Unicaja Banco, S.A.

Good morning and thank you for attending UNICAJA third quarter results presentation. First, let me confirm you that today, before market opened, we have published this presentation and the rest of the financial information in the CNNV and our corporate website. Pablo González, our chief financial officer, will go through the slides and then we will move to the Q&A. Pablo, whenever you want.

Thank you, Jaime, and good morning to everyone. I will start in slide 4 with the main highlights of the quarter. Regarding business activity, during the third quarter the commercial activity gradual improvement has continued. Total customer funds are growing by 3.6% year-on-year and of balance sheet funds almost 7%. Performing loans fell in the quarter. However, if we exclude the seasonal impact from the pension advances, private sector performing loans were flat for second quarter in a row. Profitability has continued improving during this quarter again. Banking margin grows by 18% in the first nine months of the year. Cost to income reached 44% and net income was 58% above 2023. Asset quality trends also remain very positive. NPL balances fell 22% year-on-year and foreclosed assets 36%. NPA's coverage ratio grew from 66% in third quarter 23 to the current 70%. Total provisions also decreased by a meaningful 32% year-on-year, with the cost of risk at 24 basis points for the year, which is well below our initial guidance of 30 to 35 basis points. All in all, another very positive quarter in asset quality too. Finally, in terms of solvency and liquidity, our seed one reached 15.4% in the third quarter. The tangible book value per share also grew 7% in the first nine months of 2024. On liquidity, as you all now know well, We have a comfortable position with best-in-class metrics, like LCR ratio above 300% and the loan-to-deposit at 70%. So as you can see, third quarter trends continue to improve towards a higher structural profitability with a conservative profile. In slide six, we have the customer funds evolution. As you can see, total customer funds grew by almost 2% in the quarter and 4.3% year-on-year. Regarding unbalanced sheet funds, they grew 1.4% in the quarter and 3.6% year-on-year. of balance sheet funds grew even more this quarter. Total of balance sheet funds grew 3.6% quarter on quarter and almost 7% year on year, supported by a 6.3% quarterly increase in mutual funds. Moving to lending on slide seven. You can see that the performing loan book fell 2.3% in the quarter. However, excluding the almost 800 million of seasonal pension advances of the second quarter, as we show in the right column, private sector performing loans were almost flat, decreasing only 0.2% quarter on quarter. It is worth noting that corporate loans grew almost 1% in the quarter, reverting the negative trend of previous quarters. In slide eight, we show some additional information on what we call wealth management and insurance business. to value generating businesses for our clients. In the top left, you have asset under management balances evolution that as you can see, have grown 10% in the last two years, supported by a 15% improvement in mutual funds. In the first nine months of 2024, mutual funds trend is very positive. As we show in the bottom left, net inflows were above 1 billion, improving significantly compared with the last two years. On the right, you have revenues coming from these businesses, including fees from asset under management, securities and insurance. That reached altogether 257 million in the first nine months of the year, representing 17% of total gross margin. So this is a very significant business for us that we are improving quarter by quarter. On the next slide, we show private sector new lending trends. Third quarter private sector new lending volumes were above the third quarter of previous year in all segments. Total private sector new loans in the third quarter of 24 reached 1.8 billion, that is well above the 1.2 billion of the third quarter of last year. Very positive trends because we have improved the new loan production despite high competitions in all segments. Moving now to slide 10, we have an update on sustainability. You have a lot of info in the slide. Let me highlight some of it. From an environmental point of view, we successfully issued our fourth green bond in September. We continue promoting sustainable growth through our business, Note that 29% of new corporate lending are sustainable loans, but also through specific initiatives, as it is the CREA project, in which we are promoting sustainable economic growth in Andalusia, with collaboration with the regional government, Harvard University and Oliver Wyman. At the same time, we continue advancing in our decarbonization pathway. Our own carbon footprint has been verified for first time by DNV, and we have reduced it by 18.3% in 2023 when compared with 2022. From a corporate governance perspective, let me highlight that our MCSI rating has improved to A, following the last review that has just taken place. Finally, you also have in the slide some additional details regarding other social developments, like our financial training and educational project called Edufinet, or our digitalization manager program that has been implemented in more than 150 branches to support our customers in digital tasks. Moving now to slide 12, we start with the P&L review. Net interest income was flat in the quarter and growing 19% when compared with the first nine months of the previous year. As we will see later in more detail, this trend was supported by lower wholesale funding costs that compensated the lower interest income coming from the lending book. Fees were also flat in the quarter and falling 4.9% compared with the last year, in line with our mid-single-digit decrease guidance, explained by commercial campaigns with lower transactional fees for more loyal clients. Other revenues were in line with the same quarter of the previous year, except for other expenses that were higher, owing to a 10 million adjustment of the Spanish banking levy for this year. Total costs in the first nine months of the year were 5.4% above 2023, explained by higher personal expenses. Pre-provision profit improved almost 22% compared with the first nine months of the previous year. Total provisions fell 32% in the first nine months of the year, driven by much lower foreclosed assets provision and a lower cost of risk. As I mentioned before, it is worth noting that third quarter 24 other provisions include a negative charge of 9 million related to the adjustment of the Spanish banking levy of 2023. So this quarter, such an adjustment has two impact. We have 10 million impact in other revenue and expenses. related to the adjustments for the 2024 and another 9 million in other provisions related to the adjustments of the 2023. The adjustment is explained by the interpretation of fees coming from the insurance business. All these moving parts led to a pre-tax profit of 653 million and a net income that reached 451 million in the first nine months of the year, which is almost 60% above last year. Moving to slide 13, we will start reviewing in more detail the P&L, starting with the net interest income. As you see on the slide, the cost of deposits remain stable in the quarter. However, loan yield fell eight basis points, pushing down the customer spread. During the last 12 months, arrival 12 has decreased by 91 basis points, while our customer spread is 14 basis points higher as the lending yield has increased more than the customer deposits cost. If we move to slide 14, we have the NII quarterly trends in more detail. As you can see, the decrease of the retail business contribution was compensated by a small improvement in the contribution from the ALCO portfolio and mainly the lower wholesale funding costs, which together have left NII almost flat in the quarter. On the retail business, I would highlight that the increase in the cost of deposit in euro terms was driven by the volume effect, while in the case of lending, the decrease is explained by both a small decrease in volumes, mainly in public sector loans, and also because of eight basis points drop in the average loan yield. In slide 15, as you can see, total fees were almost flat in the quarter. For the first nine months of the year, total fees fell by 5% in line with our guidance. As we have explained in the past, the expected drop in 2024 is explained by some commercial campaigns to adapt fees to the new strategy focused on more loyal customers to whom the main effort is to offer them value-added products and services. We believe this is the right thing to do for the future and we expect it to become a positive going forward. On the positive side, we have insurance fees growing at 6.2% in the year. However, as we have explained, this strategy will reduce total net fees close to mid single digit for 2024. If we now move to slide 16, we have the breakdown of other income that includes that part of the gross margin that is not related to fees nor NII. In the third quarter 24, most of the items were in line with the same quarter of 2023, except other operating expenses that are higher because we have taken Here, the 10 million charge related to the adjustments of the 2024 banking tax. On top of this, as I said before, the adjustments for 2023 have been included in other provisions, as we will see later. All in all, total income was 5 million in the third quarter 24, 9 million below third quarter 23 because of the mentioned 10 million adjustments for the banking tax. Moving to slide 17, we show total cost details. Total cost grew 2% quarter on quarter, driven by a similar increase in personal expenses. For the first nine months of the year, total cost grew by 5% in line with our guidance and explained by higher personal expenses. costs that continue to grow mainly on the back of the agreements reached with the unions and higher variable remuneration on improved profitability. However, Despite the higher costs, the positive income contribution has led to a positive improvement of our cost-to-income ratio that, as you can see in the left side of the slide, reached 45% in the first nine months of the year, down from 48% in 2023. In the next slide, we show the evolution of the cost of risk and other provisions. Long-lost provisions have improved further this quarter to 27 million, representing 23 basis point cost of risk. Long-lost charges are better than initially expected. That is why, as we will explain later, we are improving our 2024 guidance. When we look at total provisions on the right, the trend is also positive, decreasing 32% year on year, mainly explained by the much lower provision for real estate assets and long loss charges. This positive trend more than compensates the higher other provisions that in the third quarter include these 9 million of the adjustments of the banking tax of 2023. Excluding such impact, other provisions were flat compared with 2023. On slide 19, we have included our regular profitability update. As you can see on the left-hand side, we have reached 451 million in net income in the year, which is one more quarter, a historical high supported by an 18% growth in the banking margin. On the right side, you can see that the evolution of the adjusted return on tangible equity has grown from around 5% in 2022 to a close to 6% in 2023 to the current 8% adjusted for the excess capital over 12.5% seed one. Bear in mind that the calculate that we calculate the ROTE, the return on tangible equity, considering the last 12 months net income, something that explains the gradual improvement. Also, let me remind you that our profitability target is to further improve this ratio above 10% by year end. Let's move now to asset quality on slide 21. As you can see, we have continued our positive evolution one more quarter. NPLs fell another 5% quarter-on-quarter and 22% year-on-year. The NPL ratio has decreased further to 2.8%, with the coverage ratio stable in the quarter at 66%. This is a very positive trend that is also reflected in the relatively lower cost of risk that we are reporting. In slide 22, we have the foreclosed assets and overall MPA's details. Net foreclosed assets decreased to 264 million in September. In gross terms, balances continued to fall one more quarter to 1 billion, helped by 273 million of exits during the year that represents 22% of the gross initial stock. On the right-hand side of the slide, you have the NPA's trends that also continue to fall during the quarter to levels below 2.4 billion, while coverage remained stable at 70%. Gross NPA ratio fell further to 4.8%, and net NPA ratio stands at just 1.5%, a significant improvement that, as you know, has been part of our main priorities this year. Let's move now to solvency in page 24. Seed... one fully loaded increase by 31 basis points in the quarter to 15.4%. The evolution of the quarter was explained by the organic generation through retained earnings and valuation adjustments that were all above the negative impact coming from the dividend accrual and risk-weighted assets increase. On the risk-weighted assets side, let me clarify that the growth is explained by different factors, but mainly because of the loan mix where the corporate loans have more weight than the mortgage portfolio due to the increase also to the security portfolio. On slide 25, you have our total MREL position. As you can see, our MREL liabilities represented 28% of our risk weighted assets, demonstrating our comfortable buffer over our requirement. In the right-hand side, you have the regular information, including our MDA buffer that has grown to 761 basis points. Very comfortable buffers over regulatory requirements. In slide 26, we update our liquidity position. We continue to have a very strong liquidity with a significant amount of liquid assets, a loan-to-deposit ratio of 70%, the NSFR at 157%, and the LCR at 314%. All of them best-in-class in liquidity metrics. In the next slide, we have the fixed income portfolio details. As you can see, the portfolio has grown in the quarter to 27.3 billion, with 88% classified in the amortized cost portfolio. The yield and duration fell a little bit in the quarter, but nothing material. In slide 29, we have included some closing remarks. On the left, you have a chart showing where the profitability improvement is coming from. As you can see, total revenues have improved by 14% in the first nine months of the year, something that together with the 32% decrease in total provisions has mitigated the 5% increase in total cost. which altogether improved pre-tax profit to 653 million, something that after deducting 202 million of corporate tax leaves net income in 451 million, which is 58% above last year. Such an improvement is also reflected in our shareholder remuneration. As you can see in the right, our tangible book value per share has grown 7% year to date to 2.4 euros. Shareholder remuneration this year represents close to 13% of average market value for the year. Both things are obviously supported by the significant improvement in recurrent results and the amortization of 3.14% of total shares following the execution of the share buyback program. Finally, let me finish the presentation in page 30 with an update of our 2024 guidance. We have included, we haven't included any reference for 2025, because as you probably know, we are currently working on a three year new business plan for the period that goes from 2025 to 2027. We expect to give you some color about the main targets next quarter, together with our annual results. It will be then when we will also give you some guidance for the 2025, but until then, let me review with you what we expect for the 2024 full year results. The net interest income trends have been more positive than we were initially expecting. At the beginning of the year, we were guiding you for a low single-digit increase. After the second quarter results presentation, we improved the guidance to close to 10% growth. And now, considering the recent trends, we believe that we will finish above 10%. In fees, we reiterate our current guidance of mid single digit decrease, owing to our current strategy, as I said, focus on improving loyalty and client satisfaction. So 2024 will be a transitional year in fees. Total costs trends have been already discussed too. We expect a mid single digit growth on the back of higher personal expenses, mainly because of the agreements that we reach with the unions. On cost of risk, we are improving our previous guidance this quarter. We were expecting long loss charges to remain between 30 and 35 basis points at the beginning of the year, In the second quarter, we updated the guidance to the low part of the range, and now we believe that it will finish in the year even below that, more between 25 to 30 basis points. Considering all the previous trends and the evolution of the first nine months of the year, we believe that the return on tangible equity when adjusted for the seed one of 12.5% will be above 10% in 2024. So that is all from my side. Happy to move to Q&A now.

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