Caixabank Sa Unsp/Adr

Good morning and welcome to Cashabank Results presentation for the first quarter of 2025. We are joined today by our CEO, Gonzalo Gortazar, and our CFO, Javier Pano. In terms of logistics, we plan to spend about 30 minutes with the presentation and 45 minutes to an hour with the Q&A. The Q&A is live and you should have received instructions by email on how to participate. Let me end by saying that my team and I will be at your full disposal after the call. And without further ado, Gonzalo, the floor is yours.

Thank you, Marta, and good morning. Good morning, everybody. Quarter has been much stronger than what we expected, I have to say. It's a great start for us into this new three-year plan. And some of the highlights or the key highlights are here on this slide, activity in particular, as you will see through the presentation, is accelerating from a fairly good fourth quarter last year. The first quarter is confirming that trend. Gaining clients, a net gain of 340,000, performing loans up 3% after so many years of deleveraging. Not yet catching up with nominal GDP, but getting closer. Customer funds continue to do very well and our protection business is again double digit growth. So activity, very positive, better than expected. The second area where we are beating expectations is asset quality. Non-performing loans are down and the cost of risk is again lower than what we were expecting. Very good news. What we're seeing today is actually an improvement of trends rather than any worsening at this point, despite all the noise in terms of tariffs, et cetera. The expectations and the reality currently is as positive as it could be. Liquidity and capital, very strong capital in particular, Javier will comment, with a positive impact from Basel IV, and that's leading to an increase in net income, revenues, particularly revenues from services, up 7%. NII evolved as expected. In fact, the trends are actually better than expected. And provisions, as I said, very good performance. Net income is up 46%. Then there is, as you probably have all seen, different accounting for the banking tax, which means that If you harmonize for that, it's really 6.9% the growth in net income. Return on tangible equity close to 20. Cost income below 38. Great numbers, no? Brief comment on the macro. We have an expectation of 2.5% growth for GDP in Spain this year. Very similar level in Portugal. This number already considered some impact from tariffs, actually 0.2%. Obviously, the tariff discussion could end up worse than what we had expected at the beginning of the year. We'll see. So there is some but limited downside from those 2.5% growth. Obviously, the fact that we have one of the lowest exposure worldwide to the U.S. is a is a key factor. 1.1% of our exports of goods and some percentage of GDP could be affected. Sentiment continues very well. Consumer data is actually very strong including in April and obviously we continue to have now these lower leverage levels than the Eurozone and much lower than used to have historically. So I have to say it's obviously not good to face uncertainty in terms of tariffs and trade globally, but certainly if there is one position of strength to be had to face those, this would be the case of Spain and also the case for CaixaBank. So we are actually quite confident that we'll be able to deliver in a good number of scenarios. As you know, in our plan, we talk about growth and transformation. Few data on growth. Client growth is very important. Business volume up 6.5%. Our market share strong. We're defending it well. And in terms of transformation, we continue to develop a number of initiatives which are already yielding some results, like changes to our new app architecture where digital onboarding, digital sales are growing strongly. I continue to hire people very successfully in areas where talent is scarce, like tech. We have added 400 developers in the last six months. We continue to obviously make progress also with the generative AI implementation in the group, particularly in areas of customer service, we have had significant improvements in this quarter already. And there's much more to come. Loan growth is at 2.9% year-on-year and even positive quarter-on-quarter 0.9. And this has to be sort of considered in the context of first quarter been seasonally weak for generally for business and including lending. So it's a very good result and you can see these kind of steps going upwards in consumer lending, in residential mortgages. The trend is very satisfying and actually on the business loan growth, which was the one when we presented our plan, we only had figures up until September. And obviously, we had some discussion with investors and analysts and the market in general whether it was logical to think that business growth will sort of turn positive in Spain or not. We thought that it was about time. So far, so good. What we're seeing is very, very encouraging in terms of what's happening in Spain. Obviously... We need to see further confirmation in the future, but certainly it feels pretty good. On the new lending production, numbers are up 15% across the board, particularly high on new residential mortgages because the first quarter last year was a bit weaker, not as high when you look at the rest of the 2024. Growth in 2025 is more reasonable than, let's say, 62%. Continue to do the business we want to do. We're not doing anything extraordinary. We're doing well across the board, residential, consumer, new business. So thinking about the short term, but particularly about the long term, making sure we take the right credit decisions, both in terms of asset quality and of pricing in a very competitive market, as you know. The customer funds, year on year, we have a huge growth, 8.5%. But we also have good growth quarter on quarter. Again, in a quarter that is seasonally weaker, a positive development is quite good. In our opinion, certainly better than what we were expecting. Obviously, the market has, in the month of March, has been more negative. So actually quarter on quarter, It has detracted 0.3 percent to the evolution. But despite that market effect, we have clear improvement in – clear increase in the total customer funds. And when you take away the market impact, you can see in the middle of this slide how that acceleration trend continues. And the reality is that sort of the savings rate continues to be very high in Spain. compared to historical levels, close to 14%, and there's good growth in disposable income as well. So barring sort of impact from markets, which I think most of them have already been felt, the situation is a positive one. Wealth management in particular, increasing... net inflows and obviously I think a position that is absolutely differential. Again, you can see on the right-hand side that 29%, 29.2% market share, how it compares to our two immediate competitors. The two of them together are not of the size that we are. And with performance track record, which you can see in an amount of periods on the bottom of the page, we are expecting to continue to attract clients, not just because we are offering better market performance, but also because our distribution and our advisory model is allowing us to do so on a consistent basis. Insurance, protection insurance, 12% growth, as I said, balance between life risk and non-life, and in non-life between health, home, auto, and others gaining market share. The quarter has been particularly strong in life risk associated also to strong mortgage production, but also to life risk not necessarily tied to lending. MyBox continues to have a great success, and we are increasing the product range and adding New functionalities we have in the past developed in my box care, my box retirement, for the self-employed, the tranquility, my box tranquility, senior tranquility, et cetera, et cetera. So good across the board. BPI. Good quarter, 20% return on tangible, 38% cost income, very similar to the group lower in terms of non-performing loans and obviously better on the sector and gaining market share. Very pleasing performance from BPI again in another quarter. Finally, net income, there is this adjustment to the banking levy. So we would have made $370 million more last year if we had accrued the banking levy like we're doing this year. So that's why we have that pro forma to guide you through what is more, let's say, the trend of net income growth. That's 6.9%, and that includes... a slight increase in revenues, offset slightly more than fully by costs, and then a significant improvement, particularly in impairments. I read some of the comments early this morning. When you look at impairments, I tend to think that maybe this is a one-off. This is clearly reflecting established good conditions an improving trend in asset quality, so I wouldn't take it as a lower quality than other parts of the English. Certainly, at least not in this particular quarter because it reflects a clear improvement of the trend that has been undergoing for some time, as you know. So I think with that, it's time for Javier to continue.

Thank you. Yes, thank you, Gonzalo. As usual, from my side, additional comments on the P&L and the balance sheet. Starting with the consolidated income statement, that net income, as you may see, approaching 1.5 billion. Obviously, as you know very well, comparing with last year, last year we had in full the impact of the banking tax, remember, close to 500 million. That is now being quarterly accrued, and for this purpose here in dark blue, we are showing that net income pro forma for 2024 with the banking tax linearized, hence net income for comparison purposes up by close to 7% year on year. Moving to revenues, NII down by 3.5% quarter in quarter, fully in line with our expectations, and you know also that the first quarter is impacted by the impact of the day count, that this year has been higher than last year. Last year, February had 29 days. And, well, we can elaborate on all that in the Q&A for sure. Then revenues from service are really strong quarter. In this case, we'll focus on the year-on-year evolution because quarter-on-quarter, you know that the fourth quarter has plenty of seasonality. Year-on-year, as you may see, up by 6.8%. basically on the back of a really strong contribution from wealth management up by 16.5%. We have had over 1 billion of inflows per month, which has been actually record high in recent times. Then protection insurance with a really strong commercial activity that will filter into the P&L going forward for sure. And then banking fees with real strong quarter in CIB and everything related to markets, strong performance on securities, on foreign exchange, et cetera. Other revenues. I would highlight here that we are registering the dividend from BFA, close to 50 million. That is usually, or at least last year, was recorded on the second quarter. And then on other operating income expenses, no longer the impact from the banking tax. That is From now on, as I say, quarterly accrued on the tax line. And then also operating expenses in line with the plan, with growing year-on-year 4.8%. Remember, we are starting to deploy our IT plans. And as Gonzalo was commenting, really lower loan loss charges and other provisions, something that we think that – is here to stay. Also, I would like to remark that on the tax line this quarter, but also, as we will comment on the Q&A session for sure, we are incorporating a DTA write-up. Let's move with that to NII. Here on the left, we have the usual quarterly NII breach. You may see The day count clearly having a negative impact, minus 22 million euros. Then client yields, well, you know, lower index resets on floating loans, not fully compensated with lower deposit costs. But then we are already starting to have tailwind from business volumes. And then quite a significant counterbalancing effect from the ALCO, plus 89 million in a quarter. basically driven by lower costs from wholesale funding and deposit hedges that we have been implementing for several quarters. On the right margins, with that customer spread at 320 basis points, down by 11 basis points in the quarter. Also further to the right, the bar book yield of the loan book, 403 basis points, and quite a significant reduction of our cost of deposits here at ex-foreign exchange and hedges down to 68 basis points from 80 basis points. Then below, bottom right, you have plenty of details on our deposit balances, the composition, and basically the message is that this quarter we have grown in deposits. let's say, beating this kind of negative seasonality that we usually have in the first quarter. But it's not only that. It's that actually growth has been coming on basically non-interest-bearing deposits. And those are average balances. You may see that this is the average for every month, for every quarter, sorry. And we are up by 3 billion on non-interest-bearing deposits, a trend that we are expecting is going to continue, no? We keep our interest-bearing deposit balances stable in the quarter. And on the right, you may see precisely the evolution of the cost of those interest-bearing deposits sharply down this quarter to 28% from 263%, and the wave remaining pretty much unchanged at circa 27%. Some additional comments on the yield curve and our ALCO activities. Here on the charts on the left, on the upper chart, you may see in blue the current deposit facility rate as of a couple of days ago. So this is really recent. And then in dark, that's the deposit facility rate as of September 24, which was the yield curve used as base case for our strategic plan, three-year plan projections when we presented our capital markets day back in November. As you may see, current yields are a little bit below the levels used for the strategic plan in 26, early 27, but from late 27 and beyond 28 are clearly higher. This is resulting into this steepening of the yield curve everyone is talking about. Below you have this additional chart here for disclosure purposes. We show here the European Union 10-year bond versus 12-month arrival. You may see that the spread is already 1 percentage point. So, well, this together with a widening of sovereign spreads versus swap yields offer really value and really a plenty of opportunities for ALCO management, something that actually during this first quarter we have started to implement. And as you may see, we have added 3.5 billion of additional structural deposit hedges. Now the total amount outstanding is 53.5 billion. And also after several quarters with subdued activity, we have also increased basically during the month of March the increase in yields to add to the fixed income portfolio, adding over 4.5 billion euros. You have plenty of details on the appendix about our ALCO positioning. Let's move now to revenues from services. As I said at the beginning, really a strong quarter in general, up by 6.8% year-on-year, with improvement across the three main segments, We have had strong inflows, and as Gonzalo was saying, already some negative impact from market to market. And we can update on that also on the Q&A session, but really strong momentum on that part of the business. Protection insurance with continued support from high activity, premium over 12% vis-à-vis last year. although the evolution in the P&L year-on-year and quarter-on-quarter is impacted by some positive non-recurrent factors we had in the first half last year. And also we are changing a little bit the product mix as we have been commenting. On banking fees, high contribution from CIB, everything related to markets in general, more than compensating this kind of underlying pressure on more recurring basic service fees, although I have to say that this year we expect less pressure than last year on that front. Costs, not much to say, 4.8% up year on year. We are starting to implement our IT plans. Remember that we are stepping up our IT cash out for the next three years by more than one billion. And so everything is doing according to plan. On the right, you have the evolution of the cost to income. You know that with the change in the accounting of the banking tax, the cost to income has automatically an improvement, now at 37.7%. And for comparison purposes, we are, let's say, on a performer basis, restating here the cost to income as if it would have been accrued and in the tax line every quarter. As you may see, we have been hovering between 37% and 38% already for several quarters, and this is a level for cost to income that compares extremely well with our peer average. Loan loss charges, really low this quarter, less than 200 million for the quarter. That could be an annualized cost of risk of just 20 basis points, The way we reported, as you know, on a 12-month trailing basis, 25 basis points. We keep holding extremely high NPL coverage, 70%. And this quarter, we have kept unchanged the unassigned collective provisions that stand at 341 million euros. Moving to the balance sheet. Some comments on MPLs. You can see here the really positive evolution. Record low for MPL ratio to 54%. MPLs 10.1 billion, more than 100 million less organically in the quarter. That compares very well with the average in the industry. And on the right-hand side, as you may see, by segments, there is not any single corner of our loan exposures greatest portions that is showing any sign of deterioration. Liquidity, a sample as always. Our liquidity cover ratio hovering circa 200%. Very comfortably, net stable fund in ratio at 148. Liquidity sources 222 billion. Really, really strong. Very well positioned to seize opportunity from the expected re-leveraging of core economies. Now, we have a lot of worry about tariffs, but remember that There is a plan on defense. There is a plan on infrastructure in Germany. For sure, this will result into business opportunities. And as you may see, we compare in terms of liquidity really well vis-a-vis our peers. Although you have all the MREL information and funding information on the appendix, I would like to highlight here we have had rating upgrades from S&P. to, as Sinonon prefers, tier 2s and 81s, one notch for every asset class. Finally, capital. We have the final impact from Basel IV with the final balance sheet for the year. It has been positive by 20 bps. Then from there, and here, remember that this is the day one impact, but going forward, we are not expecting any other material negative impact from Basel IV. Then for the quarter, as I was saying, we have a positive 51 basis points organic capital generation, minus 40 basis points from dividends and 81s, a small negative of four basis points from markets, another that results into a CT1 ratio at 1246%, which is an ample MDA and is 21 basis points surplus above our threshold for capital. Additional distributions, remember, that remains unchanged at 12.25%. And while we keep creating shareholder value, our book value per share, obviously considering the dividend, up by close to 9% in year-on-year basis, and our capital devolution plans remain ongoing with this 500 million share buyback completed in March, the final dividend paid in April just a few days ago. and the $600 million to be executed. And, well, the final slide, which is exactly the same than last quarter, as we are fully reiterating our guidance, capital targets, and KPIs. So thank you very much. And I'm sure we have a few questions. Thank you.