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.