Banco De Sabadell Sa Ord

Marc Armengol, CFO Sergio Palavecino

Thank you very much, Luke, and good morning, everyone. It is a great pleasure to join you today for my first results presentation as CEO of Sabadell. I thought that before we move into the presentation, let me just briefly introduce myself. I became CEO in May after more than two decades at the group. And during that time, I have had the opportunity to work across Spain, Mexico, The United States and the United Kingdom Needing Transformation, Growth and Integration Initiatives I also served as Group COO before becoming CEO of TSB at the end of 2024. And with that, just let me turn to the presentation and start with a few opening remarks. On slide 4, I'd like to share how I see the bank today. In short, after the sale of TSB, Sabadell is now a simpler and growth-oriented Spanish bank delivering attractive shareholder returns. Five key takeaways. First, we are now fully focused on Spain, one of the most attractive banking markets in Europe. The Spanish economy is growing above the European average, employment remains strong, and balance sheets of the private sector are healthy. With regards to our size, we have the right scale to become a faster and more agile bank while we keep investing in our future. Second, Sabadell has invested a lot in having a modern IT platform and infrastructure, which gives us a strong foundation for the next phase of transformation. As I just said, we will continue to invest in technology as a key enabler looking forward. Third, we have regained commercial momentum after the end of the recent hostile tender offer. The numbers we will review today clearly show that. Fourth, employee engagement is at an all-time high, reinforcing our strong execution culture. And finally, Sabadell has a proven ability to generate capital, which allows us to consistently deliver attractive shareholder returns. So what comes next? My first message is clear. We are fully committed to delivering our targets. That means achieving a 14.5% return on tangible equity this year and 16% by 2027. And looking forward, we have opportunities to create additional value by becoming more agile, benefiting from having the right scale, not too big, not too small, by leveraging on AI and technology, by increasing our focus on higher value customer segments. In short, we will deliver our commitments while we continue to look for opportunities to create further value. Now let's move to slide 7 to start with the key highlights from the quarter. Second quarter performance was in line with our expectations and as anticipated marks the start of a new trend in earnings. Commercial momentum has continued to strengthen. Performing loans grew by 3% quarter on quarter while customer funds increased by 1.8%. This confirms the positive trend we have seen in recent quarters. Strong commercial momentum supports the growth of core revenues. This is a trend we had already anticipated. NII grew by 3.4% quarter-on-quarter and fees increased by 4%. On costs, the early retirement program we announced last quarter has now been fully executed. We booked an additional 37 million euros of one-off costs this quarter, bringing the total for the first half of the year to 92 million euros. As a result, we expect 20 million euros of savings in the second half of this year, increasing to 40 million euros on a recurrent basis from 2027. We also completed the sale of TSB during the quarter, and this gives Sabadell a simpler equity story. The transaction generated more than 400 basis points of capital and allowed us to pay an extraordinary cash dividend of 50 cents per share in May. On shareholder remuneration, we have completed our 800 million euro share buyback program and today we are announcing a new 331 million euro share buyback which proves our commitment to delivering attractive shareholder returns. Finally, our outlook remains positive. We expect profitability to continue improving in the second half of the year, and we remain on track to deliver our 2026 guidance. Let me now turn to slide 8, where we can see that core revenues returned to growth in the quarter. Net interest income increased by more than 3% Q&Q while fees grew by 4%. Recurrent costs remained broadly stable in the quarter. Total provisions amounted 152 million euros in the quarter and this was in line with our expectations growing up from the unusually low level we saw in the first quarter. Finally, Recurrent net profit reached €691 million, increasing by 8.4% quarter-on-quarter. The most relevant non-recurrent impact in Q2 is the capital gain from the sale of TSB. Recurrent profitability remained at 13.6%, while reported return on tangible equity stood close to 15%. Turning now to slide 9, Thank you very much. On the international end, international portfolios are also delivering very strong growth, mainly driven by Miami and our foreign branch network. Overall, total performing loans of the group increased by 3% quarter-on-quarter and by 5.5% year-on-year, reaching 125 billion euros. Since the beginning of the year, the loan book has grown by 4.7%, which reinforces our confidence in delivering mid-single digit growth in 2026. These trends prove the strength of our commercial momentum. This is reflected in new lending activity, which we share in next slide, slide 10. Here you can see that in mortgages, the new lending increased by 22% versus the first quarter. and while the competition remains intense and we continue to manage growth through a disciplined risk-adjusted return approach. Consumer lending has also returned to growth after the blip we had on Q1 with new lending growing by 9% in the quarter. SMEs and corporate clients' loan activity has been strong with origination of loans and credit facilities increasing by nearly 40% Q1Q and Working Capital Finance also remained strong, growing by 6% in the quarter. As usual, in the second quarter, there is some seasonality in these figures, but they also reflect a real improvement in commercial momentum. This gives us confidence that lending activity has normalized and that the slowdown linked to the hostile tender offer is now behind us. Turning into customer funds, in slide 11, unbalanced sheet funds grew by around 1% in the quarter and almost 5% year on year. Importantly, the mix between remunerated and non-remunerated deposits remained broadly stable. This supports our low cost of deposits, with the overall cost of customer funds stable at 78 basis points in the quarter. Thank you very much. We remain on track to deliver our 2027 targets. Our performance in the first half of the year together with better visibility on the 2026 results reinforces our confidence. First, we guided for mid-single-digit growth in performing loans by 2026. Today, the loan book is growing by 5.5% year-on-year with very strong momentum. The same applies to unbalanced sheet funds. We guided for growth of 3 to 4 percent in 2026, and we are already delivering 4.7 growth. Third, on NII, we said that the second quarter would mark the start of the recovery. That is exactly what we have seen. Looking ahead, we have clear levers to support continued revenue growth and achieve our year-end guidance. Efficiency measures continue to support cost discipline. In particular, as I mentioned, we expect around 20 million euros of savings from the early retirement plan in the second half of the year. Core banking results are improving and just as starting to widen again as a result of the positive trend of our revenues and our costs. Widening jaws will be the key to keep improving our return on tangible equity, and we are confident that we will deliver what we committed for 2027, a return on tangible equity of 16%. I want to conclude with what matters most to shareholders, value creation. Over the last few years, we have increased shareholder value while reducing our share count. Thank you very much. Shareholder value creation has grown steadily, measured through tangible book value per share plus cumulative dividends per share. Since 2022, this has delivered a compound annual growth rate of around 12%. Looking ahead, growing profitability, strong capital generation and our commitment to distribute capital provide a solid foundation to continue creating value. This is the rationale behind our shareholder remuneration strategy, combining attractive cash dividends with share-by-backs in a sustainable and value-accurative way. In short, we are returning capital to shareholders while at the same time increasing the value of each share through higher earnings, a lower share count and sustained capital generation. With that, let me hand it over to Sergio who will walk you through the financial performance in more detail. Thank you, Sergio.

Thank you, Mark, and good morning, everyone. Before going through the P&L, let me briefly address the one-offs in the quarter. The sale of TSB generated a gross capital gain of $340 million, mainly booked under gains on sale of assets. We also recorded minus $3 million from the FX hedge on the sale proceeds. Then, we booked 37 million of remaining non-recurrent costs from the ELLE retirement plan and a 45 million negative impact from the sale of a legacy equity stake to Cerberus, with no capital impact thanks to the associated risk-weighted assets reduction. In total, one-offs had a positive net impact of 249 million in the second quarter and 201 million in the first half. Turning to the financial results on slide 16. Recurrent return on tangible equity stands at 13.6%. This is fully consistent with our plan and keeps us on track to reach our 14.5% full year guidance. Let me now walk you through the main P&L lines. NII has clearly reached an inflection point. In the second quarter, it increased by 3.4%. The improvement was driven by three factors. $16 million from customer NII supported by higher loan and deposit volumes, $3 million from the day count effect, and $11 million from non-customer NII, mainly due to the ECB deposit facility rate and excess liquidity from the TSB sale. Our key message is that NII has started to recover. Moving on to slide 18, NIA is evolving as expected. After bottoming in the first quarter, it recovered in the second quarter, and we expect further gradual improvement over the rest of the year. The ECB deposit facility rate assumption of 2.5% after the summer is not the main driver for 2026, given our low first year sensitivity to rates. The more important driver is commercial activity. We expect loan volumes to grow at a mid-single-digit rate and unbalanced customer funds to grow by around 3% to 4%. Loan yields should continue to improve, while deposit costs should rise, but more slowly. As a result, we expect customer margin to exceed 290 basis points by year-end, non-customer NII to remain broadly stable, and therefore total NII to grow by more than 1% in 2026. On the next page, fees increased by 4% quarter-on-quarter, supported mainly by service fees. The strongest contributions came from payments, corporate and investment banking activity, and seasonal effects, while asset management fees remained resilient. Looking ahead, we expect fees to continue improving, supported by higher activity in payments and other services, growth in assets under management, and stronger CIB activity. Overall, fees are performing well and remain aligned with our full-year guidance. On cost, this quarter includes the final non-recovering charges related to the efficiency measures in Spain, completing the yearly retirement plan launched in the previous quarter. Excluding these one-offs, recurring costs were broadly flat, reflecting continued discipline in personnel and administrative expenses. Year-on-year, recovery costs increased by 4.9%, mainly due to higher depreciation and amortization, following the reclassification of the payments business in the fourth quarter of 2025. Adjusted for this effect, recovery costs increased by 3.8%. Importantly, half of the efficiency plan savings will already materialize in 2026. As a result, we're improving our cost guidance and now expect recurring cost growth below 3%. The widening jobs is the key driver of our expected profitability improvement. Revenues are accelerating, while costs remain under control. Core banking results have already started to recover in the second quarter, and we expect further improvement through 2026 and into 2027. This is what underpins our target of reaching a 16% ROT by 2027. On the next slide, cost of risk stood at 40 basis points, fully in line with guidance. This reflects the resilience of our asset quality and the sound risk profile of the loan book. Credit cost of risk was 31 basis points. Total provisions included $115 million of loan loss provisions. 2 million of provision releases from real estate asset disposals 24 million of MPA management costs and 15 million of other provisions Looking ahead, we expect asset quality to remain strong and cost of risk to stay broadly stable at around 40 basis points Let me now move to the balance sheet covering asset quality, liquidity and solvency Asset quality continues to improve. The NPL ratio declined by another 8 basis points in the quarter and by 34 basis points year-on-year. At the same time, the total coverage ratio remained broadly stable at around 70%. Stage 2 exposures continued to fall, down approximately 1.5 billion over the last 12 months. Stage 3 exposures also declined, both in absolute terms and as a percentage of the portfolio. Net MPAs stood at just 0.7 of total assets. Overall, the credit profile remains resilient. Now moving to slide 25. Our liquidity position remains strong. The loan-to-deposit ratio stood at 93%, while the net stable funding ratio was 131%, and the liquidity coverage ratio 188%, both comfortably above regulatory requirements. On ratings, Fitch upgraded Sabadell's long-term rating to A- from AAA+, reflecting its new criteria and our large resolution debt buffer. During the quarter, we executed two securitizations, a traditional cash securitization of consumer loans and a synthetic securitization of SME loans. In addition, our Mexican subsidiary completed its inaugural peso issuance, equivalent to 200 million euros, diversifying its funding sources. Following the sale of TSV, our funding needs are lower. The AT1 buffer is expected to normalize in 2027, while we will continue to manage MREL and liquidity buffers through opportunistic transactions. On the next slide, our CT1 ratio stood at 13.11%. This quarter, we generated 61 basis points of organic CET1 after 81 coupons, added 3 basis points from fair value reserve adjustments, and absorbed 18 basis points from risk-weighted asset growth, mainly driven by strong loan growth. The 60% dividend payout accrual reduced CET1 by 26 basis points. In summary, we grew the loan book by 3%, accrued a 60% payout and still generated 20 basis points of capital in the quarter. With that, I will hand back to Marc to conclude today's presentation.