Unicaja Banco, S.A.

Thank you, Alberto. Good morning, everyone. Thank you for attending this first presentation of UNICAGRA after merging with LiberBank. Before going into the presentation, I would like to inform you that we will be hosting a strategy day on December 10th, which I hope you can all attend. We will now review the main developments since the merger. Going to slide 3... As you can see on the left-hand side, we keep making progress with integration. The next important milestone for us is to close an agreement with the labor unions for the implementation of the transformation plan that we have been discussing. We expect to close this before year-end. I would like to emphasize a couple of other things. The first one on corporate governance is that right after the merger we put in place the executive committee. We have already approved all the remaining committees. The second one is on IT. We have been working for quite some time and we have a detailed roadmap which is well on track. The target for the core banking IT immigration is second quarter of next year. Next slide shows the final merger adjustments in the purchase price allocation exercise. As you may well know, in this exercise we accounted all the assets and liabilities coming from LiberBank according to IFRS 3. I am not going to get into all the details, but you can see final valuation adjustments of 994 million euros net of taxes. This is slightly above our initial number mainly because of two reasons. Wholesale assets and liabilities implied around 90 million euros higher adjustment than initially expected. Nevertheless, this will have a positive impact on NII going forward. Credit provisions were around 100 million euros higher... ...after taking the most conservative approach from both entities on the different portfolios. This will allow us to enjoy a lower cost of risk going forward. We also have two additional adjustments that do not have an impact on capital. The first one is the cancellation of a macro hedge that is offset by another hedge... And the second one is the write-down of 225 million euros of deferred tax assets and 23 million euros of goodwill. Finally, as you can see on the bottom left of the slide, we still have some restructuring charges to account for in Q4 after we close the negotiations with the unions. To summarize the slide, we currently hold a 13.6% CET1 fully loaded ratio without taking into account the final restructuring charges. This is a very comfortable capital position for a bank with a risk profile and especially after deploying capital in order to improve the profitability of the bank going forward. On slide 5, we have an update on our cost synergies initiatives. On the top left of the slide, you can see that we are upgrading our expected cost synergies. We will obviously give you more detail in our strategic review, but initial analyses are going well and we expect to be able to do a bit more than initially estimated. We are upgrading our target from around 192 million euros to around 210 million euros cost synergies in 2023. On the bottom left of the slide, you can see a summary of the specific measures that have already been taken. The initiative related to the agreed level of absence employees coming from LiberBank will bring 40 million euros of yearly savings and the intangible write-down, 50 million euros. These two measures account for 55 million euros of yearly savings already. On top of that, we have closed 153 branches since we announced the merger. This will also imply some savings as well. On the right-hand side, we show our estimated cost base for 2023. You can see we are looking at around 770 million euros for the year 2023. This would be around 190 million euros lower than the combination of both banks in 2020, a circa 20% cost reduction. We expect an inflation cost and additional investments to be partially absorbed with business as usual savings initiatives. On slide 6, we want to show you a few initiatives that we could consider quick wins as they could generate revenue synergies in the short term. On the left side of the slide, we are showing an opportunity based on the off-balance sheet business growing. We are confident we can generate additional 80 million euros from this business by 2023. Regarding asset allocation, current best internal practice portfolio is 30 basis points more profitable. Also, the internal best practice was able to improve profitability by more than 20 basis points in just two years. If we are able to have a similar asset mix in the entire portfolio, we would improve around 35 million euros per year. On top of that, on top of the asset mix, there is additional 45 million euros we expect to generate just from achieving initial volume growth. Right now, we do not compare all that well with the sector in terms of penetration of mutual funds over total customers' deposits. We are at around 13% when the sector is at 18%. We are assuming we can get closer to the sector average in the next couple of years, and that would mean additional 45 million euros in fees. Another initiative, and a very clear one, is residential mortgages, which is a key product for us. We do not have an estimated number here, but on the chart you can see the loan book growth in the last three years from internal best practice. On the right-hand side, you can see how Unicaja new lending has gone up by 50% this quarter versus the same quarter last year. This is very positive news for us in a difficult quarter with the summer and the integration taking place. We expect this momentum to continue. Lastly, a few other initiatives. This is public information. We currently have three agreements on the life insurance business. We are in negotiations to restructure that business and we will keep you updated on the process. Also, the distribution agreement from LiberBank with Kaser will start generating an additional 6 to 8 million euros starting in 2023. And finally, there is a couple of very important businesses where we know we can improve by just working with our existing customer base of 4.5 million clients. These are payments and consumer lending. Payments have been evolving quite positively, and we expect this to continue. And in consumer lending, we aim to improve our footprint. The final slide on the measure is a recap about coverage levels. With the additional provisions from the PPA, we currently sit on a 72% NPL coverage ratio and 67% NPA coverage ratio. This, together with a conservative loan book, where around 75% is public sector and pure retail lending, will allow us to have a very low cost of risk of around 20 basis points by 2023. Foreclosed assets coverage is at 62% now. This is a very comfortable coverage level for us to speed up the disposal of our foreclosed assets. We expect the NPA ratio to be below 5% in 2023. Another drug for the sector in recent years has been legal charges, so we have also booked provisions for these risks. Now getting into the activity of the third quarter, please keep in mind that this quarter includes just two months of LiberBank into UNICAGA legal accounts, although we have tried to normalize all the information backwards on a like-for-like basis to facilitate comparability. Business activity remains very strong. Our core two products, mutual funds and residential mortgages, keep delivering good growth even in a challenging quarter with the integration and the summer holidays. Mutual funds are up 27% year-on-year and we are gaining market share from the competition. Residential mortgage book is up 4% year-on-year and the new lending in the quarter was 10% higher than the same quarter last year. On profitability, net interest income has suffered this quarter due to three reasons that we think are temporary. The first one is the repricing of the loan book to lower Euribor that is almost over. The second one is the lower contribution of the ALCO portfolio. And the third one is the extra liquidity that came in this quarter, mainly deposits from the public sector. We are in the process to reverse these impacts. We plan to continue deploying part of the liquidity into a growing loan book, transferring on-balance sheet products to off-balance sheet, and lastly, reducing the negative carry we have on some deposits, charging negative rates to corporates and public sector at a larger extent. Regarding fees, there is some very good news. It is up 3.3% quarter on quarter and 22% in the year. This is a result of significant growth in mutual funds, residential mortgages, insurance and payments. Asset quality is still going in the right direction. The final impact on COVID crisis seems to be less negative than initially expected. Recurrent cost of risk in the quarter was 29 basis points. And as I pointed out, we are positively looking forward. Coverage levels, I have already commented. After the PPA, you can see very comfortable levels both on NPLs and NPAs. Finally, about capital, CET1 fully loaded ratio stands at 13.6% pending of final restructuring charges. We have a very comfortable capital position for our risk profile, and we expect to keep generating capital on anchor. Brief ending note on dividends, our target is to distribute 50% of results. And now, Juan Pablo will review the business activity in this quarter in more detail. Thank you.

Thank you, Manuel. Let's start now with customer funds. You can see here a significant increase in public sector deposits in the quarter. This is explained by the reception of some next-gen EU funds. This had a cost on NII in this quarter, although this should be something transitory as those funds start moving to the different projects. Actually, we wanted to focus a little bit more on these institutional deposits on the right, and you can see that right now we've got 21 billion euros, of which we are charging negative rates of 20 basis points on 2.9 billion euros of them. As commented, we are currently working on this deposit base, and we expect to charge negative rates on a higher amount deposits in the short term. Regarding off-balance sheet funds, they keep doing really well. They are up almost 13% versus last year. And the most profitable product right now are the mutual funds that are 27% up. Here we see a big opportunity going ahead, not only thanks to a better mix, as the CEO just commented, but also switching deposits and other less profitable of balance sheet products into mutual funds. Next slide. We take a closer look to our mutual fund business. On the left side, you can see the AUM's evolution in the last four years. We are growing at 7% compound growth rate, and this is accelerating during the last quarters. This compares to 20% growth over the same period of time of the best internal practice. Again, here we see a big opportunity applying the best practice to a larger network. We will provide more details in December on our strategic review. On the top right, net inflows in the third queue shows that the integration is not distracting the network, the opposite here. And on the bottom right, the most important part, our growth is translating into increased fees that grows above the increase of the AUMs. Moving to the next slide, as it happens, every third Q, there is an impact from decisionality together with the payback of 700 million euros pension advancement. Going through the main portfolios, corporate book is falling after a strong 2020 supported by the eco-loans. Mortgage stock keeps growing even in this quarter, and consumer is flattest year on year, although this is already changing right now as we speak, with new production increasing thanks to pre-approved loans and top-up loans with existing customers are getting more traction. On the right-hand side, the breakdown of our portfolio in line with previous quarters, around 75% is pure retail and public sector. Moving to the new lending, new mortgage is almost 1 billion euros in the quarter. This is 10% higher than third quarter last year. This is very good news. This was a challenging quarter and we have not lost commercial momentum in a competitive market in a competitive quarter. It's also a great starting point to grow more thanks to applying the best practice across the entire work, as commented. As always, we say mortgages are not only reflected in NII, but also fee income, as our usual cross-selling is over three additional products. Then, consumer lending is slightly below the same quarter last year. As commented before, we are already seeing a change in the trend, and we expect in the fourth Q to show a better performance, with new production growth at double D for the year. Corporate lending has slowed down a little bit due to the extra liquidity coming from iColons and iColons also affects the total new lending comparison. In the next slide, we show a little more detail on our two biggest portfolios. You can see the main KPIs of the residential mortgages. In terms of geographic exposure, we have a leadership position in our original regions. And we are also able to grow and generate good volumes in other big cities that we like, as it is the case of Madrid. On the bottom of the slide, mortgage moratoriums have almost expired in full. On slide 16, and before moving into the financial results, a quick look to our ESG focus. This is very important for us as we want to play a key role in the environmental issues we're facing. For instance, this quarter we launched a green mortgage. This is just part of our sustainability action plan that integrates ESG in our business model. And now moving to the next slide, we start with the financial results. Here, probably we will comment more in detail in the next slide. So let me here just to highlight the main items. First, the NII decrease is something temporary. We will reverse in the next quarters. The main impacts are coming from the lower URI board that is almost over, the restructuring of the ALCO and increasing excess liquidity. Fee income is performing really well, up 21% compared to the same quarter last year. Regarding OPEX, personal expenses, so already part of the synergy is coming from the exit of liver bank employees on agreed leave. And you can see next quarter the full savings from the more than 700 employees on agreed leave. And depreciation, you can already see almost 3 million euro savings coming from two months lower amortizations on the back of liver banking tangible write-downs. Credit impairments keep coming down, and regarding other profits or losses, we expect to be lower in the next quarters. Now, going into a bit more detail in slide 19, on the left side, you can see Euribor is 14 basis points down compared to the same quarter last year. And this is the main reason why customer spread is six basis points down quarter on quarter. On the right-hand side, we show the front book and back book of the total loan portfolio and our main book, the residential mortgage. You can see there the front book for the total portfolio is influenced by the yield of consumer lending, which, as we explained a few slides before, we expect to increase its relative weight on the loan book. In the next slide, I will spend a bit more time here to show the quarterly evolution of the NII. We have three main impacts this quarter, which should be transitory. First one, if we talk about lending, here we have the impact from the repricing to the lower URI board, which is almost over. We could even start to see some positive repricing in the short term. As you can see, loan volumes continue to support the NII. All in all, we expect lending to increase its contribution to NII in the next quarters. Second block, the lower contribution of the ALCO portfolio as we restructure part of the portfolio in the integration process and we have some liquidity to reinvest. Third, the increasing liquidity in the quarter, mainly from the public sector deposits, caused a negative carry, and we expect this to revert in the short term. And finally, you can see the wholesale issuance have a positive impact of 6 million euros in the quarter. This is thanks to lower interest rates, and this is a consequence of the PPA adjustments that we were commenting before. Moving now to the next slide, we can probably focus on the right. You can see banking fees. This is mainly payment and current account maintenance fees increased 25% during the first nine months of the year. Mutual funds are performing even better, 28%, and insurance is also growing at double lead in the first nine months. All in all, fees are growing almost 20% in the first nine months of the year. In the next slide, talking about OPEX, we believe we are moving fast. Since the merger was announced, we have already closed 10% of the branch network, and the average number of employees decreased by 9%. As we explained before, this is already reflecting in our P&L, and it will be even more visible in the next quarter. We also expect to close an agreement with trade unions before year-end. Next slide, you can see cost of risk is normalizing. As we have already seen, the recurring cost of risk in the quarter is down to 29 basis points, and then we have a non-recurring impact of 16 million euros. We will provide more detail in the strategy review presentation, but we wanted to share with you that our expectation is cost of risk to normalize at 20 bps by 2023. As we have always commented, the strong coverage levels at the top level among the listed banks are together with a conservative loan book with 70% of the exposure being mortgages and public sector, make us comfortable with this guidance. And now I pass the word to Pablo. Thank you.

Thank you, Juan Pablo. Let's move now to asset quality. On the top left hand side, you can see the good evolution of NPL coverage that stands now at 72%. NPL entries were affected this quarter by a reclassification of a small portfolio. At the bottom, you can see that half of our NPLs are coming from mortgages. Following up on this, on the top right hand, you can see a bit more detail regarding the coverage ratios by portfolios. We believe it explains by itself, especially in portfolios with a strong collateral and low LGD like the mortgage portfolio. Lastly, at the bottom, we show a comparison with the sector. And you can see that we stand with lower MPLs, higher coverage, and as explained before, with more collateral than our peers. In next slide, foreclosed assets were 1% down quarter on quarter. Coverage ratio also increased significantly. This should support an acceleration of disposals going forward, which will have a reflection on P&L as we reduce the costs associated with these assets. Looking to NPAs altogether, our coverage stands at 67%. We think that it is interesting looking to the NPAs net of the coverage that reflects the coverage reinforcement and shows a net NPA ratio of 2.6%. As Manuel said at the beginning of the presentation, we expect the NPA ratio to be below 5% by 2023. Moving now to solvency. Let me explain the main movements in the bridge. First of all, the starting position is very strong, more than 16% seeing one fully loaded. Then the PPA adjustments we saw at the beginning of the presentation that Manuel explained had 178 basis point impact. In addition to this, we generated DTAs from temporary difference that together with the impacts on the thresholds had 82 basis points negative impact on capital. These are DTAs that will become capital thanks to the increasing profitability. Having said that, we also took a conservative approach and wrote off 225 million of tax loss carry forward that were unbalanced and were already deducted from capital. Next, the organic generation on the quarter was strong, 15 basis points, and this continues to support our 50% payout dividend accrual that deducts 7 basis points from capital this quarter. All this brings seed 1 fully loaded to 13.6%. This is the reported figure as of September 21st. This figure still does not take into account the final restructuring charges which we will book once we close negotiations with the trade unions and we will inform you in due time. Very quickly, on the next slide, on solvency, we show the different capital ratios and you can see we comply very comfortably with the SREP requirements. In December, we announced an insurance plan that will reinforce even more our capital ratios and allow us to comply with our EMREL requirements. Moving to the next slide, you can see that the size of the fixed income portfolio have decreased in the last quarters. First, there were around 3 billion maturities related to our so-called TLTRO portfolio. And then we have restructured the fixed income portfolio coming from LiberBank as the balance sheet and liquidity structure of the bank differ. The size of the portfolio has decreased around 7 billion during the last 12 months. This means we have the liquidity and room to invest. We are actually suffering the negative carry of that excess liquidity. As we commented in the second quarter results presentation, we believe the yields were too low and we were comfortable to pay that toll of the excess liquidity in the short term. I can tell you that we have started to reinvest part of that liquidity and we are reinvesting at higher yields. Although in the fourth quarter, the ALCO contribution to NII will still be slightly lower than this quarter. Obviously, depending on how market evolves. Another comment on the size of the portfolio is that we expect it to be lower than in the past as we allocate part of the excess liquidity to a growing lending book and of balance sheet products. On liquidity, the message in the last slide is the strong liquidity position that we expect to be more profitable and a bit more balanced in the future. And on the right, we show capital market outstanding funding. These are mainly cover bonds and the 600 million tier two that we have issued. You can see the maturities, they are well spread in the next years and coupons are relatively high. This is all from our side and now we're ready for the Q&A. So, Alberto, please.