluding DSP, or on the statutory NII that we now have, just to understand the basis for the group. And then dwelling into an AI, just if you could remind us what types of savings you might be getting going forward from MREL instruments that you have to issue at the group level to finance the size of the group. when it includes the PSV, and now with the scale, you could have some savings on those instruments from during the instruments. Basically, how much could it be, and what would be the timeline for those to kick in? Thank you very much.

Thank you, Carlos, for your questions. Regarding the second one, MREL, We were done streaming an equivalent to 1.4 billion euros of MBREL to TSB, which is the MBREL related to its resuited assets. And that is the MBREL that, therefore, we will be saving at the group level in the wholesale capital market, so 1.4 billion. And that's why we're saying that we will not be active in the debt capital markets in 2026 as we don't need to get that. So, you know, if you apply the spread on the senior non-preferred and senior preferred to that figure, it's something close to 20 million per year that may take place already, I mean, gradually from the second quarter of 2026 as we will not be issuing and we will have maturities. And then I think the first question, not sure if I got it fully right, I think you were asking about the perimeter for the NII, and we are trying to be comparable. So it's going to be the XTSB perimeter is the one that is going to remain. So that's the one we're being guided on to try to make it pills with pills. Hopefully that was your question, and I hope I answered. Otherwise, we can follow up on it. Thank you.

Thank you, Carlos. And then we have got one final question. So, operator, please.

The last question is coming from Rita Schmidt from Autonomous Research. Please go ahead, pressing star six.

Go.

Hi, Rita. We cannot hear you. No? Well, so probably he's jumped to another call because we know that it's a busy day for you. So thank you for your understanding. And that concludes our presentation for today. Thank you, Cesar and Sergio, and thank you for all for participating. If you have any further questions, the Investor Relations team remains available for any follow-ups or additional information. Have a great day. Thank you.

Thank you.