Earnings Call: Q1 2018

May 3, 2018

Good morning to everyone, and welcome to Nicajavanko First Quarter 2018 Results Presentation. I am Jaime Hernandez, the Head of IR. And first of all, please let me confirm you that we have published the Q1 results documentation, including the quarterly financial report and this presentation this morning before market opened in both the CNMV and our corporate website. Today, our Chief Financial Officer, Pablo Gonzalez, will go through the slides to review with you the main trends of the quarter. And after the presentation, we will answer the questions through the webcast and the IR inbox. As always, for further info, the IR team will be available after the webcast. So Pablo, whenever you want. Thank you, Jaime, and thank you all for attending this presentation. As we usually do, we have a split the presentation in 4 sections. I will start Summarizing the key highlights of the quarter, then we will review the results and main business trends. We will continue Reviewing the asset quality, liquidity and solvency, and we will finish with some final remarks. So let me start in Page 4 summarizing the main trends of the quarter. First of all, Let me confirm that in Q1 2018, we have received the formal authorization For the acquisition to MAPFRE of the 50% stake that we didn't own of Uniendo del Duero vis Apenciones. So this is the Q1 that we booked 100% of the business compared to the previous 50%. As we will see later, the acquisition had an impact close to 30 basis points in SEAD 1 and explains some minor changes in our financial statements, as for example, in fee income and other operating income. Regarding the business, in Q1 2018, we saw some positive trends on volumes. On one hand, performing loans grew Quarter on quarter slightly below 1%, which is quite a positive considering the deleverage we saw in the previous quarters. Such trend was supported in additional increase of new loan production That continued to improve a significant 55% in corporates and 31% in individuals compared with the Q1 of last year. On the other hand, customer funds also grew close to 3% year on year With off balance sheet funds increasing above 8%. Also, although at a slower pace, the mix between Site and term deposits continue to improve this quarter. Moving to results, net income reached 57,000,000 In this Q1, which is 13% above last year and net attributable income grew 12% year on year to €58,000,000 Net interest income continues to grow for 2nd consecutive quarter following the repayment of Coco's FRAB in August of 2017. Total costs fell 2% year on year And finally, I would highlight the significant improvement of impairments, although partially explained by some specific issues that we will explain later. Finally, on asset quality, liquidity and solvency, I would like to highlight That we continue to reduce NPAs 1 more quarter. Gross non performing assets fell 5% in the quarter and almost €1,200,000,000 year on year. The non performing assets coverage also improved in 1st quarter From the previous 56% to the current 59%. On liquidity, we continue To have a very comfortable position with net liquid assets representing slightly more than 23 Percent of total assets. In terms of solvency, despite a negative impact of around 30 basis points owing to of Nielle del Duero, which was fully integrated for the first time this quarter, our regulatory Seed 1 grew from 14.6% to 15.4%. In fully loaded terms, the SEAD 1 improved More than 70 basis points to 13.5%. It is worth noting That these ratios are not considering close to 20 basis points of organic capital generation related to the Q1 2018 Retained earnings. As you probably know, we do not include in our solvency ratios retained Earnings until they are audited. However, as we will see later, such a significant improvement despite Not considering Q1 2018 retained earnings was benefited by the positive mark to market of the unrealized gains in the fair value to other comprehensive income portfolio. Moving to results and business. I will start with the P and L in Slide 6. Net interest income grew 1% quarter on quarter in Q1 2018. As we will see later, the improvement was explained by stable interest income from loans and a slightly higher contribution of the debt portfolio but also owing to additional improvement in the cost of funding. Fee income fell 6% quarter on quarter and was pretty flattish compared with the previous year. However, if we adjust the impact From the full consolidation of Nien del Duero, fees were 3.5% above Q1 last year. Associates grew 20% compared with Q4 2017 despite not including Uniand del Duero for first time this quarter. The year on year increase is much higher because we formalized the reorganization of the insurance business in the Q2 of last year. Trading income was slightly below the previous quarter and do not include gains to compensate the expected provision for restructuring costs. That as you know will be booked in the coming quarters. Other operating income and expenses include €6,000,000 from Unient del Duero and other €14,000,000 from Our real estate to the DTAs levy explain the EUR17 1,000,000 book this quarter. It is worth noting Then in the Q1 2017, other operating income here booked that quarter. All in all, gross margin reached €250,000,000 in Q1 2018, slightly below 2017, mainly Owing to the mentioned extraordinary gains and lower trading income. Total costs were pretty stable in the quarter, although decreasing 2.5% compared with last year. Total impairments were Slightly below the previous quarter, although significantly lower than the previous year. It is worth noting that the cost of rigs Includes €9,000,000 release from a disposal of a small return of portfolio. However, despite such disposal, Total impairments were well below the previous year. Such trends left the profit before taxes at £78,000,000 and net attributable income at £58,000,000 12% above the previous year. If we move to customer funds in Slide 7, you can see that the total Consumer funds grew 3% year on year. On balance sheet funds were pretty stable, growing 1% year on year And off balance sheet funds growing above 8% in that same period. Regarding on balance sheet funds, as you can see in the right hand side of the slide, Site deposits were stable this quarter and represented 75% of total private sector deposits, which compares with a 68% 1 year before. On the other hand, term deposits went from 32% of total deposits to the current 25%. In slide 8, We have the credit and loss trends, which were more positive this quarter than in previous quarters. As you can see in the top left of the slide, total gross loans were stable compared with the balance at the end of the year. The 5% decrease in non performing loans balances was compensated with a stable private sector loans and a 7% increase in public sector loans. In the left button, we show Private sector gross loans by segment. While individuals gross loans fell close to 1% in the quarter, Corporates grew 1% and SMEs close to 2%. In the right hand side, We have the performing loans details. As I said before, total performing loans grew 0.5% quarter on quarter helped by a 7% increase in public sector loans. Private sector loans were more stable in the quarter as you can see in the bottom. If we look at the segment breakdown, You will see that corporate loans compensated the still decrease in mortgages. Corporate loans grew 3% quarter on quarter, While mortgages, consumer and other loans fell by 1%, slightly better Trends compared with the previous quarters. All in all, loans were stable this quarter and such Trend was mainly explained by the continued increase in new lending that you can see in the next slide. In this slide, we can see that private sector new lending grew by 40 5% in Q1 2018 compared with the previous quarter. Individual new loans in the bottom left grew more than 30% to €304,000,000 this quarter. The average JIL was 15 basis points higher compared with last quarter, mainly to a significant increase in non mortgage lending, which grew from 500 basis points to almost 5.70 basis points. Regarding corporates, the increase was even higher. The €528,000,000 of new loans was more than 50% above the previous quarter. In terms of yield, new corporate loans were formalized at an average yield slightly below the previous quarter owing to the relative higher weight of corporates versus SMEs. However, while corporate's yield was stable, SME's new lending yield grew 15 basis points compared with Q4 2017. In the next slide, slide number 10, we start to review the P and L. As you can see, despite the calendar effect, the top line increased in the Q1 by 1% or 5% compared with the Q1 of 2017. Net interest margin Improved a couple of basis points quarter on quarter to 108 basis points and almost 10 basis points in the last two quarters. In the right top side of the slide, as we usually do, We have included the detailed bridge with the quarterly evolution. On one side, We have a negative impact from mortgage floors of around €3,000,000 and Other $3,000,000 of lower nonperforming loans recoveries compared with Q4 2017. However, performing loans, Excluding the impact from mortgage floors improved by €2,000,000 which are very positive news supported by a 4 basis point increase in lending yields this quarter. On the liabilities, we Also have some positive news with the overall cost decreasing by €2,000,000 Regarding the debt portfolio, Its contribution increased €3,000,000 this quarter. Bear in mind that we have not realized Most of the capital gains from the fair value to other comprehensive income portfolio yet partially explaining such improvement and that will be a headwind in the coming quarters. If we look the customer spread in the bottom of the slide, this quarter the trends were also positive. Starting with the back book, the lending yield grew for first time in many quarters to 209 basis points, which are really good news. Such trend together with a slightly lower cost Of deposits lead a customer spread quarterly increase of 4 basis points to 188 basis points. On the right hand side, we have the customer spread of new production. As you can see, it was slightly below the previous quarter, owing to a small decrease in new lending yields. However, both lending yields And customer spread of new loans is above the back book, which is quite positive for NII trends. In slide 11, we have updated the details of our debt Portfolio for first time under IFRS 9 rules. Total balance grew to BRL16.2 billion In Q1 2018, as we explained in the previous quarters, despite increasing the structural excess Of retail funding owing to the deleverage, we did not increase the size of the portfolio until now. Among others, this decision was taken because we wanted to take advantage of the higher flexibility Under IFRS 9 in the amortized cost portfolio because as you know under IFRS 9, We can hedge this portfolio and position ourselves to what we expect in terms of interest rates evolution. The big bulk of the portfolios are sovereign bonds, almost 80%. Regarding its breakdown, we have 2 thirds Of the portfolio under the amortized cost and the other third split it between the fair value To other comprehensive income and DESAREB bonds. The overall debt portfolio grew 1,300,000,000 in the Q1 2018 with the following breakdown. The fair value to other comprehensive income grew by 1,000,000,000 The structural portfolio in amortized cost grew by another €500,000,000 And finally, the share of bonds fell slightly by €200,000,000 As a result of these changes And the actively management on hedging of the portfolio, the overall yield improved to 1.38%. Regarding its contribution to net interest income, it was slightly higher this quarter. It grew from €56,000,000 To €59,000,000 However, once we'd realized the latent capital gains of the Fair value to other comprehensive income, the previous available for sale portfolio, its contribution will go back to levels more close to the ones of the previous years and the one that we have guideline. If we move to slide 12, you can see fee income evolution in the quarter. Total fee income was pretty stable compared with last year. However, it is worth noting that from Q1 2018 onwards fee income is not included, including uniand delduero fees, which last year represented around €8,000,000 and in the Q1, it had a negative impact of around €2,000,000 If we adjust The evolution of fees by the contribution of Nium del Duero, fees grew almost 4% year on year, Although they decreased by 3% quarter on quarter, bear in mind that this impact will be reflected through the whole year. Now moving to costs in slide 13. Operating expenses Fell 2.5% year on year, driven by lower personnel expenses. That decreased by 4% in the period. As we anticipated last quarter, we expect to continue to reduce personnel costs In 2018, although this will be probably compensated by higher general expenses. Also, as you all know, we are reviewing the potential synergies coming from the legal integration of And we will give you the details in the coming quarters. As a reminder, the restructuring cost Needed to crystallize further synergies will be compensated in P and L by trading income as we explained In the Q4 2017 result presentation. Now moving to slide 14, We have included the details of Q1 2018 impairments. As you can see, total impairments improved Significantly in the quarter to €60,000,000 For 2nd consecutive quarter, we released some credit provisions. However, in this quarter, this was explained by the disposal of a small written off portfolio that enabled asked to release €9,000,000 of loan loss charges explaining the €5,000,000 reported release in the quarter. However, even adjusting the cost of risk for such disposal, the trend continues to be quite positive and well below the medium term target of 30 basis points. As you can see In the right hand side of the slide, the annualized cost of risk in Q1 2018, excluding This disposal of written off loans was 8 basis points, slightly below the 15 basis points booked in 2017 and well below the 25 basis points of 2016. Such a positive trend is Finally, foreclosed assets impairments were $4,000,000 in the quarter compared with the $20,000,000 in Q1 'seventeen. As we discussed in previous occasions, in 2017, foreclosed assets provisions were higher owing to the impact of updating the foreclosed assets appraisals. But now that appraisals are already updated, So the additional provisions required are relatively lower. If we move now to the asset quality We have in Slide 16 details on the evolution of our non performing loans where you can see That nonperforming loans positive trends are even improving. On the top of the slide, you can see the continued Reduction of non performing loan balances and the non performing loan ratio. The non performing loans Fell 5% quarter on quarter and 15% year on year. In the bottom of the slide, you have the details of the quarterly non performing loan variation showing that the pace of reduction has accelerated further this quarter. Gross entries continued to decrease during the Q1 2018 something that together with the stable recoveries led to a positive quarterly reduction of 141,000,000. In slide 17, we updated the non performing loan coverage. That Following IFRS 9 provisions grew from the previous 50% to the current 55%, A very comfortable coverage considering the high level of collateralization and that The original appraisal of collaterals represents 2 times the current non performing loan balances. Now if we move to foreclosed assets in Slide 18, you will see That the trend remain positive too. As we usually do, in the table on the top left, We showed the details and results of the real estate assets disposals. Since last quarter, we have included A line in the bottom of the table to show other portfolio sales formalized with third parties that also enable As to deconsolidate part of the real estate assets. In Q1 2018, we sold And deconsolidated $178,000,000 of gross foreclosed assets and we We leased €14,000,000 of provisions. The percentage of provision released over the book Value excluding the deals classifies as other portfolio sales continued to grow slightly above 30% in Q1 2018, although we don't expect it to improve further going forward. In the chart on the top right of the slide, we show the quarterly evolution of net foreclosed assets. In the last 12 months, we have reduced the net exposure by 32%, leaving Total foreclosed assets at €631,000,000 representing 1% of our total assets. These are the net exposure. We have also updated the chart in the bottom right where we show The quarterly gross outflows, which is the amount of foreclosed assets sold and rented. During the Q1 2018, Gross outflows including disposals and rentals reached 187,000,000 of which 22% were land assets. On slide 19, We show you the coverage ratio of our foreclosed assets by type. Land continues to have the highest Coverage ratio above 80%. However, land assets only represent €129,000,000 in the Q1 'eighteen. The overall coverage remains close to 64%, a coverage level that as it happens with nonperforming loans Makes us feel very comfortable among others because the updated appraisal value of our foreclosed assets represents almost two times their book value, their net book value. All in all, in Slide 20, we sum up the NPA trends. As you can see, we have reduced by 5% quarter on quarter the non performing assets balance and almost 22% on a yearly basis. The outstanding amount of non performing assets In net terms represents now 3% of total assets. The coverage ratio grew From previous 56% in Q4 2017 to 59% in the Q1 2018, These coverage levels, as I said before, make us feels quite comfortable and reflect The prudent approach of the bank regarding its problematic exposure, something that is also reflected In the continued decrease of our Texas ratio that in the Q1 2018 further improved to below 68%. In terms of liquidity, you have the details in Slide 21. Liquidity coverage ratio continued to be well above the requirements. In terms of wholesale funding maturities, It won't be something significant this year. However, between 2019 20, almost €1,000,000,000 of covered bonds at an average cost of 2.5% will mature, something that will continue to reduce the medium term cost of funding. Finally, regarding demand of liquid assets, As you can see in the bottom left, they represent close to 23% of our total assets. Now moving to solvency. In Slide 22, we show the quarterly evolution of the CET1. We decided to include a detailed explanation this quarter following the significant improvement of the reported ratios owing to different factors. On the top, we have the SEAD1 Fully loaded details where you can see that grew from 12.8% to 13.5%. On one hand, we have a 40 basis point negative impact from the higher deductions related to the acquisition of However, this was more than compensated by the 30 basis point positive impact of IFRS 9 and the 20 basis points from the decrease in risk weighted assets, mainly explained by the reduction of non performing assets and other positive impacts of 60 basis points that includes the mark to market of fair Value to other comprehensive income portfolio during the quarter and other positive effects mainly lower to DTA's Deductions explained by these higher deferred tax liabilities as a result of the higher unrealized capital gains. All these impacts left the reported CET1 fully loaded ratio at 13.5%. However, as you probably know, we don't include retained earnings in the solvency ratios If the results are not audited, if we consider these return earnings of the Q1, the CET1 fully loaded increased to 13.7%. However, it is worth noting that this is including 90 basis points from the impact of the unrealized capital gains. Excluding such impact, the CET1 fully loaded was 12.8%, which is pretty stable compared with the Q4 2017. At the bottom of the slide, we have the same details, but for the phasing ratio where you can see that on top of the already mentioned Impact, we have a positive phasing effect from the IFRS 9 and a negative Facing effect from Basel III deductions. Putting all together, the regulatory CET1 ratio grew To 15.4% in the Q1 or 15.6% when considering the return earnings. Again, if we exclude the impact from the unrealized capital gains considered in the ratio, It goes to 14.7%, slightly above the 14.6% of the end of 2017. In Slide 23, we include some more details on the solvency position. As you can see in the top left, Current regulatory capital ratios are well above the SREP requirements with a EUR1.7 billion buffer over SEAT 1 and slightly above SEAT 1,000,000,000 buffer in total capital. All these buffers Our under standard approach that as you can see in the bottom left side of the slide are considering quite conservative credit risk Finally, as we usually do, let me finish the presentation With some final remarks that you have in page 25. One more quarter, we have Showed resilient result generation capacity with quite positive NII trends, Cost control and much lower impairments. From a commercial point of view, credit volumes are starting to improve with new production Increasing further. Mortgage loans are still decreasing, but we are in the right path and with the right pricing policies. Non performing assets continue to decrease at a very positive pace And more important, we are doing it with a positive impact in P and L. Such trends It's supported and explained by a very ample coverage levels as we discussed. And finally, all this is achieved generating organic capital and keeping a very comfortable solvency and liquidity position. Thank you very much. We will now answer your questions. Jaime? Thank you, Pablo. Starting with the integration on or the acquisition of Onion del Douro, we got some questions. As soon as we can explain, since when will be fully accounted to Nielo del Duero? Can we explain the main P and L and balance sheet impacts of the full integration? Thank you, Jaime. This is the Q1 that we accounted for 100% of Unions del Duero. Although its acquisition is very straightforward and impacts are not really material, it does explain some of the trends and changes in the quarter. Starting with the solvency, as you probably know, it has a negative impact in regulatory C1 of close to 30 basis points, Owing to higher deductions from insurance stakes. Regarding the balance sheet, Consolidated liabilities will now include slightly more than €700,000,000 related to the insurance contracts. And on the other on the asset side, it will be reflected in an increase in the debt exposure in a similar amount of The liabilities, it is also worth noting that goodwill will increase by EUR 63,000,000. In terms of the P and L, from now onwards, we will book a €6,000,000 charge per annum For the amortization of the mentioned goodwill, on top of that, gross margin will have a negative impact in fees and associates and a positive impact in other operating income. And finally, it is worth noting that the NII, the interest income Of the insurance company, debt portfolio is not included in our net interest income. It is consolidated, as I mentioned before, in other operating income. Thank you, Pablo. There is one more on related to the Q1 is what is the contribution of Uniden del Duero to P and L in the Q1? As I mentioned, it's not really material that the net effect Because in fee income, as I said, we have €2,000,000 lower fee income and we have other operating income of €6,000,000 which is higher. The rest of the impacts are very small. In net income, the impact is just €1,000,000 So as you can realize, there are some Changes in the P and L classification structure, but in the bottom line, the quarterly impact is not Material one. Thank you, Pablo. Let's move to the P and L. And we got lots of questions on NII on different topics. So let's just start with the debt portfolio with the ALDM portfolio strategy, if we can give some more color on what they can expect going forward. Okay. In order to sum up the 8 in one sentence, we can say that our ALM strategy is to position the balance sheet towards a potential increase in the interest rate curve In the medium term, without losing the short term current income and To use our structural excess liquidity. So the target is to keep a stable contribution To NII even if interest rates do not increase. So the idea is to keep this contribution stable If interest rates remain as they have been doing in the last few years and take advantage of the potential increase in rates In the medium term. So that's why we usually hedge our debt portfolio with forward start swaps Starting in 2, 3 years, a time where we think that rates will still be quite low. This forward start will allow us to maintain this income stable in the next quarters and in case We perceive a change in the macro and rates projections. We manage we can manage the current position reversing this strategy. This strategy also enables us to protect the debt portfolio with a lower duration From negative valuation that could arise from increasing long term rates environment. So all in all, this contribution, as I said before, It's going to be higher in this quarter and probably 1 or even more than 1 quarter Ahead, but going forward, the stable contribution should come down to what we have guided in the past. It will depend on when we realize the unrealized capital gains on the former available for sale portfolio. Thank you, Pablo. There is one more on the size of the portfolio. Why we decided to increase it now and not before? Okay. I already mentioned some of the answer. I think the size of The portfolio of the structural portfolio depends on our excess liquidity, our structural excess liquidity And the different strategies that we adopt on the fair value through other income portfolio, which is, as you know, manage trying to keep advantage of changes in market conditions. In the last 2 years, the debt portfolio has been quite stable with a small difference at the end of each quarter as we have presented in the different investor presentation. Having said that, in Q4 2017, we sold some positions and we will analyze To buy again depending on the market conditions. We already bought some of the positions sold previously, But obviously, we still have to realize and sell some of the available the former available for sale portfolio going forward. So all in all, as I said, the strategy will be to maintain a stable contribution from the debt portfolio while maintaining a positive bias toward higher interest rate for the overall balance sheet. There is one more. And I think with that, we reviewed The portfolio situation related on the size, if we can if they can expect to see the size going forward. I think I already mentioned this, but Just to be clear, there's no specific rightsize for the portfolio. I think there's The size of the structural portfolio depends on the excess liquidity as we said in the past and I said before. And this portfolio could be higher and as we mentioned before in the last two quarterly presentation, This should be higher, but in the past due to the In capacity that we were unable to hedge the portfolio, so we prefer to wait for IFRS 9 to come to force this year. And now because we have a very large fair value through other comprehensive portfolio until we realize the capital gains. So the size of this Portfolio is larger than should be going forward and the other the structural portfolio could be higher going forward. On more than on the strategy, there is one more on the Latin capital gains that we have in the ALCO or the ALM portfolio, if we are expecting to realize All of them are just one part. As we already confirmed, A relevant part of our current capital gains will be used to compensate some extraordinary charges in P and L, Mainly the ones related to expected restructuring costs. However, the current LatAm gains are significant. So we will continue to manage actively those gains, but it will depend on the evolution of market conditions and P and L trends. Thank you, Pablo. On net interest margin, let me put together some questions. NIM grew for 2nd consecutive quarter. Do we expect such trend To further increase net interest margin, customer spread and lending yield all due in the quarter, do we expect them to grow further? All the metrics improved in the quarter. I think It's worth noting that the NIM grew relatively more because the average total assets didn't grew as much as Total assets at the end of the quarter owing the integration of Nielle del Duero. So that will be a headwind of additional growth of in the net NIM in the Q2 2018. And we haven't provided a specific guidance On customer spread or lending yields, however, we expect some growth for 2018 net interest income compared With the 2017, but it is soon to be more specific than that. This quarter, we managed To compensate the lower contribution from the floors, from the mortgage floors and lower non performing loans related to the Income with higher interest from performing loans and lower cost of the retail and wholesale funding And above everything, the €3,000,000 of higher contribution from the debt portfolio as I explained. So going forward, if interest rate income from performing loans does not increase, it will be difficult to improve The net interest income, but all in all, will be higher than last year as we said. There are some specific questions on the NII guidance for this year. It is almost, I think, answered. Something related also to NII on the mortgage flows, even we can, Pablo, please update the situation on mortgage flows. I think as we anticipated mortgage balances Continue to decrease this quarter. The balance of with active floors decreased to €2,500,000,000 From the previous €2,800,000,000 As we explained in the presentation, these had An impact of close to €3,000,000 in the quarter NII. So we still expect some mortgage balances To continue decrease in the coming quarters and that will continue to be one of the main headwinds for Net interest income going forward. So we will try to compensate it, but it will depend on the size obviously There is always a lag effect, just to remind you on this. So it It won't probably change significantly in the next couple of quarters. That said, during the last two quarters, we have reported net interest income that It's close to 10% per quarter above the average NII for the 9 months of 2017. That is why we still expect some NII increase this year compared to the previous year. Thank you, Paolo. On interest rate sensitivity, if we can update our sensitivity To interest rates, please. We remain positively positioned towards an increase in interest rates. But as we have always mentioned, this will be in the Not in the 1st 12 months. It will be more in 2019, 2021 depending on when the rates are up. And so the impact won't be in the short term. And using our quite realistic assumptions We think realistic. Obviously, this is always hard to come to a clear number. But in the numbers that we work, Considering the changing that we expect in the mix between term and site deposits when rates go up And a constant balance sheet without any assumption of new business, an increase of 100 basis points will have a positive impact In NII from this 12th to the 24th months of around 13%, which is slightly above What we used to have in mid-twenty 17 last year and this is due to the hedging of The cost amortized cost portfolio that we have hedged after IFRS 9. So I think if we have a look on what we think on rates, we remain comfortable with the consensus. And we think the end of the QE from in Europe will be at the end of this year. And The potential increase of the referee rate will be more sometime in the second, Q3 of next year, Which then should push the arrival up. But this scenario was obviously is being Thank you, Pablo. Moving to loan growth. What is the guidance for loan growth? When do we expect to see clear lending growth? As we said last quarter, I think we expect the to see the inflection point this year, But we don't want to be very specific on saying that we already crossed that line. In the Q1 2018, the new production continues to improve and lending balances stabilize further. But new production, although it grew not enough to compensate the natural amortization, Something that we will need to change in order to see the overall book growing on a stable manner. So corporate loans and individual secured loans trends are much better. But in order to see clear loan growth, we will need to stabilize far Thank you, Pablo. There is one very specific on the percentage of the new mortgages signed with fixed rates? I think it's Quite similar to the last quarter numbers and it's slightly below 40% of the total new mortgage production, which is actually done in fixed rate. Thank you, Paolo. Moving onwards on through the P and L. On fee income, if we can explain The decrease of the fee income in the quarter, I think in the presentation we have explained it, but if you can if you want to give a little bit more color And what can you expect for the rest of the year? The fee income? Fee income, yes. The fee income Has been compared to the last year quite flat, although growing 3.5% year on year if we exclude The impact from the integration of Nieland del Duera, as I mentioned before. However, on a quarterly basis, it was 3% below the previous quarter. When adjusted by the acquisition of the insurance, It's around €1,700,000 So we have room to further improve the fee income in the coming quarters, but you have to bear in mind That this year for the whole year, we will have an impact of €8,000,000 following the acquisition of Niantel Duerras, As we mentioned, so that represent around 4% of fee income of last year. So this will be quite a headwind for the evolution of fee income this year. But we still are positive, especially on Off balance sheet and other banking products fees going forward and more Flattish and conservative view on payments fees. I think we explained it in throughout the presentation, but We got several questions asking it. So probably to be a little bit more clear, if we can explain the other operating income and other operating expenses Details, Paolo. I think I mentioned, but just to remind you, the EUR 17,000,000 are Splitted, we have EUR14 1,000,000 coming from our real estate servicer And other €6,000,000 coming from the contribution of Unions del Duero. These are the positive ones. And on the negative side, we have the €4,000,000 related to the DTAs levy. So that explained the Most of the numbers. So just to mention that this contribution from the real estate servicer In the last year, it was €21,000,000 which explained that we have a lower contribution compared to last year. Thank you, Paolo. Very straightforward. On trading gains, what would be the recurring level of by trading case? We don't have a recurrent trading gain. So it will depend on market condition. And obviously, as we mentioned, We will use them to compensate the extraordinary restructuring Provision that we might do in the coming quarters. Moving to costs. We have identified additional capacity to generate We have just approved the full integration of Espana Duero. It was one of the proposals approved in last week AGM. Now we are working on identifying the final synergies to be implemented After the merger and in the coming quarters, we will update the situation with more details. Now we don't have specific Details to give you now. Moving to impairments and provisions. If we can explain the release of loan load charges and what expectation we have for the cost of risk going forward? As we explained in the presentation, we have sold A small written off portfolio that had a positive impact of around €9,000,000 this quarter. So if we exclude this impact, the annualized cost of risk was, as I said, 8 basis points. We don't expect to report continued releases. It is true that during the last two quarters, the cost of risk has been quite low And that is very positive. However, we do expect to increase volume trends in the future. And If it happens, the cost of risk should be higher going forward. So we continue to see the business plan Guidance of below 30 basis points as a good reference for the medium term. There could be some quarters with much Positive trends compared to our medium term view and similar to the last two quarters. But the medium term should be higher than this. So we have I think The major reason is that the high level of nonperforming loans coverage and especially if we consider as we have said High level of collateralized nonperforming loan, almost 90%. So for the back Book, we feel quite comfortable with the level of provision. However, the new loans and the new rules of IFRS 9 Make us to be more prudent on giving guidance on cost of risk going forward. And regarding real estate or foreclosed assets, Paolo, the impairments going forward? I think As we said last year, we did what we think are the bulk of the provision for foreclosed assets. And this was due to the reappraisal of all of the assets. So now with the current real estate prices trend On our coverage level, we don't expect to have large provision in the foreclosed assets. We can, Pablo, please update the litigation risk provisions? I think in the litigation risk provision, We have a general provision a legal for different legal risk of 334,000,000 Which obviously are mainly related to the mortgage floors, which remains our major contingencies. Okay. Moving to asset quality, Pablo, if we can After what we saw a positive quarter in I'm reading as I have the question in front of me. Another satisfactory quarter in terms of NPL reduction, are you planning to continue selling at the same pace or to accelerate through our bigger transactions, Paolo? We keep on selling as and we did on Average above book value, but this is done on asset by asset case. But when we do portfolio sales, obviously, this is Tougher as we can see in the numbers. So although so far it has been similar, It will be difficult to repeat the positive numbers of last year, but We however, we continue to analyze the different alternatives with the objective of reducing as many Non performing assets as possible while preserving the value of our shareholders. So we maintain with the same guideline that we have been given. There is one question on NPL disposals, if we plan to sell NPL Disposals. We have already said that we prefer to sell foreclosed assets and written off loans. But Nonperforming loans, we prefer to manage them ourselves, especially the individuals and mortgage Nonperforming loans, but in the future, we could analyze different options regarding some small corporates portfolio Or real estate related portfolios, but nothing really relevant. Okay. Moving to Questions on funding, liquidity and solvency. On MREL, if we can update any potential issuance of hybrids, Pablo? I think On Enbrel, we haven't been confirmed the level yet, so one more year to wait. So regarding the potential issuance of hybrids, our solvency position is very comfortable And enable us to have flexibility on the timing. We meet with all requirements and we have ample management buffer. So nothing has been decided on the timing. But under our view, we have plenty of time to meet with the Enbrel requirements. So it won't be an issue at all. On the opposite, we believe that the final Lendering Issuance could be cheaper than that, that we have considered in our business plan and that is good news. On solvency and the capital position, Pablo, it has increased significantly the regulatory ratios in the quarter in excess of the 12% target. They're asking us if we are planning or what we are planning to do with the excess of capital. Yes. Sorry. The SEAT 1 is well above the target, but we want you to bear in mind that The fully loaded number includes 90 basis points of unrealized capital gains that we will realize to mitigate some of the Restructuring cost going forward. So most of the gains currently considered in the CET1 are only temporary ones. So That said, and even with that, it is true that our solvency position is above the target of our business plan. One of the reasons is that our loan book is not increasing significantly yet, But we continue to have ambitious plan and I think it's too early to decide on what to do with excess capacity. So we will look with excess solvency position. The The last one, Pablo, is our views on the sector consolidation and M and A. We saw a lot of comments and research published related to consolidation during the last months. We understand that is a sector topic, but for Unicaha nothing has changed. We continue to have to execute our final integration of in the coming months and that is our priority and that is Unicaha Banca consolidation deal. And it is important because we still have synergies to crystallize from such acquisition. And regarding other plans, I will Answer again what we have said in the past sector consolidation or M and A is not a priority right now for us. We work every day to improve shareholder returns taking conservative and prudent risks with the idea of generating as much value as we can. We believe that we can do it In a standalone basis without acquiring or merging with other bank. However, as we did in the past And I understand that other banks do, we will analyze whatever opportunity appear as we have always done. But at the moment, our priority, as I said, is to deliver on our business plan. Thank you very much, Paolo. Thank you all for attending the presentation. As you just as I reminded, The IR team is available at the phone for further follow-up questions. Thank you, Rach, and see you next quarter. Thank you very much. Bye. Bye.