Unicaja Banco, S.A.

Good morning, and thank you for attending UNICA's second quarter results presentation. First, as we usually do, let me confirm you that today, before market opened, we have published this presentation and the rest of the quarterly financial information in the CNNV and our corporate website. Pablo González, our chief financial officer, will explain you the main trends of the quarter, and we will then move to the Q&A afterwards. So, in the interest of time, Pablo, whenever you want.

Thank you, Jaime, and good morning to everyone. I will start in slide four with the main highlights of the quarter. Regarding business activity, I am glad to confirm that recent trends are confirming a gradual improvement. As an example, total customer funds grew 2.7% year on year, and balance sheet funds were up 2%. Performing loans grew in the quarter, helped by the improvement of new lending, which is 14% up in the quarter, but also owing to the seasonal higher advances of the second quarter. Excluding the seasonal advances effect, performing loans remain flat quarter on quarter, reversing the downward trend of previous quarters. In terms of profitability, the first half of the year has confirmed the expected improvement that we have been anticipating. Banking margin grows by 27% year on year, taking the cost-to-income ratio to 45% in the year. Half-year net income has almost doubled versus last year. We will see the details in the presentation. On asset quality, trends have remained very positive one more quarter. NPA's balances continue to fall in the quarter, with Stage 3 loans down 10% year-to-date and foreclosed assets 13%, while total NPA coverage grew from 68% at the end of 2023 to the current 70%. Total provisions also contribute to the bottom-line improvement, as they are 30% below 2023, a very positive asset quality trend one more quarter. Finally, in terms of solvency and liquidity, our seed one improved 58 basis points in the quarter to 15.1%, supported by net income improvement, which leads the MDA buffer at 743 basis points. On liquidity, as you all know, we have a very comfortable position with our LCR ratio above 300 and the loan to deposit at 73%. So as you can see, quarterly trends remain positive and support the expected improvement in profitability. In slide five, we want to show where the increase in net income comes from. Net income almost doubles versus last year with a 21% improvement in revenues, together with much lower provision, falling 30%, which altogether more than offset the 5% increase in total expenses, boosting net income to 432 million in the first half of 2024, almost two times the previous year. Such positive trend allows us to improve the expected return on tangible equity target from the previous above 9% to above 10%. As you can see on the right-hand side, the adjusted return on tangible equity for a 12% 0.5% seed 1 calculated with the last 12-month earnings remained below 5% during the last two years. However, we now expect it to go above 10% in 2024. In slide 7, you have the customer funds trends. As you can see, total customer funds grew by 1.7% in the quarter, a bit more than 1% in the year. Regarding unbalanced funds, public sector deposits grew 1.5% in the quarter, although still falling compared with the previous year. On the other hand, private sector trends are very positive, growing 2.7% year-on-year and 2.3% in the quarter. Of balance sheet funds, we're stable in the quarter but growing 2% year-on-year, supported by a 7% growth in mutual funds where we are improving our customer offering. Moving to lending on the slide eight, you can see that the performing loan book grew by 1.5 percent in the quarter. As you know, in the second quarter, we have a seasonal increase in consumer loans owing to short-term pension advances. Excluding the effect of such advances, total performing loans were flat in the quarter. reverting the downward trend of previous quarters and supported mainly by increase on new loan productions as well as some lower amortization. By segments, corporate loans fell 3% in the quarter, while loans to individuals grew almost 2%. All in all, total performing loans, including pension advances, grew 1.5 in the quarter. That, despite some seasonality, is a positive change in the latest trends. On the next slide, we show private sector new lending trends. New private sector lending volumes improved in the quarter in all segments, increasing from 1.6 billion to almost 1.8 billion, which is 14% improvement that helped to stabilize the lending book this quarter. We have improved lending activity by being very responsible on lending at the right prices for current environment. If we move on to slide 10, we have a summary of our digital business. where I would like to highlight that 70% of our customer are digital clients, something which allows us to have more than 40% of the new production on consumer loans and almost 30% of investment funds activity done through remote channels. Obviously, something we did not show in the slide is daily banking activities like transfer, These are done more than 90% on a remote basis as well. Moving to slide 11, we have an update on sustainability. First, we have adhered to the principles of responsible banking, although our strategy was already aligned with the sustainable development goals. We maintain our strong environmental commitment. Our green bonds have allowed to avoid 57% more CO2 emissions in 2023 compared with previous year. And we continue to develop the ESG business as you can see in the slide in more detail. We also maintain our commitment with society, promoting financial inclusion and bringing finance closer to people through education and digitalization. Moving now to slide 13, we start with the P&L review. Net interest income is down 1.3% in the quarter, but 25.7% up in the year, owing to a small increase in customer deposits this quarter. As we will see later in more detail, there was also a decrease from the contribution from lending, mainly owing to the volume effect. However, this was offset by the higher wholesale income, mainly from the improved liquidity. Fees fell 3.5% in the quarter and 5% year-on-year, owing to lower transactional fees because of the implementation of commercial campaigns that relaxed one part of these fees to more loyal clients. Other revenues improved by the lower regulatory charges and seasonal dividends contribution. Total costs were flat in the quarter and growing mid-single digit when compared with the first half of 2023, in line with our guidance. Pre-provision profit improved 35% quarter-on-quarter and almost 39% compared with the first half of the previous year. Total provisions fell 30% in the first half of the year, driven by much lower foreclosed asset provisions and a lower cost of risk. All this has led to a pre-tax profit of $432 million and a net income that reached $294 million in the first six months of the year, which is almost two times the one in 2023. Now we will start reviewing in more detail the P&L starting with the net interest income in slide 14. As you can see on the slide, the quarterly small increase in the cost of deposits, as well as some lending mix impact on the lending yield, pushed down the customer spread eight basis points. However, it was still 57 basis points above the previous year. If we move to slide 15, we have the main moving parts of the NII in the quarter. As you can see, the main driver of the quarterly drop was the four basis point increase in the cost of deposits. On the other hand, The lower lending contribution, mainly explained by volume effect as well as some lending mix, was compensated by the wholesale margin, mainly from the higher liquidity that was generated in the quarter. In slide 16, as you can see, total fees fell 3.5% quarter on quarter, mainly driven by lower transactional fees from payments, accounts, and credit cards. For the first six months of the year, total fees fell by 5%. This decrease is mainly explained by commercial campaigns to adapt fees to the new strategy for more loyal customers. We are focusing on offering value-added service and customer experience and improve the customer experience of our customers. We believe this is the right thing to do and it will be positive for the bank in the medium term. This strategy will probably reduce total net fees to a mid-single digit for 2024. If we now move to slide 17, we have the breakdown of other income that is made up by income different to NII and fees. Here, the most relevant effect is the reduction in regulatory charges related to the resolution fund. As you can see in the slide, we paid $44 million in 2023, and from now onwards, the contribution won't be material if everything remains the same. I would also highlight the seasonal increase in dividend contribution that is mainly concentrated in the second quarter. All in all, that total other income uncharged had a negative net impact of $24 million in the first six months of the year, compared with $54 million in 2023. Moving to slide 18, we show total cost details. Total cost remained very stable in the quarter, but growing almost 5% in the first half of the year. This is in line with our mid-single-digit growth guidance for the full year and explained by higher personal costs on the back of mainly the new union's agreement. On the right-hand side, you have the evolution of our cost-to-income ratio. It is worth noting that despite higher costs, the positive income contribution has enabled us to improve the efficiency of the bank, with the cost-to-income ratio at 45 percent compared with the 52 percent of the previous year. In the next slide, we show the evolution of the cost of risk and other provisions. Regarding long-loss provisions, it has improved further this quarter to 29 million that represented 23 basis points of cost of risk. When we look at total provisions, as you can see in the right-hand side, the trend remains also positive, decreasing 30 percent year-on-year. mainly explained by the much lower provisions from real estate assets, a small decrease in loan loss charges, and a stable other provision that include mainly the legal provisions. On slide 20, we have included a summary in terms of profitability. As you can see on the left-hand side, we have reached 294 million of net income in the year. This is a historical high that has been supported by the banking margin growth together with the lower provisions mentioned before. On the right-hand side, you can see that the adjusted return on tangible equity has grown from around 4% in 2022 and close to 5% in 2023 to the current 8% adjusted of the excess capital over 12.5 seed 1. We calculate this return on tangible equity considering the last 12 months net income, something that explains the gradual improvement that we expect to finish 2024 above 10 percent, higher than our previous 9 percent guidance. Let's start now with asset quality from slide 22. As you can see, we have continued our positive evolution one more quarter. NPLs fell 3 percent quarter on quarter and 26 percent year on year. The NPL ratio fell by 2.9%, with the coverage ratio stable in the quarter at 66%. This is a very healthy level, considering that more than half of our Stage 3 loans are residential mortgages. In page 13, we have the foreclosed assets and overall NPA details. Net foreclosed assets decreased from 314 million in March to 276 million in June. In gross terms, balances continue to fall as well to below 1.1 billion. Year-to-date, we have had 205 million exits, and only 36 million entries. An important thing to highlight is that we have had very relevant sales in the year, very limited impact on profit and losses, with a very limited impact. The already discussed decrease of Stage 3 loans and foreclosed assets have brought total gross NPA exposure down to 2.5 billion below the 2.7 billion of the previous quarter and 3.7 billion of the previous year, with a stable coverage at 70%. Gross MPA ratio fell to 4.9%, and net MPA represents 1.5%. This is a significant improvement of MPAs in the last 12 months. As we have shared with you, this was a clear goal for us, and we are getting closer to our targeted levels. Let's move now to solvency in page 25. Seed 1 fully loaded increased by 58 basis points in the quarter to 15.1%. The evolution of the quarter is pretty business as usual. The big bulk of the improvements was explained by quarterly results, net of dividend accrual, and 81 coupons. Also helped by a small reduction of risk-weighted assets in the quarter. In slide 26, we have our total MREL position. As you can see, our MREL liabilities represented 27% of our risk-weighted assets, demonstrating a comfortable buffer over our requirement. In the right-hand side, you have some additional info, including our MDA buffer that has grown to 743 basis points. In the next slide, we have the fixed income portfolio details. As you can see in the slide, there are very small changes in the quarter. The size and the yield were very stable. However, we have increased further the duration from 2.4 year to 2.5 years with the idea of stabilizing the fixed income contribution to the P&L going forward. In slide 28, we update our liquidity position. We continue to have a very strong liquidity position with a huge balance of high liquid assets, a long two-deposit ratio of 73 percent, the NSFR at 157 percent, and the LCR at 312 percent, all of them very strong liquidity metrics. Finally, Let me finish in slide 30 with a brief closing remarks. The first six months of the year have confirmed the expected improvement of our structural profitability, which has allowed us to increase our adjusted return on tangible equity target to above 10% in 2024. We have reduced further the NPA's gross exposure by a total of 11% year-to-date, and we have further strengthened our solvency with seat 1 fully loaded above 15%. All these trends are very positive and allow us to offer an attractive shareholder remuneration. Last year, in 2023, we paid a cash dividend that represented 5% of our market cap. For this year, 2024, we expect to offer close to 13% when considering the cash dividend and the share buyback together. This is a significant increase of shareholders' returns that is possible thanks to the financial improvements that we have tried to explain to you today. And that's all from my side.

Thank you, Pablo. We will now move to the Q&A. Please remember to ask only two questions each and also remember to mute your line after the questions. Operator, please open the line for the first question.