U.S. Markets closed

Edited Transcript of IPO-UNIB.MC earnings conference call or presentation 29-Jul-19 7:00am GMT

Half Year 2019 Unicaja Banco SA Earnings Call

MALAGA Aug 21, 2019 (Thomson StreetEvents) -- Edited Transcript of Unicaja Banco SA earnings conference call or presentation Monday, July 29, 2019 at 7:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Jaime Hernández Marcos

Unicaja Banco, S.A. - Head of IR

* Pablo González Martín

Unicaja Banco, S.A. - Director General of Finance

================================================================================

Presentation

--------------------------------------------------------------------------------

Jaime Hernández Marcos, Unicaja Banco, S.A. - Head of IR [1]

--------------------------------------------------------------------------------

Good morning to everyone and welcome to Unicaja Second Quarter 2019 Results Presentation. As we usually do let me start confirming that we have established the quarterly financial report and this presentation this morning before market opens in the CNMV website.

Our Chief Financial Officer, Pablo González, will explain the main trends of the quarter. As always, following the presentation, we will answer the questions received from the webcast and in the IR inbox. That said, I leave the floor to Pablo.

--------------------------------------------------------------------------------

Pablo González Martín, Unicaja Banco, S.A. - Director General of Finance [2]

--------------------------------------------------------------------------------

Thank you, Jaime. Good morning to everyone. I will start in page 4 with the regular summary of the quarter.

On the business trends, let me start highlighting that performing loans grew 3.5% year-to-date or 2% if we exclude the seasonal advances that we have every second quarter. This was possible owing to the positive new loan production trends, which grew 19% in individuals and 12% in SMEs. Also off-balance sheet funds grew almost 3% in the first 6 months of the year.

Regarding results, as we will see later, net interest margin grew 2 basis points in the second quarter of '19, reaching 105 basis points. Fee income also continues to grow slightly above 5% compared with 2018.

Total costs fell almost 3% compared with 2018, something that together with the stable and low impairments, explained that net income grew 11% compared with the previous year. On asset quality, liquidity and solvency, NPAs continue to fall by almost 19% year-on-year. However, if we consider the portfolio disposals announced last Friday, the annual decrease represents 39% or EUR 1.6 billion gross balances drop.

It is also important to highlight that such disposals will have a positive contribution to the P&L and overall positive impact will represent 40 basis points on CET1.

Regarding liquidity, our position remains very comfortable with the loan-to-deposit ratio at 76% and liquidity coverage ratio at 336%.

Finally, from a solvency point of view, I would highlight that our CET1 was 13.2% in fully loaded terms, maintaining a significant buffer over our SREP requirements.

In Slide 6, we have summarized the impact the -- -- sorry, in Slide 5, we have summarized the impact from recent portfolio disposals. As we announced a few days ago, we have formalized the disposals of EUR 813 (sic) [830] million gross NPAs, of which EUR 372 million are nonperforming loans meaning that our nonperforming loan ratio will decrease to 4.7%, well below the sector that had a 5.6% ratio in May.

The disposals also include EUR 458 million of gross foreclosed assets, meaning that balances in gross terms will decrease from EUR 1.6 billion to EUR 1.1 billion.

All in all, gross NPAs will decrease from EUR 3.3 billion to EUR 2.5 billion, while NPAs ratio will decrease from 10.7% to 8.3%.

As you can see in the bottom right, the disposals will have a gross P&L positive impact of around EUR 17 million. In terms of solvency, it will represent a positive impact on CET1 of 40 basis points. So as you can see, such disposals will have a very positive impact and will leave the problematic exposure of the group at very low levels.

I will continue with the results and business section in Slide 7, where you can see the P&L details.

Starting with the quarterly trends. It is important to see that core income trends were very positive. NII grew almost a 2% in the quarter while fee income improved by 5%. As you all know, this quarter we booked the contribution to the resolution fund, something that, together with the lower trading income, explains the gross margin quarterly trend.

Expenses grew 1% and provision remained very similar, something that, together with the lower taxes, led to a quarterly net income of EUR 53 million, which is well above the EUR 47 million at the same quarter of 2018 or the EUR 34 million of second quarter '17.

Regarding the results of the first 6 months of the year, core income fell 1% with NII decreasing 3% and fees growing slightly more than 5%. Dividend income trend was positive, while associates were in line with 2018 and the decrease in trading was compensated by other revenues, leaving gross margin slightly above the previous year. Total costs dropped, and impairments, which remained at a low level, explained the 4% growth of profit before taxes and the 11% improvement in net income.

If we move to customer funds in Slide 7. You can see that total customer funds fell 3% year-on-year, although they were more stable year-to-date. On balance sheet, funds fell in the first 6 months of the year. All the sight accounts grew, improving further the mix as you can see in the bottom right. Other positive news is the change in off-balance sheet funds trends that year-to-date were growing almost 3%.

In Slide 9, we show the credit and loans details. As you can see in the slide, gross loans grew 2.6% in the first 6 months of 2019 with public sector growing 15%, nonperforming loans decreasing by 10% and private sector growing almost 3%.

On the right-hand side of the slide, you have the details on performing loans. As you can see, they grew 3.5% in the first half of the year. This includes close to EUR 377 million of seasonal advances to clients in the second quarter '19. Excluding such advances, the performing loan book grew 2% which is a very positive trend.

In the bubbles on top of the chart in the bottom right, we show the year-on-year trends of private sector performing loans, where you can see that trend, despite the decrease in mortgages, continues to improve, with 2 quarters in a row with performing balances above the previous year.

In the Slide 10, we show the regular details of the new loan production by segment.

Overall, new production grew by 30% in the first 6 months of the year mainly in loans to individuals, where the growth reached 19% with its yield improving 39 basis points to 3.37%.

In Slide #11, we start with P&L review with NII details. As you can see in the top right, the better interest income from loans, together with lower cost of wholesale funding among others, owing to some measure trying to optimize our liquidity position, more than compensated the lower income from mortgages floors and NPLs, something that, together with the calendar effect, explained the quarterly improvement, something that is also reflected in the net interest margin performance that grew from 103 basis points to 105 basis points. Regarding the customer spread in the bottom of the slide, you can see that front book remains above the back book that, by the way, was impacted this quarter by the seasonal advances at zero cost.

In Slide 12, you have an update on our debt portfolio. It is worth mentioning -- noting that it has decreased a little bit throughout the quarter, although its contribution to NII was stable at EUR 54 million. As usually, just to highlight that the big bulk of exposure remains sovereign debt classified in the amortized cost portfolio and that the yield was also very stable at 125 basis points in the second quarter '19 compared with 126 basis points in the first quarter.

If we move to a Slide 13, you have the fee income trends that were very positive compared with last year, but also with the previous quarter. In both cases, net fees grew a bit more than 5%, which is very positive. In the first 6 months of the year, the improvement was supported by payments and collections. However, the quarterly improvement was explained by higher fees from nonbanking products.

Moving to costs. As you can see in Slide 14, operating expenses fell almost 3% in 2019 compared with 2018 and almost 6% compared with 2017. This trend, as we have explained in different occasions, will remain until 2021, owing to our cost-cutting plan.

In Slide 15, we show the total impairments continued at low levels year-to-date, a trend that we expected to remain in the following quarters, among others, owing to our comfortable coverage position which recent disposals of NPLs confirms that is at the right level.

If we move now to the asset quality in Slide 17, we have the details on the evolution of our NPLs. Bear in mind that these are second quarter '19 figures so they do not include the recent disposals announced last Friday. Excluding such disposals, NPLs fell close to EUR 200 million year-to-date, leaving the NPL ratio below 6% in the second quarter of '19. As we show in the bottom, gross entries remained low similar to previous quarters, explaining the 6% quarterly drop.

As we usually do, in Slide 18, we have updated our NPL coverage details. Overall NPL coverage was 52% in second quarter '19 with 82% of our NPL balances being secured and 77% secured by finished buildings.

In Slide 19, you have an update on the foreclosed assets trends. As in previous slides, these figures don't include the portfolio sold in July. In the left side of the slide, we have the coverage details. Overall coverage was stable at around 62% in June.

On the right, you can see the provision release and outflows details that continue to improve in the first half of 2019, quite positive trends as a result of the coverage levels that are confirmed with the disposals announced last week.

In Slide 20, you can see how NPLs and foreclosed assets have decreased further. During the first half of 2019, the trend continues to improve with total gross balances decreasing 7% year-to-date. But if we take into account recent portfolio disposals, you can realize that gross figures will be EUR 1 billion below 2020 target and EUR 1.6 billion below June 2018 figures. In net terms, NPAs representing 2.7% of total assets with coverage stable at 57%.

Finally, let me only highlight that our Texas ratio continues to decrease quarter-after-quarter, reaching 58% in June.

In Slide 21, we have summary of our liquidity position. As you can see, there are very little changes this quarter. Our LTD ratio has grown from 73% in March to the current 76%, and the liquidity ratios continue to be among the highest of the sector. In terms of wholesale maturities, as I usually do, let me remind you we have some maturities throughout the second quarter but they were very cheap in terms of costs, with the big bulk of savings coming at the end of this year.

Finally, we show in Slide 22 the solvency of the bank. As you can see in the top left, current regulatory capital ratios remained well above the SREP requirements, with a EUR 1.4 billion buffer over our CET1. In fully loaded terms, quarterly retained earnings and higher valuation adjustments almost compensated the higher risk-weighted assets, leaving CET1 fully loaded at 13.2%. We remind that this ratio do not include the deduction of the authorized and unused treasury stock that represents around 25 basis points. However, in the second half of 2019, we will have some positive impact in solvency, mainly from the disposals of NPAs and the capital gains from our [household stake], something that will more than compensate the treasury stock deductions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Jaime Hernández Marcos, Unicaja Banco, S.A. - Head of IR [1]

--------------------------------------------------------------------------------

Thank you, Pablo. We will now start with the Q&A. We've got plenty of questions regarding NII. So let's start with this topic, Pablo. The first one on net interest income, if we can confirm the guidance for the short and the long term.

--------------------------------------------------------------------------------

Pablo González Martín, Unicaja Banco, S.A. - Director General of Finance [2]

--------------------------------------------------------------------------------

Okay, Jaime. The recent changes in interest rate expectations has already been reflected in the lower Euribor, which is of one of the main sector reference for loans in our case. The Euribor drop is not really good news, and it will have a negative impact, mainly in the medium to long term because it takes time to re-price the full balance sheet. In the short term, mainly for the rest of 2019, we don't expect a significant impact. As we said in previous occasions, there will be some positive and negatives. Regarding the negatives, the contribution from the debt portfolio will be below last year, and we will continue to reduce our balances with mortgage floors, and also the repricing effect that has been slightly positive in the first 6 months of this year will become negative again.

On the positive side, the loan mix and volumes will help, and the cost of liabilities will decrease further. All in all, we reiterate our previous guidance that net interest income in 2019 should be close to 2018 with the deviation depending on the size of the increase of the loan book and the final level of the Euribor.

So all in all, NII should remain stable in the next 12 to 18 months, among others, helped by the maturity of some expensive liabilities in the coming quarters.

--------------------------------------------------------------------------------

Jaime Hernández Marcos, Unicaja Banco, S.A. - Head of IR [3]

--------------------------------------------------------------------------------

Thank you, Pablo. The next one is on the [ALM] strategy -- the debt portfolio strategy going forward.

--------------------------------------------------------------------------------

Pablo González Martín, Unicaja Banco, S.A. - Director General of Finance [4]

--------------------------------------------------------------------------------

Regarding the debt portfolio, net of the forward sales, it fell by EUR 0.3 billion in the second quarter '19. During this period, deferred value to OCI portfolio decreased EUR 800 million quarter-on-quarter and EUR 300 million net of forward sales, following some sales as yields in the Spanish sovereign debt tightened.

On the other hand, we increased our structural amortized cost portfolio at the beginning of the quarter. For the next quarters, additional purchases could be possible, but it will depend on market conditions.

In terms of exposure, senior financial increased its share during the quarter up to 7.4% of the total portfolio, being almost all the bonds accounted in the amortized cost portfolio with no impact, as you know, in capital or P&L.

In contrast, European government bonds decreased its exposure during the quarter. Regard the duration of the portfolio, there has been a slight increase of this metrics in amortized cost portfolio from 4.7 years to 5.7 years as a consequence of some fixed income bonds purchases as well as some hedging of floating positions to fixed, with the objective of increase the duration of the balance sheet in the current environments of low rates.

Regarding to NII, as we have guided in the past, we expect the bond portfolio contribution to NII to be in line with the current levels at around EUR 50 million per quarter.

--------------------------------------------------------------------------------

Jaime Hernández Marcos, Unicaja Banco, S.A. - Head of IR [5]

--------------------------------------------------------------------------------

Thank you, Pablo. We got also some questions on the interest rate sensitivity, mainly regarding the sensitivity to a decrease of 10 basis points.

--------------------------------------------------------------------------------

Pablo González Martín, Unicaja Banco, S.A. - Director General of Finance [6]

--------------------------------------------------------------------------------

Yes. Following new market conditions, as I mentioned on the statements coming from central banks, the interest rate exposure of the balance sheet has been hedged with derivatives and additional purchases of fixed income bonds. Compared to previous quarters, we have reduced the negative impact in NII from lower rates, but at the same time we have reduced the positive impact if NII -- in NII from higher rates as these are the 2 coins of the -- 2 sides of the same coin.

Considering a parallel decrease of the curve of 10 basis points, the impact on NII should be around 2%. Obviously, it depends on a lot of factors, but we think taking cost and balance sheet and so on, this should be around almost 2%. The highest impact on NII, obviously, and this impact is considering after 2 years of the changes.

--------------------------------------------------------------------------------

Jaime Hernández Marcos, Unicaja Banco, S.A. - Head of IR [7]

--------------------------------------------------------------------------------

Thank you, Pablo.

Moving now to volumes. If we can provide an update on loan growth and which evolution we are expecting for the rest of the year?

--------------------------------------------------------------------------------

Pablo González Martín, Unicaja Banco, S.A. - Director General of Finance [8]

--------------------------------------------------------------------------------

The trend, as you have seen, is improving further. In the first quarter '19, private sector preforming loans were growing 0.3% year-on-year. This has improved to almost 1% in the second quarter. By segments, only mortgages continued to decrease but a lower decrease level. As we confirmed last quarter we expect this trend to continue to improve in the second half of this year. So we are expecting low single-digit growth and we'll remain expecting this for performing loans for the first time this year.

--------------------------------------------------------------------------------

Jaime Hernández Marcos, Unicaja Banco, S.A. - Head of IR [9]

--------------------------------------------------------------------------------

Thank you, Pablo. One more specific on NII regarding mortgage portion IRPH exposure if we can update the situation.

--------------------------------------------------------------------------------

Pablo González Martín, Unicaja Banco, S.A. - Director General of Finance [10]

--------------------------------------------------------------------------------

In the balances on -- with active floors continue to fall this quarter from EUR 1.6 billion at the end of March to EUR 1.4 billion at the end of June. Regarding our IRPH exposure, we confirm that we have less than EUR 200 million mortgages linked to this reference. And in terms of provisions, we continue to have around EUR 250 million for all legal issues.

--------------------------------------------------------------------------------

Jaime Hernández Marcos, Unicaja Banco, S.A. - Head of IR [11]

--------------------------------------------------------------------------------

Thanks, Pablo. Now moving to MREL, if we can confirm MREL targets and our funding plan.

--------------------------------------------------------------------------------

Pablo González Martín, Unicaja Banco, S.A. - Director General of Finance [12]

--------------------------------------------------------------------------------

As we explained last quarter, we will need to have eligible liabilities representing 20.6% of our risk-weighted assets by January 2022. Our initial aim is to meet the requirement issuing around EUR 1 billion, mainly senior debt, senior nonpreferred debt mainly, but final decision on instruments and timing will be taken considering the evolution of our solvency position and obviously, the market conditions in order to optimize the cost of liabilities for the bank.

--------------------------------------------------------------------------------

Jaime Hernández Marcos, Unicaja Banco, S.A. - Head of IR [13]

--------------------------------------------------------------------------------

Thank you, Pablo. Another one, very specific on mortgages. What is the percentage of new mortgage formalized with fixed and floating rates?

--------------------------------------------------------------------------------

Pablo González Martín, Unicaja Banco, S.A. - Director General of Finance [14]

--------------------------------------------------------------------------------

We continue to formalize mortgages at fixed rate. For the first half of the year, it was EUR 520 million of new mortgages at fixed rate, representing around 40% of the total new mortgages production with the remaining formalized with variable rates.

--------------------------------------------------------------------------------

Jaime Hernández Marcos, Unicaja Banco, S.A. - Head of IR [15]

--------------------------------------------------------------------------------

Okay. Moving to the P&L. There are a couple of analysts asking us on the fee income trends. They were positive in the quarter. If we can provide some color on what we expect going forward, please.

--------------------------------------------------------------------------------

Pablo González Martín, Unicaja Banco, S.A. - Director General of Finance [16]

--------------------------------------------------------------------------------

Okay. I think this is one of the positives -- news. The fee income trends has been quite positive this quarter again. The 5% quarterly growth was partially explained by EUR 1.5 million of seasonal fees. However, if we look at the year-on-year growth, it was also slightly above 5%. As we said in the past, if nonbanking products fees continues to improve, helped by market trends, we expect to see a similar trend with close to mid-single-digit increases at the end of 2019.

--------------------------------------------------------------------------------

Jaime Hernández Marcos, Unicaja Banco, S.A. - Head of IR [17]

--------------------------------------------------------------------------------

Thank you, Pablo. Now moving to trading income. If we can explain the level of the quarter on what -- with respect going forward to?

--------------------------------------------------------------------------------

Pablo González Martín, Unicaja Banco, S.A. - Director General of Finance [18]

--------------------------------------------------------------------------------

Regarding trading income, this quarter has been low. As we anticipated in the first quarter '19 results presentation, we did not expect to report such a strong trading as in the previous quarter. Bear in mind that, in the second half of 2019, we will book the capital gains from our stake at -- sold. So there is no need to generate much more trading gains this year. All in all, we don't use to provide guidance for trading income because it obviously depends on market trends. However, this will probably be lower than last year.

--------------------------------------------------------------------------------

Jaime Hernández Marcos, Unicaja Banco, S.A. - Head of IR [19]

--------------------------------------------------------------------------------

Thank you, Pablo. Moving to costs. If we can provide the expenses update and pending restructuring costs intentions?

--------------------------------------------------------------------------------

Pablo González Martín, Unicaja Banco, S.A. - Director General of Finance [20]

--------------------------------------------------------------------------------

As you all know, following the measures taken in the past, we expect to further reduce costs every year until 2021. By the end of 2018, we announced cost-cutting plan that require around EUR 180 million of restructuring costs of which EUR 140 million were booked last year. It hasn't been formally decided yet, but it makes sense to take advantage of the capital gains from our -- also to anticipate the pending restructuring cost.

However, we will provide more color once we book the gains in the second half of this year.

--------------------------------------------------------------------------------

Jaime Hernández Marcos, Unicaja Banco, S.A. - Head of IR [21]

--------------------------------------------------------------------------------

Thank you, Pablo. Now moving to impairments, if we can provide an update on our guidance for the cost of risk on impairments?

--------------------------------------------------------------------------------

Pablo González Martín, Unicaja Banco, S.A. - Director General of Finance [22]

--------------------------------------------------------------------------------

Okay. On impairments, we can see impairments remain low, and we feel comfortable with our coverage levels and a good example of this is the results from the NPAs disposals that we just announced. So something that makes us feel very comfortable and that should enable us to maintain the level of impairments low in the coming quarters.

--------------------------------------------------------------------------------

Jaime Hernández Marcos, Unicaja Banco, S.A. - Head of IR [23]

--------------------------------------------------------------------------------

Okay. There is another one very specific on the tax rate. It was lower than in various quarters, if you can explain the reasons?

--------------------------------------------------------------------------------

Pablo González Martín, Unicaja Banco, S.A. - Director General of Finance [24]

--------------------------------------------------------------------------------

This low tax rate is due to the nature of part of the -- our revenues that are booked net of taxes. Our income from associates is an example. Those quarters with relative higher income from associates is usually translated in a lower effective tax rate. On top of this, in the second quarter of this year, we also had some other small gains in other results that were accounted net of taxes explaining the relative lower effective tax rate -- paid in the quarter. Going forward, the easier way to estimate our tax rate is to deduct affiliates' income from the profit before taxes and then applying around 30% rate to the results.

--------------------------------------------------------------------------------

Jaime Hernández Marcos, Unicaja Banco, S.A. - Head of IR [25]

--------------------------------------------------------------------------------

Thanks, Pablo. Now moving to some questions regarding asset quality. If you can provide more color regarding the portfolios [sold in July] that we announced last Friday?

--------------------------------------------------------------------------------

Pablo González Martín, Unicaja Banco, S.A. - Director General of Finance [26]

--------------------------------------------------------------------------------

We have provided a specific information in the result presentation and the relevant fact published last Friday. Final details will be disclosed in the second half of this year with a regular breakdown of our NPAs.

Under my view, the most important thing related to this announcement is that we will reduce significantly the problematic exposure, and we will have a positive impact in the P&L, something that confirms us that our coverage levels are the right ones.

Following such disposals, the problematic exposure becomes not really relevant, something that we understand that the markets, analysts and investors will consider a very positive news.

--------------------------------------------------------------------------------

Jaime Hernández Marcos, Unicaja Banco, S.A. - Head of IR [27]

--------------------------------------------------------------------------------

There is another one related to this one. If we do expect additional disposals similar to the ones announced last Friday, and what is a strategy now that the balances are relatively low?

--------------------------------------------------------------------------------

Pablo González Martín, Unicaja Banco, S.A. - Director General of Finance [28]

--------------------------------------------------------------------------------

As we said in the past, we always analyze different options, and we go ahead with those ones that we believe that are in the best interest for our shareholders. Some quarters, we reduce more NPLs and some others, it's more foreclosed assets focused. And every year, we reach some agreements to sell some portfolios on top of the day-to-day sale process. The strategy -- this strategy implies that we don't reduce our problematic exposure in a linear and regular quarterly basis. But as we have demonstrated, we have been able to reduce the big bulk of our problematic exposure with a positive impact in P&L.

--------------------------------------------------------------------------------

Jaime Hernández Marcos, Unicaja Banco, S.A. - Head of IR [29]

--------------------------------------------------------------------------------

Thanks, Pablo. Moving to solvency. If we can provide more details on the quarterly solvency impacts that we have mentioned it in the presentation, please?

--------------------------------------------------------------------------------

Pablo González Martín, Unicaja Banco, S.A. - Director General of Finance [30]

--------------------------------------------------------------------------------

Yes, sure. We have split the -- into 2 buckets the impacts. On one side, we have the 31 basis points positive impact of which half comes from retained earnings, and the other half from valuation adjustments.

On the negative side, we have 36 basis points coming from higher risk-weighted assets of which again, around half are related to the seasonal advances that we mentioned, and the other half, mainly to higher risk rates of developers on the quarterly loan growth.

--------------------------------------------------------------------------------

Jaime Hernández Marcos, Unicaja Banco, S.A. - Head of IR [31]

--------------------------------------------------------------------------------

Thank you, Pablo. Just want to know surely capital gains, what will we do with such capital gains, Pablo?

--------------------------------------------------------------------------------

Pablo González Martín, Unicaja Banco, S.A. - Director General of Finance [32]

--------------------------------------------------------------------------------

I think such gains confirm our balance sheet strength and our prudent approach to accounting. As we anticipated, gross gains are EUR 122 million and net gains will be EUR 112 million. So these will enable us to book, among others, the pending restructuring costs that we mentioned, something that will be positive for the future results.

Also these gains will enable us to reinforce our 2019 results and the solvency of the group, leaving us in a very comfortable position going forward.

--------------------------------------------------------------------------------

Jaime Hernández Marcos, Unicaja Banco, S.A. - Head of IR [33]

--------------------------------------------------------------------------------

Thank you, Pablo. There is another one very specific that says -- that asks us any authorization to buy treasury stock and deduct it from the 13.2% CET1 fully loaded?

--------------------------------------------------------------------------------

Pablo González Martín, Unicaja Banco, S.A. - Director General of Finance [34]

--------------------------------------------------------------------------------

No, no. That's not included. If you want to adjust the impact in the CET1 fully loaded ratio, this authorization, you will need to deduct an additional 25 basis point from the CET1 ratio.

--------------------------------------------------------------------------------

Jaime Hernández Marcos, Unicaja Banco, S.A. - Head of IR [35]

--------------------------------------------------------------------------------

What are our solvency expectations for the future? There is one analyst also asking what is the plan for our current excess of capital going forward?

--------------------------------------------------------------------------------

Pablo González Martín, Unicaja Banco, S.A. - Director General of Finance [36]

--------------------------------------------------------------------------------

I think we can confirm that we will continue to run the bank with one of the highest CET1 ratio of the sector. Bear in mind that, we have significant positive impact in the second half of this year like the household gains and NPAs disposal that we mentioned. So we expect to continue to improve our solvency position, something that will leave us in a very comfortable position.

--------------------------------------------------------------------------------

Jaime Hernández Marcos, Unicaja Banco, S.A. - Head of IR [37]

--------------------------------------------------------------------------------

There is another one in the -- asking us if you can explain the quarterly improvement in the evaluation adjustments?

--------------------------------------------------------------------------------

Pablo González Martín, Unicaja Banco, S.A. - Director General of Finance [38]

--------------------------------------------------------------------------------

Yes, the big bulk of the improvement is coming from the improvement in the market condition and therefore the mark-to-market of our debt portfolio classified in the fair value OCI. However, the big bulk of our debt portfolio, as you know, is classified in the amortized cost where we also have significant capital gains that currently at June levels were above the EUR 500 million.

--------------------------------------------------------------------------------

Jaime Hernández Marcos, Unicaja Banco, S.A. - Head of IR [39]

--------------------------------------------------------------------------------

The following one also regarding solvency is if we can provide an update on IRB models?

--------------------------------------------------------------------------------

Pablo González Martín, Unicaja Banco, S.A. - Director General of Finance [40]

--------------------------------------------------------------------------------

Yes, as we confirmed couple of quarters ago, we continue to work with the idea of having the mortgage portfolio approval by the end of next year. Risk-weighted assets optimization from IRB models is welcome, but it is not considered in our solvency plan, in our capital plan. It's just because we are taking a proven approach and until we have the approval, we won't consider that in our capital planning. However, our solvency position, even without that, is very comfortable because we don't expect any negative impacts coming from either TRIM, Basel IV, and we have positive levers, as we mentioned, ahead like the household gains or the disposal of the NPAs that we announced. So as you can imagine, we do have capital and now, the focus for the management is to put such capital to work in order to improve our shareholder value.

--------------------------------------------------------------------------------

Jaime Hernández Marcos, Unicaja Banco, S.A. - Head of IR [41]

--------------------------------------------------------------------------------

Thank you, Pablo. And this one also very related to the previous comment, if we can update on dividends and potential buybacks.

--------------------------------------------------------------------------------

Pablo González Martín, Unicaja Banco, S.A. - Director General of Finance [42]

--------------------------------------------------------------------------------

Yes. We have just paid last 10th of May, EUR 0.038 of cash dividend per share, which at current market prices represents plus 2.5% dividend yield. As you can imagine, we are in a comfortable solvency position. So there is room to further improve the dividend. Last year, dividend implies a 40% cash payout. Going forward, such a payout is a good reference, but bear in mind that, we do not have a formal dividend policy and our Board of Directors will propose each year the dividend, considering among others, our solvency position and the results of the year.

So regarding the other part of the question, the share buybacks, we consider it a very positive, especially consider our current market multiples.

From a financial point of view, it makes sense, and we do believe that could be used as a good strategy to generate shareholder value. However, we haven't taken a formal and specific decisions to announce so far, but this is an option that we are starting.

--------------------------------------------------------------------------------

Jaime Hernández Marcos, Unicaja Banco, S.A. - Head of IR [43]

--------------------------------------------------------------------------------

On the treasury stock, there, we also have questions. If we can please confirm if we are currently buying treasury stock or what is the size of our treasury or the current size of our treasury stock?

--------------------------------------------------------------------------------

Pablo González Martín, Unicaja Banco, S.A. - Director General of Finance [44]

--------------------------------------------------------------------------------

I will answer first the last one. Our treasury stock now represents 0.14% of total shares. It has been pretty stable year-to-date. And regarding the first question, no, we are not buying treasury stock at the moment. And we currently have an operational limitation that set the minimum price at EUR 1, and so we cannot buy treasury stock below such price.

However, we expect that to change tomorrow in the extraordinary exchange -- extraordinary general shareholder meeting that we will have. And regarding the future intentions, I cannot provide you much more information. Whatever we do in the future will be made public in due course.

--------------------------------------------------------------------------------

Jaime Hernández Marcos, Unicaja Banco, S.A. - Head of IR [45]

--------------------------------------------------------------------------------

Thank you, Pablo. The next one is on a potential new business plan. If we're working, and if we can confirm if we are working in a new business plan. And what will be the timing for announcing it and providing details?

--------------------------------------------------------------------------------

Pablo González Martín, Unicaja Banco, S.A. - Director General of Finance [46]

--------------------------------------------------------------------------------

Yes. During the next month, we will be working on a new business plan. Obviously, we need to adjust our plan to the current environment and to identify the strategies and business that could enable us to improve returns and generate value for our shareholders at the right level of risk.

--------------------------------------------------------------------------------

Jaime Hernández Marcos, Unicaja Banco, S.A. - Head of IR [47]

--------------------------------------------------------------------------------

Thank you, Pablo. There is one on -- specific also that ask us why we have decided to change now the CEO.

--------------------------------------------------------------------------------

Pablo González Martín, Unicaja Banco, S.A. - Director General of Finance [48]

--------------------------------------------------------------------------------

I think Ángel Rodríguez, our new CEO has been working in the bank for many years. So he has been part of the senior management that has brought the bank to where it is today and among others, the one leading the recent NPAs disposal, recently announced with very good numbers, as you have seen.

He has been working and managing, among others, control, the business network, finance function. So we expect this change to be in turn slightly in renewed motivation for the whole bank. As I said, always with the right level of risk.

--------------------------------------------------------------------------------

Jaime Hernández Marcos, Unicaja Banco, S.A. - Head of IR [49]

--------------------------------------------------------------------------------

Thank you, Pablo. One final one -- more regarding the sector consolidation, if we can update our views regarding the consolidation of the sector.

--------------------------------------------------------------------------------

Pablo González Martín, Unicaja Banco, S.A. - Director General of Finance [50]

--------------------------------------------------------------------------------

As I said before, our main target is to generate value for our shareholders. So we need to analyze all options that could be positive for them. So we will continue to do so as we have done in the past.

--------------------------------------------------------------------------------

Jaime Hernández Marcos, Unicaja Banco, S.A. - Head of IR [51]

--------------------------------------------------------------------------------

Thank you very much, Pablo.

That was the last one. If you got further questions, do not hesitate to contact the IR for further questions. We wish you, if you can -- we wish you a long and quiet summer season, and see you next quarter. Thank you.

--------------------------------------------------------------------------------

Pablo González Martín, Unicaja Banco, S.A. - Director General of Finance [52]

--------------------------------------------------------------------------------

Bye now.