Banco Sabadell Stock

Good morning, and welcome to Sabadell's results presentation for the second quarter of 2026. Joining us today are our new CEO, Marc Armengol; and our CFO, Sergio Palavecino. The presentation will follow a similar structure as in previous quarters. Marc will start by sharing his opening remarks and discussing the key highlights of the quarter. Then Sergio will review financial results and the evolution of the balance sheet before Marc concludes the presentation. Finally, we will open the line for a live Q&A session.

With that, Marc, welcome, and the floor is yours.

Thank you very much, Lluc, and good morning, everyone. It is a great pleasure to join you today for my first results presentation as CEO of Sabadell. I thought that before we move into the presentation, let me just briefly introduce myself. I became CEO in May after more than 2 decades at the group. And during that time, I have had the opportunity to work across Spain, Mexico, the United States and the United Kingdom, leading transformation, growth and integration initiatives. I also served as group COO before becoming CEO of TSB at the end of 2024.

And with that, just let me turn to the presentation and start with a few opening remarks. On Slide 4, I'd like to share how I see the bank today. In short, after the sale of TSB, Sabadell is now a simpler and growth-oriented Spanish bank, delivering attractive shareholder returns. Five key takeaways. First, we are now fully focused on Spain, one of the most attractive banking markets in Europe. The Spanish economy is growing above the European average. Employment remains strong and balance sheets of the private sector are healthy. With regards to our size, we have the right scale to become a faster and more agile bank, while we keep investing in our future.

Second, Sabadell has invested a lot in having a modern IT platform and infrastructure, which gives us a strong foundation for the next phase of transformation. As I just said, we will continue to invest in technology as a key enabler looking forward. Third, we have regained commercial momentum after the end of the recent hostile tender offer. The numbers we will review today clearly show that. Fourth, employee engagement is at an all-time high, reinforcing our strong execution culture. And finally, Sabadell has a proven ability to generate capital, which allows us to consistently deliver attractive shareholder returns.

So what comes next? My first message is clear, we are fully committed to delivering our targets. That means achieving a 14.5% return on tangible equity this year and 16% by 2027. And looking forward, we have opportunities to create additional value by becoming more agile, benefiting from having the right scale, not too big, not too small, by leveraging on AI and technology by increasing our focus on higher-value customer segments. In short, we will deliver our commitments while we continue to look for opportunities to create further value.

Now let's move to Slide 7 to start with the key highlights from the quarter. Second quarter performance was in line with our expectations. And as anticipated, marks the start of a new trend in earnings. Commercial momentum has continued to strengthen. Performing loans grew by 3% quarter-on-quarter, while customer funds increased by 1.8%. This confirms the positive trend we have seen in recent quarters. Strong commercial momentum supports the growth of core revenues. This is a trend we had already anticipated. NII grew by 3.4% quarter-on-quarter and fees increased by 4%.

On costs, the early retirement program we announced last quarter has now been fully executed. We booked an additional EUR 37 million of one-off costs this quarter, bringing the total for the first half of the year to EUR 92 million. As a result, we expect EUR 20 million of savings in the second half of this year, increasing to EUR 40 million on a recurring basis from 2027. We also completed the sale of TSB during the quarter, and this gives Sabadell a simpler equity story. The transaction generated more than 400 basis points of capital and allowed us to pay an extraordinary cash dividend of EUR 0.50 per share in May. On shareholder remuneration, we have completed our EUR 800 million share buyback program. And today, we are announcing a new EUR 331 million share buyback, which proves our commitment to delivering attractive shareholder returns. Finally, our outlook remains positive. We expect profitability to continue improving in the second half of the year, and we remain on track to deliver our 2026 guidance.

Let me now turn to Slide 8, where we can see that core revenues returned to growth in the quarter. Net interest income increased by more than 3% Q-on-Q, while fees grew by 4%. Recurring costs remained broadly stable in the quarter. Total provisions amounted EUR 152 million in the quarter, and this was in line with our expectations, growing up from the unusually low level we saw in the first quarter. Finally, recurring net profit reached EUR 691 million, increasing by 8.4% quarter-on-quarter. The most relevant nonrecurring impact in Q2 is the capital gain from the sale of TSB. Recurrent profitability remained at 13.6%, while reported return on tangible equity stood close to 15%.

Turning now to Slide 9. Performing loans continued to accelerate during the quarter. The loan book in Spain grew by 2.8% Q-on-Q and the year-on-year growth rate reached 3.6%, although it is affected by the very strong second quarter we had last year. For that reason, the Q-on-Q trend gives a clearer view for the underlying momentum. All portfolios in Spain, as you can see, are performing strongly and delivering solid growth rates.

On the international end, international portfolios are also delivering very strong growth, mainly driven by Miami and our foreign branch network. Overall, total performing loans of the group increased by 3% quarter-on-quarter and by 5.5% year-on-year, reaching EUR 125 billion. Since the beginning of the year, the loan book has grown by 4.7%, which reinforces our confidence in delivering mid-single-digit growth in 2026. These trends prove the strength of our commercial momentum. This is reflected in new lending activity, which we share in next slide, Slide 10.

Here, you can see that in mortgages, the new lending increased by 22% versus the first quarter. And while the competition remains intense, and we continue to manage growth through a disciplined risk-adjusted return approach. Consumer lending has also returned to growth after the blip we had on Q1 with new lending growing by 9% in the quarter. SMEs and Corporate clients loan activity has been strong with origination of loans and credit facilities increasing by nearly 40% Q-on-Q and working capital finance also remained strong, growing by 6% in the quarter. As usual, in the second quarter, there is some seasonality in these figures, but they also reflect a real improvement in commercial momentum. This gives us confidence that lending activity has normalized and that the slowdown linked to the hostile tender offer is now behind us.

Turning into customer funds in Slide 11. On-balance sheet funds grew by around 1% in the quarter and almost 5% year-on-year. Importantly, the mix between remunerated and non-remunerated deposits remained broadly stable. This supports our low cost of deposits with the overall cost of customer funds stable at 78 basis points in the quarter. Off-balance sheet funds also showed strong momentum, increasing by more than 4% Q-on-Q and 11% year-on-year.

Having reviewed our financial performance and commercial momentum, let me now turn to the outlook. We remain on track to deliver our 2027 targets. Our performance in the first half of the year, together with better visibility on the 2026 results reinforces our confidence. First, we guided for mid-single-digit growth in performing loans by 2026. Today, the loan book is growing by 5.5% year-on-year with very strong momentum. The same applies to on-balance sheet funds. We guided for growth of 3% to 4% in 2026, and we are already delivering 4.7% growth. Third, on NII, we said that the second quarter would mark the start of the recovery. That is exactly what we have seen. Looking ahead, we have clear levers to support continued revenue growth and achieve our year-end guidance.

Fourth, efficiency measures continue to support cost discipline. In particular, as I mentioned, we expect around EUR 20 million of savings from the early retirement plan in the second half of the year. Core banking results are improving and jaws are starting to widen again as a result of the positive trend of our revenues and our costs. Widening jaws will be the key to keep improving our return on tangible equity, and we are confident that we will deliver what we committed for 2027, a return on tangible equity of 16%.

I want to conclude with what matters most to shareholders, value creation. Over the last few years, we have increased shareholder value while reducing our share count. Since 2022, our share buyback programs have reduced the number of shares outstanding by around 15%. The new program we are announcing today will reduce it further, increasing the value of each remaining share. At the same time, shareholder value creation has grown steadily, measured through tangible book value per share plus cumulative dividends per share.

Since 2022, this has delivered a compound annual growth rate of around 12%. Looking ahead, growing profitability, strong capital generation and our commitment to distribute capital provide a solid foundation to continue creating value. This is the rationale behind our shareholder remuneration strategy, combining attractive cash dividends with share buybacks in a sustainable and value-accretive way. In short, we are returning capital to shareholders while at the same time, increasing the value of each share through higher earnings, a lower share count and sustained capital generation.

With that, let me hand it over to Sergio, who will walk you through the financial performance in more detail. Thank you, Sergio.

Thank you, Marc, and good morning, everyone. Before going through the P&L, let me briefly address the one-offs in the quarter. The sale of TSB generated a gross capital gain of EUR 340 million, mainly booked under gains on sale of assets. We also recorded minus EUR 3 million from the FX hedge on the sale proceeds. Then we booked EUR 37 million of remaining nonrecurring costs from the early retirement plan and a EUR 45 million negative impact from the sale of a legacy equity stake to Cerberus with no capital impact, thanks to the associated risk-weighted assets reduction. In total, one-offs had a positive net impact of EUR 249 million in the second quarter and EUR 201 million in the first half.

Turning to the financial results on Slide 16. Recurring return on tangible equity stands at 13.6%. This is fully consistent with our plan and keeps us on track to reach our 14.5% full year guidance. Let me now walk you through the main P&L lines. NII has clearly reached an inflection point. In the second quarter, it increased by 3.4%. The improvement was driven by 3 factors: EUR 16 million from customer NII supported by higher loan and deposit volumes, EUR 3 million from the day count effect and EUR 11 million from noncustomer NII, mainly due to the ECB deposit facility rate and excess liquidity from the TSB sale. Our key message is that NII has started to recover.

Moving on to Slide 18. NII is evolving as expected. After bottoming in the first quarter, it recovered in the second quarter, and we expect further gradual improvement over the rest of the year. The ECB deposit facility rate assumption of 2.5% after the summer is not the main driver for 2026, given our low first-year sensitivity to rates. The more important driver is commercial activity. We expect loan volumes to grow at a mid-single-digit rate and on-balance sheet customer funds to grow by around 3% to 4%. Loan yields should continue to improve, while deposit costs should rise but more slowly. As a result, we expect customer margin to exceed 290 basis points by year-end, noncustomer NII to remain broadly stable and therefore, total NII to grow by more than 1% in 2026.

On the next page, fees increased by 4% quarter-on-quarter, supported mainly by service fees. The strongest contributions came from payments, corporate and investment banking activity and seasonal effects, while asset management fees remain resilient. Looking ahead, we expect fees to continue improving, supported by higher activity in payments and other services, growth in assets under management and a stronger CIB activity. Overall, fees are performing well and remain aligned with our full year guidance.

On cost, this quarter includes the final nonrecurring charges related to the efficiency measures in Spain, completing the early retirement plan launched in the previous quarter. Excluding these one-offs, recurring costs were broadly flat, reflecting continued discipline in personnel and administrative expenses. Year-on-year, recurring costs increased by 4.9%, mainly due to higher depreciation and amortization following the reclassification of the payments business in the fourth quarter of 2025. Adjusted for this effect, recurring cost increased by 3.8%. Importantly, half of the efficiency plan savings will already materialize in 2026. As a result, we're improving our cost guidance and now expect recurring cost growth below 3%. The widening jaws is the key driver of our expected profitability improvement. Revenues are accelerating, while costs remain under control. Core banking results have already started to recover in the second quarter, and we expect further improvement through 2026 and into 2027. This is what underpins our target of reaching a 16% RoTE by 2027.

On the next slide, cost of risk stood at 40 basis points, fully in line with guidance. This reflects the resilience of our asset quality and the sound risk profile of the loan book. Credit cost of risk was 31 basis points. Total provisions included EUR 115 million of loan loss provisions, EUR 2 million of provision releases from real estate asset disposals, EUR 24 million of NPA management costs and EUR 15 million of other provisions. Looking ahead, we expect asset quality to remain strong and cost of risk to stay broadly stable at around 40 basis points.

Let me now move to the balance sheet, covering asset quality, liquidity and solvency. Asset quality continues to improve. The NPL ratio declined by another 8 basis points in the quarter and by 34 basis points year-on-year. At the same time, the total coverage ratio remained broadly stable at around 70%. Stage 2 exposures continue to fall, down approximately EUR 1.5 billion over the last 12 months. Stage 3 exposures also declined, both in absolute terms and as a percentage of the portfolio. Net NPAs stood at just 0.7% of total assets. Overall, the credit profile remains resilient.

Now moving to Slide 25. Our liquidity position remains strong. The loan-to-deposit ratio stood at 93%, while the net stable funding ratio was 131% and the liquidity coverage ratio 188%, both comfortably above regulatory requirements. On ratings, Fitch upgraded Sabadell's long-term rating to A- from AAA+ (sic) [ BBB+ ], reflecting its new criteria and our large resolution debt buffer. During the quarter, we executed 2 securitizations, a traditional cash securitization of consumer loans and a synthetic securitization of SME loans. In addition, our Mexican subsidiary completed its inaugural peso issuance equivalent to EUR 200 million, diversifying its funding sources. Following the sale of TSB, our funding needs are lower. The AT1 buffer is expected to normalize in 2027, while we will continue to manage MREL and liquidity buffers through opportunistic transactions.

On the next slide, our CET1 ratio stood at 13.11%. This quarter, we generated 61 basis points of organic CET1 after AT1 coupons, added 3 basis points from fair value reserve adjustments and absorbed 18 basis points from risk-weighted asset growth, mainly driven by strong loan growth. The 60% dividend payout accrual reduced CET1 by 26 basis points. In summary, we grew the loan book by 3%, accrued a 60% payout and still generated 20 basis points of capital in the quarter.

With that, I will hand back to Marc to conclude today's presentation.

Thank you very much, Sergio. To close today's presentation, I'd like to highlight that we remain firmly on track to deliver our guidance. On core revenues, both NII and fees returned to growth this quarter as we were expecting. For NII, loans and deposits, we see continued growth. Customer margin has bottomed out and is expected to improve. And altogether, these trends support our guidance of more than 1% NII growth in 2026.

Fees also returned to growth in the quarter, and we expect that momentum to continue in the second half of the year, ensuring our year-end guidance. On recurring costs, we have improved our guidance from around 3% to below 3%. Costs are performing as expected this year. And on top of that, we will benefit from the savings associated to the early retirement program, which will amount to EUR 20 million in the second half of the year.

Asset quality also remains strong with a declining NPL ratio and cost of risk fully in line with our guidance of around 40 basis points. We expect cost of risk to remain broadly stable in the second half of the year. As a result, we remain on track to deliver our 2026 commitments and importantly, our profitability targets. 14.5% return on tangible equity this year and 16% in 2027. Finally, let me remind you once again that next week, we will launch our new EUR 331 million share buyback program.

With that, let me hand back to Lluc for the Q&A section.

Perfect. Thank you, Marc. We will now open the Q&A session, and I would kindly ask you to limit your questions to a maximum of 2. So operator, could we open the line for the first question, please?

[Audio Gap]

Two questions. The first one is for the new CEO. I wonder if you can comment on your strategic priorities. You mentioned in the presentation that you want to leverage on technology and focus on high-value customers. If you can elaborate, the current strategic plan runs until '27. I also wonder if you want to present a new strategic plan and when?

And then my second question is on deposits, which are growing below loans. You have changed your online offering. You're now remunerating balances up to EUR 100,000. You previously limited the remuneration to EUR 50,000. You said it was just a transactional account to gather new clients. I wonder what has changed if you now feel that you have to pay up for deposit gathering to manage the loan-to-deposit ratio or if there are other commercial reasons?

Thank you, Francisco, for the questions. Let me start by answering the first one. My top priority when I landed was making sure and we see the results of that, that we would be able to deliver on the commitments we had on our strategic plan. And today, after kind of having been here already for a couple of months and a half, I kind of provide a message of reassuring that we will deliver on the 14.5% return on tangible equity that we committed.

As you mentioned, we have a strategic plan that ranges from the period of 2025 to 2027. So we are halfway on delivering on this strategic plan, and this is going to be our top priority. While we do that, we obviously think about what comes next. And I briefly mentioned that in my introduction. We see a big opportunity in terms of leveraging on AI to improve the relationship with our customers to empower our relationship managers and provide them with technology to provide better service and better experience to our customers, and we will work on making this a reality. And at the same time, we also see a potential improvement on our internal processes. A lot of our processes will be rethought end-to-end to make sure that we grasp all the efficiency and all the benefit we can leveraging on AI.

In terms of customer segments, I mean, I have been saying that since the very beginning when I landed. I believe that Banco Sabadell has a right to compete head-to-head with anybody in the high-value customer segments, and we will double down our investment and our effort to make this happen. In the long term, this will provide us probably with a less vulnerable position in front of new entrants, and it will kind of turn our P&L structure towards a more fee-based type of income in the future. So that's our strategic direction of travel. We will have the time to bring that into plans, and we will certainly, before the end of the -- at the end of the 2027 plan, provide a strategic new plan to the market.

You also were asking about deposits and our online acquisition campaign. I'm just going to make a quick comment on that, just highlighting a couple of topics. Number one is we do have attractive acquisition campaigns in place that aim at acquiring the right profile of customer, but our intent is not to attract the funds. It is to make sure that we -- that the customers get to know us and we increase the level of loyalty in the future. And we have improved on doing that very much in the recent years. Now more than 50% of our online acquired customers for more than 50%, we are their main bank after 1 year of relationship, which speaks for this idea of we are not chasing -- we are not interested in price chasers. We are interested on a good profile of customers that we can develop in the future.

And on top of that, let me just again call out that our cost of funds has remained stable for the quarter at 78 basis points, if I remind well. And I'm just going to hand it to Sergio in case you want to add something to the comments.

Thank you, Marc. Just a brief comment from my side. As you said, we manage the cost of our different funding sources, and we combine our funding sources in order to finance the growth that we are actually enjoying. Volumes in the quarter were strong, more than EUR 3 billion of loan growth in the quarter, more than EUR 3 billion of customer funds growth in the quarter, but as anticipated, more skewed towards the off-balance sheet products.

So as you said, more growth on loan than the deposits this quarter. This is -- it was largely anticipated. Our loan-to-deposit has moved from 92% to 93%. And this, again, is in line with our expectations. So we will keep combining our funding sources in deposit, EUR 86 billion are non-remunerated, linked to a stable and transactional current accounts. And then we have EUR 48 billion remunerated. And there, we attend or try to attend all the segments, so wholesale, retail deposits, online deposits with different pass-throughs, some higher, some medium. And all in all, we get to that 78 basis points of cost for deposits that, as Marc said, have been stable in the quarter and is around 30% pass-through that might even -- in terms of pass-through, if rates go up, might even decline a little bit. So thank you, Paco, for your question.

Okay. So can we move to the next question, please?

Next question is coming from Maks Mishyn from JB Capital.

Two from me, please. The first one is the guidance on fees. If I recall in the last call, you indicated growth of closer to 4%. Are you more positive now saying mid-single digits? And if so, why? And the second one is on loan book growth. In the corporate segment, it has slowed year-on-year in the second quarter despite the pickup in the new production. What kind of outlook do you see for the second half of the year? And how does the mid-single-digit growth in loans look by segment for 2026?

Thank you very much, Maks. On fees, we have seen -- I mean, I would say that underpinning our optimism, we have the strength [ we see ] on commercial momentum. And for that, I think the best way to look into that is to look at the quarter-on-quarter new production evolution, right? We are seeing a strong growth on fees of 4% Q2 versus Q1. And this is after we put in place many measures on Q1 to make sure that we would reach our levels of expected fees. These plans are well underway, and we see this kind of growing up throughout the year and getting us to that mid-single digit -- lower range of the mid-single-digit growth on fees.

On the loan book growth, I'd say we are seeing, again, strong performance quarter-on-quarter on mortgages of 22%. Mortgages is a loan book that, as you all know, has -- I mean, it is very competitive. So we are managing carefully the balance between growth and levels of profitability, but we are seeing the growth that is reasonable for our market share, and we are preserving the franchise with good levels of profitability. We are seeing consumer loans growing strongly. The growth has been almost 10% this quarter, and we see this continuing to grow for the remainder of the year. And we see very strong growth on SMEs and corporates for the quarter. We have also put in place some measures to make sure that we grow more on the short-term loans for companies. But we see all this kind of taking off nicely, and we feel comfortable with the levels of guidance we have provided. I don't know, Sergio, if you want to add something else?

No. I think it was a very complete answer. Thank you.

So yes, we can jump to the next question then.

Next question is coming from Alvaro Serrano from Morgan Stanley.

Welcome to these calls, Marc. And the kind of -- one of them is kind of a follow-up question and then one on provisions. On loan growth, Marc, you explained that you're not going to be chasing volumes, certainly not on pricing to be more precise, which makes all the sense. And you've just alluded to the good demand in corporate. Can you sort of maybe talk us through where that you're seeing that demand in corporate and which segments you're growing? And as we look forward, given the pricing discipline, are you going to -- should we expect you to gain market share, not gain market share focus? Sort of a bit of color on -- directionally on market share trends going forward given the trends we've seen in the last 18 months, just to set the expectations and in which sectors?

And secondly, just maybe this is for Sergio, but on the provisions were slightly higher in Q2. Is there -- can you maybe talk us through why was that? Obviously, the NPLs are still coming down, but maybe there's a -- I noticed the coverage is down. Any color or is there any sort of model revisions, anything in there to explain or maybe the mix to explain why it was slightly higher?

Maybe shall I get started with the second one with the provisions?

Sure. Go ahead.

Just to continue with Alvaro's question. Regarding provisions, when we look at the credit provisions in the second quarter, EUR 115 million and the first quarter EUR 94 million. We could say that those quarters look like combined, what should be the run rate going forward. So at the end of the day, there might be some adjustments quarter-on-quarter. This quarter, we updated again scenarios always on a prudent basis. That's what we do.

Probably what -- something that you should not compare this quarter provisioning with is the levels of last year. In the second quarter of last year, we had -- we updated scenarios. And at that time, that came with a meaningful release, then we had releases in some segments. So I would say that, that was extraordinarily positive. While if we look at the combination of provisions in the first half, I think should give you a clue of provisioning going forward. We are currently at 40 basis points, and this is the last 12 months, and this is in line with our view of what's going to happen at the end of the year. We still expect some circa 40 basis points for the entire 2026. So I could say that for the year so far, we are running on what should be, I think, normal. And Marc, do you want to continue with the segments and the more detail that Alvaro is...

Sure. Let me just call out a couple of things. Number one is we are seeing healthy growth on the Spanish economy. We are seeing low levels of indebtedness of both families and companies. So we are seeing growth opportunities, I would say, on -- across the different segments. Having said that, though, I'd say that on a year-on-year comparative basis, we see probably the biggest growth opportunity on consumer lending, where we see probably a double-digit opportunity for growth. We see on SMEs and corporates a mid-single-digit opportunity. We see on mortgages low to mid-single digit year-on-year in line with the system, although we are seeing some tensions in the market. And I would say that on our international franchise on Mexico and Miami, probably above mid-single digit at constant exchange. So we do see good opportunities across the board and more importantly than that, in a safe and sound manner. Thank you.

Okay. So let's move on to the next question, please.

Next question is coming from Marta Sánchez from JPMorgan.

So my first question is on something that Marc has mentioned. So you've got an ambition of a more fee-driven P&L, but the product factories to build that aren't obviously there. So what's missing? And absent capital constraints, which bolt-ons would fill the gap?

And my second question is on credit and service fees. That line fell 5% year-on-year despite 5% volume growth. My question has 2 parts. What's driving the margin compression? Can you split the SRT cost versus rewards, competition, et cetera? And second is the pressure structural? Should we model it persisting or stabilizing from here?

Thank you very much, Marta. I'm going to take the first one and pass the second one to Sergio. On the factories of products we do have, let me touch on the topic from 2 different perspectives. First, on the industrial case, I have no doubt whatsoever that this is the right model for Banco Sabadell. We have been very successful at growing our asset management business, at growing our insurance business and all the other businesses where we have partnered up with the right partner that have the expertise, the knowledge of the product and that can bring to our customers the best possible product given their expertise. So fully convinced that this is the right model on these parts of the business.

When it comes to the levels of profitability and what does this look like in terms of our P&L, rest assured that we will explore any opportunity to improve this. The different agreements have different maturity dates, and we are exploring all the opportunities to make sure that we extract the most value out of each of these relationships. And Sergio, I'm going to turn it over to you for the second question.

Thank you, Marc. We are not really sure what is the question about. I think you mentioned the -- let me just hold on for a second.

Okay. I think, Marta, you were referring to some services fees and what's driving the change, but not sure what line is -- what line that is. So maybe we can follow after the call. I think you mentioned also about the potential cost of SRTs. Of course, SRTs come with a cost. The cash securitizations, they are -- the cost is recorded in the wholesale funding cost because those are securitization bonds that appear on the balance sheet. And then for the synthetic securitization, it's a cost that we record in the commissions line.

So yes, the securitizations affect the revenues, either NII for cash or fees for synthetic. But it's very convenient. We are making them at a cost well below what we think is our cost of equity. And therefore, we intend to continue in doing that because we find that it's a clear optimization of both the risk and the capital allocation. And with this, maybe then if we did not -- then we can follow up if this was not precise what you were asking for. Thank you.

Sure, Marta. So happy to do a follow-up after the call if it's not answered. So let's move to the next question, please.

Next question is coming from Cecilia Romero from Barclays.

My third one is on guidance. Just a clarification. Are you reiterating all of your 2027 targets today, not only RoTE?

And then I have one in NII and cost of risk clarification. In terms of NII this quarter, treasury, ALCO and others contributed to EUR 11 million. How much of this was supported by the returns from the cash received from the TSB sale? Why I'm asking this is because you mentioned that noncustomer NII is supposed to stay stable. So I was just wondering what is compensated for the loss of that income during the rest of the year? Don't know if that's clear.

Then on the cost of risk, you mentioned obviously that you expect cost of risk to stay stable for the rest of the year. So that the provisions that we have seen this quarter, are they the run rate for the remainder of the year? And I still don't understand that given the improving NPL ratio and as you mentioned, healthy economic backdrop with very minimal mortgage cost of risk, what are the key drivers preventing a faster decline in cost of risk from the current levels? Is that your consumer and SME growth ambition?

Thank you very much, Cecilia, I'm going to take the first one and leave the second one for Sergio. We are ratifying our guidance for 2027 with a return on tangible equity of 16%. We are not providing the breakdown at this point in time. We usually do that by the end of the year before the year comes, and we will definitely do that this time again.

Yes, exactly, although we are confident on the different lines. And then for your -- the detailed question on the contribution of the sale of TSB -- it has added EUR 4 million, the gap between the proceeds that we received at the end of April and then the extraordinary dividend that we pay at the end of May. That was 1 month that we were able to hold more than EUR 2.4 billion at the ECB deposit facility. So that was EUR 4 million.

And then I think you were also asking for the provisioning, whether the second quarter provisioning looks like the run rate going forward. And I mentioned that I could say it's more the combined between the first quarter and the second quarter. So the first half of the year level of provisioning to me looks like the running level, which if you make up the numbers and take into account that the loan book is actually going up on a relative basis, we are still expecting a 40 basis points cost of risk for the whole 2026.

And you mentioned the growth of mortgages, but I think you're spot on. The mix is changing a little bit because we are expecting mortgages to grow low -- maybe mid-single digit, but I would say low single-digit growth on mortgages, while SMEs and corporate loans, mid-single digit and consumer loans double digit. So the mix is also changing a little bit. We have captured that or we have intended to capture that in our model and our model captures that. And we expect those 40 basis points for the year. Thank you.

Shall we move to the next question, please?

Next question is coming from Ignacio Ulargui from BNP Paribas.

I just have 2 questions. One is on asset management and insurance fees. If I just look to the performance in the quarter, these are down quarter-on-quarter despite the good performance in off-balance sheet funds. So I just wanted to get a bit of a sense of how should we think about this asset management fees going forward? And if within the guidance you have, any performance fees included into the fourth quarter?

The second one is on the ALCO portfolio. And how should we think about the contribution of the bond portfolio going forward? And if you could remind us the sensitivity to higher rates?

Thank you very much, Ignacio. I'm going to leave both questions to Sergio.

Thank you, Marc. I think they are quite detailed questions, yes. Regarding the expected performance in asset management and insurance, we -- in the second half of the year, we expect an increasing contribution of the asset management in particular, linked with volumes. And if we are -- in the guidance, we're expecting success fees, the answer is yes, level similar to the one that we had previous year because we think that is the sort of more reasonable assumption that the success fees will be in line with the previous year.

And then regarding ALCO and ALCO contribution, you've seen that ALCO has been -- has decreased a little bit. We have managed to reinvest the bonds that we sold to Santander, the MREL TSB bonds. In the ALCO portfolio, 30% of the book is swapped to Euribor 6. So this portion will reprice with Euribor 6, this 30%. So we expect an increase in yield going forward. And then we can increase the book as we increase the balance sheet and the front -- and the new investments, the yield of the new investments are actually higher than the ones on the book. So both because of repricing and new investments, we expect more contribution going forward of the ALCO book.

So operator, could we have the next question, please?

Next question is coming from Britta Schmidt from Autonomous.

Just a follow-up on the ALCO portfolio. It looks that it's grown in non-EU governments and agencies. Maybe you can give us a little bit of color as to what you have invested in. And I was wondering whether you could also share the volumes and yields of what will be maturing in the second half on the EUR 800 million, but then also for 2027 and 2028 in that book.

And then a couple of clarifications. You mentioned the seasonality this quarter. Could you tell us what the loan growth would have been without the seasonality in Spain? A follow-up on the service fee. I think Marta was probably referring to Slide 19, where we can see the service fees year-on-year declining quite a bit. And following on from a discussion around structural pressure from new entrants, how do you think you will need to position yourself with regards to the mix of asset management insurance versus service fees in the future?

And then lastly, I'm sorry, there's just one little request that I have. There is a big difference in the lending yield in customer and deposit costs or the customer spread between the international business and the Spanish business. You hopefully give us the deposit cost in Spain, but maybe you can also break up the lending yield in Spain so that we can track this a little bit separately.

Thank you, Britta, for your questions. Regarding the ALCO where the investments that are eligible for us have not changed. We do invest in sovereigns, mainly Spain, and then we diversified into other sovereigns, traditionally a bit of Italy, a bit of Belgium, a bit of France. And then we -- on top of this, we might invest in other very high-quality names like supranationals, KfW and these type of names. So this is the type of -- is very -- I mean, I would say it's top asset quality because it's a portfolio that looks into the rates. It's a bet on rates and a bit of a spread because of the maturity, but it's top quality. So there is no credit exposure -- meaningful credit exposure, I would say, away from the sovereigns in this portfolio.

Regarding the seasonality of the loan book, yes, there is some seasonality in the quarter because of the payments of some of the payments to retirement people -- retired people. I think this is adding in our case, some 60 basis points on the growth, 60 basis points on the growth. And it happens every year, and I think it happens to all of every bank, right?

Then regarding the lending yields and deposit cost in Spain, I don't have that information right in front of me, but we can't share that with you or look for it. And regarding the fees, yes, as you mentioned, we do adapt our fee scheme to the competition that we see. Of course, the level of service fees in the past went down because those fees were very high when interest rates were negative. It was a way that we found to pass on negative interest rate to our customers. And since rates are higher and higher and in order to preserve customers and balances, we have been happy to reduce those fees and be attractive for customers and balances.

That's already taken into account, of course, in the performance of the quarter and in the guidance of the year. The driver this quarter, as we mentioned, has been the pickup in payments that was, of course, weak in the first quarter, lower payments in the first quarter. And then as we have already discussed, the other contributors, and going forward, we acknowledge those levels of competition for services that are connected also in a way with the level of rates and the more value that we found in the balances in the accounts. And -- but still, we are confident that we can meet the targets that we have been sharing with you.

Right. So just to clarify, the loan yield in Spain actually remained stable Q-on-Q, and it's currently at 3.23%. So we can jump to the next question. Thank you.

Next question is coming from Ignacio Cerezo from UBS.

Welcome Marc to this presentation. The first one is on -- specifically on the Intrum joint venture. If you can give us your view basically about future developments actually after it expires, I think, is next year.

And the second one is on the percentage of remunerated deposits. We have seen an improvement this quarter actually in terms of the weight of non-remunerated. Do you expect this trend to continue? Or we should we expect actually an increase of the remunerated deposit within the mix?

Thank you very much, Ignacio. On the first question, we are currently analyzing all the options and kind of taking a balanced approach between the quality of service and the cost of the service. So we will share with you more when we make our mind clear. So we cannot say yet. We are looking at it, and we will find out soon.

On the percentage on remunerated deposits, I think there is some seasonality on the behavior of this quarter. We have mentioned that we have kept stable the mix of non-remunerated versus remunerated deposits this quarter. And as I was saying before, we are paying close attention to the acquisition path and how do we make sure that we bring the customers to transactional customers and to main banker customers, and we are making big improvements on that. So we kind of pay close attention to that, and we are seeing promising numbers on the evolution of this.

Perfect. So let's move to the next question, please.

Next question is coming from Borja Ramirez from Citi.

I have 2 questions, please. Firstly, on capital distribution, could you kindly remind us of the dividend policy? So will you be paying an interim dividend later this year? And if possible, also the split between dividends and buybacks of the distribution? And linked to this, if you could please remind us on your strategy on M&A?

Sure. Thank you very much, Borja. On the capital distribution policy, the Board has currently approved a policy to distribute -- to kind of pay out between 40% and 60% of the profit. As you know, we have announced today EUR 331 million share buyback that is part of the remuneration to shareholders as an interim payment for the 2026 results. And our plans -- I mean -- and on -- sorry, on top of this 40% to 60% payout, we are committed to distribute any excess over the 13% of capital ratio, and this policy has remained unchanged. So we should expect 3 payments throughout the year, 1 interim -- 2 interims and 1 complementary once the results get announced for the year.

And Borja was also asking about M&A policy or M&A intentions or M&A...

I mean on M&A policy, also our vision remains unchanged, I would say. We recognize that scale is important. We see that there might be some room at some point in time for further consolidation on the midsized banks in Spain. But at the same time, while we recognize that this could be beneficial, we do not see any opportunity whatsoever with the current conditions. Everybody has very strong stand-alone plans. And we don't see the conditions happening for any of this to change in the near future. Thank you.

Okay. So let's go to the next question, please.

Next question is coming from Andrea Filtri from Mediobanca.

Actually, all of my questions have been answered already.

Andrea, thank you. Let's move then to the next question.

Next question is coming from Carlos Peixoto from CaixaBank.

Most of my questions have also been answered, but in any case, there's a final one, and apologies if you have touched this already, but I was just looking at the evolution of the deposits in the quarter, and there's a significant -- there's a decline in deposits in the quarter. I know that overall balance sheet customer balance sheet funds increased, but I was wondering here what were the drivers for this change and whether this was related with pricing, why didn't we really see -- why didn't we see anything or saw any particular savings in terms of deposit costs? Just to try to understand the blend between these 2 items.

Thank you, Carlos. I'm going to ask Sergio to take this one.

Carlos, thank you for your question. The decrease is connected with some repo activity. So customers deposit have actually increased in the quarter and the variations that you see in that line of the balance sheet is coming from some repos that are recorded in that same line and sometimes provide this volatility. But as you can see in the presentation, the deposit customers, on-balance sheet customers and off-balance sheet customers, both have grown in the quarter. Thank you.

Okay. So we've got one final question. Operator, please.

Last question is coming from Sofie Peters from Goldman Sachs.

Yes. I'm Sofie from Goldman Sachs. Just sorry, going back to the fee growth. So fees were down 1% half-on-half and you guide for mid-single-digit fee growth. This back of the envelope implies double-digit fee growth half-on-half in the second half, but also like around 10%, 11% year-on-year in the second half. So is this really like fair to assume that fee growth will be this high in the second half? So if you could just confirm that.

And then the second question is also going back a little bit on the cost of risk. Could you just split out how much of the cost of risk this quarter was from the scenario updates and how much was kind of underlying cost of risk?

And then the final question is on AT1s. Could you just comment on how we should think about Sabadell's AT1 costs going forward?

Thank you, Sofie. I'm going to take the first one. I mean, I can't just provide assurance that we have visibility on the measures that we put in place on Q1 to make sure that we reach our guidance on fees. We are fully on track with this, and we expect to deliver on the mid-single-digit growth by the end of the year. Yes, probably -- and we mentioned that on the lower end of the range, but still mid-single digit. And I'm going to hand it to Sergio for the other 2.

Exactly. Thank you, Sofie. Regarding the cost of risk provisioning in the quarter, yes, we updated the scenarios. We changed the probability as we shared with you in the first quarter, and that change in probabilities came with EUR 20 million increase. So again, I think this -- I think I've said this already during the presentation. And I think the combination of -- so the level of provisioning that we have seen in the first half of the year looks to us like a recurrent level going forward. We're not seeing any deterioration in the portfolio. As you can see, the NPL ratio is actually going down. even with a decrease in the total volume of Stage 3 balances and given that the book is bigger, then the ratio is actually improving.

And for AT1, AT1 at the end of the day, what we have always said is that our idea is to fulfill the buckets. Today, we have an excess in AT1 because we sold TSB. And of course, it's going to take a bit of time until we have the maturities of -- some of the maturities of the instruments in order to normalize. So we expect that during 2027, given that we have some maturities in AT1, we will have the levels of AT1 connected with the -- what's the name?

Bucket.

Bucket. Thank you. That was the word that fulfills the bucket. So that's the idea to fulfill the bucket.

Excellent. So with that, we conclude our presentation for today. Thank you, Marc and Sergio, and thank you all for participating. If you have any further questions, the Investor Relations team will be happy to help. Have a great day and a wonderful summer.

Welcome to Sabadell's results presentation for the first quarter of 2026. Joining us today are our CEO, Cesar Gonzalez-Bueno; and our CFO, Sergio Palavecino. The presentation will follow the same structure as in previous quarters. Our CEO will begin by highlighting the key developments of the quarter and discussing the most relevant topics. Then our CFO will review financial results and the evolution of the balance sheet. The presentation will conclude with closing remarks from our CEO, after which we will open the floor for a live Q&A session.

So Cesar, over to you.

Thank you, Lluc. Good morning, everyone. I will begin by outlining the 4 highlights of the quarter, which we will discuss in more detail during today's presentation. First, the sale of TSB is now complete. Therefore, we will pay the extraordinary cash dividend of EUR 0.50 per share at the end of May. Second, as we already anticipated, Q1 will mark the bottom of our core revenues. We expect these items to increase in each quarter over the course of the year. Third, we have launched an early retirement plan, which would improve efficiency in '26, but mainly in 2027. Fourth, we commit our full year guidance. Indeed, beyond the ups and downs of any given quarter, we have a sound, secure and proven growth strategy to deliver a 16% return on tangible equity in 2027.

Slide 5 shows the key financial messages for the quarter. Just to remind everyone, all figures and results presented now exclude TSB. Supported by strong commercial momentum, performing loans and customer funds recorded year-on-year growth in the mid-single digits. In this context, core revenues are expected to have reached in this quarter their lowest point of the year. We see core revenues improving going forward as repricing pressures on NII ease and fee performance normalizes. Recurrent costs performed well in the quarter and reached EUR 569 million. We recorded one-off costs in the quarter of EUR 55 million related to the early retirement program underway. Our fundamentals remain solid. Our recurring return on tangible equity stood at 14.1%, and our capital position remains strong with a core Tier 1 at 13.2%.

This performance is underpinned by strong asset quality that keeps on improving. Cost of risk and total NPAs both showed a reduction year-on-year. We continue to build up our Stage 3 coverage, which now stands above 70%. Finally, as I said before, we will distribute EUR 0.50 per share as an extraordinary dividend by the end of May. In parallel to this cash dividend, we keep executing our share buyback programs. We have already completed EUR 267 million out of the approved EUR 800 million.

On Slide 6, financial implications of the now completed TSB transaction. Let me start with the sale proceeds. The initial agreed price was GBP 2.65 billion. This figure was agreed to be increased by the tangible net asset value generated since April 25. Taken together, this results in a final sale price of GBP 2.9 billion. Now let me emphasize the strategic and financial merits of the transaction. Firstly, the sale has generated significant value for shareholders. Transaction multiples are above both peer transactions and Sabadell's own trading multiples. In addition, the transaction is expected to generate more than 400 basis points of capital. This is driven by capital gains of more than EUR 300 million and the deconsolidation of risk-weighted assets. As approved at the Extraordinary General Meeting held last August, we will return this capital to shareholders. Accordingly, we will pay an extraordinary dividend of EUR 0.50 per share on the 29th of May. To conclude, following the sale of TSB, Sabadell now represents a more focused and simplified equity story with a clear strategic profile centered in Spain.

In Slide 7, we see the details of the early retirement plan. We executed our last efficiency program as you remember, back in 2022, which included an early retirement plan. Since then, circumstances such as the demographics of our workforce prevented us from executing additional early retirement plans. Circumstances have changed and a structured early retirement plan is already being implemented in 2026. Importantly, this approach supports workforce optimization in line with the evolving business models and digital transformation. In terms of financial impact, we will incur in one-off costs in 2026 of approximately EUR 90 million. Meanwhile, we will generate gross annual savings of approximately EUR 40 million. Approximately 1/3 of these savings are expected to materialize in 2026 as the program is rolled out with a full run rate savings achieved in 2027.

On Slide 8, we talk about new lending. Starting with mortgages, new lending decreased by 24% year-on-year. We remain focused on managing new lending through risk-adjusted return on capital, ensuring that growth is delivered in a profitable manner. As a result, we have continued to reduce our market share in new mortgage lending over the past months as front book yields have compressed. Origination of consumer loans decreased both year-on-year and quarter-on-quarter. We introduced changes to the application process this quarter, which temporarily impacted on conversion rates. We have already improved the process again and conversion rates and origination volumes are picking up again. Quarterly new loans and credit facilities granted to SMEs and corporates increased by 1% year-on-year and by 5% quarter-on-quarter, while working capital performance was more subdued. Overall, as we share on the next slide, these volumes of new lending allow us to continue growing our loan book.

On slide 9, we see the loan book and starting with Spain on the left-hand side of the slide. Performing loans increased by 0.8% on the quarter with positive growth across all segments. Performing loans in Spain increased by 4.3% year-on-year. Our international operations are experiencing good momentum as well with performing loans rising by more than 7% quarter-on-quarter and by double-digit figures year-on-year. Overall, our total loan book showed a positive trend during the quarter, growing by 1.6%. Annual growth rate reached 5.6%.

Moving on to customer funds on Slide 10. First, on balance sheet, customer funds ex-TSB remained broadly stable quarter-on-quarter and increased by 4.3% year-on-year. The Spanish perimeter showed an increase of 4.7%. Second, our balance sheet funds also remained broadly stable in the quarter, as market volatility has had a dampening effect on net subscriptions. We posted an increase over 10% on a year-on-year basis. All in all, total customer funds grew by 5.9% year-on-year.

Looking at on-balance sheet funds breakdown on the right-hand side of the slide, non-remunerated deposits reached EUR 83.9 billion. Those non-remunerated deposits are almost completely located in Spain. This highlights the high proportion of low-cost funding within our deposit base. The cost of customer funds stood at 78 basis points in the quarter in the ex-TSB perimeter. Let me note that this includes higher yields in U.S. dollars and Mexican pesos. Therefore, the cost of customer funds in Spain was significantly lower and stood at 59 basis points.

On Slide 11, we make a summary of our quarterly results. We recorded a net profit of EUR 284 million or EUR 347 million, including the contribution from TSB. Let me emphasize two points. Firstly, as I had previously explained, revenues have bottomed out with improvements expected in the coming quarters. Secondly, Quarterly results include EUR 70 million pretax in one-off charges, nonrecurring costs related to efficiency initiatives and FX hedge on the proceeds from the sale of TSB. Underlying profitability remains solid and recurring return on tangible equity stood at 14.1%. This keeps us on track to reach our full year guidance of 14.5%.

And with that, let me turn it over to Sergio.

Thank you, Cesar. And good morning, everyone. Let's move on to the financial results on Slide 13. Before going through the different lines of the P&L, I would like to explain the extraordinary items that Cesar has just mentioned. First, within the trading income line, we recorded an expense of EUR 14 million related to the foreign exchange rate hedging of the full proceeds from the sale of TSB. Once the sale has been completed, next quarter, we will record only EUR 5 million corresponding to the month of April. Second, we recognized EUR 55 million of nonrecurring costs related to the early retirement program in Spain. Overall, recurring ROTE stands at 14.1%, which is in line with our expectations and our year-end target of 14.5%.

We will now review the main P&L items in more detail, focusing on Sabadell's performance, excluding TSB. Starting with NII on Slide 14. NII bottom out this quarter as expected, decreasing by 2.5% quarter-on-quarter and by 3.5% year-on-year, which is mainly explained by the final headwind of lower interest rates repricing as well as the seasonality of Q1. On the top right-hand side of the page, you can see the drivers that explain the quarterly evolution. Moving from left to right, customer NII had a negative contribution of EUR 8 million due to lower customer margin. This was driven by loan book repricing at lower rates and a slightly higher cost of deposits following the success of the last digital current account campaign. Then the day count effect on customer NII resulted in a EUR 6 million negative impact.

Regarding ALCO liquidity and wholesale funding, we have seen a net impact of also minus EUR 6 million, mainly attributed to liquidity, reflected increase in borrowing in dollars and Mexican pesos, which carry higher interest rates. Going forward, this will no longer be a headwind and we are expecting tailwinds from customer NII as explained in the next slide.

Indeed, looking ahead on the left-hand side of the Page 15, the expected quality evolution throughout 2026 is shown. As anticipated, after reaching a low point this quarter, we now expect NII to grow at a low single-digit rate quarter-on-quarter. From there, NII should increase steadily over the year, ending the fourth quarter of 2026 with a mid-single-digit increase compared with the fourth quarter of last year. This outlook is based on the current macroeconomic environment where we are assuming interest rates will stay at higher levels than we had previously expected. The slightly higher rate environment, together with ongoing uncertainty and volatility may affect loan volumes.

We now expect growth to be slightly below our initial plans, but still at mid-single digits. At the same time, on balance sheet customer funds are expected to grow between 3% to 4%. Higher interest rates should support loan yields with a steady quarter-on-quarter improvement starting from the beginning of the second quarter already. Regarding deposit costs, we now expect a lower pass-through compared with our existing book, which should support customer spread. Overall, customer spread is expected to improve quarter-by-quarter and reached levels above 290 basis points by year-end, slightly better than initially forecasted.

Finally, noncustomer NII, which includes ALCO, wholesale funding costs and the liquidity contribution is expected to remain broadly stable around current levels. Taking all of this together, we are maintaining our NII guidance and continue to expect more than 1% year-on-year growth in 2026.

Moving on to fees. posted a quarter-on-quarter decrease, mainly driven by the absence of success fees recorded in the previous quarter by seasonality and by a one-off cost in the payment service business. Looking ahead, we expect this line to improve, supported by increasing activity, particularly in the Payment Service business and in Corporate and Investment Banking, which has already been seen in March. In Asset Management, we also expect a continued positive trend in net inflows. To sum up, while we acknowledge a lower quarter than expected, we believe this marks a trough that will serve as an inflection point. Looking ahead, we expect fees to increase and land at the lower end of the mid-single-digit growth range.

Moving on to cost. The key developments this quarter is the launch of the new efficiency initiatives in Spain. However, let me first focus on the underlying evolution of recurring costs. Total recurring costs decreased by 3% quarter-on-quarter when excluding EUR 55 million of nonrecurring costs and for comparability purposes, also excluding the reclassification related to the end of the agreement to sell the merchant acquiring business at the end of last year. On a year-on-year basis, total recurring cost increased by 3.4% mainly driven by inflationary pressures on personnel expenses as well as higher amortization and depreciation costs, which already reflect the current quarterly run rate.

Looking ahead, as Cesar mentioned earlier, we expect that circa 1/3 of the total savings from the efficiency initiatives will fit through in 2026. Overall, this evolution is fully aligned with achieving our year-end targets.

On the next slide, we covered the cost of risk, which remains at contained levels supported by solid underlying asset quality despite the increased uncertainty. Total cost of risk for the quarter was 38 basis points which includes all provisions and impairments across all categories. Looking specifically on loan provisions, the credit cost of risk was 27 basis points.

Turning now to the bridge of the different components of total provisions for the quarter shown on the top right-hand side. We booked EUR 94 million of loan loss provisions after reviewing carefully the macroeconomic scenarios. Then we had EUR 4 million of provision reversals driven by the real estate asset disposals at a premium. In addition, we recorded EUR 23 million in NPA management costs and EUR 19 million in other provisions mainly related to litigation. Overall, the quarterly evolution of total cost of risk is fully aligned with our year-end target of around 40 basis points despite the increased uncertainty.

Moving on in the next section, I will walk you through asset quality, liquidity and solvency. On Slide 20, we see a continued improvement in both the NPL ratio and coverage levels. The NPL ratio reached 2.55% representing a reduction of 10 basis points compared to the previous quarter. We can also see that Stage 2 exposure declined by more than EUR 1.2 billion year-on-year. Finally, the coverage ratio calculated as total provisions of Stage 3 exposures continued to improve and reached 71%, rising by more than 1 percentage point during the quarter.

In terms of total NPAs in Slide 21, you can see the continued reduction of foreclosed assets. We have sold 24% of the stock of foreclosed assets in the last 12 months at an average premium of 8%. At the right-hand side of the slide, we can see that the ratio of NPAs as a percentage of total assets declined to just 0.7% which is a record low.

Turning now to Slide 22. All liquidity ratios remain comfortably above requirements with a net stable funding ratio at 135% and the liquidity coverage ratio at a strong 186%. Credit ratings remained stable during the quarter. All rating agencies have assigned a stable outlook, except for S&P, which maintains a positive outlook, reflecting the possibility to achieve further uplift based on ALAC. I will also highlight that Moody's upgraded our deposit rating in April, and it has reconfirmed our Baa1 long-term rating following the application of the new EU depositor preference regulation. Finally, year-to-date, we have issued EUR 500 million in covered bonds. Given the sale of TSB, this 2026 will be a year with lower MREL funding needs. And therefore, less affected by potential market volatility.

To conclude this part of the presentation, let me walk you through the evolution of our capital ratios during the quarter. This time around, this slide includes both the quarter-on-quarter variation and the expected impact of the TSB sale and the extraordinary dividend on the CET1 ratio. We will start by reviewing the quarterly evolution. This quarter, the CET1 ratio increased by 7 basis points, while generating 32 basis points before accounting for the dividend accrued. This includes 42 basis points from organic generation after deducting 81 coupons, minus 4 bps from fair value reserves adjustment in the fixed income portfolio due to higher interest rates at the end of the quarter and minus 6 basis points from higher risk-weighted assets, mainly driven by volume growth in our international businesses, where loans carry higher density. The accrual of a 60% dividend payout ratio had a negative impact of 26 basis points, bringing the CET1 ratio to 13.18%.

Now looking at the capital effect of the sale of TSB. The transaction will unlock more than 400 basis points of capital for shareholders, as already anticipated when we announced the transaction. The sale generates a positive capital impact of 369 basis points this year driven by the release of risk-weighted assets, a net capital gain of more than EUR 300 million and the reduction of intangibles. This will be offset by the extraordinary cash dividend distributed to shareholders which represent a reduction of 378 basis points, bringing the pro forma CET1 ratio to 13.09%. Finally, the release of operational risk-weighted assets over the next 2 years will add a further 36 basis points, lifting the pro forma fully loaded CET1 ratio to 13.45%.

With that, I will hand over to Cesar, who will conclude today's presentation and probably say goodbye after 5 very successful years leading Banco Sabadell.

Thank you, Sergio. Continuing after that phenomenal waterfall is very interesting. So to conclude this presentation, I would like to briefly review the bank's transformation journey over the last few years. Our growth strategy has proven to be successful and has structurally transformed the bank. First, we are delivering lending growth while reducing the cost of risk. Performing loans have increased by more than EUR 11 billion since 2021, while the cost of risk has declined by more than half. This improvement reflects stronger underwriting standards and a higher quality loan portfolio. Second, the bank is showing a consistent increase in capital generation. Indeed, we are delivering high and sustainable profitability, along with strong capacity to remunerate shareholders. In this context, we have committed to distribute EUR 2.5 billion of ordinary remuneration over the next 2 years, representing an average yield of more than 9% when adjusted for the upcoming extraordinary dividend.

In short, a solid performance supported by 2 key levers. We have gradually shifted the organization towards profitability-focused metrics, and we have significantly transformed our risk processes and models. The benefits of these 2 elements will continue to gradually improve the quality of our loan book over time.

Finally, let me emphasize our full commitment to delivering the full value of this plan through 2027 as we enter a new phase under a new leadership. We are well positioned to create long-term shareholder value.

To conclude my last quarterly results presentation at Sabadell, I would like to share some words on a more personal note. Looking back at the last 5 years, I am honestly proud of the results we have achieved. Sabadell was going through difficult times in late 2020. During this 5.5 years, we, as a team, have managed to deliver on our strategy. We have deployed the profound transformation of the bank, which has enabled our financial turnaround. And now I would like to thank you for the interactions we have had during this period. The team and I feel we have been treated with utmost fairness and respect and I honestly thank you for that.

I will now hand it over to Lluc start the Q&A section.

Thank you, Cesar, for your commitment and for everything you have accomplished this year.

We will now open the Q&A session. I would kindly ask you to limit your participation to a maximum of two questions. So operator, could you open the line for the first question, please?

First question is coming from Cecilia Romero from Barclays.

I have two, one on volume growth and the second one on cost. On the first one, on the asset side, loan growth in Spain has been modest quarter-on-quarter. While some peers point to raising competition in both corporate SME deposits. And how are you seeing competition evolve across SMEs and corporates? And how are you balancing pricing, funding costs and returns? And how do you think about your appetite to compete in mortgages where cross-selling helps the economics? And finally, how do you see growth evolving across segments to deliver mid-single-digit growth this year?

And then on costs, following the restructuring announcement and the EUR 40 million expected annual savings, could you help us understand how this fits within your current cost targets? Are these savings incremental or already factored in your 2027 guide?

Thank you very much. So on -- let's go one by one. On Corporates and SMEs, I think if you look at it, we've increased by 5% quarter-on-quarter and 1% year-on-year. And looking ahead, loan demand from Corporates and SMEs remains solid. We keep a strong pipeline of medium- and long-term loans. Therefore, we are confident that growth will accelerate back to mid-single-digit levels and the front books and yields and spreads remain stable.

You have to understand that the change in model is a long-term element. So the cost of risk going forward will be much lower. There has been a phenomenal transformation in the strategy of the bank.

In terms of mortgages, to your question, the average front book yield on new Spanish mortgage lending is currently below swap rates, as you all know. And pricing conditions remain very competitive, even after taking potential cross-selling benefits into account. Therefore, we have intentionally reduced our market share of new mortgages lending from approximately 9% at the end of '24 when the yields were positive to below 6% this quarter when our natural market share is around 7%. And we will continue to adjust our appetite according to market pricing as we have done over the past year.

On the consumer lending, I mentioned before that during the quarter, we introduced changes in the application process. And although the demand -- the upfront demand remained stable and strong, we had lower conversion rates. We have adjusted for these new changes and now conversion is back to where it was, and we expect healthy growth from now on.

And in the cost of deposits and in the deposits, I think we've grown healthily in deposits, and that has been somewhat on the back of the growth of the digital account. We have been very successful in the growth of the digital account during the quarter. And as we have mentioned many times, this is not to increase the volume of deposits. This is to attract new customers that then become transactional and that allow for further growth. More than 60% of our acquisition is now through digital accounts when it was 0 a few years ago. And these clients behave well. They have strong transactionality, more than 50% have payrolls, 45% use payments every month and 40% use Bizum through Sabadell, which is a big sign of being engaged with us. And despite the fact that we have done this campaign at a high rate, it has been at the rate that we could obtain in the wholesale market. So it makes lots of sense.

I will let Sergio to develop a little bit more on the cost side. But I think we are not -- just to make it very brief, I don't think we are adjusting our forecast now despite this one-off. Of course, that would imply that there is some room as the year progresses to review. But for the time being, we leave it untouched.

Thank you, Cesar. A couple of comments to the first one, Cecilia. The first quarter is typically because of seasonality, probably one of the sort of slower in terms of volumes. In any case, we've been able to grow a little bit the loans and a little bit the deposits. And when you look at the year-on-year growth rate, it's at 5.6%. So it is actually absolutely in line with our expectations. And as Cesar mentioned, the pipeline is good. So regarding volumes. As of today, there isn't anything that makes us think that we're not going to grow in line with expectations.

And then as per the cost to your question, this efficiency initiative, so the early retirement, the EUR 40 million in 2027 was not included in our guidance when we detailed the guidance of 2027 by the different lines. We think it's early to update guidance per lines in 2027 given the different changes that we're seeing in the market. Of course, this is a positive because then it allows us to have a buffer and then we see how inflation plays out in the different lines of the cost. But again, I think it's a buffer, and we feel optimistic about it.

Okay. So operator, could you switch off the microphones when the analysts are asking the questions because we've been told that there's some feedback that analysts cannot hear the questions when they do the Q&A. So we can jump to the next question. Thank you.

Next question is coming from Francisco Riquel from Alantra.

Yes. So I just wanted to say goodbye to Cesar and congratulations for the last 5 years' performance. So my first question is on NII. You maintain your guidance of plus 1% in '26 but Euribor rates are now higher than expected, and you used to have a positive sensitivity. So I wonder if you can elaborate on NII dynamics in coming quarters? And what is the offset to the higher Euribor rates? And in the case, the margin uplift is delayed, if you can update on the risk to your '27 NII guidance as well?

And my second question is capital distributions, the EUR 90 million of restructuring charges that you will book in '26, I wonder if that is compatible with your distribution targets? You did not specify how much of the EUR 2.5 billion will be paid out in '26 and '27. So I wonder if top-up share buybacks will be postponed to '27 after the winding of operational risk-weighted assets or not?

Thank you, Paco, for your questions. Regarding NII, NII sensitivity, you're absolutely right, it's a positive one. So when interest rates go up, we expect NII to be higher. Actually, for 100 basis points immediate uplift in all rates, then we expect a 6% increase in the second year. And the first year is less. So the first year is somewhat more stable. So the first year is more stable as said.

Looking at the evolution of NII, we initially expected NII to grow by more than 1% and keep on growing into next year. And that was basically based on volume growth, while rates were expected to be stable. This time around, what we are seeing and when we look at the yield curve to update our expectation, the yield curve was reflecting two hikes from the ECB. So now we have updated our model with two hikes. So the ECB at 2.5%, which is definitely a higher rate.

For the first quarter and the second quarter, volumes are not changing in our view. They are absolutely in line to our expectations. And then I think the question mark is whether at some point at the end of the year may be somewhat less volume. And as particularly, we are growing a little bit less than expected in mortgages because we want to be really prudent with prices, particularly in this environment. So the movements that we are seeing are not going to affect 2026, cost of deposits, the market looks good. In the past, this rate have had a very gradual pass-through into the deposit cost and from everything that we're looking at, this seems to be the case this time around. So the pass-through at the beginning is less than the pass-through that we have in the book, which is close to 30%.

And then for 2027, we feel positive, but it's a bit early to say. Definitely, the higher yields is going to be a tailwind and then remains the question mark on volumes that we had expectation for a continuous mid-single digit at so far, we maintain, but I think we need a bit more time to have visibility in 2027 and also cost of deposits, although we feel very comfortable for cost of deposits. So I think those are the moving pieces that taking all that into account, we feel that the outlook is solid for this year. And then for next year, as said, we feel somewhat optimistic, but it's early to be precise.

And regarding capital distributions, EUR 90 million is the one-off cost. But already in the period, we are expecting the benefits -- part of the benefits, EUR 40 million in 2027, EUR 15 million, almost EUR 15 million in 2026 million. So that combined is EUR 55 million. The net is only EUR 35 million, which net of taxes, is less than EUR 25 million. So yes, it's going to have a bit of an effect, but we are talking about less than 1% of the distribution. So we think that at this point moment in time, there might be some organic capital generation that can offset that small deviation. So we maintain the target of the EUR 2.5 billion distributions, which we have always seen them being higher in 2027 than 2026. In 2026, we have the extraordinary of the TSB distribution, EUR 0.5. We're actually distributing a little bit more than what is generated in 2026. So it's -- I think the balance between timing of the distributions are also quite sensible.

Perfect. So let's take the next question, please.

Next question is coming from Maks Mishyn from JB Capital.

All the best to Cesar in the new chapter. Two questions from my side. The first one is, maybe I've missed it, but on the digital campaign for the deposits, could you give us a bit more color on pricing and volumes you were able to achieve with the campaign in the first quarter? And the second question is on cost of risk. Have you updated your macro models in the quarter? And can you provide us with some comfort that macroeconomic turbines may not push your cost of risk higher?

Thank you very much. So I think we have never been too transparent on the numbers of the digital account. It's quite successful. And we have now more than 600,000 digital customers. And what I could say is that it has increased overall by around 2 basis points to cost of deposits in the quarter. And let me leave it at that. It has been quite successful. We are very happy, and it is fulfilling all its purposes.

And then we also had the questions on cost of risk and macro models.

Yes. Thank you, Maks, for your question. Regarding cost of risk and the macroeconomic models, we have, of course, reviewed carefully the scenarios and taking into account what is going on, the conflict and the uncertainty. For the basic scenario, we have kept it unchanged. We are -- we built this scenario during the second half of last year, and we built it on a quite a prudent basis. In our base scenario, we're assuming GDP to grow, in Spain, 1.7%, unemployment to be a little bit above 10% and what consensus is delivering today is an expectation of growth above 2% in Spain and unemployment below 10% while the price of real estate will not be declining. That is the consensus. And we feel that we have seen that the assumptions in our macroeconomic base scenario are actually more prudent than what we're seeing in the market. Of course, this only affects Spain, which is our home market. So we have not changed the base scenario.

What we have done is we have changed the probabilities of the upside and the downside scenarios. You know that under IFRS 9, you have the base at the downside and the upside, and we have a shift 5% probability from the upside to the downside. And with this, this has triggered a EUR 20 million provision that has been already incorporated in the EUR 94 million of credit loan provisions. So this actually 10% in the change of probabilities. And for the time being, we will monitor the situation and the development. But for the time being and as long as the GDP expectation in Spain is maintained at a growth of around 2%, we feel that the scenario is going to be good.

Okay. So let's jump to the next question, please.

Next question is coming from Ignacio Ulargui from BNP Paribas.

All the best of luck for you, Cesar, in your new adventures. I just have one question on fees and one questions on the deposit and one on interaction with lending. So on fee income, I mean how should we expect the improvement in coming quarters? Is it mainly driven by an acceleration of the asset management net inflows because you are launching a new product campaign or how should we think about fee progression basically coming in the coming quarters? And the second one on the loan to deposit. I mean do you have any target for loan-to-deposit ratio in the long run or in the medium term?

Yes. On the fee side, I think we are expecting an improvement in the recovery of CIB activity. There were quite a few things in the pipeline that are probably delayed. I think the payment business is also going to do better and certainly, the net inflows in asset under management. And we have already seen a recovery in the first two months -- I mean, in the first two weeks of March.

Yes. So if I follow up on those, natural actually, we expect the credit services and assets under management, we expect the 3 of them to grow from this level. Services, the different business lines are working well. We had this one-off in the first quarter and seasonality. Seasonality affects very much our payment service business. And then we mentioned also the Corporate & Investment Banking, which simply was slow in January and February, and then is not picking up in March and therefore, the second quarter is expected to be good in terms of activity. So we also expect growth coming from that business line that is going to affect or is going to affect positively the credit, the services and then finally, the asset under management because of the growth in balances.

And per the loan-to-deposit is 92%, very stable. It's been very stable already for many quarters where we've been able to grow mid-single digit in loans and sort of 4% in deposits with a higher base of deposits. So at the end of the day, quite stable. If we were in a situation where we had the opportunity to grow the loan portfolio, I think growing up to a loan-to-deposit in the range of 90% to 100%, it could be no problem. So we would also feel that, that's not an issue. However, our -- in our plan, we will try to grow as balanced as possible.

Thank you much for your questions. Let's jump to the next caller, please.

Next question is coming from Borja Ramirez from Citi.

Thank you very much for taking my questions. I have two, please. Firstly, on the net interest income, I saw that your ALCO portfolio grew by roughly EUR 2 billion quarter-over-quarter. If you could kindly provide details on the yields at which you bought new bonds? And then also on NII, I would like to ask, I think it was mentioned in the previous results call that you had you're going to decrease the cost of digital accounts from 2% to 1%, and there was a EUR 30 million positive NII benefit on a -- basis from this. If you could kindly confirm this number?

And then my second question would be, it is noted regarding the change in the scenarios of the IFRS 9 models. I would like to ask if you could kindly remind me the macro relay provision.

Sure. May I start with the ALCO question? Thank you, Borja. Yes, we have increased a little bit our ALCO portfolio, in line with our plan. The ALCO, the size of the ALCO book is related to mainly the ALM, the hedging that we do, the size of our current accounts and deposits, which have been growing. And then on top of this year with the sale of TSB at the TSB level, we are selling the TSB MREL bonds at the ex-TSB and replacing them with cash from the transaction. So we wanted to put that money to work partially. So that's why we wanted to increase the portfolio this year. And we have invested in the typical investments that we do that mean Spain and other core European sovereigns with durations up to 10 years, some of them hedged. So at the end of the day, the duration of the portfolio that we buy is between 5 to 6 years and with yields above 3% and in the current environment, actually very close to 3.5%.

And then as per the online current account, you are absolutely right. We have the intention to cut the remuneration on the previous campaigns from 2% to 1%. We did, and that took place in the month of March. So it was only one month in the first quarter and the benefits will keep on coming. The very good news is that -- the very good news is that after this cut, we're seeing a lot of stability in the balances. So I think it's working the strategy of buying customers and then keeping the balances.

And finally, regarding your question on the macro provision, I think I mentioned that it was EUR 20 million, the provision that we took after changing the probabilities. And Cesar, I don't know if you'd like to add something?

I think you were spot on. I think on the digital account, what we said is exactly that there will be a EUR 30 million saving from the portion of that portfolio that we brought from 2% to 1%. And of that, we have seen 1 month and that EUR 30 million is over the course of the year. And as you mentioned also the very good news, as expected, is that the loss of volumes is low. And this proves again that this is a transactional account. It's not deposits. It's not to maximize returns. It's to have a full current account that, at the same time, has low costs and full services and at the same time, yields something that is above 0. And that is exactly what has happened. And now there are different tiers, and that is the strategy around this account, there are different tiers. Some for acquisition because to create the excitement to move the account, you need a slightly higher rate, but then everybody understands that the current account with a decent remuneration of 1% is attractive enough and they are becoming transactional. So as I mentioned before, we are very satisfied with the progress of this strategy.

Operator, could we have the next question, please?

Next question is coming from Ignacio Cerezo from UBS.

Two follow-ups on lending growth. The first one is on the SME and corporate book, the Spanish one. I mean you've got peers basically growing, I mean, significantly above that 2% so I just wanted to follow up a little bit actually on what do you think explains that gap right now? Is it risk profile, risk appetite by Sabadell? Is the fact that the incumbents in Spain have stepped up the pace. Is it related to the fact that your customers are requiring less credit than other type of corporates. So just a little bit of color basically on that.

And then the second one is whether you're seeing actually the international book ex-TSB as a bit of an offsetting factor against and that we're seeing some degree of acceleration, especially in Miami and the foreign branches actually. So do you think there is a little bit of an offsetting actually coming from international book and the Spanish book or you treat those books completely separately?

I think reducing the probability of default by 50%, as we have done in new lending, of course, strengthens our asset quality. But for a period of time, makes the volumes slightly more subdued. And it makes a lot of sense to do that, but it's a transition in which we are still somewhat immersed. You have to take into account that, that probability of default improvement has a long tail it will take more than 4 years to see the full benefit in the SME portfolio, 7 years in mortgages and more than 2 years for consumer loans. And for sure, it's very difficult to separate off all the different factors that make that demand a little bit more subdued, but it is our impression that this is the main factor that reducing the probability of default of being more demanding on the quality, on the risk quality of the new loans is having certainly somewhat of a slowdown, which will fade over time.

And regarding the growth abroad, not really. We have good business units abroad, Miami, Mexico in particular and we do what's right. And whenever we find the right project, so the right returns on capital with the right risk, then we're able to do it, and we are seeing an environment with a lot of activity and project finance, in structured finance and the corporate, our corporate customers that are doing business abroad. So we are taking advantage of that activity, but it's not really like that we see sort of offsetting. We don't look things that way, no.

Let's go to the next question then.

Next question is coming from Pablo de la Torre from RBC Capital Markets.

I have a couple of follow-ups on cost and distribution. So the first one was on cost. I just wanted to understand the phasing of any remaining one-off costs in 2026 and whether the plan as it stands now considers any further actions in 2027?

And the second one was on distributions. I know you reiterated the EUR 2.5 billion in distributions for this year and next. But I just wanted to check that you also reconfirmed the previous dividend guidance of 2026 being above EUR 0.204.

And then the last one on fees also, if you just can comment on the previous guidance of double-digit growth in asset management and insurance fee income growth from this year. I think that's growing only at 4% in Q1.

So you will complement to that. But on cost, we don't see further actions at this point in time in '27 and there will be a progressive deployment during '26, and we will accelerate it as much as possible. So we have incurred already in EUR 55 million of the EUR 90 million, and you should expect the greater start to happen relatively soon. And for '27 at this point in time, there's no expectation. That doesn't mean that there couldn't be later on. But at this point in time, there are no further expectations. And for the distribution, I think we have -- we are confirming everything, everything that we said in terms of distribution almost 6.5% of the total of the 3 years, the EUR 2.5 billion ordinary, the EUR 0.50, everything, I think, is being confirmed.

Indeed. Yes. And finally, Pablo, I think you were asking for fees, which I think we've been discussing and the fee development -- I mean the expected performance of fee remains unchanged to what we said in the first -- at the beginning of the year, and for the year. So we expect fees connected with assets under management to grow linked to volume, but then we also expect a higher contribution from the different businesses that we run and in the presentation, we are acknowledging a slower start than expected. We were sort of expecting maybe a figure similar to the one that we have in the first quarter of last year. And the difference, which is some EUR 7 million is half that one-off and half a slow January and February in the import and export business and corporate and investment banking which has already get back on track from March. And with all this, what we are seeing is that we keep on targeting growth that might be close to the mid-single-digit range, probably the lower range -- the lower part of that range. So we are targeting close to 4% overall growth in the fee line for 2026.

Let's go to the next question please.

Next question is coming from Carlos Peixoto from Caixa Bank.

Just a couple of questions from my side as well, basically focus on NII. I'd like to have a follow-up there. The first one is that your NII guidance is based -- or the above 1% growth is based on NII that was provided last year, excluding TSB or on the statutory NII that we now have? Just to understand the basis for the growth.

And then delving into NII, just if you could remind us what type of savings you might be getting going forward from MREL instruments that you had to issue at the group level to finance the size of the group or when it includes the TSB and now with the sale you could have some savings on those instruments from maturing the instruments, basically, what -- how much could it be? And what will be the time line for those to kick in?

Thank you, Carlos, for your questions. Regarding the second one, MREL. We were done streaming an equivalent to EUR 1.4 billion of MREL to TSB, which is the MREL related to its risk-weighted assets. And that is the MREL that, therefore, we will be saving at the group level in the wholesale capital market, so EUR 1.4 billion. And that's why we're saying that we will not be active in the debt capital markets in 2026 as we don't need to get that. So if you apply the spread on the senior nonpreferred and senior preferred to that figure, it's something close to EUR 20 million per year that may take place already -- I mean, gradually from the second quarter of 2026, as we will not be issuing and we will have maturities.

And then I think the first question, not sure if I got it fully right. I think you are asking about the perimeter for the NII, and we are trying to be comparable. So it's going to be the ex-TSB perimeter is the one that is going to remain. So that's the one we're being guiding on to try to make it -- [ PLs with PLs ]. Hopefully, that was your question, and I hope I answered otherwise, we can follow up on it.

Thank you, Carlos. And then we have got one final question. So operator, please.

Last question is coming from Britta Schmidt from Autonomous Research.

Britta we cannot hear you. No? Well, so probably he's jumped to another call because we know that it's a busy day for you, so thank you for your understanding.

And that concludes our presentation for today. Thank you, Cesar and Sergio, and thank you all for participating. If you have any further questions, the Investor Relations team remains available for any follow-up or additional information. Have a great day. Thank you.

Thank you.

Good morning, and thank you for joining Sabadell's results presentation for the fourth quarter and the full year 2025. We are joined today by our CEO, Cesar Gonzalez-Bueno; and our CFO, Sergio Palavecino.

The presentation will follow a similar format as in previous quarters. First, our CEO will walk us through the key highlights of the year. Then our CFO will go into the financials and the balance sheet, before our CEO concludes with closing remarks. Finally, we will open the floor for a live Q&A session where you can ask your questions.

So Cesar, over to you.

Thank you, Lluc, and good morning, everyone. We announced yesterday that the Board of Directors of the bank and I have agreed on my resignation as Sabadell's CEO, while Marc Armengol has been appointed new CEO. These changes will take place around May, following our AGM, and once regulatory approvals have been obtained. Until then, I will remain as Sabadell's CEO, and Marc will remain TSB's CEO.

And I think now is the right moment for me to step down, and I say that absolutely sincerely. Our current strategy -- strategic plan is solid and well-defined and supported by everyone, including Marc, who has been a great part of its construction. Targets for '26 and '27 are ambitious but achievable, and we are in course. And now it's all about execution, execution and execution of the current plan and planting seeds for an exciting future. Therefore, the bank is on the right track to deliver its targets.

And just very briefly, on a more personal note. Look, I had opted for retirement 6 years ago. And the opportunity of joining Sabadell was so tempting that I couldn't let it pass. I was called for this project. I could not refuse. It has been far more exciting and rewarding than I could have expected. And I think now, it's the time to go.

But on top of delivering on our plan, Sabadell also needs to start thinking about this future beyond 2027. There's an increasing number of opportunities from banks arising from technology in general, and from artificial intelligence, in particular. I think we have done a tremendous development in digitalization, but AI goes beyond, and that plan needs to be accelerated and it will transform the bank not in the next year, but in the years to come, and this transformation will be profound.

In this context, my dear and friend, Marc Armengol, is the perfect CEO to deliver our targets for '26 and '27 because he has the managerial skills. But beyond, Marc brings strategic vision and delivery, combining CEO experience with developing and executing corporate strategy in the U.S. and in U.K. He has proved his commercial mindset at TSB, where he has improved competitiveness by getting even closer to customers.

He also brings exceptional technological, operational and digital expertise from business integrations to large case transformations in Spain, U.K., U.S. and Mexico. And very important, he knows everything about Sabadell. He is definitely not a newcomer. As a matter of fact, this is the first internal CEO appointment since Sabadell went public over a quarter of a century ago. And I think this proves maturity for this great institution.

All in all, that is the right time for the bank to address this change. It is the right moment for me, and it is the right moment for Marc. And before moving to the result presentation, let me repeat it one more time. We have announced my resignation and the appointment of a new CEO, but we remain fully committed to delivering our plan and reaching our financial targets for '26 and '27.

Key messages for the next full year, we are in Page 4. Given that the TSB sale is expected to be completed during the second quarter of 2026, we are presenting figures with reference to the ex-TSB perimeter. First, volumes grew at mid-single digit during the year, performing loans increased by 5.4% and customer funds by 6.4%. Second, core revenues performed in line with expectations with NII at EUR 3.6 million, while fees were up by 3.6% year-on-year.

Third, asset quality continued its positive trend. Total cost of risk declined by 16 basis points and stands at 37 basis points. Moreover, NPAs decreased by 17% year-on-year, while the NPA coverage ratio stood at 64%, up 2 percentage points versus last year. Fourth, this year's shareholder remuneration is EUR 1.5 billion. We have already distributed EUR 700 million through 2 interim cash dividends. And in addition to this, we will allocate EUR 800 million to a new share buyback program. We have already received authorization from ECB and the program will start on Monday.

Finally, return on tangible equity stands at 14.3% and the core Tier 1 ratio is 13.1%, after deducting the excess capital that will be distributed. During '25, before dividend accruals, we generated -- I think this is a big number, 196 basis points of capital.

Slide 5. And this is a little bit of a reason why. Let me explain why Sabadell is well positioned to keep improving its profitability looking forward. We have a clear strategy that supports profitable growth, as we shared last July during the presentation of our strategic plan. Our ongoing transformation focuses on delivering growth alongside improved asset quality. Although this means marginally lower loan yields, these are more than offset by a much lower cost of risk. Overall, this results in both profitable growth and stronger capital generation. This is a structural and permanent looking forward.

Let me explain a little bit further on this. I mean the probability of default is now at the levels of which we wanted. That is done. And the impact on the P&L is immediate because, of course, you lose income, because you're doing less risky assets. But the benefits of that come over time, and it depends also on the duration of the different portfolios.

We will still see tails for a long time in terms of -- in the different products. We will see tails of improvement of the risk cost, and we will see tails of improvement of the capital generation due to this. And this is perfectly in line, as we said, with the strategy, and I think it will yield over the course of the year. And furthermore, it makes the bank very sound.

But however, and now going to the right-hand side of the slide, following the tender offer period, our business was a bit less dynamic than expected for a time. And we have now clearly regained our commercial momentum. For instance, month-on-month evolution of on-balance sheet funds in December '25 was better than in December '24. And new lending to SMEs was also higher in December '25 than '24. And -- furthermore, and this is meaningful, customer acquisition in December '25 was also significantly higher than in '24. To sum up, we have solid fundamentals and a clear strategy that will support profitable growth and capital generation going forward.

Let's go to Slide 6. Performing loans excluding TSB remained flattish quarter-on-quarter and grew by more than 5% year-on-year. At TSB, lending volumes at constant FX remained flattish in the quarter as expected.

Moving on to customer funds. On balance sheet, funds regained momentum and increased by 3.4% in the quarter. And this momentum, as we just saw, was more towards the last part of the quarter. Off balance sheet funds also continued to perform well, rising by 1.9% in the quarter and 14% in the year.

All in all, in '25, we increased our loan book by EUR 6 billion and our customer funds by EUR 11 billion ex-TSB. This represents mid-single-digit growth, which is in line with our guidance. And this in combination with the growth of capital because growing capital generation but not growing the business is not as attractive as doing both things at the same time.

Let's move to Slide 7, loan origination in Spain. In Q4, new mortgages decreased by 3% year-on-year. We have been reducing our market share in new mortgage lending over the past few months as front book yields have compressed. We remain focused on managing our new lending through risk-adjusted return on capital, ensuring that growth is delivered in a profitable manner.

New customer loans -- consumer loans in Q4 increased by 8% on a year-on-year basis. In the whole year, new lending of consumer loans increased by 16%. Quarterly new loans and credit facilities granted to SMEs and corporate decreased by 15% year-on-year. This results in a slight decline of 5% if we compare with the full year of '25 with '24. On the other hand, origination of working capital finance remained broadly stable in the year. All in all, a strong performance in new lending during the year delivered loan book growth across all products and segments.

If we move to Slide 8, regarding payment-related services in 2025, card turnover increased by 6% year-on-year, while point-of-sale turnover increased by 2%. Let me share that the merchant acquiring business will remain within our perimeter looking forward. Therefore, we will keep this fee income stream.

Regarding savings and investment products, we reached a total stock of EUR 70.6 billion in December '25. This represents an increase of EUR 4.2 billion in the year, driven by an increase in off-balance sheet products of EUR 6.5 billion, most of it becoming -- EUR 4.6 billion coming from net inflows.

In Slide 9, the breakdown of performing loan book across segments and geographies excluding TSB. In Spain, performing loans fell by 0.9% in the quarter. Mortgages and consumer loans posted positive growth in the quarter. On the other hand, the SME and corporate lending fell by 3.6% quarter-on-quarter, mainly due to the fact that these firms have been growing less heavily on their credit facilities.

Year-on-year, performing loans in Spain increased by 5.2%. The mortgage book grew by 5%, consumer loans delivered double-digit growth and the stock of SME and corporate loans increased by 2.4%. The international operations also delivered strong momentum, with performing loans rising by approximately 15% year-on-year at constant FX.

If we move now to Slide 10, the U.K. business. As expected, TSB's performing loans and customer deposits remain broadly stable on both quarter-on-quarter and year-on-year. Looking at the main lines of the P&L, NII increased by 7.2% in the year, in line with high single-digit guidance. Fees, which are less relevant for the U.K. business, declined by 15% year-on-year. Total cost decreased by 2.6% in the year, also in line with the guidance, in line with the 3% decline guidance. Provisions increased by around 50% year-on-year.

Let me remind you that in '24, TSB recorded releases related to the improvement of macroeconomic assumptions. The resulting cost of risk in 2025 was 13 basis points, considerably better than the 20 basis points guidance. All in all, TSB's net profit reached GBP 61 million in the quarter, translating into almost GBP 260 million for the full year. This implies growth of around 25% in 2025.

Stand-alone return on tangible equity was 13.5% despite maintaining a high level of solvency, with a core Tier 1 ratio of 16.7%. Finally, tangible net asset value increased by GBP 154 million between April and December. This, together with the additional TNAV to be generated until the closing of the transaction, will be added to the GBP 2.65 billion sale price, ensuring that TSB continues to contribute to Sabadell until the transaction closes.

On Slide 11, a summary of our results. In '25, we posted net profits of EUR 1.8 billion. This represents a 3% decline year-on-year. It is worth noting that when adjusting 2024 net profit for extraordinary items, net profit actually increased by 3.4% year-on-year. All lines have been performing in line with the expectations. Sergio will explain the P&L in more detail shortly.

To conclude this section of the presentation, I will outline our shareholder remuneration. The amount for 2025 has been improved to EUR 1.5 billion. This is 9% of our market cap. 2025 remuneration includes EUR 700 million in cash, which have already been paid, and EUR 800 million in share buyback. Last year, we paid 2 interim cash dividends, one in August and one in December of EUR 350 million each. These distributions will be followed by a final dividend of EUR 365 million as well as a EUR 435 million of excess of capital. These amounts to EUR 800 million via share buyback program scheduled to begin next Monday.

No doubt, exceptionally, the final dividend will be distributed entirely through a share buyback. The main reason is that we believe that the stock is currently trading at a discount to its fair value, making a buyback the best option to reward our shareholders. We expect to distribute EUR 2.5 billion across '26 and '27, which also represent 9% of the market cap each year, once we deduct the extraordinary dividend related to the sale of TSB.

All in all, we are on track to deliver on our commitment to distribute a cumulative EUR 6.45 billion of remuneration over '25 and '27. On top of that, we reiterate our commitment to deliver an annual cash dividend per share above EUR 20.44 from '26 onwards.

I will now pass the floor to Sergio, who will provide a more detailed overview of the bank's financial performance.

Thank you, Cesar, and good morning, everyone. Let me begin by presenting the full detailed P&L. As we will explain during the presentation, the annual performance shows an alignment with our year-end targets. We recorded a net profit close to EUR 1.8 billion or EUR 1.46 billion when excluding TSB.

Before we go through each line, I'd like to highlight a few extraordinary items and reclassifications recorded this quarter. Firstly, on the trading income line, we recorded an expense of EUR 15 million related to the exchange rate hedging on the full proceeds from the sale of TSB. This impact will be recurrent until the transaction closes.

Secondly, and following the termination of the agreement to sell the merchant acquiring business, we have reclassified EUR 23 million from other provisions to depreciation and amortization. The impact of this on net profit is neutral. Finally, on the gain on sale of asset line, we adjusted EUR 20 million related to certain IT and software assets.

We will now review the main P&L items in more detail, focusing on Sabadell's performance, excluding TSB. Starting with NII on Slide 15. We recorded EUR 3.6 billion in NII for the year, fully aligned with our guidance. In the quarter, Sabadell ex-TSB delivered close to EUR 900 million, broadly stable versus the previous quarter.

Now let's look at the top right-hand side of the slide to understand the drivers behind this quarterly evolution. Moving from left to right, customer NII had a positive impact of EUR 2 million. Within this, the customer margin decreased by EUR 7 million due to the negative repricing of variable rate loans. Although interest rate pressure on loan yield has already eased significantly. The good news is that volumes more than offset the customer spread compression. ALCO, liquidity and wholesale funding contributed by EUR 3 million, supported by lower refinancing needs and lower spreads.

Other items had a combined impact of minus EUR 9 million. This mainly reflects the negative impact of certain interest rate hedges related to the fixed rate mortgage portfolio. TSB added EUR 11 million positive this quarter, reaching EUR 314 million as the contribution from the structural hedge was higher than the depreciation of the sterling.

For 2026, we expect NII to increase by more than 1% with a clear acceleration throughout the year. In fact, we expect NII to bottom in first quarter '26, mainly due to fewer calendar days and the final repricing of the variable rate loans. From that point, it should grow steadily quarter after quarter, being the fourth quarter of '26 mid-single digit higher versus the fourth quarter of '25.

For these estimates, we are assuming interest rates to remain at the same levels as at the end of 2025. We are expecting volumes to perform in line with what we have seen this year, around 6% growth in loans and between 3% to 4% in on-balance sheet funds. Loan yield could decline some basis points in the first half of the year, but should return to current levels driven by higher growth in consumer and SME lending.

On cost of deposits, we still see room for further improvement as we reprice the last part of the term deposits. And finally, the impact from the sale of TSB bonds in the ALCO portfolio will be offset by savings in wholesale funding as we will have lower MREL funding needs after the sale.

Leaving the NII line aside and moving on to fees. Fees and commissions within the ex-TSB perimeter increased by around 4% year-on-year. Asset management and insurance fees were the main contributors, growing by 15% year-on-year. This performance was driven by strong volume growth in off-balance sheet funds, with -- fully aligned with what we presented at our Capital Markets Day.

The fourth quarter was the strongest of the year, with ex-TSB fees rising by 6% quarter-on-quarter, supported by a strong commercial activity and the seasonal uplift in asset management and insurance fees, including a success fee component of EUR 12 million. Looking ahead, we expect fees to increase by mid-single digits in 2026. This growth will be, again, largely driven by asset management and insurance fees.

Moving on to the costs on Slide 18. Total ex-TSB costs increased by EUR 44 million in the quarter, mainly driven by 2 factors: first, a reclassification of EUR 23 million from other provisions to amortization following the termination of the merchant acquiring agreement with Nexi. Consequently, going forward, the quarterly run rate for ex-TSB amortization line is expected at around EUR 100 million. And second, the special remuneration in shares to all employees related to the end of the takeover bid amounting to EUR 16 million. All in all, total costs at ex-TSB increased by 2.5% year-on-year. This evolution is totally consistent with the target of low single-digit growth, despite the reclassifications recorded at the one-off personnel costs I have just explained.

For 2026, we expect total costs including amortization, to grow by around 3%, fully in line with the strategic plan targets.

Moving on to Slide 19. We will now cover credit cost of risk and other provisions. Total cost of risk for the year 2025 was 37 basis points, better than the already improved guidance of 40 basis points for the ex-TSB perimeter. Meanwhile, credit cost of risk fell to 24 basis points, which represents 9 basis points reduction in the year.

Now looking at the bridge of the different components of the total provisions for this quarter, on the top right-hand side, we booked EUR 107 million of loan loss provisions, excluding TSB. Then we had EUR 8 million positive impact by driven -- impact driven by real estate asset disposals, [indiscernible] double-digit premium. NPA management costs remain in line with the usual run rate. Other provisions, mainly related to litigations and other asset impairments, were impacted this quarter by the EUR 23 million reclassification previously mentioned. And finally, TSB provisions were EUR 18 million this quarter.

For 2026, we expect total cost of risk to remain at around 40 basis points, underpinned by positive asset quality dynamics and the gradual impact of our risk management measures. This better asset quality will offset the potential shift in business mix as we expect stronger growth in companies and consumer lending.

Moving on in the next section, I will walk you through asset quality, liquidity and solvency. On Slide 21, we can see that nonperforming loans and coverage ratio continued to improve during the year. Within the ex-TSB perimeter, NPLs decreased by close to EUR 700 million over the year, demonstrated continued success in portfolio derisking and proactive credit risk management.

As a result, the NPL improved 66 basis points to 2.65%. The reduction in NPLs is also consistent with the improvement in Stage 2 loans, which declined by more than EUR 1.3 billion in the year. Finally, the coverage ratio increased by 3 percentage points, reaching 69%.

Moving on, in terms of foreclosed assets, net NPAs as a percentage of total assets remained comfortably below the 1% threshold, confirming the bank's structurally improved risk profile. The stock of NPAs declined by 15% year-on-year, equivalent to more than EUR 800 million in absolute terms. Meanwhile, the coverage ratio has improved by 2 percentage points. The sales of real estate assets continued their positive trend as 23% of the stock was sold over the last 12 months with an average premium of around 10%.

On Slide 23, we are happy to see the continued improvement in asset quality over the past 2 years, explained by 3 favorable dynamics: a consistently declining NPL ratio, a quarter-on-quarter improvement in the cost of risk, along with a higher coverage ratio.

Turning now to liquidity and credit ratings. In short, liquidity buffers have remained broadly stable over the year, with credit ratings improved, as you can see on this slide. Standard & Poor's upgraded our rating by one notch to A- with a positive outlook. During the year, Moody's and Fitch also upgraded our rating by one notch to Baa1 and BBB, respectively, both with a stable outlook.

Turning to the next slide, we can see our current MREL position, which stand well above the required levels. It is also in line with the buffer of more than 200 basis points set as a threshold in our strategic plan. It is important to note that in 2025, we issued a total of EUR 3.1 billion across the capital structure as well as through covered bonds.

We also carried out 3 securitization transactions with significant risk transfer during this year using both synthetic and cash instruments. Let me highlight that once the TSB sale is completed, we will deconsolidate TSB's risk-weighted assets. And therefore, our funding needs will be lower this year. Note that we currently have excess buffer in AT1 even excluding the EUR 500 million issuance that we have just announced that it will be called in March.

On the next slide, we can see that we have been able to generate 196 basis points of capital while growing our loan book at mid-single digits. Looking at the quarterly evolution in more detail, we recorded 20 basis points of capital generation before deducting the accrued dividend. This includes 25 basis points from organic CET1 generation after deducting AT1 coupons minus 6 basis points from higher risk-weighted assets, mainly from the update of operational risk, representing minus 14 basis points, and partially offset by the release obtained through the SRT transaction completed in Q4. Then the accrual of a 60% dividend payout ratio had a minus 29 basis points impact, bringing the capital ratio to 13.65%. Given that we are distributing EUR 435 million of excess capital, 54 basis points must be deducted, which takes the CET1 ratio to 13.11%, and in place, an ample MDA buffer close to 400 basis points.

With that, I will hand over to Cesar, who will conclude today's presentation.

Thank you, Sergio. On Slide 28, you can see the achievement of our 2025 targets, a summary of the new guidance for '26 and the reconfirmation of our 2027 strategic plan targets. As we have seen throughout the presentation, the 2025 results have been in line with our year-end guidance.

For '26, the guidance we are giving the main P&L lines points to recurrent return on tangible equity ex-TSB of around 14.5%, considering tangible equity of roughly EUR 10 billion. Of course, the return on tangible equity that will be reported will be higher because it would include the TSB impact.

Our business model, which is built around strong capital generation, allows us to reconfirm shareholder remuneration of EUR 2.5 billion across '26 and '27. Last but not least, we are reconfirming every single one of the targets for '27 that we presented at our Capital Markets Day.

And to conclude the presentation, I would like to summarize a little bit of our equity story. First, Sabadell is a franchise that pursues growth while preserving asset quality. This has been a major turnaround of the last years. Since the tender offer finished, we have been regaining commercial momentum, and we have room to gain some market share in a growing market in the products and segments of our choice.

Second, we have strong capacity to generate capital while continuing to grow, which enables us to offer attractive shareholder remuneration. Third, it's all about execution, and this team knows about that. We've been consistently delivering on our guidance since '21, and we are now -- and we now have a clear path towards a 16% return on tangible equity in 2027. And all of this comes while we are trading at a discount to peers in terms both of total shareholder yield and multiples such as PE.

Our distribution yield, meaning dividends plus excess capital returned to shareholders, was around 9% in 2025, and is expected to remain around that level in '26 and '27. This compares with a peer average of below 6% for '25.

When looking at PE multiples, it's important to adjust Sabadell for market's cap for the extraordinary dividend associated with the disposal of TSB. Many market participants, we believe are not fully doing this. Once adjusted, Sabadell is actually trading at below 9x earnings, while Spanish peers are trading well below -- well above 10 times.

There is therefore a clear opportunity here with considerable upside potential for Sabadell's stock. That's why the entire amount pending distribution to shareholders, the final dividend and the excess capital will be executed through a share buyback starting on Monday. It will be equivalent to more than 5% of our market cap, significantly higher than any other Spanish peer.

And with this, I hand over to Lluc.

Thank you, Cesar. We will now open the Q&A session. Given the limited time available, we would appreciate if you could please keep your questions to a maximum of 2. So operator, could you open the line for the first question, please?

First question is coming from Maks Mishyn from JB Capital.

[Audio Gap] in target? Could you walk us through the mathematics?

And the second one is on deposit growth. Ex-TSB, it has slowed in the fourth quarter and grew below the sector average. Can you please walk us through your thinking on why this is happening? And what will you do to recover growth?

Thank you very much, Maks, for these questions. In order to help with the mathematics of the NII for 2027 that we are confirming, it will be at around 3.9%. We've been sharing in Slide 16, what are the expected dynamics on the quarterly NII. And as you can see in the slide, we expect the trough in the first quarter of the year because we will have a fewer number of days. We still have the last part of the repricing of the variable rate loans, the ones replacing with Euribor 12 months. But then from there on, we will have the tailwinds that we are currently enjoying for volumes that cannot be seen in NII because of the headwinds of customer spread. Customer spread will stabilize.

And then by the second half of 2026, volumes will be on -- compared to the quarter of the previous year, already growing at the mid-single digit. That dynamic in our view, will continue into 2027. And as customer spread will increase a little bit, we are still expecting our customer NII to get close to 300 basis points in 2027. Also, the rates today are somewhat more positive as we see that Euribor 12 months in 2027 will steepened somewhat. So the dynamics that we show for the end of 2026 will continue into 2027. And yes, in our mathematics, they will lead us to NII that will be close to around EUR 3.9 billion.

And then the second -- your second question was deposits -- deposit growth. Deposit growth, it was, year-on-year, at 3.6%. It has accelerated from the third quarter, as you mentioned, but this is rather due to very strong growth, really strong growth in the fourth quarter of last year. So when we look at our dynamics on customer funds, we see that currently are strong. Customer growth -- customer funds have growth more than 6%, that's EUR 11 billion growth, a bit skewed towards the -- of balance sheet products: EUR 6.5 billion growth in the off-balance sheet products, EUR 4.5 billion growth in the on-balance sheet.

The -- when you do the average growth of deposits, it's actually EUR 4.5 billion. So as Cesar has mentioned, we have acknowledged that we got some minor impacts during the tender of a period in September or October. But we have -- we're very happy to see that we have fully recovered the commercial momentum and December has been very good, and all commercial feedback getting into the new year is good. So we are positive on the volume growth that we are sharing with the market today.

I think, indeed, that's spot on. And I think that at the core -- at the helm of the hostile takeover, of course, there were some decline in balances, but we see very clearly the recovery, the momentum and everything is on track for the future, and that's why we're very positive.

Next question is coming from Francisco Riquel from Alantra.

So first of all, congratulations, [indiscernible] 2 questions for me. First of all in a year -- I want to ask about the quarterly NII bridge in Slide 15, particularly on the core also others with EUR 9 million of interest rate hedges then you can give details on these hedges, what impacted in '26. If that should unwind in '27 or not.

Also, if you can comment on the impact from the TSB, MREL and quantify, and the impact in '26 and '27. Also [indiscernible] NII and the improvement in the customer spread, that just said by end of '26 despite reducing the cost of deposits [indiscernible]. So how do you plan to achieve that? Do you think that you have been overpaying for online deposits in '25 and you will adjust your digital offering? And will you grow deposits even if you make less?

And then my second question is on costs. Your 3% cost guidance for '26. I understand you include the full year impact of the D&A related to the merchant business, excluding that to cost inflation of just 1%. What type of efficiency measures will you implement to get there? And how can you reassure that you will not be under-investing in the technological transformation?

Thank you, Paco, for your questions. Let me see if we got them all. The first one is regarding the hedges that we show in Page 15. I think we already shared with you guys in the third quarter that we're having an impact on the hedge that we have of the fixed rate mortgage portfolio. As you know, the Spanish market now for a number of years and us in particular, we have been originating virtually everything in mortgages in fixed rate. And now it's been a number of years and recently quite a strong production.

So that's a lot of duration, and therefore, we've been hedging that duration. That means that the hedges we pay fixed as we get pay fixed in the mortgage. And we received Euribor 6. So these hedges -- we pay fixed, we received Euribor 6. Euribor 6 has been trending down for a number of quarters, but the good news is that this has been the last quarter, the way we see it, because Euribor 6 has been already flat in the fourth quarter. So in the -- going forward, we no longer expect impact from the hedge, of course, connected with Euribor 6 and then if Euribor 6 goes up and down, of course, it will have an impact. But so far, with the current level of rates, it should be flat.

And then your second question was on MREL. MREL currently -- the MREL bonds of TSB are roughly EUR 1.4 billion, and the spread is around 200 basis points. That MREL then is -- MREL that we raised in group in the capital markets. So when this -- we will no longer have this income, but we no longer have the cost in the wholesale funding.

This may take some quarters, but at the beginning, we will also have the help of the price that we will get from the sale. Initially, it will be close to EUR 5 billion. If you add up the price of the shares and the price of the bonds, and that will yield in the treasury account, and that will also help to -- that will combine with the savings in the wholesale funding, altogether will offset the impact of the lower MREL of TSB in the ex-TSB perimeter.

And for deposits, yes, we expect, as we have written in the presentation, still somewhat reduction in the cost. And this is not only connected with the online, of course, it's also connected with the online. On the online, we have a strategy like any other one-off acquiring, having a very attractive offer, acquiring customers, and then we manage the acquisition. Connected with that, we have an offering, then the price of the book will go down in March, and we will keep on having new offerings. It's a dynamic, of course, product. And we're quite happy because it's been quite successful.

The reduction is more coming from term deposits 1 year, 2 years that will come due, either have already matured at the end of the last quarter or will mature in the first quarter of 2026. And we -- when this is renewed, when this is -- the price is lower, connected with the lower prices that we have in the market.

And finally, cost that you mentioned, the reclassification of EUR 23 million that we did is permanent because we are not considering the sale of the payment business. The payment business is going to remain within the perimeter. So therefore, the -- it's apple with apples. So the comparison with 2026 and the increase in the 3% is not going to be distorted by that.

So in the 3% rate and CAGR that we already shared with the market in the Capital Markets Day, there are 3 major components: salaries, we are expecting salaries to grow at inflation and that is, let's say, close to 2%; then we are seeing general cost flattish, thanks to the different efficiency initiatives that we are running in the bank; and then amortizations connected with the investment in IT are going to be higher, probably at mid-single digit or so. So we are really allowing ourselves with the room that we need in order to keep investing into the business so that we ensure that we make this business growth as we expect.

And I don't know, Cesar, if you want to add something?

Yes, just on the -- I think it. Just on the digital account and to explain a little bit the rationale and the commercial rationale of all of it and so forth. First, more than 50% of our new client acquisition comes from digital, and we think that, that is a phenomenal success. And when interest rates were at 4%, we paid 2%. But now that interest rates are at 2%, we are going down, as you mentioned, Sergio, to 1% starting on March. This is very attractive because it's a full service and with all the gadgets current account that at the same time has a remuneration, but it is capped at EUR 50,000. And therefore, what it is doing, it is attracting customers with 50% of their payrolls, 45% of them do payments every day. And we are getting them to be part of the bank in an attractive way. So this is not a funding strategy.

But nevertheless, because the volumes are starting to be significant, now it is the time to reduce the payment from 2% to 1%. It has already been announced to clients. It needs a lead period until you can implement from the moment you announced, and it will happen on March, and it will have progressively impact -- some impact. It's around EUR 30 million year-on-year over the course of the year.

I would kindly suggest to switch off the microphone when the analysts are asking the questions because we've been told that they cannot hear the questions when they talk. So operator could you open the line to next question, please?

[ Technical Difficulty ]

Thank you, Britta. Regarding the MREL dynamics, that the maturities in the group are quite front loaded. So actually, what we are seeing is that by the fourth quarter of 2026, the impact of the sale of the TSB bonds will have already been -- will be already -- being offset by lower funding needs in group already in the fourth quarter of 2026.

Regarding the volume developments that you wanted to discuss. At the end of last year, as you can see, we're seeing mortgages growing at a 5%, consumer at a high double digit and SME corporate is growing at a low single digit, right? We are seeing corporate and SME poised to accelerate growth. So in our expectation of 6% growth of the loan book, we are considering still consumer loans to grow at a double digit, SMEs and corporates to accelerate from the current low single digit to mid-single digit. And we expect some -- this acceleration on the growth of mortgages from the currently 5% to maybe something between 4% or between 3% to 4%. Those are our assumptions and those are the assumptions that give a combined net growth of 6% in the loan book.

And I think there was a last question?

That was about the liability side, but let me just add a couple of comments here. I think this is what Sergio explained, is just in line with what we did during the during the Strategy Day, corporates and SMEs above, mortgages in line, and consumer loans well above. And on the liability side, I think what we are expecting is a larger growth than we originally expected from the on-balance sheet part, and that will partially compensate.

On the mortgages, I think there has been a lot of hype around this. And I have to say that when the interest rates of the new production were above the 8-year swap, we were gaining market share. We got to a point in quarter 3 '24 in which we went -- when this gap was still positive, we went to almost a 9.5% market share of new acquisition. We are down to 7% purposely, strategically, so we are not gaining market share. We have been declining over the course of the quarters until for Q4 '25 in which we landed at 7% market share of new production.

And that is purposely because despite the fact that they have positive RaRoC of above 20% or around 20%, their margin is negative and the investments and the upfront costs are important. So their value creation in the longer term, but they have a negative impact in the short term on the P&L and certainly, in NII, they are not the most exciting thing. But nevertheless, with the cross-selling, they become attractive. So this confirms in a line that has had a lot of discussion, which is mortgages that we will be in line with our current market share, which is approximately 7%, and adapting up and down depending on the attractiveness and the pricing of the market.

Yes. And I think your last question was regarding our expectations of the ALCO book. When we say it's the ALCO book, it's mainly connected with our liquidity and with our ALM. Liquidity is expected to remain strong because on top of this dynamics of loans and deposits, we will have the inflow of the price of the TSB transaction. So when we look at the expected evolution of liquidity will be positive, and that we also expect liabilities, current accounts to grow. So we expect a marginal growth on the ALCO book in line with the balance sheet.

Next question is coming from Ignacio Ulargui from BNP Paribas.

Congratulations. I just have one question on costs and one question on capital. So looking to costs. I was just wondering whether at a given point in time, you could consider using part of the capital generation that you have to fund an early retirement plan or a voluntary scheme so that you can -- have to compensate on that side, the investments that you have in IT?

And the second question on capital generation, I mean going forward, is there any lever that could accelerate the capital generation that we see for 2025 around 200 bps? Then anything that we could have in terms of DTA that could accelerate the capital generation going forward?

I think -- on the first one, I think there has been a long time since we did the restructuring in '21. That means that the age of part of the population here at Sabadell is 4 years older. And therefore, I think we are starting to consider, starting as there's nothing final yet as ongoing and without nothing extraordinary, but we are starting to consider that there could be some early retirements from now on. And as I say, it's not a major thing probably, but we are looking into it as we speak.

And regarding capital generation, Ignacio, it's been quite strong as we have explained in 2025, 196 basis points. It has also -- it has benefited from the impact of the first application of CRR3, also from the 3 securitizations that we have done. And it's important to take into account that we are self-financing the growth in the loan book.

So going forward, we are actually looking at fantastic opportunities of keep increasing the loan book. So of course, that has been taken into account in our projections. And therefore, we think that they both consider profitability, but also growth. And of course, growing the loan book, it weighs on capital, but we believe that it's a very good opportunity to actually improve profitability going forward. So the capital generation is connected with both the increased level of profitability and the good momentum in the loan book growth that we're seeing.

[ Technical Difficulty ]

Matthew, we cannot hear you. I don't know if you have unmuted your mobile. Could you please check that? Okay. Yes, we can hear you now, yes.

Sorry for that. So yes, I have 2 questions, basically. The first one is on the EUR 2.5 billion distribution accumulated in '26, '27. If you can give a bit of color on the mix between cash buyback?

And the second one, a bit more generic, on the impact. Do you think the neobanks, fintechs, new entrants are having in terms of the deposit cost environment in Spain. So we're seeing a lot of banks actually launching digital campaigns like you guys, Bankinter, et cetera. So I'm trying to understand, actually, to what extent that is also driven by the fact that you have new players exploring that type of segment?

So on the first one, and you can complete, of course, Sergi. The EUR 2.5 billion, the distribution between what is dividends and what is share buybacks, of course, will depend on final decisions of the Board and we cannot anticipate that. But what we have is a commitment of distributing 60% of the proceeds through dividends and no less than EUR 0.20-plus per share per year. And we expect in excess of capital generation over that. And it would make sense at that point in time that, that would be share buybacks.

Neobanks have been in play for a while. I think they have an impact. I think I was very close to that because the first kind of neobank was ING Direct, 25 years ago. And they continue having an impact. They acquired a lot of customers, and that's mainly the account opening, where they have more success. The challenge for them, and that doesn't -- it's not a negative comment at all. The challenge for them is cross-selling, deep selling, having savings, having a number of things.

So we certainly see that there is a challenge there, but we continue seeing very successful, as I mentioned before, that our digital account is bringing a significant number of clients, and it will be at 1%, as I mentioned before, not for the acquisition, which will still have promotions and the forth. And it's 50% of our acquisition. So we can live with them, and we congratulate them because, of course, in terms of number of accounts, they are doing extremely well.

Next question is coming from Carlos Peixoto from CaixaBank.

Yes. Actually just a couple of follow-up questions on my side. So when you're discussing the outlook for NII in 2027, you mentioned 300...

Carlos, Carlos, I don't know if you could check your microphone, please, because we cannot hear you very well. Could you check that or speak louder, please?

Yes.

Yes, much better, much better, yes. Thank you, Carlos.

Okay. So as I was saying, that basically a follow-up question. So the 300 basis points customer spread improvement to 300 basis points that you mentioned is it something that you see as being achievable already before year-end 2026? Or something that you intend to get to by 2027?

And also, along with that or in those lines, I might have missed it, how much do you expect volume growth, loan growth and deposit growth to occur? And how much you expect in 2027, you see at a level similar to the 2026 levels? Just trying to get a closer -- better reach to the EUR 3.9 billion in 2027.

Yes. Yes. Thank you, Carlos. Of course, we'll do our best. The customer spread at the end of this year has been 288 basis points. And it will -- in our model and our expectations, it will be marginally higher, but probably very few basis points at the end of 2026. And then it will keep on gradually growing until reaching the -- around -- at around 300 basis points that actually we share with you guys at the Capital Markets Day.

Regarding the composition of the expected volume growth behind that assumption at the end of the day, we, in Capital Markets Day, we guided for a CAGR of mid-single digit of loans and deposits. I think we were at a rate of 4%. So I think we are on track to get to those volume growth. In 2025, the Spanish economy performed very well. GDP expanded by 2.9%, in 2026, the consensus is already above 2%. So connected with this growth, we expect a similar levels of growth in the loan portfolio and in the deposit book. So similar rates of growth we are assuming for 2026 at this moment in time.

Next question is coming from Borja Ramirez from Citi.

I have a couple of questions on the NII outlook, please. So firstly, I understand that after the sale of TSB, your MREL requirements may be lower. So maybe there's some opportunity for funding cost savings in case you're able to amortize more expensive MREL issuances?

And then my second question would be on the digital deposits. If you could kindly provide the amount outstanding of the digital deposits. And also, what are your expectations for the costs and the volumes of digital deposits going forward?

And lastly, I would like to ask on, if you could provide details on corporate CapEx outlook and investment from corporates in Spain, please?

Thank you, Borja, for your questions. Regarding the first one, connected with MREL. MREL requirement will not decrease after the sale of TSB, but it's a percentage of the risk-weighted assets. What we -- what it will go down are the risk-weighted assets once TSB is sold. And then as a matter of fact, once we have less risk-weighted assets, we will have a lower total amount of MREL requirements, right?

So that's why we're saying that after the sale, we will issue -- we will have lower funding needs, and therefore, we will have -- we will be issuing less in the market. So the -- we will sort of fix this by not rolling the coming maturities. So it will be very natural. And yes, we will have savings from not rolling the maturities and therefore, having a lower fund -- lower capital -- lower wholesale funding needs.

And then for the digital deposits, would you like to take this one, Cesar?

Yes, on digital deposits, we have, from the beginning, decided not to give the exact numbers. And what I can say again and repeat is that this is more than for the volumes, it is for the customer acquisition and for the whole relationship that comes with it and the cross-selling that comes with it.

I already shared that the new pricing and review the pricing will give us a saving of around EUR 30 million on full year terms, and that starts on March. It's 50% of our acquisition, it's relevant, and I think we can leave it at that.

In corporates and SMEs, we closed the year at a growth -- with a growth of 2.4%. And as we mentioned before, looking forward, loan demand from corporates and SMEs remain solid, and we have particularly a strong pipeline of medium- and long-term loans. Therefore, we are confident that the growth will accelerate back to mid-single-digit levels. And by the way, the front book yields and spreads remain stable.

Next question is coming from Pablo de la Torre from RBC Capital Markets.

My first question -- your guidance for -- you mentioned an insurance worth...

Pablo, so sorry to interrupt. I think -- we cannot hear you very, very clear. It looks like the sound is -- I don't know if you could check your mobile or could you try again, please?

Is it better now?

I think so. Can you start the question, please?

Yes. Sure. And my first question was degrowth in 2026, you mentioned...

Pablo, Pablo, I'm afraid, it doesn't work. I don't know if you could please send us or send me an e-mail, and we'll -- I will read the question for you, if it's possible. I'm sorry for that.

So operator, could we move to the next question, please, while Pablo is sending us an e-mail?

Next question is coming from us from Hugo Cruz from KBW.

Can you hear me? So my 2 questions. So first of all, on OpEx, I mean the 3% -- and I'm talking about slide, I think it's 28. So the 3% CAGR seems like an acceleration versus '25. And when you've talked about the moving parts, staff growing, inflation, there have been flat D&A growing, I think, mid-single digits. So I just can't see how we get to 3%. I get to more something like a 2%, 2% in EBIT. So is the guidance too conservative on OpEx?

And the second question is similar. Cost of risk. You have a slide where the total cost of risk keeps coming down, ended at 37, but then the guidance assumes you pick up to 40. Again, are you being a bit too conservative there or not?

Yes. Thank you, Hugo, for your questions. We try to be prudent and the guidance on cost has the components that we have just gone through. What we would say is that we are very comfortable with the 3%, and this means that we're not going to be higher than that. So we will work, and Cesar mentioned, some different work streams that we are already exploring so that we can improve the outlook for growth in costs and therefore, improve efficiency going forward.

Regarding cost of risk, in 2025, we have reported a 37 basis points cost of risk. 24, credit, 13, others. For 2026, again, we're very comfortable with the 40. We think that credit cost of risk is not going to be higher than 30 basis points, and the -- all the rest is going to be around 10. So again, it's a very comfortable cost of risk that takes into account that we are seeing a very growth momentum in things like consumer and SME, and that may marginally add a little bit more because we are not seeing any increase in cost of risk in the different products.

But of course, the cost of risk of consumer is higher than the ones in mortgages, for instance. So growing progressively more in consumer has an impact. Actually, that impact is rather offset by the good performance in the cost of risk of each different product. So what -- I think what I would say is that we feel very comfortable in the guidance of this cost and cost of risk.

Could you agree with that, Cesar?

Yes, I agree fully. And I think the perfect expression is we feel very comfortable with the 40 basis points. Is it conservative or not? The time will tell. But as I think we tried to explain during the presentation, the fact that we have reached a much clearer and lower levels of probabilities of default across all product lines has a lagged effect on cost of risk and on capital generation. And therefore, that's a tailwind that should help the cost of risk.

How much of that will be offset by a change in mix into more profitable and better yielding products like the consumer lending and the SME lending in which we expect marginally more growth and significant more growth than the market in consumer lending? How much that will offset that? It's difficult to know. But in general, I think the perfect expression is that we feel confident with the 40 basis points.

Okay. Then we also have the questions that Pablo sent to me. The first one is regarding the asset management and insurance business. So if we could elaborate a little bit more on the assumptions that we've made in terms of market impacts and others when we guided for this fee growth for 2026?

And the second one is regarding the breakdown of the on-balance sheet funds between fixed term and current accounts going forward.

Yes. I think we'll share this one. From a qualitative perspective, I think we are growing very handsomely already in asset management. And I think we are in record productions in terms of insurance. Over the course of the years, I think we are going to see that fees gradually increase as a percentage of core banking revenues and therefore, reduce somewhat the bottom line P&L sensitivity to interest rate movements, and that's on the back of asset management and mortgages.

Indeed, in 2025, we had a very sound growth in Asset Management and Insurance. This was 14% growth. And the growth that we see in fees connected with that was 15%. So we are seeing that clearly, the revenue is fully connected with the volumes. And for 2026, we're expecting a similar pattern with double-digit growth in insurance and asset management. Very happy, very successful performance in the business.

Regarding on-balance sheet funds, Out of the EUR 128 billion, I think, of on-balance sheet ex-TSB, roughly 1/3 of that is remunerated. So more than 2/3 are non-remunerated. So more than EUR 80 billion are stable and transactional current accounts, not remunerated, and the other 1/3 is term deposits or remunerated current accounts. And that is connected with the different customers that we have and the different franchises. Of course, the remunerated part is the part sensitive to interest rates.

Next question is coming from Cecilia Romero from Barclays.

Congratulations, Cesar, on your trajectory, and also wishing you all the best for the next stage. So my first question is a follow-up on a recent question. Looking at recent trends, the new production has been largely dominated by mortgages and consumer lending. And you also expect, during the call, and in your strategic plan, your intention to grow in corporate and SMEs. And I was just wondering if you were able to specifically tell us what's the cost of risk you are observing in SME and corporate lending, and also in consumer lending where you have been expanding quite rapidly?

And then just a small one on fees. I just wanted to make sure that the fees from your payment business have been included in the fee line for the entire 2025. So just wondering if the 5% growth is like-for-like '26 versus '25?

Let me take the second one, and thank you, Cecilia, for your questions. Regarding the fee lines, yes, fully comparable. So the payment business fees are included in the 2025 reported figures and the expected growth considers the same. So the answer is yes.

On the first one, I don't think we have given a specific cost of risk for consumer lending or SMEs. The only thing I can tell you is that the PDs have gone down by 50% since '24. And that is the major driver for the cost of risk. And we are at the level in -- we have reached the levels of cost of risk that we want to have on the longer term, although as I said before, they will take some time to go fully through the P&L, both in terms of cost of risk and capital generation.

Okay, we've got one final question. So operator, please?

Last question is coming from Lento Tang Bloomberg.

I have a follow-up on the hedging on the NII. So the EUR 9 million, I'm just wondering how long is this hedged? And what is the sensitivity to Euribor? And then another question on your ambition of the international business.

So I guess, Lento, the last question is regarding the international business, the strategy, okay.

Okay. Let me take the first question, the hedge of the fixed rate mortgages. I think we just mentioned that hedge is connected with this fixed rate and is a hedge where we pay fixed, we receive a floating Euribor 6. As Euribor 6 has been going down, that is the source of the impact. But the good news is that Euribor 6 months has been already stable for a number of months. So this will be -- this effect will fade completely in the next quarter.

And Cesar, would you like to take the one on the international business?

Yes, I think -- well, Mexico and Miami represent more or less, give or take, 5% of our capital each. And we are seeing currently quite a lot of opportunities for growth. They are profitable. They have positive returns on tangible equity. And we have been seeing that the growth in '27, I mean, our expectations of our growth for '27 are higher than the national growth, but that doesn't mean a change in our ambition. It's marginal. It's not very significant. It's just that we are seeing opportunities there.

They are very linked to our verticals in which we have a lot of expertise. They are linked to Spanish customers. So it's difficult to separate what is international and what is national. And the 2 verticals in which we do extremely well is, especially, hospitality and energy and to a lesser extent, civil engineering.

Right. So that concludes our presentation today. Thank you, Cesar and Sergio, and thanks to all of you for joining us today. If you have any further questions, the Investor Relations team is always here to help. Have a great day.

Thank you very much.

Thank you.

Good morning, and welcome to Sabadell's results presentation for the third quarter and first 9 months of 2025. Today, we are joined by our CEO, Cesar Gonzalez-Bueno; and our CFO, Sergio Palavecino. The presentation will follow a similar structure to previous quarters. Our CEO will start by sharing strategic priorities and then discuss the key developments of the quarter.

Next, our CFO will provide a detailed review of financial performance and the balance sheet before our CEO concludes with closing remarks. Finally, we will open the floor for a live Q&A session to address your questions. So Cesar, over to you.

Thank you, Lluc. Good morning, everyone. Before sharing the results of the third quarter, I will start my presentation today with a reflection on Sabadell's evolution since '21 as well as the prospects for the upcoming years. In Slide 4, in early '21, we launched a strategic plan focused on transforming each one of our businesses through specific levers for each one. This transformation would support the financial turnaround of the group.

Since then, we have executed the strategy in a decisive and accelerated manner. We have talked about this many times. I won't elaborate into the details now. As a result of our transformation, a solid financial turnaround has been delivered. Return on tangible equity has jumped from 0% in 2020 to the current double-digit figures, which are above our cost of capital. By the way, our transformation process and financial turnaround has not been affected by the hostile takeover bid, and we have been dealing, which we have been dealing with over the last 1.5 years.

In July 25, we presented our new strategic plan. An important milestone is the sale of TSB at very attractive multiples, which crystallizes the value created since we acquired TSB in 2015. The sale was signed with Santander and approved by our shareholders last August, and we expect the closing early next year. The new strategic plan is focused on growth and shareholder remuneration as Sabadell has not reached its potential. In terms of profitability, we expect return on tangible equity to keep growing and reach 16% by 2027.

We reaffirm all the objectives of the strategic plans in terms of return on tangible equity, growth and shareholder remuneration. On Slide 5, we have a quick reminder of the key elements that underpin our equity story. First, Spain. Following the sale of TSB, the vast majority of our businesses is now in Spain, one of the fastest-growing economies in Europe. Second, growth. Our approach is clear: prudent market share gains while preserving asset quality and pricing. Third, execution. We have a solid track record of delivering results since 2021. We are confident we will deliver on our current targets.

And fourth, shareholder remuneration. We have a proved and strong ability to generate capital while growing our lending book. We will leverage on this to offer an attractive shareholder remuneration in the upcoming years.

In Slide 6, we are reminding the financial guidance for 2027, which we announced in July and we confirm today. To summarize, our return on tangible equity for '27 is 16%. We also announced cumulative shareholder remuneration between '25 and '27 and we expect it to amount to EUR 6.3 billion. And in September, we actually improved our expectations on shareholder remuneration from this EUR 6.3 billion to EUR 6.45 billion.

In Slide 7, we provide more color on shareholder remuneration. The expected EUR 6.45 billion includes recurring distribution based on a 60% payout ratio. This is executed through two interim cash dividends per year plus one final cash dividend. On top of the 60% payout, we are planning to distribute excess capital above the 13% core Tier 1 threshold.

Finally, we will distribute the extraordinary dividend from the sale of TSB once the deal is closed. As you can read in the bottom right-hand slide -- of the slide, we reaffirm that yearly cash dividends per share in '25, '26 and '27 will be higher than cash dividends per share paid in 2024, which was EUR 0.2044.

And now let's move to the third quarter results highlights. In Slide 9, the key messages of the quarter. Third quarter results are on track to meet 2025 guidance. Our recurrent return on tangible equity, that is excluding one-offs, and extraordinary items stood at 14.1%. Core Tier 1 reached 13.7%. We kept generating capital in the quarter and in line with our strategy. I will later elaborate on this.

Commercial activity continued to accelerate, both performing loans and customer funds grew by around 8%, excluding TSB. Core revenues remained in line with expectations. NII is on track to meet the EUR 3.6 billion target for 2025. Fees grew by 3.7% year-on-year. Asset quality continues to improve. Total cost of risk stands at 37 basis points, decreasing by 18 basis points year-on-year.

Finally, we are pleased to confirm a second interim cash dividend of EUR 0.07 per share payable on December 29. Let me remind you that 2025 shareholder distribution amounts to a total of EUR 1.45 billion. On Slide 10, we turn to volumes. One more quarter, we delivered strong growth, both in loans and customer funds. Performing loans ex-TSB grew by 1.2% quarter-on-quarter, even with expected third quarter seasonality. On a year-on-year basis, loans ex-TSB grew by above 8%.

On the right-hand side of the slide, total customer funds ex-TSB grew by 1.5% in the quarter and by 7.8% year-on-year. This is mainly driven by off-balance sheet funds, which grew by more than 15% year-on-year. Regarding TSB, volumes in euros were impacted by sterling depreciation, but remained fairly stable at constant FX, both quarter-on-quarter and year-on-year. All in all, at constant FX, group performing loans grew by 5.9% and customer funds increased by 6.4%.

If we move to slide origination, and we talk now about loan origination in Spain, let me start with new mortgages. Origination in the first 9 months of the year increased by 26% compared to 24. Mortgage origination in Q3 decreased by 12% quarter-on-quarter, driven by seasonality. Our volumes of new mortgage origination remain reasonable. Our new lending market share is in line with our stock market share.

Furthermore, we keep managing risk-adjusted return on capital rigorously for new mortgages to make sure growth is delivered in a profitable manner. Moving to new customer consumer loans. We continue to perform well, growing origination by 19% in the first 9 months of the year versus previous year. In new loans and credit facilities to SMEs and corporates, there was the expected quarterly seasonality. Year-on-year, evolution has been broadly stable.

Finally, Third quarter origination of working capital finance declined slightly compared to Q2. However, it increased 3% year-on-year. Yearly cumulative origination in SMEs and corporates remains broadly stable compared to '24. All in all, current levels of new lending in all products allow for growth of the loan book.

On Slide 12, performance of Payment systems remains strong. On the first 9 months, cards turnover increased by 6% and point-of-sale turnover rose by 2%. We can see a slower growth in point-of-sale turnover. Taking into account our already strong market share in this business, we are now focused on pricing and profitability. This approach has resulted in a reduction of certain exposures with very low margins, but we have increased total fees coming from this business.

In the bottom half of the slide, you can see the evolution of savings and investment products. They grew by EUR 4.8 billion in the year, driven by an increase of EUR 6.8 billion in off-balance sheet products. On Slide 13, we show the breakdown of performing loan book ex-TSB across segments and geographies. In Spain, our performing loans were up by 0.9% quarter-on-quarter and by 7.6% year-on-year. All segments and products keep growing.

The stock of mortgages grew by 5.6% year-on-year, consumer loans by 19% and SMEs and corporates grew by 6.2%. International operations were equally strong with performing loans by -- up by 11% year-on-year. In sum, performing loans ex-TSB grew by 8.1%. In Slide 14, I will elaborate on our strategy to enhance capital generation while growing loan book. I think this is a crucial element of our strategy, which we have shared before.

We keep growing our book significantly, yes. But on the left-hand side of the slide, you can see that the probabilities of default of new lending originated in '25 are much lower than those of new lending originated in previous years. These are the result of our approach to credit growth, as we explained in the presentation of our strategic plan in July. In the last few years, we have been working very significantly on improving our risk models and processes. We have done this on a portfolio-by-portfolio basis. Once the risk origination capabilities of a given portfolio were improved, we fostered lending growth in that particular portfolio.

Furthermore, the quality of the risk we are granting after improving our models and processes is much better as we are able to skew new lending towards lower-risk segments in each portfolio. On the right-hand side of the slide, you can see a simplification of the implications of our strategy. In each portfolio, we might be obtaining lower loan yields, but at a lower cost of risk as the resilience of our franchise improves and we generate more capital. As a matter of fact, we have already generated a very handsome figure of 176 basis points of capital year-to-date. This is fully in line with guidance that we shared in our Capital Markets Day of 175 basis points per year.

And this is for the first 9 months of the year, the 176 basis points. Let's turn now on Slide 15 for the U.K. business. As expected, volumes remained broadly stable in the quarter. Net profit of TSB reached GBP 59 million in the quarter, which translates into almost GBP 200 million in the year. That brings its contribution to Sabadell to EUR 242 million year-to-date, up by 44% year-on-year. Stand-alone return on tangible equity was 13.8% despite having a high solvency that remained strong with a core Tier 1 of 16.3%. Finally, the TNAV increased by GBP 104 million between April and September. This will be included in the final proceeds coming from the sale of TSB to Santander, ensuring TSB continues to contribute to Sabadell until the transaction closes.

On Slide 16, we can see a summary of our Q3 results. Net profit ex TSB amounted to more than EUR 1.1 billion in the first 9 months of the year. Net profit of the group reached almost EUR 1.4 billion. This implies a recurring return on tangible equity of 14.1%. This level of profitability allows us to grow our loan book while accruing a 60% dividend payout and still generate capital. We have already, as I said before, generated 176 basis points of capital year-to-date. And indeed, this is a high capacity to generate capital and it is a key factor supporting our high shareholder remuneration.

And with this, I will now pass the floor to Sergio, who will provide a more detailed overview of the bank's financial performance.

Thank you, Cesar, and good morning, everyone. Let me start by showing the detailed P&L for the quarter and for the first 9 months of the year. As always, we have prepared the full group P&L as well as the P&L ex TSB, which will be the relevant perimeter going forward once we close the TSB sale. The performance of the different lines of the P&L is aligned with our year-end guidance, and we will review them in a minute. Whilst we are on this slide and before going into the detail of each of the lines, I'd like to point out that on the trading income line, this quarter, we recorded an extraordinary gross expense of EUR 23 million.

This reflects mainly two items, minus EUR 8 million one-off related to liability management and minus EUR 15 million related to FX hedging on the entire proceeds from the sale of TSB, which will be quarterly incurred until the transaction is closed. We will now go through the different P&L items in more detail, focusing on Sabadell's performance, excluding TSB. Starting with NII on Slide 19, I'd like to highlight that the net interest income is broadly stable this quarter and future growth will be primarily driven by volumes. Excluding TSB, NII closed at EUR 899 million in Q3, reflecting a marginal quarter-on-quarter decline of 0.8%.

Now let's look at the top right-hand side of the slide to understand the drivers behind this quarterly evolution. Moving from left to right. Customer NII had a negative impact of minus EUR 5 million. Within this, the customer margin decreased by EUR 24 million, mainly due to lower loan yield. However, quarterly average volumes of both loans and deposits had a very positive impact in the quarter, contributing EUR 8 million and EUR 12 million positively, respectively. The FX effect was marginally negative, subtracting EUR 1 million due to the depreciation of the U.S. dollar. The excess liquidity and other items had a combined impact of EUR 19 million adverse.

This reflects the combination of reduced excess liquidity used to finance volume growth invested at a lower ECB deposit facility rate. Wholesale funding costs contributed positively with EUR 14 million, supported by lower funding needs, the maturity of early amortization of expensive instruments and the benefits of the floating rate hedges. And finally, one additional business day in the quarter had a marginally positive impact of EUR 3 million. Overall, we can see that the positive contributions from larger volumes and lower wholesale funding costs helped to offset the drag from lower customer margins and reduced liquidity contribution. TSB added EUR 303 million, in line with Q2 as the higher contribution from the structural hedge was fully offset by the depreciation of the sterling.

All in all, we are on track to meet our 2025 NII ex TSB guidance of EUR 3.6 billion. Let's now move on to the fees on the next slide. For Sabadell, excluding TSB, the quarter saw a decrease of 4%. This was mainly due to the usual seasonality in the quarter, particularly in credit risk as well as service banking fees, which were lower during the summer season. However, year-on-year performance remains positive with fees growing by 3.7%. This growth reflects strong contributions from asset management and insurance products, which continue to support fee income. Based on this going forward, we confirm that we remain on track to meet our guidance of mid-single-digit fee growth in 2025, excluding TSB.

Now moving on to costs on Slide 21. Total group costs remained contained, reflecting disciplined cost control and supported by depreciation of the British pound. On a year-on-year basis, costs remained broadly stable, increasing by just 0.5% year-on-year. In this context, we confirm again our guidance of low single-digit growth in cost, excluding TSB. On the next slide, we cover cost of risk and provisions. The cost of risk continues to evolve in line with our year-end targets or even better, reflecting prudent credit risk management. Looking at the bridge on the top right-hand side of the slide from left to right, we booked EUR 88 million of loan loss provisions, excluding TSB, during the quarter, which leads to a credit cost of risk of 21 basis points in the year.

Next, a positive of EUR 5 million in provisions driven by foreclosed asset provision releases, along with capital gains on real estate assets. NPA management costs and other provisions, mainly related to litigation and other asset impairments in line with the usual run rate. Finally, TSB provisions contributed EUR 16 million this quarter. All in all, total provisions equate to a cost of risk of 37 basis points when excluding TSB. And looking ahead, we expect the total cost of risk, again, excluding TSB, to remain in line with our full year guidance or a touch better. Slide 24 provides a closer look at nonperforming loans, which continued to improve both quarter-on-quarter and year-on-year.

The NPL ratio for the ex TSB perimeter declined further to 2.75%, representing a quarter-on-quarter reduction of 6 basis points and a year-on-year reduction of 96 basis points. Meanwhile, the coverage ratio remained broadly stable during the quarter and increased by 5% points over the year, reaching almost 70%. This once again confirms that our cost of risk is improving, but not at the expense of our coverage ratio. Looking at the exposures and coverage level by stage on the right-hand side, we can see that Stage 2 and Stage 3 exposures at ex-TSB level decreased by circa EUR 1.8 billion and EUR 1 billion, respectively, over the last 12 months, which I believe are remarkable figures.

Moving on to the next slide. We can see that the stock of foreclosed assets continued to decline quarter-on-quarter, quarter after quarter. This is virtually a runoff portfolio with very limited entries and sales over the last 12 months of 20% of the stock at an average premium of 11%. Total NPAs, which include both NPLs and foreclosed assets, decreased by 19% year-on-year. To sum up, over the past 12 months, we have seen a strong improvement across all the 3 pillars of asset quality. Firstly, NPAs are down by around 20%. Secondly, the coverage ratio has improved by 4 percentage points. And all this has been done provisioning less.

Turning now to liquidity and credit ratings. All indicators show that we ended the quarter with a very solid liquidity position, as you can see from this slide, with the loan-to-deposit ratio ex TSB showing a slight increase to 94%. Moving on to the credit ratings. Moody's upgraded Banco Sabadell's long-term rating to Baa1. This upgrade reflects the bank's improved solvency supported by the continued enhancement of both asset quality and profitability compared to past performance. Also, Fitch affirmed our long-term rating at BBB+, giving it a stable outlook once the hostile takeover bid is over. On the next slide, we present our current MREL position.

We are comfortably meeting our MREL requirements in terms of both risk-weighted assets and leverage ratio exposure. In addition, we have built a solid management buffer across all requirements, which is our funding plan needs and will help to reduce wholesale funding costs in the coming quarters. For the last quarter -- sorry, in the last quarter, we issued one senior nonpreferred and one SRT transaction. And for this fourth quarter, the last one of the year, we expect one more SRT transaction to take place.

Turning now to capital. At the end of September, our CET1 ratio reached 13.74%, reflecting an increase of 18 basis points during this quarter. Looking more closely at the quarterly evolution, we recorded 49 basis points of capital generation per dividend accrual. This includes 60 basis points from organic CET1 generation after deducting AT1 coupons. Zero impact from fair value reserve adjustments, minus 11 basis points from risk-weighted assets growth. Then the accrual of a 60% dividend payout represents an impact of minus 31 basis points. Now looking at the right-hand side of the slide, in terms of available capital to meet the announced shareholder remuneration, we already have EUR 3.7 billion of accrued and unpaid dividends plus excess capital above the 13% CET1 ratio on a pro forma basis. This means after the sale of TSB.

This capital has already been generated. Now let's talk about the expected distributions on the next slide. We expect to distribute EUR 3.6 billion in the next 6 months, which is equivalent to more than 20% of our current market cap. This amount is the result of a second interim dividend of EUR 350 million already agreed by the Board, and that is EUR 0.07 per share in cash, which will be paid on December 29. This will be followed by the final dividend plus the excess capital of 13% CET1 to be paid after the Annual General Meeting.

The estimated amount is around EUR 750 million and its composition, which may combine a cash dividend and a share buyback still needs to be defined by the Board of Directors. Finally, the extraordinary cash dividend of EUR 2.5 billion that will be paid on the last day of the month following the closing of the TSB sale. As we have seen in the previous slide, the capital required for this remuneration has already been generated. I will now conclude my part of the presentation by highlighting our shareholder value creation and the impact of TSB sale on Sabadell's multiple -- current valuation multiples. Sabadell continues to deliver strong value creation for its shareholders. This is reflected in a 17% year-on-year growth in tangible book value per share plus the dividends distributed over the last 12 months.

And finally, given the importance of the extraordinary dividend related to the sale of TSV, let me share one aspect about the valuation. When we look at the 2027 consensus estimates, the Sabadell perimeter obviously already excludes TSB. Therefore, in order to accurately compare that figure with the current market cap, this extraordinary dividend for the sale of TSB must be adjusted for. So when adjusting for the EUR 2.5 billion extraordinary dividend, the market cap is EUR 14.5 billion. This adjustment obviously does affect the valuation metrics, particularly price to earnings ratio. When using the adjusted market cap as of November 11, Sabadell's P/E is below 9x and compares to an average of more than 10x for Spanish peers. And with this, I'll hand over to Cesar, who will conclude today's presentation.

Thank you, Sergio. To conclude, I would like to review our financial targets ex TSB for '25. We are on track to delivering these yearly targets. Starting with NII, we have delivered EUR 2.7 billion in the first 9 months of '25. So we are well positioned to achieve the full year target of EUR 3.6 billion. Fees and commissions have grown by 3.7% year-on-year consistent with our mid-single-digit expectations. On the cost side, total expenses remained under tight control. We are well within the low single-digit range. Risk metrics remain robust with total cost of risk at 37 basis points, in line with our guidance and close to -- that is close to 40 basis points.

In summary, all P&L lines, ex TSB, are on track to meet the year-end guidance and we remain confident in delivering a group return on tangible equity of 14.5% by year-end. Finally, let me highlight that shareholder remuneration is projected at EUR 145 billion for 2025. reflecting an improved outlook. And with this, I will hand over to Lluc for Q&A.

Perfect. Thank you, Cesar. We will now begin the Q&A session. As we have a limited amount of time, I would kindly ask you to limit the number of questions to no more than 2. Operator, could you open the line for the first question, please?

First question is coming from Maks Mishyn from JB Capital. Please go ahead.

Thank you very much for the presentation and taking our questions. Two questions for me. The first one is on cost. Could you confirm if all the costs related to the tender offer have been booked already? Or is there anything else left for the first quarter? And if so, in what line? And then on medium-term growth, do you expect the strong trend to continue in 2026 if the loan book grows faster than the mid-single digits you have put in the plant, can this have any implications for the capital distribution?

Okay. The cost related to the tender offer have all been booked provisioned and paid or paid, except the new that will come on Q4, which is related to the shares to be granted to employees. And as you know, it's 300 shares per employee. And this will come as extraordinary in Q4. All the rest are already taken care of. In terms of the medium-term growth, I think we remain exactly on the guidance that we give -- that we gave and therefore, for sure, no implication, and we see no risk in terms of our capital distribution versus the guidance. Anything to add?

Next question is coming from Francisco Riquel from Alantra.

My first one is on NII. I would like to refer to Slide 19 of your presentation. So here, the quarterly bridge of NII, I see that new volumes are contributing with EUR 20 million NII in the quarter, loans and deposits. But then there is the column liquidity, which are negative of EUR 19 billion, so most largely offsetting the new volume growth. So it seems to me that redeploying liquidity positions out of the ECB or elsewhere is not accretive to the group with the new volumes.

So I wonder how can you reassure us that you are not chasing volumes at the expense of pricing? So that's my first question. And my second question is regarding NII also. So you are targeting NII of EUR 3.6 billion in '25 and EUR 3.9 billion in '27. So that was based on mid-single-digit growth in volumes, but you are growing high single digit in Tier 1. However, the guidance for '25 probably anticipate flattish NII again in Q4. So what shall we expect going forward? If you can share with us some color for NII in '26 that you can share with us at this point? Do you think that there is upside risk to your '27 guidance, assuming you keep on growing mid-single digit for the remaining of the plan? Or do you see margin headwinds.

Okay. Let me start. I will give you some color, but certainly, Sergio will complete the explanation. I think you're spot on. I think Slide 19, which reflects that there is a EUR 19 million negative in liquidity and others. This is mainly driven by the fact that although we have grown significantly in customer liabilities, the deposits part and is lower than the growth of the asset part. And this is very clearly explained by a very simple reason. We are -- we have been below and we will continue probably being slightly below our expectations for new customer acquisition on all fronts, because of the result of the hostile takeover.

We have delivered approximately 75% of our target in terms of growth of new customers and volumes on the -- on-balance sheet deposits and liabilities, which is below our target. If I look at it at face value, what is quite extraordinary is that we did the 75%, given the uncertainty and the difficulty for new customers to join the bank in such a period. But this going forward should improve, and we should again rebalance the growth of our on-balance sheet growth of deposits with the growth of assets. And therefore, that would affect positively that EUR 19 million that you're seeing there. I think I'll leave it at that and pass it on to Sergio.

Yes. Thank you, Cesar. Paco, I think you need also to take into account that the liquidity part is affected by rates as still looking at the third quarter, rates at the ECB were invested at a lower rate than in the second quarter. So that does affect. Then on that part of the breakdown is also the others, which includes some hedges related to the fixed income -- sorry, to the fixed rate mortgages that have been brought to floating because the amount of fixed rate mortgages that we have is a lot and part of them are hedged. So the rates part is also affecting that component.

So going forward, we -- as rates stabilize, we will expect not an adverse -- not so big adverse contribution from that portion. And then the volume component to be present during 2026. So we expect NII to start growing during 2026. With this, we will basically reconfirming our expectation that this year, we will end that NII at EUR 3.6 billion. NII will start growing during 2026. And for 2027, our estimate is that this EUR 3.9 billion that comes with -- after mid-single-digit growth of both loans and customer funds. Related to your mention of high [ yield ] on the loan book, that's at the end of the -- that's at the very end of the period, which typically has a peak in terms of loan demand. When you look at the average volumes for the loan book, we are rather on the mid-single digit that we expected.

So far on volumes, I think things are progressing in line with our expectations. And if anything, we're lagging a bit in customer acquisition, as Cesar described, which, for sure, I'm sure that the hostile tender offer affected a little bit in that part of the business. Now luckily, the hostile tender offer is over, so we don't have that going forward.

Although we will have it for the beginning of the next quarter because, of course, the tender offer ended mid-October. If I may make a general comment on the NII. And I think although we've said this many, many times, I think it's important to repeat it, because it's at the core of our strategy. First, the NII is in line with our guidance. And the improvement of the credit quality of new lending, of course, partially dilutes also loan yields. We are growing with lower yields but with better credit quality. And this is a strategy. Because it means lower cost of risk and higher capital generation and it furthermore makes the franchise significantly more resilient.

So when you look at line per line, sometimes it's difficult not to realize this underlying shift in strategy, which I think is very positive and at the core of our endeavors.

Yes. So I think that answers also, Paco your comment that if we make sure that growth is not done at the expense of margins. And that's not the case, Cesar explained that we focus on returns, and we have a very strong discipline of allocating all cost, cost of risk and capital to all the lending. So we will only grow as long as it makes sense to do it.

Next question is coming from Alvaro Serrano from Morgan Stanley.

The kind of follow-ups from the previous questions on loan spreads. So we've seen in the press and it looks like some of your competitors repricing mortgages up and repricing loans up last few weeks. Are you -- can you comment on what you're doing on new production? Do you recognize those comments? And I know you're also repricing up. And related to that, Seth, you mentioned that contrary to some of your competitors, you do hedge and you do swap those mortgages. Can you give us a feel of what the spread is post once the mortgage are swapped, what the spread is at the moment? .

And I guess sort of related to that, in your 2027 NII target 3.9, what spread on loans, does that have factored in, what should we think about on the loan spread when we put everything in, where should it stabilize? I realize in the short term. Obviously, there's some repricing to lower Euribor still going on. But once during 2026, where do you think the loan spread can stabilize?

I'll take just the first part of the mortgage question. I think we are following very closely all the comments also from our competitors and following the market. And it's very clear that we are growing in mortgages at our market share. And that means that, of course, the market is competitive, has always been. But what has transformed dramatically the way we look at mortgages is that we are now fully rail rock-based.

The average rate rock of new mortgages is around 20%. And that means that we price correctly, but we also include -- it's based on the segmentation approach, and we are aiming and attracting high-value clients. And the pricing includes and the RaRoC, the impact of cross-selling. That is, if a mortgage offer discounts when customers are also purchasing other products that increase their overall contribution.

What has changed also is that before that was only set at the time of the issuance of the mortgage. Now that is a condition. So for example, if there's an insurance attached to a mortgage, it has an improved pricing. But if that insurance is canceled, then the price is automatically adjusted as per agreement with the client. So I think it is very clear we are all focusing very carefully. The market is growing. There's a lot of demand for mortgages, but we are all focusing on and certainly, we are on not increasing our market share on this segment growing with -- and that is our strategy, and that's what we have executed and measuring very carefully what is the value generation.

Yes. And Alvaro to your question related mortgages and its ALM related mortgage, the origination of mortgages is fixed rate in the vast majority, more than 80% of our origination is coming in fixed. And it's been the case now for, I think, the last maybe 7 or 8 years. So the book is definitely turning very much on to the fixed rate.

That is also combined with the fact that in the last quarters, the origination volumes are higher. So it's a pretty good amount of fixed rate loans. So yes, we do swap of that part connected with our ALM policy. We're swapping between 30% to 50% of the new entrants. And after swap, it depends on the different portfolios, but the final spread after swapping stays at 30 to 50 basis points.

But please take into account that all the business we do, we do with customers. So the mortgage profitability is assigned in connection with other products that the customers take. So we make sure that the RaRoC all in all, makes full sense.

And as for the total loan book, where do you think the spread could stabilize consistent with that EUR 3.9 billion?

Yes. The spread for the asset -- the loan yield currently in the ex TSB perimeter is at 3.68%. So when compared to ECB or Euribor, it means that in average spread is at above 150 basis points. We think that, that kind of spring is sustainable over time. So when I see maybe a little bit of additional reduction, maybe but then the mix and the rates we think that spread is sustainable over time.

Next question is coming from Borja Ramirez from Citi.

Can you hear me? .

Yes.

I have to two. Firstly, on the capital distribution. I would like to ask if you could provide more details on the cash dividend growth. if that applies every year, the EPS will be higher year-over-year. And also, I think your capital distribution target does not include the potential capital from the payments JV. So that could be upside to your target?

And then my second question would be on the NII, I would like to ask if the customer NII has bottomed in Q3. And also, I think you have a competitive advantage compared to domestic peers because I think you still have tailwinds from lower cost of hostile funding to come. I think you quoted EUR 200 million of upside after 2027. I'm not sure that, that's in consensus.

Okay. In terms of the capital distribution, I think that what we are guiding and we are guiding with confidence is that the cash dividend per share and that includes also numerator and denominator. So the number of shares will be higher in '25, '26 and '27 or equal than the one of '24. and that is what that's how we are guiding. And of course, it does not include Nexi.

Precisely, exactly. And regarding your question on NII, I think the third quarter might be the bottom or sort of a valley as we expect the last quarter of this year to have similar levels of NII. And then as mentioned before, we expect NII to start growing in 2026. When you discussed the -- when you mentioned Borja, the wholesale funding savings that we expect, and we touched on them in our Capital Markets Day, we were comparing, I think, 2027 to 2024, there were meaningful expenses. But that was a combination of 2 things. The lower -- maybe 3 lower rates, lower spreads in the market for us in connection with our ratings. That's clear. That's structural. That's a strength going forward for sure. But there's another component, which is that the sale of TSB is going to reduce our wholesale funding needs. But that is connected to some income that we get in the ex-TSB ALCO book because in the ex-TSB ALCO book in the asset side, we also have the MREL from TSB. So I think it's not fully that sort of benefit that goes into NII, because it will be somewhat offset by the MREL bonds in the ex-TSB ALCO book.

That will be sold to Santander.

Next question is coming from Carlos Peixoto from CaixaBank.

A couple of questions from my side as well. There was a small decline in the...

Carlos, sorry to interrupt you, but could you -- Yes, much better. Thank you.

So as I was saying, there was a 3% to 4% decline in deposits and overall balance sheet customer funds in the first Q stand-alone in -- excluding TSP. I just wondering whether you see that mainly related with the impact that you mentioned before or whether there's something else that explains this decline? And then on trading gains, well, you have the Tier 2 impact in the quarter and the hedge cost, still underlying trading would actually be slightly negative. I was just wondering whether you see this as being the trend for upcoming quarters in trading as well.

And then sorry, just to overstep, but if I may, just on other provisions, if you could also give us a on how sustainable these levels are? Should we look at this adjusted by the EUR 5 million that I believe it was EUR 5 million from a recovery write-back in terms of provisions. If you adjust for that, should we see there more or less a recurrent level of provisions or just your outlook on this?

I'm going to try to answer the first question, but I'm not 100% sure. I understood that fully. So if I missed the answer, please come back. I think you were referring to customer funds growing less than our asset side and if that was perturable over time. And I think that what we already tried to explain is that, that difference in growth between assets and liabilities on balance sheet from clients, it's mainly due to a weaker acquisition of new customers versus our expectations due mainly to the tender offer.

Therefore, we expect that to be reverted over time and to come back to our original plans with the new ones that would not happen fully during Q4, because the transaction ended at mid-October. I don't know if that was your first question, and if I answered it to your satisfaction.

Well, actually was between June and September, you had a decline in overall stock of deposits, but I guess...

Deposits, you mean. Carlos, or just are you...

Overall stock of deposits.

Term deposit.

Excluding TSB.

Term deposits.

Yes, yes, the EUR 2.5 billion, yes, that is a mix, and that's a shift. If you see the growth in the slide, I think it's more than EUR 5 billion growth, excluding capital appreciation on mutual funds. I think we have always pursued a greater growth in our mutual fund strategy in our off balance sheet. And part of that is cannibalization so that minus 2.5 of term deposits is also a significant shift towards mutual funds.

And that's overall, what yields the growth of close to circa of 8% year-on-year on our overall funds from customers, both on balance sheet and off balance sheet. And it is the mix of the on balance sheet that I was explaining previously that has had some impact on our NII together with all the other elements that we already commented.

Yes. Despite that -- let me also highlight the very -- the remarkable growth in the off-balance sheet products growing at a very nice double digits. So very successful, I think, part of the business. And then Carlos, your other questions, the second one was related to trading. In the trading line, the way we see things are, of course, it's probably the most volatile line. However, if we were to say a recurrent path, could maybe be between EUR 5 million to EUR 10 million per quarter.

And as we have explained, we are hedging the entire proceeds coming from the sale of TSB, and that is going to have a cost of EUR 15 million every quarter during this process. And this is up to, as in our expectation, the first quarter of next year included. So those are the numbers, and we will be, I think, in that range. And regarding provisions, yes, we think that this is sustainable. This is in line with our longer-term expectations that we shared with you in the Capital Markets Day.

We guided to also 40 basis points cost of risk in 2027. When we look at all the portfolios are doing a little bit better than expected, that's why we are actually below 40 basis points of cost of risk this year. And I think it's important to take that in connection with the important transformation that Cesar has described it, where we focus all the organization in originating better quality portfolios that might have not such a big spread, but it comes with lower cost of risk. And at the end of the day, we are seeing that the capital generation is actually higher. So quite happy with the transformation and the story.

And at risk of becoming too repetitive. I think the probability of default reduction is very, very significant. It's around 50% the first 9 months of the year versus '23 new lending. That flows through the balance sheet over time because it's the new production that improves. But after that comes the book improvement overall, depending on the maturity, term maturity of every product, and then the models in which you calculate risk also are adjusted. It all takes time, but it is in the right path. But immediately, it is producing exactly as Sergio was saying the improvement in capital generation. Loan growth is not at the expense of credit quality. On the contrary, it is based on 3 pillars. The first is risk, the preapproved loans by limiting the probabilities of default, both on average and taking away the queues.

The second one is pricing. And sometimes, it yields to lower NII, but it is with higher RaRoC considering everything. So the quality of the metrics has improved dramatically. And third, it also comes at the expense of processes. I think one thing that is undervalued usually in banking is that the way you conduct your processes in the sales have a significant impact in your growth or the rest being constant. It is what we call the funnel.

The focus on funnels. There's now an obsession around funnels here. And that means that chatter is parable all the rest being constant, you can have with the same pricing or equivalent pricing, the same risk, you can have higher growth. These are the 3 pillars of growth, and we are focusing very much on the execution of the 3 of them.

Next question is coming from Ignacio Cerezo from UBS.

So I've got one actually on the mortgage yield discussion. So if you can tell us on your standard mortgages, if you on how much yield you're adding on cross-selling? And how is that broken down between different products. And then the second one, if you can remind us the breakdown of your Miami book, and if you're seeing any deterioration based on, I mean, the developments on private credit, U.S. credit quality in general.

Unfortunately, I don't think we are able to respond to the first question. I don't think we have that breakdown or that we are sharing that breakdown. And it's changing game continuously, and we would show you averages, but that would also not mean a lot, because it's based on every mortgage one by one and the pricing is based on a RaRoC product. It basically only includes the RaRoC the elements that are contractual. On top of that, you have an additional tailwind, which comes with higher liabilities, higher payrolls and a number of things. But that's as much as we can share. And on the breakdown on Miami. .

No deterioration at all in our Miami book, is not in the activities that might be more affected, but we are seeing no deterioration at all. It's a very high-credit quality book.

Next question is coming from [indiscernible] from Autonomous.

The first one is on the Nexi deal. If you could provide any update on the negotiations with Nexi, if this is still a priority by management? And when shall we expect any news on this? And then my second question is on the customer spread. So on the loan side, you commented that 150 basis points is sort of sustainable. Now I wanted to ask you about the deposit spread ex-TSB, -- where do you see this landing once repricing stabilizes? And just one final clarification on the CET1. You mentioned that there should be another SRT in Q4. If you could provide any expected basis points impact from that? And if you also expect any operational risk inflation in the last quarter?

Okay. On the Nexi deal, I think both sides have been very, very clear that has been a very long time lapse and the market has changed significantly since the prior agreement. So what we have engaged is that on first that there is more ongoing obligation. And second, we are both engaged in continuing exploring if there's a way to come to a new agreement or not. We haven't given us each other a fixed date or we haven't given each other fixed commitment.

We just have mutually agreed approach to continue to exploring opportunities. Certainly, if that happens, it will be in probably very different terms and scopes than the original one. And we'll see how this evolves in the following months.

Yes. And regarding customer spread, we are now not expecting major movements as mentioned before, maybe some basis points less in customer yield, but also some basis points less in customer funds, in the cost of customer funds. And overall, customer spread that should get stable or very close to these levels and very soon. And then relating to your last question on...

On a general view on the capital solution for Q4 and certainly, you can be much more explicit on the SRT. But I think for capital evolution in Q4, you should expect, as you know, we have shown already that we have covered already more than covered our commitments for the year in the first 3 quarters. But nevertheless, we expect a positive contribution to capital in Q4, although it will be more moderate than the one that we have seen in the previous quarters. And the headwinds are seasonality of the quarter because we should expect volume growth and also an impact on operational risk, maybe around 7 basis points or something of the sort.

But the tailwinds will be the retained earnings and certainly the SRT now 230.

No, I think you answered perfectly. I think the -- it's going to be in all the moving parts of the last quarter, which typically is not the strongest in capital generation, but still we expect some capital generation, because you're spot on Luis with the risk-weighted asset inflation coming from operational risk in the quarter, but the SRT will offset this. SRT benefit in the quarter will probably around 8 basis points, 8% to 7%, so offsetting that risk-weighted asset inflation and the conclusion is what Cesar said, that we expect another quarter of capital generation, probably not as strong as this one, but some of that.

Next question is coming from Hugo Da Cruz from KBW.

I just wanted to ask, so the TSB dividend, the one-off dividend I think you have a slide where you say that so far already generating $2.65 billion, and the target for the dividend is EUR 2.5 billion. So if you end up generating more capital than the dividend that's been promised so far. Will we get that with a one-off dividend? Or would it be later in the year with as you kind of excess capital.

That's one of those -- sorry, that's one of those mysterious questions because it is for the Board to decide. At this point in time, what we are just saying is that we have already replenished in terms of capital generation to fulfill 100% and even a little bit more of our commitments to the market. What the decisions of the Board will be in the future remains to be seen, and it's for their capabilities to address that in due course.

Yes. I think we've -- a couple of analysts have just raised their hands. So operator, if we could include them in the list. So let's jump to the next question.

Next question is coming from [ Tetra Romero ] from [indiscernible].

Can you hear us? Please check that you are not on mute. If not, we can jump to the next analyst.

Can you hear me now?

Yes, yes. Yes, we can.

So my question is related to the last 1 on the dividend related to TSB. I was just wondering, you were mentioning that TNAV has already improved by EUR 100 million. You were targeting around EUR 200 million for the period up to April. So if this progressing according to better than planned and could this represent upside risk to your distribution? And also wanted to know if the timing of the closing of the transaction is on track for April?

And then my second question is regarding the SRT that you were mentioning that it's going to be 8 to 7 basis points, where is the cost of that SRT showing up? Is that NII, is that included in your guidance?

The TNAF, as you have seen, has increased by EUR 104 million. And as we guided for roughly EUR 200 million increase of TNAF in 1 year. So it is progressing absolutely in line with our expectation. That TNAF is basically the increase in the book value coming from the net income in the period, and that is flowing into the group results, where the extraordinary dividend is connected with the capital gain and the risk-weighted assets release, which is basically the sort of picture that we had when we cut off as of March 31. So the TNAF is not affecting the capital release, the -- and therefore, the extraordinary dividend is well connected with that.

And then for your second question regarding the SRT cost. SRT are done in 2 different ways, synthetic on cash. In the third quarter, we closed a cash transaction. There was a securitization of consumer loans, auto, in particular, auto. So those -- that transaction is SRT and that is a cash bond, so that is going through NII. The synthetic SRT transactions, the cost is going into the fee line, because it's a fee that we pay for the guarantee. So it's going into the fee. And all of that is taken -- is considered in the guidance.

Okay. So we can now jump to the final question. So operator, please?

Last question is coming from Fernando Gil from Intesa Sanpaolo.

So my question is regarding the asset management business and the Amundi deal. Can you just remind us of the main terms of a deal, I think it was 2020 to 2013 -- sorry, '30, so has there been any voluntary breakup clause from Sabadell? And if so, what are the cost to notice periods and some details that you can share, please? .

Fernando, yes, it was a 10-year agreement for distribution in 2020 where we sold our asset management company to Amundi. That period, therefore, ends in 2030. And we're very pleased with the agreement. We're very happy. The business is done. It's working very well. So there is nothing that we can add at this moment on this. It's going well.

Perfect. So that concludes our presentation today. Thank you, Cesar and Sergio. As always, the Investor Relations team remains available for any additional questions or follow-ups. Thank you, everyone, for participating and for joining us this morning. Have a nice day.

Have a nice day.

Thank you.

All right. Good afternoon, everyone. We've got another exciting session, I think I would say, we've been 16 months on and M&A is still on the table. We are live with the deal. So we're going to try to be respectful of that. But we're super pleased to have Cesar Gonzalez-Bueno, CEO of Banco de Sabadell and is joined today by Sergio Palavecino, Group CFO. Thank you both for joining us.

Pleasure. Thank you, Antonio. Thank you, everybody.

So I think let's dive straight into the sort of the main topic and start with tender offer. We are live with the offer period when you and your Board rejected the offer, I think you formalized a number of points as to why that was the case, 3 in particular, bear in mind I've asked the same question to -- on earlier. But please correct me or complement if you think it's wrong. The first point you mentioned was the offer significantly undervalues the potential of Sabadell. Two, stand-alone, you can create more value for your shareholders with, of course, an emphasis on capital distribution. And three, you said the BBVA shares have some risk that Sabadell shares don't have. Now I'm sure there's a lot of your shareholders in the audience, what would you tell them here?

Well, I think this question, unfortunately, is going to take a bit of time, if I see people snoring, I will try to improve the speed, but certainly, this is at the core, the response of -- it was not an excessively long board, but it was a long board. We covered a lot of subjects. We analyzed with our full responsibility the offer at hand, and we concluded unanimously that the offer was, in our opinion, the recommendation to our shareholders was to say no. I don't think that came as a surprise given the price of this thing. But we first said that it did significantly undervalues Banco de Sabadell.

Banco de Sabadell has been the best performing stock for the last close to 5 years with multiplied by more than 12%, the value, of the banks in Europe, and it has been the best performing stock in the IBEX, but that, of course, doesn't say about the future. And about the future, our consideration was that the fundamental value of the bank was ranging and the investment banks have presented the fairness opinion and so forth. They were ranging it around -- north of EUR 4 per share. And on top of that, you will have to add a premium.

Then the consideration was also shareholder remuneration. You have to understand that we are distributing EUR 3.8 billion in the course of less than 9 months. And that is very attractive because that represents almost 40% of the market cap of the bank in the total of the 3 years, which is EUR 6.3 billion, but it's very front loaded. So that has also a tremendous value because shares are a risky business, but when the upfront distribution is so heavy, certainly the risk diminishes.

And furthermore, in order to reduce further the risk it's a Spanish equity story. And Spain right now is perceived as -- and it is safe and sound, growing healthy at 4%. We are growing a little bit faster than that. So very handsome distribution and in a safe environment. That's different from what is being proposed, and we will see in a second, the impacts of being in an environment that is more emerging markets. That's not good or bad, but it's different and it's riskier and it carries some consequences.

We talked then at length about the synergies. BBVA, and I'm sorry, I have to refer to what they say and contradict it. And this is not -- this doesn't pretend to be contentious, but I think it is relevant to clarify different points of view. They said, well, the synergies will come at EUR 900 million and will come in the year 4. Okay? But there are going to be 3 periods. One is what it's called autonomy of management. There cannot be any synergies there. The definition of autonomy of management is that they have to be managed individually. And if there was any possibility of having synergies with anyone, they would be the same with BBVA or with Santander or with whoever.

So any synergies that would need to be obtained in order to fulfill the mandate of the autonomy will have to be really checked if they can be higher with someone else. So there during that period, there are none. Is it 3 years or 5? That is still to be seen. But what there cannot be is further more any preparation during those 3 years. Whoever has done a merger with the bank knows that the preparation paralyzes a bank, a preparation for merger. You have to stop the systems, you have to freeze everything and you have to concentrate in the migration.

That is completely forbidden by the decision of the government because what it has required is that, that autonomy of management means that the products will continue to be improved. The services will be continued to be specific to the needs of the clients of each of both entities. And furthermore, it is assumed that the merger would be allowed in the next nano second, of the 3 years, which might be 5 of the autonomy of management and then immediately, the merger will happen. And then after that instant merger, the 4,000 people would be laid off in the first day and all the other synergies, so in order to attain the full synergies in the full year 2019. That is unrealistic.

Let's start one by one. First, there's no evidence whatsoever that the merger would be authorized. And whoever is a Spaniard understands this much better. Catalonia is the main place where the elections are won or lost at this point in time. And for the people in the right, for the people in the left, for the people who are Catalan nationalist, for the people who are patriots for Spain or everyone Banco de Sabadell represent something very important. There has been so much a position to this transaction because there has been a social opposition. It is perceived to be a very relevant player. So the fact, let's assume that there's a change of hands and that -- which I don't think will happen, and that BBVA takes over and has a majority stake at Banco de Sabadell.

In the perception of the public that is not really as relevant as the brand disappearing, the merger occurring, people being laid off and losing the people with whom you relate as an SME. So I think the synergies are completely overestimated. But if they were true, their price should be completely different. So there's a certain contradiction here. Either there are synergies and they are in full and they will happen in the near term only with 1-year delay, as BBVA say, and then the price should be bumped significantly to provide the 30%, 40% premium that is customer in these type of transactions or there are no synergies or they are so uncertain that, that creates a trouble.

Let me address now the EPS accretion, that BBVA is putting forward as 25%. They say that in this transaction, the shareholders of Banco de Sabadell will have an EPS accretion of 25%. The calculation is wrong, and it is significantly wrong because what it happens is that it ignores to begin with, the EUR 2.5 billion of dividends. It assumes that they don't exist. And the reasonable thing to do, if you want to compare apples with apples is to assume that those EUR 2.5 billion are reinvested and therefore, that they also have an impact on EPS accretion. They cannot just disappear. You can just -- you can't just ignore them. That will reduce by 14 percentage points that 25% EPS.

And then if you continue doing adjustments and you use for both banks, the consensus from the analysts, which is the correct thing, then you go down another 4%. And if then you adjust minimally some synergies and so forth, you go to negative accretion. So that 25% is not positive. It turns into a negative EPS accretion for shareholders.

But then we come to the next thing that the Board analyzed and that is what is the ability to generate capital from one and the other. Because, of course, it's very noticeable that one has, in the case of BBVA, a 21% return on tangible equity. That's very good, very impressive. But not all returns on equity are the same because if you take that 21% and just using the year '24, but we've done the calculation looking backwards, then you have to subtract 2 very relevant elements. They are very inflationary economies. 70% of the business of BBVA, which is not a European bank, it's a bank based in Europe, but 70% of its profit, 67% last year comes from emerging markets.

And what happens then and what happened during year '24? It's very simple. The first thing that you have is to adjust and that is not adjusted in the P&L, it's adjusted in the capital afterwards. You have to adjust for inflation or devaluation of the currency more than inflation, which is they are somewhat related. And that means if you do it over year '24, that you have to reduce that 21% by more than 5%. But that's not the end of it. In order to have those returns, you have to grow your assets at a tremendous pace in these very inflationary countries. And that means that you have to increase your risk-weighted assets in a phenomenal way, bumping your requirements of capital and reducing your ability to distribute capital.

So if you adjust that 21% to these 2 factors for year '24, you go for 21% to 9% distributable increase of capital. In the case of Banco de Sabadell, you started at 15%, and the impact of those 2 factors are very small because we just operate in Spain and even more going forward. But even in '24, and you go from 15% to 14%. So in the end, that 21%, which compares with 15% in terms of return on tangible equity, in terms of distributable capability becomes a 9% for the case of BBVA and a 14% for the case of Banco de Sabadell.

So that means that we not only have the possibility to commit to extraordinary dividends in the short term on the back, not only of what we generate, but also on the proceeds of a good transaction, which was TSB, but on top of that, we have the longer-term ability to generate more capital to distribute. And that is because using proxies -- and return on tangible equity is just a proxy, it's not the real thing. The real thing is capital generation and that's to what we are devoting.

And -- I can't see very well. Is everybody sleeping? Because there's a lot of light -- do you think they are sleeping?

No, no, I think they're still there.

I'm almost finished. And there will be -- and we will go faster with the following questions, I promise. So furthermore, the Board came to the conclusion that the current offer is worse than the original one that we rejected. Why? Because originally, they were offering 16.2% of the resulting entity. And because we have given more dividends than them, and that has to be adjusted because it's already in the pocket of our shareholders. And because we have done more share buybacks and the price is per share. Now they are offering a meager 13.6%.

So we have been punished for being better for our shareholders because that's the way you adjust the offer, and that's what the prospectus said. But it's not only that. That is that for all the residents in Spain, it has lost neutrality because although they distribute -- although they pay less, there's a component in cash. And the moment that component in cash is above 10% of the nominal value of the share, it loses the tax neutrality and our shareholders will have to pay in full the increase in value during this period, which has not been small. As I said at the beginning, I'd like to say this a lot. We have increased the value of the bank by almost 13x in less than 5 years.

And finally, there's this complexity around below the 50%. that the Board also considered in detail. And this creates quite some complexity, and this was the last minute thing. And I don't know if everybody understood the consequences that this could have. So what happens is that they opened in the last minute and the last day, the possibility of giving up and waiving the limitation of withdrawing from the offer, they were below 50%. So below 30%, they've given up, probably -- the possibility, but between 30% and 50% they could accept and go on. But it's different than the Italian regulation in Spain to keep something between the 30% and 50% you have to launch another transaction, another offer, another tender fully in cash for the 100% of the remaining amount.

It was yesterday that the Chairman of the CNMV, which is the market's watchdog worktop clarified that this would be at the price that is equal or higher than the one of the original offer. So you find yourself in a very complex situation. Should I go to the first offer when the probabilities of going above 50%, and they prove it themselves by opening this possibility is very low. We have a large share of retail shareholders with this price, the probability of going above 50% is very small. If there was a price bound or if there was who knows, maybe they could go in the terrain of 30% to 50%, but then this creates enormous problems because whoever goes to the first transaction loses the opportunity of having the tender in cash.

And as per the saying of the one who has the ultimate goal, the ultimate word, which is the CNMV at the price that will be equal or higher. And furthermore, BBVA will have to make this decision days before the price is known. So the pressure on going forward in an amount that is unknown at the price that is unknown and full in cash is very relevant. And the people who go to the second transaction will not be diluted because of course, this would require a share increase and if that share increase occurs, the people who go to the first transaction and get BBVA shares will be diluted by the people who get the cash at a higher price won't, or it could mean that all these prospects of the EUR 36 billion in the course of more years because otherwise, they wouldn't have matched our prospects, and they had to extend by a year until '28 will have to be diminished because they will have to pay it from their own capital. With all these considerations, the Board said no.

Perfect. I think it was clear. It was crystal clear, and I think you made your point.

Clear and short, no?

To the point. Now, you've talked about BBVA's return on tangible, you've touched briefly on your own tangible returns. Why don't we deep into a little bit more. And you've recently upgraded your guidance for a return on tangible equity above 14.5% this year and you're looking to reach 16% in 2027 ex-TSB. So excluding your U.K. unit. Maybe let's start by going through sort of some of the key moving parts to better understand what is driving this expected performance?

Shall I?

Yes, sure.

Yes, as you said, Antonio, we have -- we're guiding to a 16% return on tangible equity in 2027. We're convinced of that improvement in profitability. And equally important, we are guiding to tangible book value of EUR 10.5 billion, because this is just for the ex-TSB perimeter. So it will be after the sale of TSB. And we think that, that's important in order to help people. And then if you do the maths, the return on the tangible, then if you multiply it, you get to a net income, which in our model is close to EUR 1.7 billion, actually, 16%, 10.5% is EUR 1.68 billion. And by that, we mean that we think that net income is going to be close to EUR 1.7 billion. And the moving parts that will allow us to get there, in the Capital Markets Day, we shared a breakdown of the different moving parts. If you remember, from 2024, we expect revenues to add 1.6 points. We expect cost to deduct 1.4 points of ROTE, and then we expect cost of risk to add 1.3 points.

It's been already 6 months of the 3 years. So interestingly, it's a plan that 6 months are already gone. And what we can see is that the improvement in cost of risk is done already. So that component is not backloaded. It's completely front-loaded. The improvement in cost of risk is already taken place -- has already taken place. In the cost side that we guided for a 3% CAGR, when we look at this year, we're running below 2%, so we have left ourselves plenty of room to maneuver in the years to come. We're very comfortable with that guidance, too.

In the revenue side, when compared to 2024, we see NII stable 2024, 2027, and we see fees going up at a mid-single-digit CAGR. Again, fees are already started -- have already started going up. So this is happening. And of course, NII has gone down because of rates, but we showed stability on a quarterly quarter basis. So of course, the NII dynamics are a bit more complex, but all those components are well aligned with our guidance and things are going well. And we can only confirm that expectation.

They do it every time. They undershoot and then we overperform. And Leo did this to me. Sergio is doing this to me. This will never end. We are this way.

Earlier, we've talked about capital distribution, how that's an important part of your strategy and of course, something that your shareholders value. And you've committed to pay EUR 2.5 billion in special dividend from the sale of TSB, your 13.6% CET1 ratio and you set your payout at 60%. So you've increased your capacity to remunerate shareholders to about EUR 6.3 billion, including ordinary over the next 3 years. Now tell us maybe a bit more how you get to that number? And how shall we think about your shareholder remuneration and mix going forward?

Well, I think, first, I think it's important to consider that we are establishing to distribute anything that is above 13%. That is more conservative than other players, for example, BBVA and despite the fact that we operate in a market that is much safer than the one in which they are. So if at a point in time, anyone decided, including our Board, that this is a little bit conservative, there will be even more room for that, although that's not something to be expected in the short term. I think it is important to note that this 13% was established before we had any hint that this transaction would happen. It was done at the beginning of '24 before April and before the conversations and then the hostile offer from BBVA.

Within that, I think we have established in our policy that the cash dividend would be between 40% and 60%. But lately, we have moved more to the higher band, which is the 60%. And this allows us to do significant growth around mid-single digit. We are estimating 5% growth of our asset book. That's exactly where we landed, a little bit north of 5% during the year-on-year, ending in the first half of 2025. And beyond that, in principle, we will do share buybacks, which means that our EPS will continue to improve on the back of good results, but at the same time, a lower base of our shares.

Yes, absolutely. For this year, we have guided to EUR 1.3 billion distributions -- and I think the year is going well in capital, probably a bit ahead of expectations because we are able to achieve the targets by growing a bit in segments with lower-risk asset density. And also, we are taking advantage of the good shape of the capital markets. We just executed a new securitization this week. It was an auto securitization with significant risk transfer. And we budget for EUR 500 million. But finally, we've been able to do EUR 750 million, which is almost another 10 bps of CET1. So on the capital generation, we finished the quarter with 13.6% and we continue generating capital, that we can use in cash dividend and share buybacks. Those are in the plan. And I think as long as the market is not fully recognizing the value of our share, we intend to keep on using share buybacks.

Very clear. Now one team across Spanish banks, and we had CaixaBank just before you has been sort of the fast and important uptick that we've seen in loan growth, because that's really picked up, and we seem to be out of the woods after a long deleveraging cycle. Now can you talk a little bit more about what you're seeing both from your clients as well as from your competitors? And to what extent can market share gains, which you've been achieving can be generated without sort of compromising on price discipline. And maybe while we're there, we can also talk a little bit more about sort of your expectations for growth in mortgages and SMEs where you have, of course, a leading franchise.

Very good. I think Spain was very leveraged, and it has gone through a tremendous deleveraging. We have repeated these numbers at -- and it's now at private level, both in individuals and in corporates, it's below Europe in terms of leverage. The government is not doing exactly the same thing, but that's less of our business, okay? And therefore, what we are seeing is at the beginning after COVID, everybody expected things to slow down. But what we saw was a very heavy increase of sales. and that meant a lot of working capital growth. That grew very rapidly, but the investments were not there because still the interest rates were high. Then when the interest rates started to lower, the volumes of sales more or less remain. So we didn't see the increase of working capital to be so exciting, but the investments that have been delayed with an environment of more stable and not as high interest rates started to deliver.

We are seeing that growth of around 4% for Spain. It's 2% GDP plus 2% inflation, around 4%. And we have projected to grow at around 5%, so slightly above mid-single digit, slightly above the market. You can't grow much faster than the market. Even if you do -- and I think we have leapfrogged in terms of operations, in terms of price segmentation, in terms of risk model and in terms of commercial incentives and production, I think we have leapfrogged. We were coming from behind before year '20. And since then, we have accelerated and the transformation has been phenomenal. And it's not finished. You don't do -- you don't turn around the bank, which is north of EUR 200 billion from one day to another. So we're almost there.

And -- but with this improvement of all our processes and activities and very importantly, of the incentives of our people. At the beginning, in year '20, the incentives of our people were just in income, top line. We have included railroads first and then P&Ls per region, per branch, per this per that. And now we are moving to the next generation, which I think doesn't exist. And fortunately, we have done it without consultants. So very hard to copy, which is value generation and it is for it's ranking and comparing the portfolios of the different types of commercial agents, especially in our SME area. And that should lead us to go from a market share of approximately 8% to an 8.3% by the end of the period.

And why are we not more ambitious? Because experience shows that you can do very well the operational, the risk, the pricing, the everything and then gain market share progressively and slowly. In a mature market, if you try to do the fast, that's a call for disaster. And the proof that we are doing it is that we are improving, and we show that in our second quarter results. We are improving all the railroads. We are improving all the PDs, even if comparing '24 and '25 to '23, we are improving all the metrics while growing marginally more than the market. And that is only on the back of this transformation that, as I said before, is not finished. Anything to add? I am fanatic about this subject.

Absolutely. Maybe the audience will have any -- some questions then.

No, definitely. Let's try to leave some time for that. I want to ask you about NII because, of course, we talked about growth. When you guided to NII, you've talked about EUR 4.9 billion for this year, which is higher than the levels we've seen in 2023, only modestly below what was a record year in '24. In your plan target, you have EUR 3.9 billion by 2027, and that's excluding TSB. So I'm conscious we're not comparing apples with apples because that's implying about EUR 300 million or so of growth on a like-for-like perimeter. Can you talk about the bridge and what's driving that delta and what makes you confident you can do it?

Sure, absolutely. Of course, in NII, we have had remarkable tailwind of interest rate reduction. Interest rates have come down from 4% last year to 2% this year. And of course, that is coming with some spread compression -- customer spread compression. When we look at the last quarter, actually, we were able to completely offset that affecting NII of margin compression, thanks to the expansion of volumes and the reduction in wholesale funding.

So going forward, I think that trend is going to be important because we see a very active market in Spain, connected with the activity that we see in the economy and the growth in the GDP, I think Cesar already touched on the different segments and volumes. As of the end of the last quarter, the loans in Spain were growing 6.1%. Customer funds were growing 7%. We think that growth connected with the growth in the economy is going to continue. And the good news is that by the end of the year, rate will be already stable. So that growth in activity, that growth in volumes will translate into higher NII maybe not in the next quarters that we think is going to be stable, but certainly, from 2026 onwards. And with that, we will be able to grow those EUR 300 million, which is 8%, so 4% each year. So on the low part of the mid-single-digit area, connected with the growth in volumes.

If you want to take a little bit of a step back and a little bit more of our strategic vision, I think we have grown from being a very high NII bank, but with a high risk to improving much more of the risk cost than what we lose in NII in relative terms. So we are still catching up with our NII because we are growing faster but we are treating a risk in a way that frees up even more capital. So it's capital generation. And this is a tremendous transformation of the bank, and that is not fully completed. And it gets -- we are at the final of that transformation. And that transformation requires some loss of volume because you lose the cues of the skewed curve, in which you have a lot of risk in the queue, and we've cut that off. You price much better, you lose some volume, but overall, it is very much value creation. And from now on, all the rest being equal, we should be able to grow volumes and income at the same pace.

No, that's very clear. And I think it's important because it links me to the next question, which seems to be, to your point, that you're not really compromising on credit quality or pursuing growth for the purpose of market share gains. And you've guided in that regard to 40 basis points cost of risk for this year, again, excluding TSB and be remaining there through the plan period at these levels for 2027. Now TSB's credit book obviously has come with low LGDs because it was pure mortgages. So how sustainable is this cost of risk guidance? Can you give a little bit more context and then we'll open up for questions.

Very good. I'll give if you don't mind, Sergio, the high view and you can go in the numbers if you want. The thing is quite simple. If you look at our second quarter presentation, the probabilities of default in all products, if you compare '24 and the first half of '25, is clearly lower than '23, not to mention '22, '21 and going backwards, which means that the quality of the portfolio is improving, and we see that in the portfolio, and we see that in the cost of risk. And that is a trend that is going to continue because it's not over. In some products, it will take longer and because they have higher duration. And in some products, it will be shorter because they have shorter duration, not interest rate deterioration, it's duration in terms of the term of the loan. And that is unavoidable.

I think we have been conservative by keeping it stable, of course, provided that there's not tremendous and dramatic change in the environment. But because we have also included something that is quite relevant, which is growth fundamentally and to focus our growth on SMEs and to focus our growth in consumer lending. Consumer lending, very relevant. We're growing at 20%, and we have been growing for the last few years after we fixed in '21, the problem. We had to stop production because it was out of work. Now it's a state-of-the-art and it's growing and gaining market share also because we are very below our market share compared to our peers. So we are gaining the rein.

But the core is SMEs. And SMEs is a beautiful market. It's a beautiful market first of all, because the barriers to entry are very, very high. To do SMEs, you need a lot of things. You need some complexity in terms of product range. You need proximity. You need to know your customers. You need digital. You need transactionality. You need export and import. You need a myriad of things, which we have and 1 in 2 of the SMEs in Spain are our clients. And we have changed our mentality. Before we used in the SME world, a little bit of mentality, the same as if they were corporates. You can't have the 60%, 70% share of wallet. We have changed that.

The diversification in SMEs comes because you have many and one single SME even if it fails, it doesn't put you down. And furthermore, now we have the PDs calculated upfront for all our SMEs. And we can be proactive in our commercial approach because they are basically preapproved. We almost treat them as if they were consumer loans. So it's a touch of a button. So this transformation is what gives us the confidence that, that 40 basis points is conservative despite the fact that we are changing the mix to, in principle, slightly riskier products on which we are managing the risk very effectively as we see the transformation of our back book.

Right. Yes. And I would simply add that those numbers are not backed by sort of aggressive macroeconomic assumptions, rather the contrary, we are assuming quite a conservative macroeconomic backdrop for 2027, where we have assumed that the Spanish GDP will -- growth will get back to some 1.5% and actually, we see kind of potential upside to those numbers.

Very clear. And I could go on for another 40 minutes of this because I'm actually finding very entertaining but let's try to give a chance to the audience also to ask a question. We have really time for one. If anybody has a question for Cesar or Sergio, please, one on the side there.

One of the most robust arguments that BBVA has made about the logic of the consolidation of your 2 banks together is removing the duplication of IT costs because banking is a fixed cost business. So on the assumption that you're right in the deal falls away, looking forward over the next, let's say, 2 to 3 years, should I anticipate that you would look to embark on some sort of consolidation ambition of your own?

I think there are 2 questions in that one. To the second, no. So no consolidation, [indiscernible] no nothing. And it's not because they would make sense. They would make lots of sense, but there is no appetite. So let's be pragmatic here. Let's be rational. Synergies between all the banks that are below the 3 large ones would make sense. And there would be positive synergies from a cost perspective and positive synergies from an income perspective because there's very little duplication in terms of geographies and very little duplication in terms of segments.

So the second question it's not there. Not that it will make sense, but it's not going to happen. And to the first question, I think that one of the things that we were questioned very hard on year '21 is, geez, you're not a digital bank and you're not digitalized. You're going to have to make tremendous investments. We have had a trajectory of cost management that has been -- sorry to be a little bit proud, stellar. And we have done that while we digitalize completely the bank. And this is because you have to understand how IT works.

Once you have a stable back end, which we do, the developments are mainly the front end and the front end, it's about human intelligence and cooperation within the bank. It's about doing the things right. We've run around 1,000 projects, we have failed and stopped one. Usually, the rate of failure is 40-50. And this is management, and this is having people working together from the beginning, starting from market research, understanding customer needs and then getting everybody on board, including audit, including second line of defense, of course, everything element -- all the elements around the thing and including IT and making them work together with the others.

And then it's cheap. And the rest is a flat cost. I mean, the data centers are about cost per byte. There's no advantage in the size. And I can take you and visit one. And next to that one, you have Telefonica. And next to that, you have BBVA and you pay per byte, okay? So it doesn't make any difference. The lines of communication, the same. So you could save on the IT people. That is true. But every time it's a lesser amount because the efficiency in which we program. And the proof that this is true, is that the most effective and the most efficient are usually the smaller banks. Look at Bankinter. Look at other players like that. Size and furthermore, if you have it in Mexico, and in Spain, the only thing that it adds its complexity because you have to overcome. There are no economies of scale there. You have these economies of complexity. So I think the approach there is a little bit theoretical to tell you the truth. And we'll do fine.

Well, I wouldn't have expect any less from Cesar and Sergio for this session. So thank you very much. I hope you find it as insightful and entertaining as I did. So thanks for that.

Thank you.

Thank you.

Good morning, everyone, and welcome to Saturday webcast to explain the response of our Board to the BBVA hostile tender offer. Thank you for joining us, especially given the short notice. It looks like every Friday, there's some breaking news about this transaction. As in previous occasions, presenting today are our CEO, Cesar Gonzalez-Bueno; and our CFO, Sergio Palavecino.

Cesar, over to you.

Thank you so much, and apologies on the fact that there's no single Friday lately that gives you a rest, but this is what it is. So this is -- today, we are going to talk about the response to the BBVA hostile tender offer. And what the Board has done is it has unanimously rejected the BBVA hostile tender offer. And I think the words are important. BBVA hostile tender offer is fundamentally undervaluing Sabadell and destroys value for its shareholders. Let me read this slide because I think the content has been chosen quite carefully, and it's very much in line with what the Board has said.

To begin with, it very significantly undervalues the stand-alone potential, which is up to 25% higher versus the current market price. And when we look at the BBVA's tender offer, Sabadell's stock price is currently trading 11% above BBVA's offer of EUR 3.04 per share. And therefore, we consider that Sabadell fundamental value is between 24% and 37% above the offer -- current offer value. In second instance, the strong performance and outstanding remuneration of close to 37% of its market cap over the next 3 years. Over the next 3 years, we are going to distribute 37% of the market cap of Sabadell. On the other side, if Sabadell shareholders would accept the offer, they would receive 30% lower distribution in '25, '27, and they would not receive the extraordinary cash dividend from the sale of TSB.

And third, Sabadell focuses on Spain, which is one of the fastest-growing economies in Europe. It is predictable and has a low risk outlook. On the other side, BBVA is emerging markets-focused bank. That's not good or bad, but it certainly exposes it to highly volatile regions that represent 67% of the net profit contribution. And furthermore, this comes with an exposure to currency depreciation turns reporting profits into a lower and riskier capital generation and distribution capacity. Sergio will cover that later in detail and in a more analytical way.

This is the continuation of the previous slide. But here, what we emphasize is that the hostile offer is based on many unrealistic assumptions, and it poses significant execution risk. Let me emphasize before beginning and covering the slide that it could even happen that the merger is not allowed after the 3 to 5 years of autonomous management. As we live in Spain, understand that for any political party or any political aggregation of parties, it will be very difficult to see Banco Sabadell brand disappear after 3 or 5 years. So the hypothesis that a merger will happen immediately, not even after 3 or 5 years, but after the third year, doesn't seem at least prudent.

So let me go through the slide. BBVA has, as I said, an unrealistic view of future synergies, the EPS accretion and other financial impacts, the EPS accretion of Banco Sabadell. So synergies are nonexistent while both entities are independent and managed autonomously. That is precisely the definition of autonomous management. It explicitly says that nothing should be done for the common synergies and that everything should be done exclusively and solely into the value creation of each of the entities individually.

Then after the independent and autonomous period, any future merger, as I said before, is subject to the government's approval, and it cannot be taken for granted, not at all. And even if the government were to approve the merger, it would take more than 7 years in total. I mean, the 3 additional years that were in the initial prospectus or proposal from BBVA that it takes to fully realize the synergies remain in place, because there cannot be preparation during the previous years that have been stated in a fully autonomously managed entity. Because to prepare for a merger paralyzes an organization, and that is completely contrarian to the existing ruling.

And furthermore, BBVA has reported a 25% EPS accretion for Sabadell shareholders, and that is based on an incorrect approach. Actually, it's economically dilutive. Just to set an example, and I think Sergio, who will cover it later, it does not include, for example, the EUR 2.5 billion proceeds of the sale of TSB. And how can that be, they are completely ignored in the calculation. In second term, the current offer terms are worse than the original proposal. I mean, after the revaluation of all the market where BBVA has been the worst performing stock, now the offer is worse even in exchange of shares. And this is because -- and it is a 16% lower stake that we would receive on BBVA versus the original proposal in '24. It's because we've given more dividends than then, and we have done more share buybacks, and that has led to an automatic adjustment that weakens our position. So we pay more and therefore, because of the way it is calculated, we received a 16% less.

The cash component on top has brought the loss of fiscal neutrality for Spanish shareholders. it would immediately trigger capital gains for retail shareholders, which have seen because it has been the best performing stock of the European banks and the best performing stock in IBEX, it would bring significant capital gains. And last but not least, BBVA has admittedly contemplated a take-up as low as 30%. This raises many, many issues.

To begin with, it raises a lack of confidence by BBVA in its -- in the attractive of its offer, the current one or any one that they might do in the future. Furthermore, an acceptance of between 30% and 50% would trigger a mandatory cash tender offer, which would create a number of uncertainty to Sabadell and also to BBVA shareholders. Such uncertainties include the price of the mandatory tender offer, which could be higher than the offer that others have already been -- have accepted, the asymmetry of information between what BBVA knows and what the shareholders know, and the potential dilution resulting from BBVA's capital financing or if it's not a dilution, it would be a significant decrease in the dividends to be provided.

So this is the index. Let's go to the first part. And now let's go to the next slide, please. Sabadell will deliver strong performance and outstanding shareholder remuneration. This is the chapter. And here, you see in the chart that since the beginning of -- since when the first time the Board of Sabadell rejected the offer from BBVA, we have multiplied the value. This includes, of course, dividend reinvestments by 12.7x for Sabadell. BBVA has done very well, 6.7x. Spanish peers, also fantastic 5.2x, and above the European peers, 3.4x. Spain has done especially well during this period. It is also true that it is especially bad during the previous period.

So if we move to the next slide. Here, we see that our value creation continued journey will continue. I mean, of course, we have done very well in the past, but what about the future? That is what is really relevant. Well, we have guided for an increase of our return on tangible equity from 14.5% to 16% in '27. And this has been generally and widely been accepted by the investment community as realistic. But this is coupled with a solid growth, mid-single-digit growth in our book. So the beauty is not only distributing capital, but at the same time, growing. And we are talking about a mid-single-digit growth compounded average growth rate between 2024 and 2027. And this results in high returns expected for Sabadell shareholders.

The tangible book value per share plus the dividends per share amount to an estimated of 15%. And this gives a very attractive shareholder remuneration. We have talked already about this numerous times. It's EUR 6.3 billion between '25 and '27, a total cumulative shareholder remuneration. And this means 37% of the market cap during the next 3 years versus the 29% that the BBVA estimates. But furthermore, it is very front-loaded because in the first 9 months, it represents 22% of the market cap in terms of distribution.

I think we are -- I mean, we have created a track record of reliability in our guidance. We have a track record of consistently beating expectations. You can see that in '23, we said that we would be above 9% in return on tangible equity, we delivered 11.5%. At the beginning of '24, we said 11.5%, it was 14%. At the beginning of '25, we said 14%, it was 14.4%. So I think we have that track record of reliability. And our track record also includes that when we execute transactions, we also do pretty well.

I think the sale of TSB has been an example of this. We did it very quickly. We did it very smoothly, and that led to an approval of 100% of our Extraordinary General Meeting in the 6th of August with a quorum of 75% of our shareholders. And the value creation was obvious versus the analyst average and versus our peers. The total consideration was EUR 3.4 billion, which was higher -- much higher than the expectation. And furthermore, it was above all Sabadell's multiples, which leaves Sabadell stand-alone at above -- with potential to increase its multiples from here on. And now let's move it on to Sergi.

Thank you very much, Cesar, and good morning to everybody. I'm happy to share with you this section of the presentation. Starting on Page 11, we show how Sabadell share price has been more correlated with the Spanish peers than with BBVA. In the left-hand side, you can see the graph with the share price evolution since the hostile tender offer was launched back in 29th of April 2024. Since that date, Banco Sabadell shares have risen 94%, while Spanish domestic peers have seen their shares gaining 75%. BBVA in contrast has only gained 48%, a lower figure. This is aligned actually with the evolution of the analyst target prices that are shown in the right-hand side of the slide. the Sabadell analyst target price has been increased by 86%. The Spanish peers by 62%, a difference of 24 basis points, while BBVA increase has been 48%, a bigger difference, 38 percentile points.

I think you're absolutely right. I don't see very much the correlation with the BBVA shares.

Well, it's a bank. But as you can see, we have higher correlation with domestic. Given that, we are domestic purely.

And the previous chart, just for clarification, doesn't include the reinvestment of dividends. So in some charts, you will see higher numbers for all of us, but the difference remains.

This is pure price, exactly. Okay. I think we were still on Page 11, please. Okay. I just wanted to insist on a very clear -- on this very clear idea that Sabadell is basically trading on its own fundamentals with a higher correlation with the Spanish peers than with BBVA. Now yes, we can move to please, Page #12, where we show how the hostile tender offer compares to our current stock price and valuation metrics.

Now going from left to right, you have in columns our current stock price in gray and three commonly used valuation methodologies in blue. The black dotted line shows the value offered by BBVA as of the closing prices of September 10, the day before yesterday, with a value of EUR 3.04. In the bubbles, we show the value shortfall of the offer to each reference. Starting with our current stock price, also as of September 10, Sabadell shares trade at EUR 3.4, and that is 11% above the hostile tender offer. In other words, Sabadell shareholders could lose 10% if they were to accept this offer. As everybody knows, this premium has been negative for a very long time now and consistently, actually since January this year.

As a cross-check measures, we can have a look at other references from left to right, EUR 3 point (sic) [ EUR 3.8 ] is the estimation of Sabadell share price derived from the price to earnings multiple of our domestic peers. EUR 4.2 is the estimation of Sabadell share price based on the price to tangible book value multiple versus the RoTE regression of our domestic peers. And by domestic peers, we have included CaixaBank, Bankinter and Unicaja, the three listed banks that are purely domestic apart from ourselves. All these references -- sorry, and a final reference, which is the Gordon Growth fundamental valuation that shows an estimation of EUR 3.8 to EUR 4.1. All these references show that there is potential in the current Sabadell share price, and that the offer value and that the offer price of the hostile tender implies a very significant value shortfall between 24% to 37%. Bottom line, any way we look at it, the wholesale tender offer fundamentally undervalues the bank and its future prospects.

If we can now move to the following page, we would like to highlight that these valuations do not consider any M&A or change of control premium. Slide 13 shows that precedent transactions in the European banking sector were completed with an average premium of 40%. The 30% control premium announced by BBVA in their prospectus and the market presentation ignores the entire performance observed in the last 16 months. It is actually stuck in April 2024 with no validity as of today. Additionally, let me highlight that BBVA's selection of precedent transactions in its presentation includes examples of transactions that failed or very different transactions in terms of comparability. Also quite relevant in all the examples chosen by BBVA, the offered currency was comparable to the acquired entity, which is not the case here as BBVA is offering a more volatile and emerging market exports stock in exchange for a pure domestic one. In conclusion, again, the offer undervalues Sabadell and has no premium at all.

Let me move to the next section where we would like to share with you what we think are relevant comments that the Board would like to make regarding BBVA shares given that this hostile tender offer is offering shares. The shares of BBVA has a very different business prospects than the Sabadell one. Actually, the contribution from emerging markets and by this, we mean Mexico, Turkey, Argentina, Venezuela and some other South American countries in BBVA represents 2/3 in terms of net attributable profit. This weight is only 4% in the case of Banco Sabadell. This risk profile is of maximum relevance for any shareholder analyzing the tender offer as higher exposure to risk in emerging market comes with higher cost of equity, higher geopolitical risk and higher FX volatility, which can translate into capital impacts and a more volatile share price performance. We'll see an example of this in the following pages. It is typically assumed by the market that this risk profile requires a higher cost of equity with a consequent drag on valuation multiples.

In the next slide, we provide a comparative analysis of CET1 and capital buffer targets among major Spanish banks. Despite BBVA's riskier geographic footprint, which includes exposure to volatile markets and currency as we just seen, it maintains the lowest CET1 capital buffer target compared to any other Spanish bank. Specifically, BBVA targets a CET1 of 12%. In contrast, Santander operates with a target CET1 of 13% and other domestic peers 12.5%. Sabadell set 13% at the level at which a commitment to distribute excess capital is triggered, reflecting a higher capital buffer. In terms of MDA, BBVA is the bank with the lowest capital buffer as it can be seen in the page.

Now moving on to Slide #17 will reflect implication of FX volatility on BBVA shareholders' equity and capital. Since 2014, BBVA has seen their equity reduced by EUR 17 billion due to the depreciation of the currencies where they operate. In other words, this is an average erosion of EUR 1.5 billion. This impact is not in the P&L, but translates into a lesser capacity to distribute capital, as we will show in the next slide.

In this slide, we bridge from P&L to capital distributions. Starting from left to right, BBVA had last year a 21% return on tangible equity when adjusting to the target CET1 of 12%. This figure has in the denominator, the deductions of the OCI, which includes the FX impacts that we have just seen. A comparable figure for Sabadell could be 15%. If we adjust the denominator as we in Sabadell report and what we do is that we exclude the impact from OCI to the denominator, that could deduct 5 percentage points to the return on the tangible equity. And this figure then would exclude those deductions, and it could be 15%. It can be comparable to a 15% because those impacts in the case of Sabadell are actually negligible.

Then when we look at the numerator and therefore, the amount that is needed in order to finance risk-weighted asset growth and the annual impact of FX devaluation on the CET1, there could be a requirement of 6 percentile points for BBVA and only 1 percentile point for Sabadell. And that leaves BBVA with a distribution capacity of 9% and the denominator of that could be the non-adjusted return on the tangible equity that could compare to the 14% distributable dividend capacity for Sabadell for the same period. So coming from lower reported RoTE, we get to a higher distributable dividend capacity. If we were to look at a longer period of time, and we have taken a look at the 3.5 years before the end of the first quarter of this year. So this could include this year and the 3 years before, the figure could still be 9% for BBVA and 12% for Sabadell. So the conclusions couldn't actually change.

And with this, let me share the word to -- let me give you -- back the word to you, Cesar.

Thank you, Sergi. I think that was a very interesting analysis because we always take EPS as a very good proxy for the capacity of capital distribution. But it's a proxy that in some circumstances when you're in high inflationary world and where you have to grow very rapidly your risk-weighted assets, that comparison of EPS to the capacity of capital distribution is not there. And therefore, I thought that, that analysis was great, and thank you very much for it.

Let's go to the next part, which is why the BBVA hostile offer destroys value for Sabadell shareholders. Let me begin with by saying that when you read the prospectus, a very large amount of uncertainties are raised because it's mandatory and it's reasonable. But then when you look at the hypothesis that are used in the presentation, it's the most extreme of the most positive hypothesis that are taken. And therefore, it brings the fact that it's based on many unreasonable assumptions because it's an accumulation of optimism. In our view, synergies will be 0 as long as there is no governance independence and managerial autonomy between Sabadell and BBVA. And that's the definition of the autonomy. So I think putting any number there is kind of optimistic.

Second, the merger is taken for granted. And as I said, and front loaded to 2028. So immediately after the 3 years, not the 5 years, the 3 years are finished. And in practice, it's not guaranteed. And as I said before, it's going to be politically very difficult for anyone to see the brand of Banco Sabadell disappearing. The opposition in the market has been phenomenal. It will remain. And therefore, it will be a difficult decision to take. And I think it's overly optimistic to say that it will be done immediately.

Then the hypothesis of an unprecedented phasing of cost synergies, the run rate achieved in year 1 immediately post-merger in 2029 under the assumption that the preparation works have been done previously. But how can you do that preparation work? The preparation work for us who have done mergers, for us who have been in banking for a long time, paralyzes a bank, and that is completely incompatible with the governance independence and the managerial autonomy. So the 3 years still apply.

And then the restructuring costs, I mean, 1 point times the savings, that is close to magic because any precedent is around 3x the cost. And furthermore, they have unchanged the cost, increasing the level of synergies. And then last but not least, multiple layers of dis-synergies are ignored before and after the hypothetical merger. We're talking to clients. Of course, they will remain being clients of -- if this happened of BBVA plus Sabadell, a merger that I think, as I've said many times, I don't think it will ever happen, but they would remain -- but with a slower amounts, smaller amounts, our estimation of negative synergies even conservative is large. And we only have to look at all the previous examples, considering them 0, although they are recognized as a risk in the prospectus, but then in the models and in the presentations, they are stated at 0. We don't think it is realistic.

If we go to the next slide, this is just an example of the timetable. BBVA talks about 4 years, 2029, 3 years for the managerial autonomy. And we say that they could be, as the law says, between 3 and 5, merger authorization instantaneous. We think that it takes at least a year because of all the procedures that have to be realized and maybe never for a long period. And synergies at 100% during the first year, no, there would not be preparation. So it's 3 years. So the 4 years become at least 7 years and certainly not before 2032, but they could take even a much longer period. And with this, I turn to Sergi.

Yes. Let's try to put this into numbers. And here, we've done our best in order to get an estimate for you. This is our best estimation. On the left-hand side of the table, you can see what BBVA's estimates are. And we have divided the table between these two different phases of management, one where the cabinet has the restrictions and there is the need of having managerial autonomy. And then further down the line, we don't know exactly when there will be new managerial autonomy and potentially a merger.

Starting from each row regarding cost synergies, in the case of managerial autonomy, BBVA is estimating EUR 175 million and in the case of nonmanagerial autonomy as much as EUR 835 million. In our case, ourselves, the estimate for the non-managerial autonomy is actually not too far, it's EUR 750 million. This is actually more aligned with the initial case, but in any case, not a big difference. What we see bigger differences are in the case of managerial autonomy. In that time frame, we think that synergies are going to be very close to 0 as there will be the need to optimize each institution individually instead of managing a combined institution.

Then moving into other synergies and potential dis-synergy in revenues and funding. Revenue dis-synergies are not considered or ignored by BBVA. And with regards to funding, EUR 60 million, EUR 65 million is the estimate. In our case, when there is managerial autonomy, we have signed a negative synergy, so a dis-synergy of EUR 90 million. This is mainly coming from funding and capital requirements. We see risk of MREL higher needs in this time frame as BBVA will have probably the resolution entity in Europe. While the two entities are kept separate, there might arise some needs of additional MREL funding at the parent company that actually will create some inefficiency during the transition period -- during this period.

And then as I said, potentially some additional capital requirements for being more systemic BBVA in this period. It's not that material, but still some EUR 90 million. It's more material what we think will come from potential revenue dis-synergy when the managerial autonomy goes away and the potential merger comes because it's something that we have seen in the past. It's something that we clearly saw in precedent transactions that there might be particularly in the credit space, some reorganization of business, and we assigned EUR 250 million.

And then finally, a very quite a straightforward one in our case is the banking tax. It's been not taken into account from BBVA as a dis-synergy. However, the current shape of the banking tax is progressive. And therefore, any combination would have an adverse effect. We are assuming here simply that this -- that the current shape of the banking tax will continue. If it changes, then it could be different. But our assumption is that if it continues the way it is, it will mean at the synergy of EUR 130 million. With that...

And here, help me, Sergi. In our projections, have we included that -- in our reasonable projections, have we included the tax to continue?

Yes. In the -- in our projections in the guidance that we have shared with the market, we are assuming that the current shape of the banking tax is going to continue.

And that's in our strategic plan, and that's in our numbers?

And that's in our strategic plan, exactly.

So we include them, but they don't?

We include them and they haven't included the synergy that it comes from the fact that the tax is progressive and the bigger, the higher rate.

I think this chart shows why the price is so fundamentally wrong. I think the hypothesis from the beginning that were potentially more on the correct side, although we thought that they had many, many caveats. Now they have tremendous doubts about the potential of realizing those synergies. Those synergies are very small. And if they happen, they will happen very far in the future. So that is, I think, at the core of why this transaction doesn't make any sense.

Yes. Indeed, this is the estimation, and we wanted to make them public so that shareholders and investors can also make the numbers and have our input. And then if we move to the next page are also key metrics of value creation, earnings per share and total capital distributions. We also provide our best estimate of what this transaction means.

Starting from the one in the right, capital distributions, we identified a decrease of 30% in capital distributions from 2025 to 2027, which is the time frame of our plan. And these are very simple numbers. You can see them in the note below. And they are, of course, affected by the fact that in Sabadell expectation, there is this extraordinary dividend of EUR 2.5 billion coming from the sale of TSB, which has not been taken into account by the offer and hasn't been revised at all. So of course, this is contemplated in that figure. So Sabadell shareholders, if they accept the offer, then they could face lower distributions of 30%.

And earnings per share, our estimation is that range between minus 1% and minus 3%. And this is a bit more complex calculation, and that's why we have built a waterfall in the next page so that hopefully, people can see what in our view should be the numbers. BBVA presented to the market an EPS accretion of 25%, quite high. In their numbers, they are only looking at a pure accounting definition of EPS accretion. And for that accounting definition, the assumption is that people accepting the offer, then the extraordinary dividend of TSB will be dedicated to buybacks of BBVA shares. And of course, that will have an impact in the EPS.

However, they do not take into account a more economic view. And this is that for Sabadell shareholders receiving the extraordinary dividend, that dividend will also have a value. No value has been applied in BBVA analysis. If we assume that someone that receives the Sabadell extraordinary dividend could reinvest that dividend into Sabadell shares. And therefore, we could make the case comparable peers to peers to the BBVA analysis, then that could have an impact of minus 19 percentage points.

The next impact that we identified is also about consistency and BBVA has used its guidance for its future net income and has used consensus for ours. Then by simply using consensus for both, then there could be a further reduction of 4 percentage points. And then we come to the previous synergies analysis. If we take into account the synergies that will come -- that the synergies combined with the restructuring cost, then we get to a 1% -- minus 1% dilution in the best case with a new managerial autonomy. And as long as there is managerial autonomy, we identify a higher dilution as much as 3%.

So I hope these numbers are clear. Anyway, we're happy to discuss and happy to take questions later on.

Very good. I think we move now to how BBVA's hostile tender raises other concerns beyond the ones that we have already mentioned. And the first one is that the terms are clearly worse than the original proposal. Let me go to the last line. Originally, the initial terms offered 16.2% of the combined entity. Right now, because of the difference in dividends and the share buybacks, it offers only 13.6% of the combined entity, which is 16% lower than for Sabadell shareholders. Not only is that offer worse, but if we limit ourselves to the central part of the -- part on the right, any individual investor, and this is just an example, who acquired 1 share of Sabadell in December 2020, will need to pay taxes equivalent to between 4 and 6x the cash component offered by BBVA.

So when we have done the calculation of the 13.6%, we have not included the cash component to increase the percentage that would be acquired in at BBVA. So it's just the share exchange because de facto, the average will have to put more cash into the situation than they receiving cash from BBVA to pay the taxes.

If we move to the next slide. I think the execution risk, and we've covered this at length, is also driven because of the widespread opposition to a transaction. This is not neutral for when it happens and execution will be affected. See employee's association, Chambers of Commerce -- employer's associations, it should say, and Chambers of Commerce and more than 70 entities have requested to appeal before the CNMC in the procedure.

There is a very, very strong concern about the impact on competition. All the relevant unions in the banking sector have been very outspoken about this transaction. And there's almost unanimous opposition from political parties against this transaction. Other transactions will have not faced this opposition. It's the specificities. It's not that people are against any type of merger, it's when they reach a certain level of concentration that leads to a market power that is contrarian to the general interest, and that's why it has raised so much opposition and why it has so many restrictions and so many severe restrictions to obtain synergies thereafter.

And the next element that has created a lot of uncertainty is the waiver of the minimum acceptance condition from 50% to 30%. Because all along in the SEC and everywhere, it was said that it was a transaction that would only happen if it reached 50% or more. But in the last minute, it was raised in the SEC, the F4, that there could be -- that could be wavered. And what happens if that is wavered? Well, in the case they reached 30%, which with this offer, I think it is very difficult. if they reach 30%, the second offer is mandatory to be in cash and for the total amount that is remaining and potentially at a higher price. And that offer would not be available to any shareholder who has already tendered their shares in the current offer.

So that raises a very high risk to tender because you don't know if the second tender occurs, and I question both things. But if it was to occur, that would raise a tremendous dilemma because the second offer would be in cash and potentially higher. And it would be open for a period of time to accept or not accept. But that's not where the issues end. And there is that the financing of this potential cash offer is unclear, it has not been clarified. And BBVA may need to raise capital by issuing new shares. This would be dilutive for the shareholders who have just tendered in the first 30% to 50% or it could reduce future dividends for all. So it's a very complex situation, very different from the transaction that was originally -- if this was to occur, very different from the transaction that was originally approved by the shareholders of BBVA.

And with this, I would like to go to the closing remarks, which are very sharp and simple, and they resume the whole thing. The Board has unanimously rejected BBVA's hostile tender offer. It considers that this offer fundamentally and the word is not random, it's a well-chosen word. It fundamentally undervalues Sabadell and destroys value for its shareholders. And furthermore, BBVA's hostile tender offer is based on many unrealistic assumptions and poses significant execution risk.

And with this, we finalize the presentation. Thank you for your attention.

Let's start then the Q&A session. Okay. So I would kindly ask to limit the number of questions to no more than two. So operator, if we could open the floor to the first question, please.

First question is coming from Max Mishyn from JB Capital.

I have just one question. It would be super helpful if you could share any color on the feedback from the retail shareholders as well as investors that also tend to be partners of your business if possible.

What was the question? The feedback from the retail shareholders?

Retail shareholders, yes.

Yes. I think we are continuously asking them in a structured way. So we do polls around them. The view in general is very negative. And I should not give the numbers. They are changing numbers over time, but they are quite consistent, nevertheless, and they are quite negative. And the reason is several. First, the offer, again, fundamentally undervalues the bank. But furthermore, of those 200,000 shareholders, the majority, more than 80%, close to 90% are clients of Banco Sabadell. So at the same time, they feel very attached to the institution.

Okay. Thank you, Max. So operator, if you could jump to the next question, please.

And by the way, on the first question, the tax issue, where has that been immensely.

Well, given that we are currently at very high levels compared to historical trading levels, for certain -- the vast majority of the retail shareholders will have unrealized capital gains in the [indiscernible].

Very high unrealized capital gains, yes.

So operator, the next question please.

Next question is coming from Francisco Riquel from Alantra.

So you have shared a fair value for the first time at EUR 3.8, EUR 4.1 per Sabadell share. I wonder if the Board would change its opinion if there is an offer at that price range or if you would still -- also you have made remarks about the BBVA shares risk profile, negative synergies and so you will request cash. So I understand everything has a price. What is yours?

I think the Board discussed that at length and decided not to take a position. Not to take a position because the Board, what it has to do is to respond at every point in time and not make any hypothesis to respond at any point in time to any offer that is on the table. One of the considerations that was clearly made by the Board is there are only two options. Either the synergies are not there or if the synergies are there, they are not being shared through a premium. And that premium cannot be considered that it is attained by a 13% participation in the joint venture. That should be a much bigger percentage.

So either the synergies do not exist or they are very small as we think they are. But if they think they are that big, they should be sharing and there should be a premium. So no, we did not establish a price or sharehold -- a threshold. We just said that with the current traditional methods of valuation, which, by the way, we have been beating all along during the last 4.5 years. But with those traditional methods, the offer is short of up to 40%, and we didn't say anything more than that.

Okay. Thank you, Paco. All right, could we move to the next question, please?

Next question is coming from Ignacio Ulargui from BNP Paribas Exane.

I just have one question. I am just curious to see what kind of revenue dis-synergies are you -- and what is the origin of that revenue dis-synergies that is less business activity from the same clients. I mean, in your experience in the M&A that you have undertaken in Spain, then could you just elaborate a bit on where this could come from?

I think the numbers were presented during the presentation, you're asking about the root cause. I think the root cause -- the majority of the root cause is the loss of volume in the SME business. As we have repeated ad nauseam, on average, for the entities that are between EUR 10 million and EUR 100 million of turnover, they have on average 4.2 relationships. And that would be severely affected because now there are four national players. Of course, there are some regional players that would be severely affected. And they would look to distribute. And what we have done is a conservative assumption in our numbers, a conservative assumption, much lesser than the impact that it had, for example, in the merger of Popular with Santander of a loss of business among the SMEs. And that is at the core of the loss of business and therefore, negative synergies. I don't know if you want to add anything, Sergi?

I think that is the main cause, yes. So I think that's it.

Thank you, Ignacio. I think we have one additional question.

Next question is coming from Fernando Gil from Intesa Sanpaolo.

So can you share your views on the reasonable estimation of time and outcome it might take for the Supreme Court to resolve on the appeal that BBVA has made for the government decisions?

Unfortunately not. I think I would relate there to the question and answer that has been given by BBVA. They've said that it's going to take a long period of time and that they don't assume that it's going to have any impact on the transaction. So that if it comes and whatever the outcome, it would be too late to have an impact.

Thank you, Fernando. We have still one more question. So if you could open the line for the next caller, please.

Next question is coming from Borja Ramirez from Citi.

I have two questions. One is if you could kindly provide some indications on your shareholder base, how many are risk-averse investors? And my second question would be if you could -- regarding the revenue dis-synergies that you have provided. So I think you mentioned about the companies with a higher revenue that they cannot have the same bank. I would like to ask if you could provide a bit more details on the components, and the acquisition, please.

Thank you very much. Well, the risk-averse, we are not seeing in any large portion. Usually in this type of transactions, when they think that the transaction is going through, they go up to 25%, 30% of the stockholding. Here, they are practically insignificant. And when we talk to them, because we talk to them at large, qualitatively, they say exactly the same thing. There was a point where there was some entry, but over time, with all the evolution and it's for them to respond why. But the explanation that they are giving us is that they see no reason to be heavily present. And the presence is really marginal. I don't know if we are not disclosing that number, but it's really marginal.

It is.

In terms of the dis-synergies in the large corporates, I don't think we should take them into account. That's not where the issue is. The large companies have a myriad of sources of funding, and they don't need the proximity. So that's not where the issue is because those have access to international banks, they can issue bonds. They can do a tremendous amount of things. It is for the mid-corps where really you see the negative synergies. So we have not counted any negative synergies for large corporates, if that was the question. I think that was the question, 0. We have not taken into account any negative synergies for large corporates.

And any further color on regarding SMEs that you've mentioned where it comes from, whether you said at the beginning, it was mainly related to...

I think it was -- our team has done, I think, a very thorough and careful and conservative calculation in the sense of looking region by region and understanding what was the level of concentration for each and bringing it to a certain level of distribution of their positions among other existing players. I don't think I can give any further detail on that.

I think we have one additional question. So operator, if you could open the line for him.

Next question is coming from Carlos Peixoto from CaixaBank.

Carlos Peixoto from CaixaBank here. A quick one on the MREL requirements, on the [indiscernible] costs attrition that is included in the slide. Why do you believe the MREL requirements would rise for Sabadell within the context of being part of this, but not being fully incorporated in it? And then -- well, better to do it.

Carlos, I think you're asking for the dynamics of the MREL and why we think there might be a potential dis-synergy during the time of managerial autonomy. And we think that case will arise because there will be two operating entities, but probably one resolution entity that will be the parent company. And following the SRB regulations, typically, the liabilities -- the eligible liabilities needs to be raised at the parent company. So for that time, the securities that are at Sabadell will not be eligible at the parent company. And we see a risk that the parent company will need to raise for that period of time additional MREL that will be, therefore, in a way, duplicated.

Also, we identified the risk that I think it has been also mentioned by BBVA of an increase in the capital requirement because of systemic importance. And all that combined is the EUR 90 million impact that we show in this slide for the managerial autonomy time frame.

Okay. So that concludes the Q&A session. Thank you, Cesar. Thank you, Sergio.

And our apologies again for another Friday.

Exactly. Well, I wish you all a nice day and also a happy weekend. Thank you very much.

Exactly. Great weekend. Thank you very much. Thank you.

Welcome, everyone, and thank you for joining us. We are delighted to have with us today Cesar Gonzalez-Bueno, CEO of Banco Sabadell; and Sergio Palavecino, CFO. Good morning, Cesar.

Thank you. Good morning.

It's a pleasure to host you today. Thank you so much for taking the time.

My pleasure.

We have about 35 minutes together to go through the investment case. Then we will follow with some Q&A from the audience. And then we will close with a short investor survey, which you can take part in using the device in front of you. Should we move in to the fireside?

So addressing, I guess, the main topic for the story right now, that can be offered by BBVA. I wanted to ask from your perspective, how do you assess the BBVA proposal, particularly in light of the government conditions and integration timing? And what do you think should be the key consideration for Sabadell shareholders when assessing the bid against your stand-alone plan? And is there a level at which you would recommend tendering?

Okay. I think there are many elements that have to be explained before we go into the answer. The first one is that this offer is most probably not the last one because everybody is in agreement that this offer lacks merits. And I can say this openly because the Board already rejected an offer that was better than this one months ago. So in that sense, I'm not precluding what the Board might decide.

On second instance, anything that we say today is relative in the sense that it has to be quite objective. It has to be based on the parameters of what we are observing. But it is pending the Board decision that has to come in the first 10 days, natural days after the end -- after the offer and that is spending. So with all those caveats, let me make some few comments. The first one is that we saw along also in the first offer that it was lacking a little bit of specificity. Again, we see issues with very clear issues with the synergies, they are supposed to happen in the fourth year in full. Well, the assumptions because of the regulation that has been established means that there would be autonomy of management that is that both banks will be managed solely to the interest of their own shareholders and without seeking synergies for 3 to 5 years. They take the low range. That's the first one that is somewhat aggressive.

The second one is that they assume that instantly, immediately after those 3 years have passed, the merger will be authorized. Well, it's a prerogative of the government. And usually, on top of that, it takes time. It requires the Board both shareholders meeting and then a legal authorization. So it can't happen in the first day immediately after. And second, that all the synergies occur exactly in that first year. And on top of that, they are higher than the ones that existed before. They include things like that are objectively not very realistic, which is like, for example, EUR 100 million, close to EUR 100 million in synergies in financing when the gap has closed so severely that they are almost insignificant gap in financing synergies and as we see in the way we are -- our emissions are going. So that's one.

Another element that is very relevant, and that has not been mentioned in the prospectus is the impact on retained shareholders because it's not trading shares. It's the equivalent of selling your shares and buying shares of BBVA. The impact from a tax perspective is very, very, very high. And that is because there is a cash component. And there are several other elements that will have to be reviewed. There's an element that is quite peculiar in the presentation of the BBVA. When they say that the EPS for Sabadell is 25%. Well, it has some conceptual -- I don't know how to call them. It has some things that are not precise or that are not correct methodologically.

So for example, and it's quite flabbergasting. It doesn't include the EUR 2.5 billion and they are not reinvested to calculate that EPS, the EUR 2.5 billion of extraordinary dividend out of the proceeds of the sale of TSB. Therefore, there are so many elements that in due time, the Board will review. But I insist this offer I mean, common sense leads to believe that it can't be the final one. Because the value of Sabadell is quite big. The value of Sabadell is quite attractive. I mean if you look at the trajectory for the last 4 to 5 years, has been the best performing stock in Europe, the best performer of the banks, the best performing stock in the index 35. And we are not done because if you look at elements like what is our PE compared to the pure Spanish banks, or what is our multiple to book, although that reference is getting every time less relevant.

We are still below, and we have been catching up for the years and years and years, and we are not done for many strategic reasons that we might cover later.

That's very clear. And if we move now to the value creation that you were discussing your stand-alone investment case, talking about organic growth. In your Capital Markets Day, you set organic growth as one of the key 4 pillars of the new business plan. Could you walk us through the main areas that you see driving that growth and how it contributes to your medium-term target?

Yes. I mean growth, the growth that we have projected is very conservative because Spain is growing at more or less projected to grow at 4%, 2% GDP, per last 2% inflation, and we are talking about the mid-single digit. What have we done during the last year? So year-on-year during the first half of '25. So we have, for example, grown by 20%, 20.1%, I think, in consumer lending. We have grown by 5.7% in mortgages, in line with the market. This one in line with the market, the previous one, clearly ahead of the market and gaining market share. 3.2 in SMEs, clearly above the market and gaining market share. And we have done that while reducing the cost of risk. So what we have done already is very much in line with the projection.

But furthermore, and I say this with candor, in a complex situation because 16 months of hostile takeover, it's not the ideal environment to grow and to engage clients and to everything. It's like climbing a mountain with your bicycle with a tree, trailing a tree with a rope. Now let's cut the tree. Let's see what happens, and let's see the speed that we are able to attain. Also in -- the result has been very positive and very much in line with our projections in fees. We are taking off through private banking, which is growing very handsomely in assets under management. The insurance business, we have reviewed everything of the products in combination with our partner. All the products, all the journeys, all of everything, and it's growing very handsomely and let's see payments, let's say, payments because, of course, there's a deal that is spending and that I think both parties still are excited about, which is the billing payments with [indiscernible] .

And furthermore, the growth in clients, we have been growing very handsomely in new clients with all the media noise, imagine. And a few years ago, 4 years ago, we did 0 client acquisition in retail digitally. Now it's more than half. So the transformation has been phenomenal. It's in progress. And I'm sure we will talk later about the risk and other things which have been at the core of the transformation of the bank.

So getting a little bit more specific on NII. You've set ambitious goal for NII growth. Could you talk to us through the main drivers of -- that you expect underpin that growth like whether it's repricing volume growth, funding mix? And how do you see this evolving given the competitive environment?

No. I'll leave this one to Sergio because he is the super conservative of us. So I leave the questions that are more sensitive, tell them how conservative you are about today.

Sure. Thank you. Let me focus on the ex DSP perimeter because I think it's going to be relevant when I'm going forward, right? In the first half of the year, we achieved EUR 1.8 billion level, we are guiding to EUR 3.6 billion for 2025. And then this will grow in 2026 and 2027 level will be around EUR 3.9 billion, which was the level that we had a year ago. So we're expecting a second half NII similar to the first half. On a quarterly basis, the is already stable, as we saw in our last results presentation. And I think it's good looking into that to understand the moving parts now, right? So what we had is, of course, headwinds.

The main headwind is coming from rates given that ECB was about 4% a year ago. And the ECB has been cutting rates to a normal level today, 2%, and that has affected margins in a way and it's been a headwind. But that has been already fully offset by the growth in volumes, such as I just explained and the savings that we are able to achieve from our full-sale funding transactions, which are coming at a cheaper level because of the upgrades in our ratings and also because we have lower needs and we will have lower needs going forward, right?

So these are the drivers for the quarter. And I think we have explained quite in detail how those drivers then play going forward to 2027, while rates are expected to be more -- so to stabilize at some point in time, while volume will continuously kicking in, right? So to what we explained in the Capital Markets Day, we see still volumes growing positively. So we are optimistic about volumes. And let me remind you that our loan book grew more than 6% in the first half of the year and customer deposits more than 4%. That's continuing. So that's good news. That's in line with our expectation. And rates, if anything, and a bit are such more higher because we were expecting ECB potentially to get to 1.75, but it seems that market is expecting rates to be already stable at 2%, and we see already inflation risk quite well balanced. So we think that rates are a bit more supportive. And therefore, we are absolutely confirming our expectation that NII will grow from now to 2027.

And if we move to costs, you see costs growing at around 3% CAGR over the next 3 years even as you continue to invest in IT and digital, and you incentivize your workforce to compete for growth and you absorb M&A-related costs. How do you strike the right balance between keeping efficiency on track and investing and funding the long-term growth you're discussing?

This is a question that was already raised 5 years ago. Five years ago, everybody said, you're not a digital bank. It was true. We were very good with clients, but we were not digital. And you're going to have to invest so much that your costs are going to go through the roof. Here we are, a few years later, we have had an amazing track record in cost management, amazing track record. And we have modernized the bank and done a phenomenal job in digitalization. Why is this? It's not that we are magicians. We are not bad, but we are not magicians. It's quite simple.

First, the things that are really demanding from an IT perspective, we have partners. We have world-class performance. In insurance, we have a storage. In assets under management, we have Amundi. And we are working at the highest level with the highest partners and with limited investment. Then payments, payments spending. It's the other one that we want to do, and we don't want to do it because of raising capital. We have proven an ability to generate capital that is very good. and we are doing it for industrial reasons, and that will happen next. Those are the 3 that really consume a lot. Then you have the back end. Our back end was already very good when I came into the bank 4 years ago. And we were -- what we were missing is the front end. The front end is cheap. It's easy. It's just a question of understanding customer needs, of having every people working together, of not failing in the project, of being demand driven and really focused on what you do.

And we are -- we have proved that we have become excellent at that, as we are leapfrogging, clearly leapfrog. Another very relevant element in terms of investments is certainly, everything that is related to risk. But that I think the models that we have developed the ability to understand the probability of default of every transaction of every client of everything, we have really leapfrogged. So is there an issue? No, we expect to grow our payables with inflation, which is good. We expect to continue gaining efficiencies through technology, and that's not get our mouth here very big about AI and all these things. It's solid work. We are applying AI in the areas that can be applied, and we will be not in the bleeding edge, we will be in the leading edge, which is always the smart place to be.

Some people tried just to cope the first lines of the newspapers and then they overspend and they really make mistakes. The good place is the leading edge and looking at -- and in terms of technology and depreciation, we will be slightly above inflation because we have invested and that's fair. And overall, I think that rent is absolutely reasonable with a continuation of a journey that is very close to completion.

That's very clear. And in terms of -- and you were pointing to this before, one of the main levers of profitability improvement for Sabadell has been asset quality, no doubt. It's very impressive track record you've built over the past 3 years. You're guiding to a total cost of risk of 40 basis points by 2027, which will mark further step up in asset quality resilience. What are the drivers of this improvement? And what are the areas that you're watching most closely?

I think this is at the core. I think we were in a conference and I was still with Leopoldo Alvear. And there was a question like there was going to be a question now. And the question was what is the thing that is going to be the most relevant as a driver for the future profitability of the bank. And the vote was NII. And Leo and I were -- and it was improvised, I have to say, look at each other and said, "No, no, no. It's going to be the cost of risk. " Because like 4 years ago, we got together in the management retreat the management team, and we thoroughly looked at what was the one lever that would change, there were others.

But what was the one lever that would change the performance of the bank, and that was cost of risk. And there has been an alignment between the commercial people, second line of defense, risk people, the distribution network, everybody around that. And now we measure the expected loss product by product, client by client. And that is at the core of our decision-making. And that makes a tremendous difference. The incentives before were all based on top line. And we were missing everything that is related to real value creation, which has to include the cost of risk, which has to include the cost of capital, which has to include the direct costs. And that is how we manage now but we are still in transition. It has been a journey.

We first introduced the RaRoC as a metric. And then we introduced limits in terms of the risk that you could assume in every transaction. Because before, when you were just measuring the income, people took decisions that had impact on risk on the longer term, but they were not there anymore or whatever. There was not really accountability. And now I think that is -- I think we are getting really to a state-of-the-art type of management situation in which everything is measured in terms of value creation going forward. The implementation, we are at 50%. But nevertheless, you look, and I think we showed that very clearly, and I'm not going to bore you again here during Q2 presentation. And we saw that all of the expected loss of all the products of the very recent future is even much better than the one of the near future.

So when we compare to '23 and we compare '24 in the first half of '25, the expected loss of the new production is completely different. And that is going through the book over time because it's not instant. You generate new production, but it has to go through the book to really alter the whole thing and close the models and [indiscernible] . So during the first half of the year, we have 37 basis points. We're aiming to 40. So we are aiming to somewhat deterioration of the cost of margin despite the fact of all these tendencies and where is that? Because we are focusing on the products that are more profitable, which is SMEs, consumer lending, which necessarily will have a little bit more of cost of risk.

What happens during the period of transition between when you go to one model to the other model? And it's -- and we are just in the middle of it. Necessarily, there's a transition period in which your volumes grow less than they could because you're stopping to do a number of transactions that you should not be doing. But then when you're again at a stable level and that the run rate that is stable, then your growth should be even more attractive because you can be very proactive commercially and you can go really for growth, knowing that from an asset quality, it's quite resilient. I have to say it's a super, super exciting project.

Interesting, certainly. If we move to -- I guess, a key topic, which is capital and return -- you see R&D raising from 14.5% this year to 16% in 2027, which implies significant value creation. How should we think about the balance between reinvesting to support organic growth, inorganic growth opportunities and the potential for increasing shareholder return?

I think we have done those calculations very clearly and very conservatively, and it's obvious that we can grow at mid-single-digit without any problem and at the same time, fulfill the expectation that we have. We have given an expectation of EUR 1.3 billion on the back of EUR 25 million plus the EUR 2.5 billion on the back of the that means in a very short period of time. I mean towards the beginning of next year. There's some -- I'm not very good at math, 1.3 plus 2.5? It's a ton of money.

Absolutely, 3.8 billion as soon as it has already started. The first dividend was paid at the end of August. It's already happening.

Yes. They are already happening. And then we expect another EUR 2.5 billion on the back of '26 and '27. That's very handsome. That's around 40% of our market cap, 40% of our market cap in -- until '27, quite spectacular. And I think that's how we are working because our metrics have changed. You see you can manage to EPS. It's great. You can mean to NII. That's great. You can manage to this. You can manage to that. But the synthesis of the whole thing is capital generation for distribution. And that's what we are doing.

And I think one of the beauties is when you are able to -- because you can also shrink to glory. That's always solution. You give everything away. You're short, you give everything away. And then for a short period of time, it's pretty good. But we are doing that and at the same time, growing at a marginally faster rate than the market. If you overdo it, then it doesn't work. Because then you break everything and competition in mature markets. And that's why we are projecting only to get 25 to 30 basis points until the end of '27 from our more or less 8% market share to 8.3% or something like that.

Okay. And you touched upon the next topic, which is TSB. And on this specifically, how do you think about the value that you have crystallized with the sale? TSB has long been part of Sabadell profitability story. What was not the right moment to sell? And how would you frame the trade-off between crystallizing value today versus the profits that you were going to get from TSB contribution? And also, regarding your U.K. IT platform, how much do you -- how much value do you see embedded in it?

I want to leave this question to Sergio because I'm so passionate about the TSB and the whole story and the whole recovery that will become emotional. So please...

Definitely, we are. It was not an easy decision when you when you decide to sell a good asset is never an easy decision. But we were certain that it was an acceleration of value creation for our shareholders, and it has all the components, and maybe let me discuss very quickly the components, the elements that we analyzed. On the back of being a very good asset and TSB management doing a fantastic work as they are doing. We found a very credible buyer with a lot of interest that had to compete for the asset because they were more than well interest.

So we found -- so it was a process that was run on the back of of competition. It was a perfect driven process, competitive process. On the back of this process, the Santander won with a price that clearly includes part of the synergies that they expect by combining TSB with their existing operations in the U.K. and therefore, improving the shape of the combined entity, right? The price that was obtained was GBP 2.9 billion, equivalent to EUR 3.4 billion. And from any angle that we can look at that, it was a good price. It was a multiple of 1.5x tangible book value. When we look at the pricing pounds plus the dividends.

Actually, it means that Sabadell shareholders have doubled investment. It was a EUR 1.7 billion investment back in 2015, and it's been doubled. So price reaction at the day of announcement was -- it was clearly a testament of all this. And as I'm sure you are aware, we are under a tender offer process currently, so following the Spanish passivity rules, we had to submit this to the shareholders. There was a shareholder assembly back in August 6. Attendance was as high as 75% and the approval rate was 100%, 100% approval with attendance of 75%. So I think shareholders are clearly back, the decision and the proposal.

And then finally, get into your question of the U.K. platform. The perimeter of the transaction is actually the shares of TSB and the bonds that we hold, the MREL. But it's not the IT platform. So the IT platform property remains within Sabadell. There is further value on the agreement because Santander has agreed to keep on using the platform for a number of years as TSB is doing. So we will receive the servicing fee for a number of years. And after that, and after that, we will have the property. I think it's early to assign a value. It's a bit premature, but it's definitely something that is in our to-do list going forward. We have plenty of time to do it, to analyze what can be the uses and the value of the platform. So the good thing is that it's on the upside attached to that.

Thank you, Sergio. And just to wrap it up on the strategy. So beyond the headline targets, what do you think are Sabadell's biggest strength or underappreciated opportunities areas where you feel the bank can surprise positively over the next few years?

Well, I think Spain is an attractive market, and now we are Spanish bank. After we were mainly a Spanish bank, but after the sale of TSB, it's obvious that we are purely Spanish bank. Second, I think we are focused on SMEs. We are a universal bank. We do a little bit of everything. I think we are growing everywhere in a healthy manner. I think our retail business, that was a problem now it's a source of value creation. But having a very strong footprint in SMEs is very relevant.

If you think about the future and you've seen long term strategically, SMEs is where the new entrants are going to have a harder time. You see them entering in payments. You see them entering in aggregation. You see them entering in offering multiple in platforms mortgages. You see a lot of things going on. SMEs is not one of them. SMEs requires proximity, requires technology, but it requires mainly that you have a commercial relationship and a trust that takes years to build. If you look at quarter and the barriers of entry, the place where there are barriers of entry, and therefore, there's a bigger opportunity of having reasonable margins and not being squeezed out, it's SMEs, and that's where we are.

I think we are in the middle of a trajectory that hasn't finished. At has been very much appreciated by the market to a very large extent, but that still has room to grow. If you look at the basic metrics and we can go much more deep and much more complex. But if you look at PE ratios, if you look at the price to book, we are far beyond, far beyond, far below and far away from our major competitors. And we should close that gap and even potentially, well, let's see if we can even able to improve it because we have really leaped from. We have gone from an organization that was all passion for its clients and quality of service, and we have kept that.

And on top of that, we have added very significant and meaningful metrics that are completely aligned with shareholder value creation. So -- and furthermore, we are very focused on distribution of that. We are not thinking of having any inorganic growth. And that's not what we are chasing. I think what we are chasing is basically to develop this fantastic franchise to the next level.

Can you imagine how much we can grow once we have put all these systems in place and we don't have the complexity of a takeover? I think our projections in that sense have been like always, and with this, I finish, have always been extremely conservative, and we have always exceeded them. And that's the way we like it to be and the way we hope it will continue to be.

Thank you very much, Cesar. Should we move now, given that we're running out of time to an investor survey. Would you like that? Investor survey.

Of course. Yes. Hear you. Scary.

Let's see first question. I will go only to the questions. You can read the options. What would cause you to become more positive on Banco Sabadell shares? Okay. Resolution of M&A uncertainty.

So we think that we will go up if that was resolved. More positive. Yes. Resolution. I think they should vote again. Is that really what they think? That's what I think, but I'm surprised. Very positive. So they are saying that if there's clarity and the uncertainty resolution, okay, resolution, what does that mean resolution? Positive or not?

Yes. What are you most concerned about Banco Sabadell? M&A risk? I think you answered that question on the last one.

Number three. How do you expert Banco Sabadell ROCE to develop over the next couple of years relative to 2025? Modestly higher.

And then if we move to the next question, how do you see potential risk to Banco Sabadell's capital and dividend? Upside risk on better earnings. 83% consensus. Number five, please. How would you view significant acquisitions for the group?

And finally, how do you see Sabadell's medium-term stand-alone plan being valued by the market? Well, thank you very much for taking the time to speak to us today. It's a real pleasure to host you. So thank you.