Unicaja Banco, S.A.

Welcome to Unicaja Banco second quarter 2021 results presentation. Let me start, as always, confirming that we have published the quarterly financial report and this same presentation this morning before market opens in the CNMV website. This quarter, we have Pablo González, Chief Financial Officer of Unicaja Banco, Jesús Ruano, Chief Financial Officer of LiberBank, and Juan Pablo López, Deputy Chief Financial Officer of LiberBank. As you can see in slide 2, we will present the quarterly results in five different sections. Pablo will start with a brief update of the merger and will then continue with the regular quarterly review of Unicaja Banco, including the main highlights results as equality, liquidity and servicing. Then, Jesús and Juan Pablo will summarize the main trends of LiberBank in the quarter and afterwards, as always, we will answer your questions. So that said, Pablo, the floor is yours.

Thank you, Jaime. Good morning to everyone. Before reviewing Unicaja Banco quarterly results, let me give you a quick update on the merger process in slide four. Considering that the legal merger has not been formalized yet, We report for the last time the quarterly results on a standalone basis. The second quarter of 2021 is the last quarter in which we will be two different banks. We expect to formalize the legal merger at the end of this week, on July 13th, and July 31st will be the date of the merger from an accounting point of view. So the third quarter results will be the first ones being a single bank, and in that moment we will update all the details regarding the financial position of the combined entity. The latest pro forma consolidated financial information regarding the merger by absorption of LiberBank by Unicaja Banco... is the one prepared by the Board of Directors of Unicaja Banco in February 2021 with December 2020 as a reference date. The final figures of the PPA, the main quarterly trends of Unicaja Banco, and afterwards, Jesús and Juan Pablo, will update LiberBank Trends. That said, as you can see in the slide 4, I am glad to confirm you that we have received the merger authorization from the competition authority and the government in July. So, as I said before, we expect to close the legal merger next Friday. That same day will be the exchange date and the last trading date of LiberBank shares. The record date will be the 3rd of August, and the previous day, the 2nd of August, will be the date of the exchange, when the new shares of Unicaja Banco will start trading. So at the very beginning of August, the exchange of shares will be formalized, and also we will be legally, and from an accounting point of view, a single bank. If we move now to the quarterly results, I will start in page 6 with the Unicaja Banco standalone main highlights of the quarter. Regarding the business, total performing loans grew 2.2% both quarter-on-quarter and year-to-date. However, as you know, we have some seasonal loans every second quarter. Excluding such loans, the growth was 0.6% year-to-date. As we will see later, such growth was explained by a positive trend in corporate loans and also owing to mortgages, which balances grew for second quarter in a row. Total customer funds grew 2.1% quarter on quarter, with balance sheet funds growing above 3% in the quarter. New loan production continued with its recent positive trends. with individual new loans of the first half of the year 55% above the previous semester and corporate loans up 149% in that same period. From a P&L point of view, core income, that includes net interest income plus fees, grew slightly above 5% year on year. NII was 2.8% above the previous year, owing to the lower cost of retail and wholesale funding. Fee income grew 3.5% quarter-and-quarter and more than 10% year-on-year, supported by higher payments and collection fees, but also helped by better non-banking products fees. Total costs continued to improve and fell 2.7% compared with 2020, with savings amounting to 8 million. In terms of impairments, we have anticipated additional 11 million of COVID provision in the quarter and 36 year-to-date, leaving cost of risk at 54 basis points. However, cost of risk excluding COVID provisions and the negative results of a portfolio disposal decreased to 19 basis points. Finally, net income reached 70 million in the first half of the year, which is 15% above last year. On asset quality, liquidity and solvency, this quarter has been very positive. NPAs continue to decrease almost 15% year-on-year, with NPLs decreasing an impressive 19.8% and gross foreclosed assets by almost 9%. NPAs coverage continue to grow one more quarter to 66%. From a liquidity point of view, the loan-to-deposit remained stable at a low 64%, and our LCR at 310%. Finally, the improvement in solvency is probably one of the most positive of the quarter. Our C1 fully loaded reached best-in-class 17.7%, with regulatory total capital at 21%. boosted by the approval of IRB models, something that leaves our solvency with an impressive 1.7 billion buffer over our SREP. All in all, this quarter we have very positive trends. Volume continued to improve. Results were supported by core income. Our coverage levels remained best in class. and the approval of IRB models leave us with one of the highest solvency buffers among the Spanish and European banks. All of them are very positive trends ahead of the merger with LiberBank that, as you all know, will enable us to further improve future returns, among others, through the crystallization of synergies. In slide seven, we have included information regarding our commitment with sustainable and our ESG strategy. In the interest of time, I won't enter into much details, but this is something that is becoming more and more important, and we wanted to share with you some of the initiatives taken. Among others, we have recently updated our action plan on sustainable finance that was initially approved in 2020, We have also approved a sustainable policy, two examples of recent achievements. But we want to keep pushing sustainable measures, providing more details regarding our environmental risk, aligning our lending with sustainable development goals. As an example, let me highlight that we are members of the Spanish Global Compact, We have joined the National Financial Education Plan. We have contributed with 375 houses to the Social Housing Fund. And finally, we are also working in specific products, like our green loans for the acquisition of electric vehicles, or specific saving products like our sustainable pension and mutual funds. This is becoming very important to us, and we believe that this is one way street. I will move now to slide 9, where you have the P&L details. As I usually do, I will start with the quarterly trends. NAI fell $100 to $140 million in the quarter, mainly owing to lower contribution from NPLs, as we will see later. Fees grew 3.5% quarter-on-quarter to $64 million, which is the highest quarterly fee income of the last six years. Regarding the rest of revenues, I would highlight the recovery of dividend income as we anticipated last quarter. Trading income and equity method were almost flat in the quarter. Also, it is worth noting that other operating charges include $16 million of the contribution to the Resolution Fund. Total costs were 142 million, leaving pre-provision profit at 89 million. Impairments included the 11 million of COVID provision and other small impacts from the disposal of an NPL portfolio, explaining the quarterly increase of the quarter, but also the positive reduction of our NPLs. All in all, quarterly net income reached 28 million. Regarding the year-on-year figures, NAI was 2.8% above 2020, while fees grew above 10%. Dividend income also improved after a weak 2020 owing to the pandemic. Regarding the rest of revenues, I would highlight that trading was not as strong as the previous year, that it was unusually high to partially compensate higher impairments. Total cost in the first half of the year continued to fall by 2.7% and total impairments also fell by 36%, leaving net income at 70 million, which is 15% above the previous year. If we move now to slide 10, you can see that total customer funds grew 7.5% year-on-year and 2.1% quarter-on-quarter. Such a growth was one more quarter explained by a strong increase of 7% in deposits but also by an improvement of asset under management and of balance sheet funds that grew 9.5% during the last 12 months to $13.4 billion. In slide 11, you have credit and loans details. Gross loans grew 1.6% both year-to-date and quarter-on-quarter. Private sector loans grew Gross loans grew 2.3% year-to-date and public sector gross loans were almost flat. However, NPLs fell more than 10% in the first six months of the year, which is very positive news. By segments, loans to individuals grew 1.6% and corporate loans grew 2%. As usually, we have included performing loans trends in the right-hand side of the slide. As you can see, total performing loans grew a little bit more than 2%, quarter on quarter. In terms of segments, corporate performing loans grew 1.4% in the quarter and consumer loans a significant 17% owing to the seasonal advances that we have every second quarter. Finally, mortgages are one of the positives of these results because for second consecutive quarter we managed to increase mortgages our balance thanks to the positive trends in new production, which details are included in the next slide. As you can see in the top left hand side of slide 12, new lawn production improved significantly when compared with the last two semesters. Private sector new lawn production grew by 96% in the first half of 2021, By segments, we have some very positive trends too. Starting with mortgages, as you can see in the bottom left, in the first half of 2020, we formalized $339 million, growing to $477 million in the second half of 2020, and now reaching $768 million in the first six months of 2021, a significant improvement that explained the growth in mortgage balances during the last two quarters. Regarding corporate loans in the bottom right, it has also been very positive, with new production in the first six months of the year growing by 149%, and what is more important, with stable yields in SMEs and improving in large corporates, something very positive considering current strong competition environment. In slide 13, we have included the regular net interest income details. As you can see in the top right, the big bulk of the quarterly drop was explained by lower contribution from NPL balances and the debt portfolio, although partially compensated by lower funding costs. Regarding the debt portfolios we anticipated in the past, this is explained by the maturity of some bonds that were initially funded with TLTRO2. The lower income from NPLs is explained, among others, by the significant decrease in NPL balances, which in Q2 2021 were 20% below Q2 2020. In the bottom of the slide, you can see that front book customer spread improved six basis points. In the quarter, leaving front book customer spread above the back book for one more quarter. In slide 14, you have the regular update of our debt portfolio. As you can see, the balances have decreased from 22.6 billion in the first quarter of 2021 to the current 21 billion, with the big bulk of the decrease concentrated in what we call the TLTRO portfolio, which was an opportunistic portfolio that we funded with the TLTRO II funds three years ago and has decreased from 2.7 billion in March this year to 0.9 billion in June. and that will mature in the coming months. Overall yield of our debt portfolio was 88 basis points, and as usually, most of the exposure is in sovereign debt classified in amortized cost. In slide 15, you have fee income trends, which is again one of the most positive of the quarter. Total net fees in Q2 2021 reached 63.9 million, which is 22% above the same quarter of last year. Year on year, the growth reached 10.6% supported by payments and collection and non-banking products fees. As I said before, the almost 64 million reached this quarter does not include extraordinary fees and is the highest amount of the last six years, something that makes us feel confident with our guidance of growing fees in this year by high single digits. In slide 16, you have total expenses evolution. As you can check, total cost fell almost 7% in the first half of the year compared with 2019 and almost 3% compared with 2020. Savings are explained, among others, by the charts that you have in the right-hand side of the slide, where you can see the evolution of branches and full-time equivalents. In slide 17, you have the regular details on impairments. In the left, you have total impairments in euros, and in the right, the cost of risk. Bear in mind that the second quarter of 2021, we have booked other 11 million of provision for COVID-19 potential future impacts, which together with the 25 booked in the first quarter of this year and the 200 in 2020 amount to a total 236 million. On top of this, we have other small impact in loan loss charges this quarter that is explained by the disposal of an NPL portfolio of around 100 million. In the right of the slide, you can see the cost of risk with and without the COVID provisions, but also adjusted by the different portfolios disposals formalized during the last years. As you can see, recurrent cost of risk remained below 20 basis points during the last four years. We can now move to slide 19, where we have the regular NPL information, which under my view is other of the most positive trends of the quarter. As you can see, NPL balances fell at a compound annual growth rate of almost 20% during the last five years. NPLs fell 11% percent quarter-on-quarter in the second quarter of 2021 and almost 20 percent year-on-year. The NPL ratio improved to 3.7 percent in June. As we show in the table in the bottom of the slide, Quarterly gross entries were at similar levels as the previous quarter. However, recoveries improved significantly to $188 million, supported, among others, by the disposal of a portfolio of around $100 million, leading to a net reduction of $126 million, which implies a quarterly drop in NPL balances of 11%. In slide 20, we have updated the eco loans and moratoria balances. In the left of the slide, you can see that we have granted almost one billion of credit and loans guaranteed by the state of which the drawdown balance was only 668 million in June, representing 2% of total performing loans. In the right hand side, Of the slide, we show the moratoria details of which 90% have already expired in June, leaving the outstanding balance at only 84 million. In slide 21, you have our regular credit risk exposure and NPL coverage details. Overall NPL coverage grew one more quarter to 68.5%, which is 7.7 percentage points above the previous year. This is a very conservative level when considering that around 80% of our NPLs are secure. In slide 22, you have the foreclosed assets details. As it happens, with the NPL coverage, foreclosed assets coverage also increased up to 63.4% in the second quarter of 2021. one of the highest of the sector. Gross balances fell 2.9% quarter-on-quarter and 8.8% year-on-year. In net terms, for close assets fell almost 4% quarter-on-quarter to $381 million, representing only 0.6% of our assets. In slide 23, you can see how overall NPAs continue to decrease one more quarter, reaching 2.1 billion in gross terms and 714 million net of provision, representing only 1.1% of total assets with coverage at 66%, one of the highest of the sector. In slide 24, you have the details on our liquidity position that, as you can see, it remains similar to the previous quarter with the loan-to-deposit ratio stable at 64 and our LCR at 310 and NSFR at 147. And finally, We include our solvency position in slide 25. As you can see, this is probably the most positive news of the quarter. As you all know, we received the final approval to apply our advanced models to part of our portfolios. something that together with the quarterly solvency generation has boosted our seed one fully loaded from 15.1% to an impressive 17.7%. As you can see in the top right of the slide, the big bulk of the improvement is explained by the approval of the IRB models. However, we have also generated additional solvency, among others, owing to the drop in the MPLs and retained earnings. 1.7 billion buffer over our threat requirement. All in all, this is a unique solvency position ahead of the merger with LiberBank, a deal that will generate tons of value and will significantly improve our future profitability and shareholders' return. So that was the quarterly summary of Unicaja Banco and now I will leave the floor to Jesús and Juan Pablo to explain the LiberBank numbers.

Thank you, Pablo. Good morning, everyone. Regarding LiberBank Q2 results, we have a short presentation today, starting with commercial activity in slide 27. You can see the customer funds increased more than 9% during the last 12 months. Let me highlight the performance of the mutual fund segment, where AUMs are up 37% year-on-year. Net inflows during the quarter were more than 400 million. This is a new record after a strong first quarter. Actually, net inflows during the first half were more than 700 million, and we are already above 2020 net inflows for the entire year. Therefore, we are very happy with this performance that is supporting our standing fee income growth, which is up 37% year-on-year in mutual funds. Moving to lending, slide 28. Performing loans are more than 10% up year-on-year on the back of strong growth in the low-risk portfolios. Mortgages stock increased almost 11% year-on-year, while our market share in new production is close to 7%. You can see on the bottom right some risk metrics with one of the lowest NPL ratios in the sector. The volume under moratoria outstanding represents only 1.59% of the stock. Another portfolio where we are being very active and where we also feel very comfortable from a risk point of view is public sector. Here we have good municipalities and regional governments with pricings above those of the Spanish treasury. SMEs and corporates' new production is recovering after accumulating last year significant volumes guaranteed by ICO. We are confident that this recovery will help us meet the TLT03 benchmark at the end of the year, and we are in line with this target. And lastly, consumer book recovery is accelerating. As you know, we are growing basically with our existing clients that we know well. And we have also had a record quarter here with more than 90 million of new lending. Therefore, it is remarkable that despite the major process, there are no distractions and the commercial teams keep working at full speed, showing volume growth in the most relevant lines like AUMs, insurance or mortgage lending. Moving now to asset quality, slide 29, and starting by MPLs. Entries remain low, 50 million in the quarter, which is below previous quarters, while outflows are as high as 123 million, allowing a reduction of the MPL stock. Part of the outflows come from the write-off of a single-name MPL, what also explains the lower coverage ratio comparing to Q1. If we exclude this write-off, coverage would have been slightly higher. Underlying cost of risk remains low, but we continue building provisions in this environment in line with our standalone guidance. Foreclosed asset disposals were 40 million in the quarter, close to 90 million during the year, and stock increases likely due to a one-off inflow. Total NPAs continue to reduce, and both NPAs and NPA ratios keep improving. In slide 30, we have the Q2 and first half of the year P&L. Before entering into the details, let me highlight that in Q2 we have some relevant one-offs, more significant ones associated to the transaction, so the accounts should be analyzed in this context. Q2 NII goes down by 5 million compared to Q1, mainly due to lower revenues from the fixed income portfolio, as we have reduced size and duration in order to eliminate capital volatility in the merger, given that positions at amortized costs are mark-to-market. But retail banking NII remains quite stable thanks to the good performance in volumes and despite lower reference rates. First half of the year total NII is flattish compared to last year. Recurrent fees amounted to 57 million in the quarter and 117 million in the first half of the year, going up by around 20%, doubling our guidance. Thus, we are much pleased with this outstanding performance in a line that is key for improving recurrent profitability despite low interest rates. Growth in insurance and mutual fund fees is around 30%. Dividends come mainly from our stake in CASER in the quarter, which are from equity method stakes 14 million below last year figure, as we have had a negative one in one of our non-listed exposures of setting part of EDP's contribution through Opidum. In trading, we have minus 9 million, which are extraordinary as they come from some sales associated to the restructuring of the portfolio in the context of the merger, and also from the mark-to-market of some derivatives. Regarding other operating revenues and expenses, the higher cost compared to previous year is mainly explained by increasing contribution to the Resolution Fund. Operating expenses are 7% below Q2 last year and amortizations are in line with Q1. Below pre-provision profit, apart from cost of risk that I have already commented, we have minus $166 million in general provisions, of which $143 million is the full provisioning of our EPC program, which involves around 730 employees. Please note that this $143 million charge is part of the restructuring cost announced for the merger. Savings expected from this measure are $40 million per year starting from July this year, equivalent to almost 25% of the announced transaction cost synergies, excluding Unicaja's standalone plan. Regarding the rest of the provisions, most of them are also non-recurrent, associated to other personal and litigation issues. In slide 31, we just want to show, as we did in the previous quarter, that the evolution of the recurrent business continues to be good. Retail banking in NIA is being resilient, and in this we are achieving outstanding growth, as commented, while we maintain cost control before benefiting from the major cost synergies. Now I pass the word to Juan Pablo to close the presentation.