Unicaja Banco Sa Ord

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.

Thank you, Jesus. Now moving to solvency, the bridge explains the quarterly evolution and the two main paths are extraordinary and will support higher profitability in the future. The first one comes from the full provisioning of the early retired employees already explained by Jesus and the second one is the new accounting treatment for the 43 million euros cash consideration fully received last year when Helvetia took control of Caser. This fee is not at risk nor conditioned to any specific quantitative obligation. Let me remind you that we booked 38 million euros of the 43 million euros in our P&L last year. However, the CNMV has required us to account it through the P&L during 10 years. On one hand, there is a negative 20 basis points capital impact as we reverse the 38 million euros booked. On the other hand, this accounting treatment implies higher fees from now on as we accrue more than €4 million per year. Excluding these one-offs, the bank continues to generate capital through net income close to 20 basis points that is offset by increasing risk-weighted assets coming from the loan book growth that will also imply higher revenues going forward. Lastly, our valuation adjustments come mainly from our indirect stake in EDP. And moving to the next slide, wholesale funding fell by around 600 million euros, of which half is due to cover bonds and senior debt maturities, and the other half is lower money market funding. Regarding the fixed income portfolio, we reduced both duration and size by around 800 million euros. And the reason for this was to minimize the volatility of the fixed income portfolio, as all the bonds, including the ones at amortized cost, will be marked to market in the merger. And that's all from my side. Thank you.

Thank you. Let me now finish reiterating that we expect to formally close the legal merger by the end of this week and finish the execution of the exchange at the beginning of the next one. Next quarter will be the first one reporting as a single bank. We believe that the starting point of the combined entity is very positive. We will focus now on the execution of the integration and this deal supported in the crystallization of synergies and its balance sheet strength will enable us to improve significantly our profitability and future returns which is the main target ahead and we are excited about the future of the bank. Thank you.

Thank you, Pablo, Jesus, and Juan Pablo. Let's move to the Q&A. I will start with some general questions and some specifics on Unicaja, and I'll leave the floor then to Juan Pablo to ask some questions on specific questions if they come from Liberal Bank. Starting on the more general ones, Pablo, can we provide an update on the final impairments, the synergies, and whatever impacts from the merger? Sure.

Yes. As we have said in the presentation, and given that the date of accounting effects will be July 31st, The update of the fair value adjustments will have to refer to that date, and therefore, as I said before, we will update the final details of the merger in our presentation of the third quarter 21 results, which will be the first quarter in which our financial statements will include LiberBank. It will be then when we will update and publish the final details on the fair value adjustments, impairments, synergies, and solvency of the combined bank.

Thank you, Pablo. We also have questions regarding if we can update our guidance for the 10 P&L lines in standalone, but also for the combined entity. Thank you.

Well, under a standalone basis, we gave guidance at the beginning of the year. What I can say now is that the underlying business trends are positive, but as you can imagine, we cannot be very specific at this moment. However, we expect to provide some guidance next quarter.

Thank you. Starting with NII-related questions, if we can update our views, starting with loan volumes going forward, Pablo.

Yes, it is worth noting that every second quarter in UNICAJA we have the seasonal advances that represents around 390 million in the second quarter of 2021. This balance always decreases again in the third quarter. However, excluding these seasonal longs, as you probably saw, new production keeps improving, something that has been reflected in the stock of the longs. There are probably two things that I would like to highlight. On one hand, corporate longs' performance has been positive. both in terms of balances and new production yields, which is quite positive for the TLTRO3 benchmark. On the other hand, for second consecutive quarter, our stock of mortgages is growing following the significant improvement in new production. As an example, since 2017, the average new mortgage loans per quarter was around 200 million euros, But that has doubled to close to 400 million in the last two quarters. These two factors make us feel confident with our previous guidance of a stable balance ahead. We could see even some low single digit increase for long since standalone basis this year. For the combined bank, we will update our view next quarter, but as you saw, trends remain very positive.

Okay, Pablo. Continuing with NII, if we can elaborate a bit further on NII guidance in standalone, but also any color for the combined bank, and also why the income from MPLs is decreasing in the quarter.

As I said before, we will update our guidance for the combined NTT next quarter. once we fully merge and consider all the impacts of the merger. In the first half of the year, it has been 3% above 2020, but it is going to be difficult to maintain such growth for the full year because we expect some decrease in the contribution from the debt portfolio and some additional negative repricing in the second half of the year. In standalone, we have more than 3 billion maturities in our debt portfolio this year, of which close to 2 billion have already matured. Considering the recent volatility of the debt markets, we have decided not to be in a hurry to reinvest such structural liquidity. trying to to buy at higher yields even if we have to do it in a later stage this strategy could decrease the contribution from the debt portfolio further in the short term but will help us to keep higher income in the medium term this same strategy could be also implemented for the combined bank but we will provide more details in the coming quarters On top of this, as I explained in the presentation, the contribution from NPLs has also decreased, among others owing to the significant reduction in its balances. Bear in mind that despite transferring an increasing unlikely-to-pay loans, overall NPLs fell a significant 20% year-on-year. However, it is also worth noting that in the first quarter of 2021, It was too high. Finally, volumes are improving in 2021 and that will help us in the coming year and also the TLTRO3 for the whole period also will be the positive for NIAI.

Thank you, Pablo. You have mentioned it, but we have two questions, specifically two questions on the contribution from the portfolio and the strategy of the portfolio going forward.

The main objective and strategy of their portfolio hasn't changed. Probably the only changes worth mentioning is the size that has decreased in the quarter by 1.6 billion following the redemption that I already mentioned. and also we have executed some hedges to reduce interest rate risk together with some forward sales that were executed to secure capital gains. The activity regarding the deferred value OCI portfolio remains not material. One more quarter. And regarding the strategy of the bond portfolio of the combined bank, there will be no major changes compared to last year's strategy. The main target will continue to be to invest in the structural liquidity of the bank, mainly in European government bonds to obtain a stable income. So after the legal merger, we will analyze what will be the appropriate size of the portfolio considering the expected evolution of the balance sheet and we will try to be opportunistic in order to build the portfolio at the right time to obtain an attractive yield. At the same time, depending on market condition, NII trends, and the evolution of unrealized gains, we will continue to monitor closely the markets and manage through hedges, if it's necessary, the interest rate risk and the credit risk of the portfolio. Just to update you, the unrealized gains in the amortized cost debt portfolio at the end of this quarter were around $650 million, which gives us room to manage actively the portfolio. So we follow closely this level of unrealized capital gains to secure part and also secure part of them and unlock some capital gains for the next two, three years.

Thank you, Paolo. Moving to fees, if we can update our views on fees going forward, again in the standalone, and if we can provide some color for the combined entity.

As I said before, it's too soon to provide guidance for the combined bank. However, as you probably saw, the trend is very positive for both banks. In the standalone basis, we continue to expect a positive trend. This quarter, the growth has improved further, partially explained by the base effect. Because we compare with 2020, that was a weak quarter. But as I said before, we continue to see 2021 fees well above 2020, and we reiterate that we expect to increase fees at a high single digit this year.

Moving to costs, we can update cost-cutting trends and cost-cutting Unica Habancosta and Alon saving plans.

Total cost in the first six months of the year continued to decrease by almost 3% in the standalone. We will update cost-cutting targets for the combined bank once we update the merger financials. The priority now is to formalize the legal merger and then reach an agreement that would enable the bank to crystallize cost synergies. This process will start once we legally merge. The trend and focus remain the same. Cost cutting is the main driver and rationale of the merger. And there are plenty of synergies and the focus will turn now on the execution. Then to execute these synergies as soon as we can. So all in all, at this moment, all I can say is that cost cutting remains one of the main drivers to improve our future profitability for the combined bank.

Okay, one more on costs related to what has happened in similar other processes or similar processes in other banks and the position of the government or the unions if this situation leaves initial costs synergies for the combined entity at risk. Okay.

Well, as you can imagine, it's not always easy to reach an agreement, but we have experience in the past and we will try to find the measures that make such an agreement available. We already did in the past and we will have to do it again. We haven't publish specific details regarding the capacity adjustments. However, we believe that the synergies that we have announced are a good reference. It won't be easy, but nothing new. We already knew that. Bear in mind that cost synergies are the main rationale of the merger, and we believe that we can execute such savings ahead.

Thank you, Paolo. Moving to NASA Equality, we can update our views on the cost of risks going forward.

As you saw in the presentation, the trend remains positive. Quarterly long-loss charges included 11 million of additional COVID-related provisions. leaving the total cost of risk at 54, a level that is in line with our guidance. However, as we explained before, if excluding the COVID provision, the results and also the result from the portfolio disposal, The recurrent cost of risk for the first half of the year decreases to 19 basis points, which is well below the guidance, and we will update, obviously, the guidance once we complete the merger.

One more on asequality regarding the difference in moratorium and icolons. Follow-up.

I think, as you saw in the presentation, we have a relatively small exposure to moratoria and eco loans. Out of the moratoria loans that have matured, that are 750 million or 90% of the initial balances, we have around 2% that are currently classified as NPL and another 6% currently classified as unlikely to pay. So, regarding the ECO loans, out of the 1 billion of the limit approved, there are less than 3 million classified as MPL and another 47 as unlikely to pay. In other words, if you put together both cases, the MPLs and the unlikely to pay of both schemes, have around 100 million that represent less than 0.4% of our gross loans. So therefore, the loans identified with some type of potential weakness are relatively low.

Okay, moving to capital insolvency, if we can update our views on dividends and the dividend policy going forward.

Well, as we explained in the past, we approved to pay $17 million in cash against 2020 results. Out of the $17 million, we have already paid $12 million in April and the remaining $5 million to be paid after the formalization of the merger with LiberBank. Going forward, the only thing that we can confirm so far is what we have said in the past, which is that the combined entity aim is to reach a cash payout of around 50% as soon as possible and always following the ECB recommendation. However, the combined bank has not a formal dividend policy approved by the board. As usual, we will need to propose to our AGM the future dividends.

Thank you, Pablo. On IRB models, we got several questions, so I'll put them all together. So, what will be the additional impact from the approval of IRB independent portfolios on SMEs and corporate loans? And also, what will be the benefit for LiberBank portfolios? And what will be the timing for applying Unicaja models to LiberBank portfolios? So, more or less, that's what I thought.

Okay. I will start with the last one. At the moment, we prefer not to be very specific on the timing and impact of moving liver bank portfolios into Unicaja advanced models, at least until we have more visibility. The request to use Unicaja models in LibreBank portfolios is a new process, so now we need to formalize the legal merger and then we will be able to start this process. Timing and impact will be disclosed as soon as possible, but as you can imagine, this takes some time. However, as it happened with UNIQA advanced models, under my view, what is really important is that we will continue to have some solvency tailwinds ahead, which is positive, but it's too soon to be more specific with the timing and potential impact. Regarding the pending portfolios, what I can say is that it will be a small benefit. The big bulk of the benefit was the one coming from the mortgages that has been part of the recent approval. For SMEs and corporate loans, we don't expect a material impact.

Thank you, Pablo. On buybacks, if we're planning to do some buybacks ahead.

Okay, buybacks makes a lot of sense when you have excess capital and you're trading at relative low valuation. As you all know, both banks, LiberBank and Unicaja, have been among the few Spanish banks that before the pandemic were executing shared buybacks programs, meaning that the board of directors of both banks are aware of the benefits of these programs. However, no decision has been taken so far, but going forward, we will continue to consider buybacks as a potential alternative.

One final more. I think it has been already answered. So that's all. Juan Pablo.

Okay. Thank you, Jaime, Pablo. Maybe now we can move to some liver bank questions. The first one is regarding CASER. If we could explain the accounting treatment of the 43 million euros. Fincom.

Okay. We have explained, I think, in the section on capital, but let me elaborate a little bit more. In an ordinary review, CNMB has expressed a different criterion to the one we had maintained with the positive opinion of our auditor regarding the 43 million considerations received from cash back last year. Of this amount, we accounted a one-off fee income of 38 million after a detailed analysis under IFRS 15, based on several aspects, like the fact that LiberBank's main obligation was to waive its right to leave the distribution contract by applying the change of control clause at the moment at which 70% of this company was being acquired by Helvetia. As can be seen in our response parties to the CNB, the scenarios in which LiberBank could return this fee to CASER are very remote and are scenarios related to serious and repeated breaches of the distribution contract. It should also be noted that there are not specific quantitative targets to be met by us. Furthermore, main terms of the distribution contract were improved for us at the time of the change of control. Expiration was reduced from 99 to 30 years. Home insurance distribution fees were also improved, and we anticipated the 50% profit share in the insurance business, ensuring it will start to be accrued in 2023. Remember, this will mean around 7 million in yearly revenues for us. For all these reasons, we were not anticipating future revenues either. In any case, we have obviously adopted CNMV's criterion, with a negative impact on capital of around 20 bps, and in return, an annual fee in excess of 4 million will accrue for 10 years.

Thank you, Jesus. One more question. If we could provide more detail regarding the EPC provision and potential savings. If you want, I can take that one. Regarding the EPC scheme and provision, we already explained, but let me remind you the Board of Liberal Bank has approved in June a provision of 143 million euros corresponding to the full cost anti-retirement age of 726 employees and under our EPC scheme which is an agreed program by which the employees involved may have their contracts on hold not working for the bank but still getting a pay as in the context of the merger the likelihood of these employees coming back to work is zero we decided to provide for the entire cost until retirement age of this group of employees and these are the 143 million euros These provisions will generate savings of around 40 million euros per year and will be visible already in the next quarter. 90% of these employees are already out of the bank, so from an organizational point of view, there will be no impact. It should also be recalled that these €143 million were already included in the restructuring cost announced for the merger with Unicaja, and we have simply anticipated the achievements of these synergies. even before the merger is closed. We have received some additional detailed questions. However, in the interest of time, the investor relations team is available to answer them.

So thank you very much, everyone. We know that you have a busy morning, so we leave it there. Thank you very much. Have a good summer. Thank you. Thank you. Bye-bye.