Banco de Sabadell, S.A.

Thank you for joining us for Sabadell's Results Presentation for the Full Year 2024. My name is Lluc Sas.

I'm the Head of Investor Relations and Ratings. And presenting today are our CEO, César González-Bueno; and our new CFO, Sergio Palavecino.

Today's presentation will take the following structure. Our CEO will start by going through the key developments of the year before providing some details on the most significant topics.

Our CFO will then discuss financial results, asset quality, liquidity and capital before our CEO concludes with some brief closing remarks, including the main achievements in 2024 and the guidance for 2025. I will now hand over to César González-Bueno to kick off our presentation.

Thank you, Lluc. Good morning, everybody, and welcome, Sergio, to your first of many to come quarterly results presentation as CFO at Banco Sabadell.

Let's just start by going through the key messages of the full year '24 on Slide 4. Today, we wrap up a good exercise with a remarkable commercial performance that has led to record financial results.

First of all, commercial activity has posted strong momentum, closing better than anticipated. Performing loans grew by 4.7% and customer funds by 7.1% on the year-on-year.

We have gained market share. Secondly, NII remained resilient in a lower interest rate environment, with growth of 5.5% year-on-year, excluding the €36 million of extraordinary interests.

Customer margin increased by 8 basis points. Thirdly, asset quality continues to improve.

Total NPAs decreased by 16% in the year while the coverage ratio increased by 3 percentage points, reaching 59%. Group total cost of risk stands at 42 basis points, an improvement of 13 basis points over the year.

Fourthly, we have delivered record annual net profit of €1.8 billion. This implies a return on tangible equity of 14.9%.

On the back of the positive results and the sustainable growth prospects, the Board proposes total shareholder remuneration that combines two elements, a total cash dividend of €0.2044 per share and a share buyback for a total amount of €1 billion, equivalent to almost €0.19 per share. This proposal will have to be approved by our AGM, which will take place on March 20 in Sabadell.

Finally, core Tier 1 ratio stands at 13% once we have deducted 100 basis points related to the distribution of excess capital to be approved by AGM and already approved by ECB. On Slide 5, I think it is clarifying and helpful to break down the extraordinary elements of the year, although they remain part of the natural dynamics of the business and improve our capital position.

On the left-hand side, there are one-offs generated in TSB pre-Q4. One-off restructuring cost at TSB, €32 million negative before tax.

This will continue driving cost savings in '25. Other one-offs at TSB, €29 million positive before tax.

This is an insurance recovery, partially offset by the fine received for the treatment of customers in arrears. On the right-hand side, there are several 4Q one-offs.

The first one, €36 million positive before tax of extraordinary interest in arrears. This is related to the favorable resolution of a litigation case concerning an outstanding NPL of €360 million.

€54 million positive before tax due to the released provisions related to that NPL that was positive, partially offset with a negative of a top-up of provisions related to the floods in Valencia. And finally, tax rate had a positive impact of €50 million, mainly due to the recognition of certified technological innovation deductions originated in previous years, following recent Spanish Supreme Court's position on the matter.

All-in-all, total one-offs for the year amounted to €109 million positive after tax. Therefore, excluding these extraordinary impacts, our return on tangible equity would move to 14%, exceeding our guidance for the year.

On Slide 6, we see the evolution of business volumes. Total performing loans keep gathering momentum and increased by 1.7% in the quarter, which represents 4.7% growth in the year or 3.5% at constant FX.

Total customer funds increased in the quarter by more than 3% and by more than 7% in the year. On balance sheet funds posted a 5.4% increase in the year, while off-balance sheet funds grew by almost 14%.

If we go to Slide 7 to the lending origination in Spain. In Q4, new mortgages grew by more than 100% year-on-year and by 7% quarter-on-quarter.

In 2024, overall, new mortgage production increased by 53% compared to 2023. Let me emphasize that this growth is healthy.

For instance, the risk-adjusted return on capital or RaRoC remains stable in the quarter, but nevertheless shows a clear improvement over recent years, and both loan-to-value and affordability ratios remain at low levels. New consumer loans in the quarter grew by 33% on a year-on-year basis and by 5% quarter-on-quarter.

Around 90% of the origination comes from preapproved loans to targeted customers. New consumer lending in the whole year increased by 21% after several years of sustained growth.

Quarterly loan origination and new credit facilities in Business Banking increased by 46% year-on-year and by 44% quarter-on-quarter. In 2024, it increased by 31% compared with the full year of 2023.

Finally, new production of working capital slightly increased in Q4, while it's slightly down comparing to full year '24 versus '23. This is in line with what we have been predicting that the mid and long-term lending would grow and that we will gain market share, and the working capital has grown strongly in the past and would stabilize.

So we continue to see, all-in-all, the positive trend in commercial activity in Spain in Q4, posting what we believe is a great performance in the overall '24. On Slide 8, payment-related services continued to perform well in Q4, both in cards and retailer payment services.

In 2024, overall cards turnover increased by 7% and point of sale turnover increased by 8% compared to '23. Customer funds in savings and investment products in Spain reached a total of €66.4 billion in December '24.

This represents an increase of €3.2 billion in the quarter, driven by an increase in term deposits of €1.9 billion and €1.3 billion in off-balance sheet products. On Slide 9, performing loans -- performing loan book by segments and products, excluding TSB.

Here we see that performing loans in Spain increased by 3.8% in the year. This means a gain of market share.

And this growth confirms the turning point that we started to observe at the beginning of '24 after more than a decade of deleveraging in Spain, and we have taken that wave as we predicted we would do. The mortgage book grew by 3%, supported by higher demand.

The stock of consumer loans maintains its positive momentum and grew by 19% in 2024. And the SME and corporate loan book increased by 3.8% in '24, underpinned by the medium and long-term loan growth, as I just mentioned.

Moving to our international business. The loan book grew by 11.2% year-on-year or an 8.8% at constant FX supported by Miami and other foreign branches.

If we move now to Slide 10, TSB. In Q4, the new mortgage lending grew by 7% quarter-on-quarter and by 5% year-on-year.

If we look at the full year '24, new mortgage lending grew by 19% versus '23, thus enabling the loan book to remain flat in the year as expected. Total customer deposits remained stable in the year.

However, the trend of customer transfers from current accounts into savings reversed in the quarter. This is in line with the reduction in the remuneration of our savings products at the end of September, which explains the improvement in the cost of deposits by 3 basis points quarter-on-quarter.

If we move to Slide 11, TSB contribution to the group reached €253 million. This is the highest contribution of TSB since its acquisition despite we mentioned that this year '24 was a transition year.

Going through the main lines of the P&L, NII decreased in the year, but it is worth to note kept increasing in Q4, supported by higher structural hedge income and the commercial activity. Recurring costs decreased by 3.7% in the year having benefited from the efficiency plans carried out.

Provisions performed very well in a more positive macro environment in the UK and declined by 52% year-on-year. All-in-all, net profit reached £208 million, increasing by 19% versus '23.

On top of these positive results, we will optimize our capital structure at TSB by distributing a total dividend of £300 million to the group later this month, which includes £200 million of excess capital after the issuance of a £250 million of 81. These actions bring core Tier 1 to 15.4%, closer to the market benchmark levels.

In terms of profitability, return on tangible equity reached a double-digit of 10.6%. On Slide 12, TSB has specific levers to improve net profit going forward.

Regarding NII, the cost of deposits has started to marginally decline and will partially offset mortgage margin compression, while loan volumes are expected to remain stable. Structural hedge is expected to be the main driver of NII.

Its contribution will increase by around £100 million in the year. All these factors combined result in high single-digit growth of NII in 2025.

Regarding costs, efficiency measures implemented in the last year will drive a 3% decline of our total cost in 2025. In terms of provisions, cost of risk will normalize to levels below 20%.

The mortgage book represents about 90% of TSB's loan book. It's a business with a low cost of risk.

We consider this to be the run rate going forward. Considering these dynamics, we expect TSB net profit to increase at the rate in the mid-teens in 2025 and keep improving beyond.

Slide 13. Let's summarize group P&L for the year.

We have reached an all-time high level -- an all-time high yearly net profit above €1.8 billion. NII grew by 6.3% year-on-year, while fees declined by 2% and recurring costs grew by 2.7%.

Our core results, which include NII plus fees minus recurring costs, reached €3.3 billion, increasing by 6% on the year. Provisions decreased in the quarter, underpinned by improved asset quality.

All-in-all, we posted a net profit north of €1.8 billion. Return on tangible equity reached 14.9%, while our capital ratio stood at 13% after deducting 100 basis points of excess capital distribution to shareholders.

In fact, core Tier 1 stands at 14% before distributions which implies a capital generation of 83 basis points over the year. Altogether, a remarkable performance, which reflects the strong momentum of our commercial and financial footprint.

And last but not least, these excellent financial results were achieved while maintaining our commitment to sustainability. We are making significant progress towards our 2025 goals, which are built on four pillars: advancing as a sustainable institution, supporting our customers in their transition, providing investment opportunities that drives sustainability and collaborating to build a more sustainable society.

In 2024, Sabadell has been included in the Dow Jones Sustainability World Index. This index selects the top 10% of companies worldwide in terms of sustainability, evaluating them across governance, environmental and social dimensions.

Additionally, we have established decarbonization pathways for the 11 most carbon-intensive sectors having included four additional sectors in 2024. Finally, I would like to point out that our ESG performance is attracting recognition from numerous sources, while Sabadell stands out among some of the most highly repeated ESG ratings within the industry.

On Slide 15, shareholder remuneration for 2024 and 2025 has improved to €3.3 billion, which is a €400 million higher than the figure we last reported to you. This amount is equivalent to €0.61 per share.

Let me break down this €3.3 billion. Our 60% payout applied to 2024 results implies a total dividend of €1.1 billion that we will -- that will be 100% in cash.

This is composed of an interim dividend of €429 that was already paid in October 1, 2024. Therefore, we will distribute a final dividend of €667 million.

On top of that, at the beginning of last year, and let me emphasize this, it was at the beginning of last year, far before any expectation of a tender offer, the Board of Directors made a structural commitment to distribute excess capital above 13% core Tier 1, which is a conservative number. Following this, we are happy to announce that €755 million, representing 100 basis points of core Tier 1 will be distributed in the form of a share buyback subject to AGM approval.

But on top of this, and alongside with this excess capital distribution, we will resume the suspended share buyback for €250 million from the last year results which has already been deducted -- which had already been deducted from capital. And with this, we reached a figure of €1 billion in share buybacks, of course, subject to AGM approval.

It is important to highlight, as I mentioned before, that we have already obtained ECB approval. Adding together the cash dividend and the share buyback, total shareholder remuneration on the back of 2024 results is €2.1 billion.

Then we expect shareholder remuneration for 2025 to reach €1.2 billion, including both the payout and excess capital. Let me highlight that on the back of our financial plan, the Board of Director expects this €1.2 billion remuneration as a recurrent annual distribution to our shareholders going forward.

In Slide 16, we have drawn a calendar showing how we expect to distribute the €0.61 per share. An interim dividend of €0.08 per share was paid in October '24.

A final cash dividend €0.1244 per share will be distributed after its approval by the AGM to be held on the 20th of March. Therefore, the total cash dividend for '24 equals €20.44 per share.

This implies a remarkable increase of 241% versus '23. The excess capital distribution plus the resumption of the suspended share buyback represents €18.7 per share.

It can start being executed once the annual shareholder meeting approvals are obtained on the March 20. We are also submitting an update of our remuneration policy to the Annual General Meeting, aiming to distribute three dividends per year.

Thereafter, interim dividends in '25 will be paid in August and December. The final dividend plus any potential additional excesses of capital will be distributed after the 2026 AGM.

All-in-all, total remuneration to shareholders charged to '24 results is €0.39 per share, while we expect €0.22 per share to be charged to 2025 results. Adding both together it would be €0.61 per share.

Let me highlight that the expected remuneration to be received by shareholders for the next 13 months amounts to €0.53 per share. And this represents, in 13 months, 22% of Sabadell's market cap.

With this, let me hand over to Sergio, who makes his debut today, although you have known him for a long time. Sergio is a seasoned manager.

He has been very successful, and it is great to see you here on this table today, Sergio.

Thank you, César, and good morning to everyone. It's a real pleasure to be here with all of you today.

Indeed, I have been at Sabadell for more than 20 years in different responsibilities, all of them related with finance. Now I'm eager to continue contributing to this project.

But enough about me. Let's talk about our financial results.

We recorded net profit of €532 million at the group level in Q4, taking our full year net income to a total of €1,827 million, or more than €1.7 billion, excluding all the one-offs this quarter that we have already disclosed. As César has just mentioned, this represents Sabadell's highest annual net profit ever.

This level of profitability represents a return on tangible equity of 14.9% or 14% in recurrent basis, beating our guidance for the year. I'd like to point out that this performance was underpinned by the evolution of our core results.

As you can see in the bottom line of the table, which posted an increase of 6% year-on-year, driven by growing NII and our ability to contain cost. The progress of this core results, along with the material reduction in provisions, which were down by 22%, allowed us to record a bottom line figure north of €1.8 billion.

We will now go through the different items of the P&L in more detail. Starting with NII on Slide 19.

Group NII increased by 1.7% in the quarter. If we exclude the 36 million of extraordinary interest in order to focus on the underlying trend, NII declined by 1.2% in the quarter as the downward repricing accelerated.

In the year, NII showed a 6.3% increase or 5.5%, excluding the one-off meeting our mid-single-digit growth target for the year. Looking at the black stack bar on the chart on the left, which is TSB's NII.

You can see that TSB contributed an additional €10 million to the group's NII in the quarter. We believe that TSB will keep increasing its contribution to the group's NII going forward.

Now we can see the different moving parts of the NII bridge on the top right-hand side of the slide. Moving from left to right, customer NII had a negative contribution of €21 million as it was impacted by an increase in quarterly average deposit volumes, and consequently, a higher cost in absolute terms.

Lower loan yields reduced NII by just €5 million despite sharp rival repricing in the quarter that was partially offset by the new loans mix. Deposit cost was only 1 basis points lower as the pass-through of lower rates is just starting.

Quarterly average volumes contributed only with €1 million because growth was rather back-loaded in the quarter. The FX effect was positive and added €5 million, mainly due to the appreciation of the sterling.

Moving along to the right, we see a combined net impact of €17 million. Within this, we had tailwinds from higher ALCO contribution and higher excess liquidity.

The higher volumes in liquidity came from the aforementioned increase in the volume of deposits. These were partially offset by higher wholesale funding cost due to more new issuances in the quarter.

Finally, as mentioned before, there was a positive impact of €36 million in the form of a one-off related to interest on arrears, while the other category had a negative contribution of €10 million. As you can see in the bottom left part of the slide, our customer margin increased by 8 basis points in the year to 307 basis points, excluding the one-off.

This is thanks to the low NIA sensitivity of our loan book, with a higher proportion of fixed rate loans and a cost of deposit that has remained broadly stable throughout the year. In terms of NIM, we closed the quarter at 200 basis points, similar to levels 1 year ago.

Moving on to the next slide. We believe that Sabadell's NII will be resilient in the lower interest rate environment.

Let me explain the main NII moving parts. Let's have -- let's first have a look at Sabadell excluding TSB.

For several reasons, we believe that loan growth in Spain will continue during 2025 and possibly beyond, at similar rates, and that's a similar rate to the ones we've seen in 2024. Also, we believe that the weight of fixed rate exposures, which represent 60% of the loan book, combined with the new business mix makes us relatively less sensitive to interest rate movements.

Therefore, despite the decrease in rates, the loan yield is expected to remain at levels of around 4%. This decrease will be partially offset by a lower cost of deposits dropping below 1% in cost, held by front book rates on term deposits that would continue to be below the back book rates.

As a result, customer spread is expected to remain resilient above 300 basis points. Regarding non-consumer items -- non-customer items, sorry.

On the one hand, excess liquidity deposited at the ECB will be remunerated at lower rates. On the other hand, floating rate issuances in wholesale funding, together with increased contribution from the ALCO will serve to partially reduce the impact from lower rates.

With all this, we expect NII at Sabadell ex TSB to decline by low single digit in 2025. This is excluding, of course, the positive one-off in fourth quarter '24.

For reference, this one-off, we recognized this quarter represents circa 1% of NII ex-TSB on an annual basis. Let's now take a look at TSB.

NII in 2025, will show an increase in the high single digits, mostly driven by a larger contribution from the structural hedge, which will imply an incremental contribution north of £100 million. The rest of levers should be broadly neutral.

Loan volumes will remain flattish, while the lower cost of deposits will offset mortgage spreads on new lending, which are expected to remain below the back books. To conclude, on the back of all these moving parts, we are expecting a resilient NII that will remain above €4.9 billion in 2025.

And that's level very similar to the current consensus. Leaving the NII in line to one side and moving on to fees.

Group fees declined in the year by 2.1%, which represents a better performance than the circa 3% decrease that we guided for. On a quarter-on-quarter basis, we recorded a positive evolution of 3.3%, driven by the expected Q4 seasonality related to asset management and insurance business success fees, which represented €12 million.

Regarding the year-on-year evolution, the performance was mainly driven by lower current account maintenance fees as we have been keen on waiving some fees to secure transactionality in a high interest rate environment. On the other hand, asset management fees posted growth in the year on the back of a stronger performance from capital markets as well as net inflows from mutual funds, as César mentioned earlier.

Going forward, we expect now fees to increase by low single-digit figures in 2025. This will be basically underpinned by service fees as we expect higher levels of customer transaction and commercial activity all supported by a strong economic backdrop in Spain.

Moving on to the cost in the next slide. Recurring costs remained broadly stable in the quarter.

In year-on-year terms, they rose by 2.7%, broadly in line with our guidance. As you can see on the right-hand side of the slide, the cost-to-income ratio improved by almost 3 percentage points in the year, even including restructuring costs.

At the group level, the cost-to-income ratio for 2024 stood at 48.7%, while ex TSB, it was just 43.5%. For 2025, we expect our total cost base to increase by just 1%, thanks to more other things, the cost management initiatives launched in TSB.

That's equivalent to a growth below 2% when considering all recurring costs. Moving to Slide 23.

We cover credit cost of risk and other provisions. In 2024, the group's credit cost of risk stood at 26 basis points or 29, if we exclude the release of €54 million of provisions linked to extraordinary items that César explained earlier.

Likewise, total cost of risk amounted to 42 basis points or 45 if we exclude extraordinary items. These numbers confirm the continuous improvement in credit quality trends that led us to upgrade our initial guidance for total cost of risk in 2024 from 55 basis points to 45, and we are happy to say that we have delivered on the improved guidance.

Looking at the breakdown of total provisions in the quarter on the top right-hand side. Firstly, we booked €52 million of loan loss provisions in the quarter, which if we exclude the positive one-offs, amounts to €106 million.

The next two items are €11 million of foreclosed asset provisions and €36 million of NPA management costs, both of which can be considered a run rate. And finally, other provisions, which stood at €53 million, mainly related to litigation and other provisions.

Moving on to the following slide and continuing with the breakdown of total provisions in the year. Firstly, credit cost of risk weighs the most with 26 basis points out of a total of 42.

Going forward, we expect it to remain broadly stable throughout 2025, driven by positive credit quality trends, as we have just said with a diversified and sound balance sheet and already settled evolution of our risk management actions. The remaining provisions, namely foreclosed asset provisions, NPA management costs and other provisions accounted for 16 basis points in 2024.

We foresee a gradual improvement in the coming year. Therefore, overall, in 2025, we expect total cost of risk to improve to circa 40 basis points or to put it in absolute terms, total provisions should stay at similar figures to last year's.

Moving now on to the next section. I will walk you through asset quality, liquidity and solvency.

Let's start with the evolution of nonperforming loans on Slide 26. I'm glad to say that the NPL ratio is already below 3% being the lowest levels since 2009.

This is the result of a continuous improvement of risk management on different fronts. Firstly, in new lending, where we have improved our risk granting processes, gradually reducing the probability of default, combined with less gross inflows of NPLs.

And secondly, on the recovery side by using best practice from leading recovering agencies deploying specialist recovery managers for situations involving vast sums and conducting NPL sales among other things. On top of that, this quarter, we recovered £360 million on an NPL following a legal dispute.

The reduction of NPLs is also in line with the improvement in Stage 2 loans, which declined by more than £1.5 billion in the year. Finally, the coverage ratio also keeps improving and considering total provisions, it reached 62%, increasing by more than 3 percentage points in the last 12 months.

Moving on in terms of foreclosed assets. The stock has declined by a remarkable 14% year-on-year, falling to levels already below £850 million.

More importantly, 21% of the stock has been sold during the past 12 months at an average premium of 10%. This is a testament of two things.

First, that we are continuously selling these assets and second, that they are properly mark-to-market on our balance sheet. Overall total NPAs, which include both NPLs and foreclosed assets, are down by 16% year-on-year.

Gross and net NPAs ratio stand at 3.3% and 1.4%, respectively, improving both in the quarter and in the year. To sum up, as you can see in the bottom right part of the slide, net NPAs represent just 1 percentage point of our total assets.

The next slide shows exactly how asset quality has improved over the last two years, with a favorable combination of the three elements: an NPL ratio that is steadily going down; cost of risk that is also improving quarter after quarter; and, at the same time, an increase in coverage ratio. In other words, lower cost of risk is not being achieved by reducing coverage.

In fact, it is the opposite. We believe this compelling trend supports our guidance for total cost of risk at around 40 basis points for 2025.

Moving now to liquidity on the following slide. The group's position improved further in the quarter and remains at very comfortable levels.

This is reflected in the £48 billion of high liquid assets, which increased by £2 billion during the quarter from strong inflows of customer deposits. The LCR stood at 210% for the group, while the NSFR stood at 142%.

As a matter of fact, the loan-to-deposit ratio ended the quarter at 93%, even lower than the previous quarter, showing remarkable success in our customer deposit business. Regarding credit ratings, I would like to remind you that we have benefited from several improvements in the last year, namely one notch upgrade by S&P and Moody's, and more recently, also by Fitch in the last quarter.

Turning now to Slide 30. We can see our current MREL position.

Firstly, in December, we received the new MREL requirement applicable to 2025, which reduced the risk-weighted asset base requirement by 38 basis points for total MREL and by 147 basis points for subordinated MREL. This reduction is based on a 20% scale down of the market confidence charge, which reflects a positive assessment by the regulator of the progress made by Sabadell in enhancing the bank's resolvability.

With that requirement in mind, we are comfortably meeting all new MREL obligations, both in risk-weighted assets and in leverage ratio exposure. It is important to note that we issued a total of over £5 billion last year across the capital structure as well as through liquidity instruments, namely covered bonds.

We also carried out three significant risk transfer transactions during the year using both synthetic and cash securitizations, all of them approved by the ECB. For 2025, in terms of our funding plan, our intention is to keep the Tier 1 and Tier 2 buckets completed.

Then in terms of senior debt, we want to keep the current buffers above requirements. So we will roll over any bonds that become ineligible.

Regarding covered bonds, we will issue both in Spain and in the UK when we see an opportunity for it. Finally, we will keep actively managing capital through securitizations with significant risk transfer in the face of a more dynamic outlook in terms of loan growth.

The next slide shows the capital generation in the quarter. Following the announcement of the excess capital distribution equivalent to 1 percentage point, our fully loaded CET1 stands at 13% after having generated 24 basis points in the quarter and more importantly, 83 during the year.

When we look at the quarterly evolution in more detail, first of all, we can see an organic capital generation of30 basis points, including the accrual of a 60% dividend payout. Secondly, the fair value reserve adjustment represents minus 8 basis points.

Thirdly, risk-weighted asset growth had a marginally positive impact. Since the larger loan book was offset by the release obtained through significant risk transfer, transaction completed at the end of Q4.

Therefore, the per capital distribution CET1 ratio stood at 14%. Following the commitment of the Board to distribute the excess capital above 13%, we are delivering exactly what we promised.

Finally, with all the information that we have today, the implementation of Basel IV won't have any negative impact on our capital ratios. With all this, the CET1 ratio ended the year at 13%, with a comfortable MDA buffer above 400 basis points.

Last but not least, on the right-hand side of the slide, we show shareholder value creation. Tangible book value per share increased by more than 14% year-on-year, including the distribution of £0.11 in cash dividends.

And with this, I hand over to César who will conclude our presentation today.

Only two more slides to go. So we are almost at the end of the presentation.

The next slide is one of my favorite ones, I have to say, because it's about fulfilling our commitments. I will not go through all the details in the slide.

But if you see we upgraded our guidance in January '24, in April '24, in June '24, in September '24. And it has been a constant improvement of our guidance.

And it is with pleasure that I have to say that we have beaten or equaled all the guidance that we gave after so many improvements of the guidance in September '24. The only minor exception is total recurring costs, 2.7 instead of 2.5.

And this is due, as you can imagine, partially to the increase of the costs related to the hostile takeover, but all the other metrics are very good. And it gives us pride to be able to commit and to deliver on what we have committed.

If we go to the last slide, I would like to show the major targets for '25. And I think this has already been covered, but this is a recap.

We expect NII to be resilient, to remain above £4.9 billion in '25. Regarding fees and commissions, we expect a low single-digit increase in '25, underpinned by stronger economic activity.

Within the noninterest income, the new banking tax is estimated at around £140 million, which is around £50 million lower than the previous charge as part of the new scheme the progressive format in this tax. We expect total cost to increase by only around 1% next year, which represents below 2% increase on a recurring basis, a rate well below current general inflation.

And finally, total cost of risk, which has been the focus for the last four years, which has been at the core of all our management actions will continue to improve to around 40 basis points, underpinned by strong credit quality trends with a robust balance sheet and improved risk management actions. Adding all together, we are targeting a return on tangible equity of around 14% for 2025.

And going forward, we are expecting that return on tangible equity in '26 will be above 14% based on revenues increase, controlled costs and stable cost of risk. With this, let me hand it over to Lluc to kick off the Q&A session.

Thank you, César. We will now begin the Q&A session.

As we only have a limited amount of time, I would kindly ask you to limit the number of questions to no more than two. So operator, could you open the line for the first question, please?

Yes, good morning. Thank you for taking my question.

The first one is about the loan yield in Spain, which if I exclude the one-offs, is similar to that reported by local peers, but you're an SME bank and your loan yield used to be 50 bps higher than the peer average before interest rates started to go up. So I want to assess whether you have become more aggressive in pricing to loan book or if you will recover that with the peer average?

In this context, it would be helpful if you can understand -- help us understand the repricing dynamics of your loan portfolio and give us some guidance of what you expect on the percentage of fixed rate loans in the SME book, the duration of the loan any hedges? Any color you can give us here?

And my second question is on the €1.2 billion of total remuneration for '25. If you can give us more color here.

I understand the 14% equates to €1 billion of ordinary dividends. and then the special distributions, you can give more color on the excess capital generation, how much RWA growth compared to loan growth, you want to resort further to any regulatory impacts, if any, any impact from the upstreaming of excess capital at TSB?

Thank you very much, for your questions. Let me handle the first one connected with loan yield in Spain.

Yes, the evolution of loan yields is connected with the business mix and connected with the evolution of rates. If we have explained, we have enjoyed a good growth in the book, and this has been across the different products.

We have seen growth in mortgages. We have seen a growth in SMEs, and we have been -- we have seen a growth in our -- the rest of the corporate book and consumer in particular.

I think the evolution of rates, we are -- our front book is mainly fixed, particularly in mortgages. In SMEs is two-third.

The curve has been already inverted. So the fixed rate products already take into account that inversion of the curve, but it's going to be -- it's going to provide more resilience going forward.

And all in all, and to the different dynamics, we have guided you and the market to a loan yield that would be -- that will be around 4% in 2025, and this is despite the headwinds coming from rate. And to your second question regarding the distributions and the capital growth in 2025, neutral impact from Basel IV.

We already mentioned no other impacts, not all the regulatory impacts, nothing to take into account that we are aware of this moment. So it's just about the good profitability of the bank that enables us to keep this 60% dividend payout, finance the growth on the loan book that we expect -- that will keep -- that will remain at a mid-single digit.

And on top of that, we think that there will be room for some additional capital generation. Yes, we will keep on using SRTs to your question.

On the Annex, we have a detail on the different programs that we run. We have closed three transactions in 2024.

This added 12 basis points net of CET1 in 2024. And 2025, we are looking forward to making more use of it because we find it a very useful tool and very efficient and capital generating.

And is there anything else that you'd like to add, César?

Maybe just to mention that we are very confident on this 1.2 because, as you mentioned, well, maybe there's a little bit more room on the SRTs, certainly does not include any extraordinary profit from a potential transaction with which we have not included in any of the numbers that we have shown today for '25. So overall, we feel that this is a confident guidance that we're giving at 1.2.

Thank you.

Thank you. Can we move to the next question, please?

Operator, can we move to the next question?

Thank you much for taking my questions. I have two.

Firstly, is on the capital. I would like to ask the growth in Q4 was below the loan growth.

So I would like to ask if there was any optimization measure. And then secondly, if it would be possible to ask if you could provide your expectations into the timeline of the antitrust approval process?

Yes. Thank you, Borja, the marginally positive impact in capital from RWS came from the combination of the normal loan growth that led to growth in risk-weighted assets.

But that was offset completely by synthetic securitization with significant risk transfer. So SRT transaction.

This was a €1.1 billion nominal and we transfer risk on project finance and exposures in our U.S. business.

And the second question...

Second question, the expectations on the timeline. I think we have been saying all along that we are best estimated was around June.

We have no reason to change that estimate, although there's fluctuations around that. As you know very well, we are in Phase 2 that has to finalize.

It's a complex process. After that comes 45 days of the possibility first 15 days for the minister to decide if it brings to cabinet and another month for the cabinet to decide if it changes or remains unaltered, the conditions that might have been set by the CNMC, and after that, probably retracting a little bit of the CNMB brochure and the -- so all of that the estimation is that it could drive us until June.

But of course, there are many variables around that, and it remains to be seen.

Okay. Thank you, Borja.

Operator, could we move to the next question, please.

Hi, thank you for taking my questions. I guess the first one is on your NII guidance for Spain.

So thank you for providing the multiple assumptions on Slide 20. They're really useful.

But I guess, could you please maybe provide some sensitivity around what NII would be should some of these changes? And in particular, how sensitive is your guidance to your volume growth assumptions?

And I guess also if you expect NII to inflect at any point during the year? And if so, when in Spain?

The second question also on NII, but on the UK, on the structural hedge, you have reiterated the additional contribution from the hedging '25, which you've still seen around at the same level. As in previous quarters, despite the swap break movements we've seen, I guess, could you please also provide here the swap rate assumptions that you're using and remind us on the size of the hedge?

And if possible, if you could comment as well on the upside potential from higher-than-expected loan growth versus your flat loan growth assumption in the UK?

Let me start a little bit with the NII, but of course, I will let Sergio to complete and to elaborate. I think the sensitivity to volumes, you can consider basically that it's linear to simplify things and that we are guiding to a mid-single-digit growth.

We have gained market share this year, around 3 percentage points. It's difficult to estimate because the numbers you have to do a number of proxies for that.

But we think that we have grown 3 percentage points above the average. We expect Spain to grow, everybody expects it to grow.

And therefore, we are marginally aiming for a slightly bigger growth, and it will happen across the year and then you can distribute the impact on NII across the year. Of course, there's a lot of detail about how it does in the different products and so forth.

In terms of the numbers that we are using in terms of the underlying interest rate is basically the one that is guided by the markets and the forward curves. So we don't expect much of a surprise there.

Yes, exactly. You were asking for the size of the structural hedge I think we have already disclosed that this is maturities of around €2 billion, and the swaps that mature, these were written five years ago.

So five years ago, swaps rates, which is the receivable leg was almost zero. Now when they mature, we write the new books at current market rates, five-year swap rates in the UK, as you know, are close to4%.

In our assumption, we have assumed a bit less than 4%. That was the forward curve that was at the end of last year.

So, exactly as I said, we use for workup for this. Thank you.

Okay. So we can move to the next question.

Thank you.

Hi, good morning and thank you for taking my questions. I have got one on customer spread in Spain.

If you can give us a little bit of visibility on when you expect the customer spread to trough this year? And to what extent actually a 3% guidance you have for 2025, you think is sustainable beyond 2025?

And the second question is on the UK. Just curious basically why you're not sounding a little bit more positive on lending growth in the UK?

So rates are going down. You're basically mentioning that mortgages spreads are going to narrow.

So again why actually, given your position and your normal status as a challenger, actually, you're not a little bit more positive, especially in terms of mortgage volumes?

I will let Sergio to elaborate on the customer spread, but beyond '25 we're not giving much guidance because as I think we will -- I don't know if we've announced already or not, but we will be doing a Capital Markets Day soon after the Q1 results when we have already the Q1 results in hand. And there we will give a much broader perspective going forward around a number of issues and that will end in a three-year program that will end at the end of '27.

Basically, there we are conservative on TSB. And we are not more positive.

It could be, it could well be. But always in our projections, we tend to be careful.

I don't know if conservative is the word, but careful. And we do not have any hard evidence at this point in time given the demand and the new loan demand that we are seeing to make the guess that there will be a volume growth in the UK.

If it comes, of course, it will be welcome, and we will ride with the tide.

Thank you. Regarding the evolution of customer spread in Spain, we are expecting a declining trend of customer spread over the following quarters.

I think it's no surprise that rates are going down and therefore, that is going to be having an effect on the spreads. As we have explained during the presentation, the offsetting factors for that will be definitely volumes.

Volumes will kick in, will be continuously kicking in and will have a stabilization effect on the total NII. Still, overall, we expect a low single-digit decline for the NII in Spain.

And then in the group, the additional offsetting factor is the NII at TSB which on the contrary, we expect an increasing path of quarterly NII. And at the end of the year, we expect a growth of high single digit.

So that leads us to the overall group guidance. And what is in the market is that then the interest rates will sort of bottom at some point after the summer and then will be stable from there.

So there -- so after that, rates should not be any longer a headwind and we'll be working on volumes and on mix in order to keep on supporting the NII.

Thank you, Ignacio. Operator, we could connect the next caller, please.

Thank you for taking my question, Sergio and César. Congratulations on a good set of results.

My first question is on NII sensitivity. Are you still working on reducing your sensitivity further, i.e., swapping loan contracts from variable to fixed to prepare for an event in which rates could fall below 125% primary rate?

And as you were mentioning, asset liquidity will be now remunerated at lower rate. Are you planning to use that liquidity to increase the size of the ALCO book where you still can get very good yield?

So can give some NII sensitivity be lower further? And then my second question is on volumes.

Your loan volumes have been better than competitors this year at 5% and you expect to continue at this level in 2025 to gain market share. And also we notice that OpEx is at 11% year-on-year, which is a great result.

What is your expectation for this segment in 2025? And do you expect any impact from tariffs?

Shall I start the first one. Thank you, Cecilia, for your questions.

Regarding NII sensitivity, we've been driving the sensitivity lower for the last years. As of the end of last year, sensitivity to 100 basis points that stands at close to 2%.

And yes, we are using both our commercial business and markets. In the commercial business, as we explained before, we're mainly having new business of fixed rate loans.

That is, as a matter of fact, extending the duration of our assets. Then we have also increased the loan book with fixed rates in 2024, additional extension of the ratio in the asset side.

And in the liability side, we've been swapping further the capital market transaction so that we reduce the duration of our liabilities. So our aim is to provide stability.

We think the market rate will land at around 2%, 175 is our assumption for the ECB, which is close to 2% to neutrality. We see inflation under control.

So that is our assumption. And to that, we'd like to keep a stable NII going forward, so sensitivity as low as possible.

There is some room to grow the ALCO book that you were mentioning before. There is some room because our balance sheet is growing, our deposits are growing and therefore in connection with that, our balance sheet is growing and our ALCO book can grow also.

I think on the volumes, I think one of the things that is important and we have been stressing all along is that this is not a tactical move from year-to-year. This is a strategic move.

It all starts from the way we manage risk and the improvements that we have been progressively introducing in all our product range on one side which allows us to grow with more confidence than before. On the other hand, all the metrics that we have put in place that have moved ourselves from metrics that were quite basic to value creation metrics.

And then again, it allows us to be much more proactive. It's around and I think we covered that in a couple of presentations ago.

It's the preapproved loans. So if you take every product, if you go from commercial loans or you go to mortgages, are you -- there's a structural improvement in the way we do business and in the way we measure risk.

And that is why this year we have gained market share. And this is why we are confident that we will continue growing marginally.

We are not overly ambitious in the projections that we do. But we think that marginally we are going to grow in a healthy manner in a growing economy.

If I just take a little bit of the latest example which is mortgages, you have seen that the growth has been quite phenomenal. We have been working on that for years.

And the conversion rates, for example, are improving very much based on the improvement of the process. When you see the funnel of acquisition, improving the funnel that is the people who are interested in your mortgage until the people who really sign up that funnel is very important and it's full of complexity and that is what we have improved significantly.

Then again we have done a phenomenal work on price discrimination. If you don't do proper price discrimination, you get negative selection.

Now we are having exactly the selection that we want and to improve the levels of engagement. We've done that all across the different products, I think we will cover that in more detail during the Capital Markets Day, but that's why we feel very confident that we will continue growing at least marginally better than our competitors.

In terms of the last part of the question, I don't know if the tariffs you were referring to the Trump tariffs.

Yes, exactly.

Well, I think -- well, certainly, the world has become more volatile. And in that sense it's difficult to predict what is going to be the impact on the different regions and in the different areas.

If you look at our business, we tend to be more isolated from that than the average competitor, because we are basically local, a lot of what our customers do is local. And Spain doesn't have a trade situation with the U.S.

that is especially noticeable. Therefore, we think that it's very difficult to predict what this volatile world is going to do.

But in relative terms, I think we will be less affected up or down by this volatility, we will be less affected Sabadell's business.

Okay. So we can jump to the next question please.

Hi, morning. Carlos Peixoto from CaixaBank.

A couple of questions on my side as well. So the first one would actually be a bit of detail on the 2025 guidance.

So just a bit of clarification. When you mentioned on the cost growth, both the 1% growth for the group, and then a 3% drop in DSP that on the over the reported cost base or the cost as suggested by non-recurrent.

Within that as well in the guidance just the fees growth that you mentioned, you're not expecting any impact from the Nexi sales to come in already this year, and becomes then you expecting the loan to take place in 2026 since it has been postponed? And then second question -- the second point actually would be on the RWAs as well.

So I'm just trying to understand a bit what your expectations on the growth in RWAs considering the expectations for volumes and also what you mentioned before regarding the SRTs still intending to be active on that throughout the year? What type of RWA growth should we expect to see, half of volume growth, more aligned what are the expectations there?

Thank you very much.

So on cost, of course, Sergio, please comment on top of that. But the guidance for '25, it's a 1% total cost growth at group level, which is equivalent to slightly below 2% recurring costs.

And the breakdown of this is that TSB would be at minus 3% because of the cost efficiency measures over the last two years. And in fact, we will be reducing costs by more than 5% since '23 in a context of very high inflation.

And ex-TSB, it will be more or less 3% higher with higher personnel costs and administrative costs, while lower amortizations. So net-net, 1% total cost growth, and it's equivalent to slightly below 2% recurring cost increase.

I don't know if you asked something about Nexi. I couldn't hear.

I think it was in connection, Carlos, with the fee line and whether there was any impact. So the answer there is that -- the guidance we gave is not taking into account any potential impact from the closing of a transaction with Nexi in the payments space.

We still are interested. They are still are interested.

Of course, the agreement is on standby until further down the year. If that happens, then we will update you accordingly, but this is on a pure organic and a standalone basis.

And I think the last one was in connection with our risk-weighted assets growth expectation. We are expecting growth in risk-weighted assets.

If you make the math, it's mid-single-digit growth that we are guiding for where credit density today is a bit higher than 40%, and then it will be -- the growth will be offset by the SRT transactions that we managed to do. So all combined is still some growth.

Okay. We could move to the next question, please.

Yes, thank you for taking my questions. Just a follow up on the net interest income.

What sort of pricing are you seeing in the market right now? I hear you that you're saying you're not delivering growth by undercutting the pricing, you're achieving it by being more selective in the underwriting standards.

But maybe you can give us an idea on the front book yields versus the back book yield on mortgage and corporates in Spain? And also a question on the growth.

Do you expect your mix to change a little bit more, I would expect both to be more tilted to consumer and corporate. So how sustainable do you think is the cost of risk beyond 2025?

I think, let me try to give the answer in qualitative terms on the first one. I think we -- I mean I'm not thinking, I'm sure.

That we are improving our RaRoC. And how that relates to the pricing, it's a more complex matter.

But what we are doing is that based on the risk of the deals that we are -- things that we are writing on our books across segments, we are being more selective and more demanding. And that goes from corporate and investment banking where the RaRoCs have improved year-after-year and continue to improving to mortgages, to consumer lending, where the payments in arrears have gone from 13% to 5% and continue to go down, and all along.

And we include all the elements that are relevant to the pricing. I think one of the small revolutions that has taken place in the bank, has been what we could call the small miracle of the metrics measuring in the right manner.

So to your question, we are not in a war price, not at all. If that is the perception, that's what we're growing, it's not the case.

And it is absolutely not the case, because that would be value destroying and we are all about value creation. The market is competitive, in more competitive, some issues and less competitive in some other areas.

In mortgages, is it competitive? Yes.

Are we building positive RaRoCs in our new production? Yes.

Do they yield a lot of P&L in the first year? No, because you have to offset the costs of generating the book versus the yield that they provide in the first year.

And therefore, I think you should not see any tactics in our accelerated growth in mortgages, but on the contrary, a bet for the long-term value creation of the bank, because if it was for the short term, it would be much greater to grow at the lower rate in mortgages, for example. But we do it because we believe in the standalone future of the bank, and we think that this is strongly value creation.

In terms of the mix in the growth and are we able to sustain this level of cost risks, I think we are going to improve them. And I think we are going to guide to an improvement of that.

We're already doing that because at 42 basis points of this year includes some improvement from one-off and the 40% for next year do not include any one-off. So we are positive around that.

If you look at the trend of the last 4 years, it is very steady going downwards, and we think that there are elements in our books and in the difference between the risk cost of what we generate versus the risk cost of the portfolio that encourage us to believe that this trend will go down over time. And I think there was also a question around costs.

Yes, yes, it was cost. I think it was NII on this cost of risk.

Sergio, I don't know if you want to add anything else?

No, I think it was complete.

We still have time for one additional question. So operator, please.

Hi, good morning. Thank you very much for the presentation and taking our questions.

Two questions from me. The first one is in other provisions, if you could just give a little bit more color on the asset ratio...

I'm so sorry. I don't know if you -- we are not listening.

Are you listening -- can you get a little bit closer or a little bit further to the mic?

Yes. Can you hear me better?

Yes. Thank you.

Yes. So the first question is on other provisions.

Just if you could give a little bit more color on how much and what other provisions you booked in the quarter? And the second one is a follow-up on loan book growth.

You are growing nicely in new production of long-term corporate loans. Could you give more color on what kind of segments are you lending to?

And what are the reasons that the company has asked for more long-term financing? Thank you.

Yes. Thank you, Max.

The other provisions were a bit higher in the quarter, and that is because we made a revision of all different lines, and this typically includes litigation and other assets. And that was a particular one in the quarter.

Going forward, we should get to a normal run rate that we could expect it to be between 10 million to 15 million. So we should see decreased number going forward.

And regarding growth?

Yes. The loan book growth, I think it's a little bit across sectors.

Sorry to self quote ourselves. But at the beginning of the year and at the end of last year, we said that we saw that we were starting to see signs of recovery because in year '23, we saw very flat mid- and long-term financing, and we saw very strong working capital growth.

And we anticipated that the midterm mid- and longer- term financing would happen. And that is exactly what has happened.

I think we have specialization by sectors. We have improved all the way in which we approach customers, we are much more proactive, we are much more sensitive to the PDs, the probabilities of default ex-ante instead of measuring the cost of risk exposed and that has allowed us to gain market share.

But it has been across sectors. And we see this consolidating.

I think the level of working capital, although it is not growing, it is at a high level because the consumption was very strong in '22, '23. And we are satisfied with that.

And -- but we are even more happy to see that there is some structural investments coming in that are linked to the mid- and long-term credit financing. And as we mentioned, it has grown by 31% the new production year-on-year during this year, and we expect it to continue forward.

Thank you, Max. That concludes our Q&A session today.

Thank you, César. Thank you, Sergio.

As always, the Investor Relations team is at your disposal, and we will be happy to take any further questions you may have. Thank you, everyone, for participating and for joining us today.

Have a great day.

Thank you very much.

Thank you.