Earnings call transcript: Unicaja Banco Q2 2025 sees stock rise on strong earnings

Unicaja Banco SA reported a strong second quarter of 2025, with significant improvements in financial performance indicators, leading to a 5.5% increase in its stock price. The bank’s net profit rose by 15% in the first half of 2025, and its stock reacted positively, trading at a 5.5% increase from the previous close. According to InvestingPro analysis, the bank currently appears undervalued, with a "GREAT" overall financial health score. The company’s strategic initiatives and improved profitability metrics have contributed to investor optimism.

Key Takeaways

• Net profit increased by 15% in the first half of 2025.
• Stock price surged by 5.5% following the earnings announcement.
• Net Interest Income (NII) expected to exceed €1,450 million for the year.
• Return on Tangible Equity (RoTE) improved to nearly 11%.
• Competitive lending environment remains a challenge.

Company Performance

Unicaja Banco demonstrated robust performance in the second quarter of 2025, with net profit rising by 15% in the first half. The bank’s strategic focus on boosting commercial dynamics and increasing customer funds has shown positive results, with mutual fund balances increasing by 25% annually. The competitive lending environment, particularly in mortgages, presents challenges, but the bank’s selective approach to lending is helping maintain profitability.

Financial Highlights

• Revenue: Not specified
• Earnings per share: Not specified
• Net Interest Income expected to surpass €1,450 million for the year
• Fees and commissions grew by 2.5%, with non-banking fees up 12.4%
• Return on Tangible Equity (RoTE) improved to close to 11%

Market Reaction

Unicaja Banco’s stock price rose by 5.5% following the earnings call, reflecting investor confidence in the bank’s financial performance and strategic initiatives. The stock is trading near its 52-week high of $6.27, with a remarkable one-year total return of 47.61%. According to InvestingPro data, the stock has demonstrated strong momentum over both three-month and five-year periods. The increase in stock price suggests that investors are optimistic about the bank’s future prospects, driven by strong financial metrics and upgraded guidance.

Outlook & Guidance

The bank has upgraded its Net Interest Income guidance and expects business volume growth of 3%. Fees guidance has improved from flat to low single-digit growth, indicating a positive outlook. The bank’s strategic initiatives, including a focus on high-quality, low-risk mortgage lending, are expected to support continued profitability improvement.

Executive Commentary

• "We’ve continued on the path of improvement in different areas." - Isidro, CEO
• "Our strategy is paying off. We’ve read the interest rate evolution well." - Pablo, CFO
• "We’re more competitive in prices with customers who offer a profile of higher guarantees with low risk." - Isidro, CEO

Risks and Challenges

• Competitive lending environment, especially in mortgages, could pressure margins.
• Cost guidance maintained at a 5% increase, potentially impacting profitability.
• Slight downward trend in customer spread may affect future earnings.
• Interest rate stabilization could influence lending growth.
• Macroeconomic factors could impact the bank’s strategic initiatives.

Q&A

During the earnings call, analysts focused on the bank’s lending growth, particularly in SMEs and corporate segments. Questions were raised about the stabilization of wholesale funding costs and the potential impact of interest rate changes on profitability. The bank’s focus on high-quality, low-risk mortgage lending was also a topic of discussion, highlighting its strategic approach to maintaining profitability.

Full transcript - Unicaja Banco SA (UNI) Q2 2025:

Pablo, Financial Executive/CFO, Unicaja Banco: There is a positive impact this quarter because the cost of financing this quarter is lower. All in all, we could say that the slight increase this quarter is driven by the lower cost of our liabilities, which offsets the lower income from lending. If you look at the fees and commissions, there’s another bit of positive news. As you can see, this quarter this semester evolves very positively, growing at 2.5% above our initial guideline guidance, which was initially flat for the year. The positive evolution of non banking fees, which grow above 12%, have enabled us to review this guidance upwards, as you will see later.

In general, the trend that we mentioned a few quarters back and that is now being confirmed, as you can see on the right, is leading us to increasing our weight in non banking fees compared with banking fees. As you can see, the fees that give us greater added value, which are the non banking fees, are up by 12.4%, mainly driven by insurance and mutual funds, and they offset the drop in fees from payments and accounts, meaning banking fees. As I mentioned earlier, this positive evolution has made us review our guidance upwards for the year because we now expect a slight growth in 2025. Moving further down in the P and L, let us now look at other income in detail. This quarter and the first six months of the year show a positive evolution.

In the second quarter, most income from dividends are found, and that accounts for the seasonality. Year to date, as you will see, all the lines improve, dividends, equity method and net trading income. But the operating expenses are lower because the windfall tax on banking is no longer included in this line, but rather further down under the tax line. If you look at the costs, as explained earlier, both staff expenses and overhead are greater than last year. Greater personnel costs are driven by the salary improvements agreed with the workers representatives, greater variable pace and also the new hires.

The total costs also include the impact of investments that we’re making as part of our strategic plan to enhance our product and service offering. We expect it will continue to have a positive impact in future years. Despite greater costs this year, the efficiency is stable at a 45% cost to income ratio. This is driven by the good evolution in income that we’ve just explained. On the next slide, you have the provisions, which also evolved very positively this half of the year.

As you can see on the right side, they are down from EUR 126,000,000 in the 2024 and EUR 179,000,000 in the 2023, down to the EUR 111,000,000 that we’ve provisioned in the 2025. As you can see on the left side, the cost of risk remains stable through the first half of the year. It is slightly below 30 basis points, which is the guidance for the year. This slide shows the very positive evolution that we have in terms of profitability. To the left, you can see a graph with the net profit for the half of the year and the ROCET, which is very positive as you can see.

As we’ve explained before, at Unicaja, the return on the CET is a metric that shows the structural profitability of this entity without it being penalized by the excess capital we have to face greater deductions that we have mainly due to the DTAs. As you can see, this profitability metric has evolved from six percent two years ago to 17% at present. If we use the other profitability metric, the benchmark, the RoTE, return on tangible equity, We have adjusted it on one side for excess capital, and the progression is very positive. Once again, it’s at 12% in June this year. Therefore, we can say that regardless of the metric employed, the evolution of the last two years is actually very positive because the results are improving significantly.

Let’s now look at the quality of our loans on Page 23. As Isidro mentioned, that’s another highlight for this half first half of the year. The balance in NPLs continues to go down for one more quarter. This quarter on quarter, it went down by 11% and year over year by 23%. Therefore, the default ratio is at a new low of 2.2%.

I would also highlight the NPL coverage ratio continued to improve for the first two quarters of the year from 68% at the 2024 to 73% at present. The coverage ratio, as we often like to say, is very conservative when you take into account, as you can see on the right side, that more than half of this NPL risk is asset backed. If you look at foreclosed assets, they have evolved very well. The gross balances were down this last year by 29%, down to EUR $765,000,000, which considering a 76% coverage ratio yield a net accounting balance of EUR 181,000,000, which is not very relevant. If you add the NPLs and the foreclosed assets in a metric that we call NPAs, nonperforming assets, you can see a drop of 26% in the last twelve months, and the coverage has improved from 70% to 74%.

The net exposure is barely 1%. We’ve made an effort over the last few years, as Isidro mentioned earlier in his presentation, and we’ve come to this non material level. And finally, let’s go over the solvency and liquidity position, starting with solvency. In this quarter, the CET1 fully loaded ratio is up by 45 basis points to 15.8%, driven by the result generation. And this quarter, it’s also driven by the positive impact of valuation adjustments, including our stake in EDP through OPDM.

At the same time, NPAs have fallen and that continues to support capital generation because this has positive impact on risk weighted assets. On this slide, we show our how we comply to different requirements. As you can see, the MREL ratio is above 29% after prefinancing at the June, a senior nonpreferred issuance and the call of the senior preferred that we have in the fourth quarter of the year. This temporarily increases the NREL level, although after executing our coal we will remain in a comfortable 27%. In any case, to the right you can see the very comfortable buffers that we have vis a vis our regulatory requirements.

And speaking of liquidity, as you all know, because of the structure of our balance sheet, the position we’re in is very favorable. The loan to deposit ratio and the liquidity coverage ratio is among the best in Europe. And finally, you have the details of our debt portfolio here. This is actually very relevant in our case. You need to remember that the low loan to deposit ratio creates excess retail liquidity that we invest through this portfolio.

As you can see this quarter, the portfolio has remained stable both in terms of the balance and the rate despite drops in interest rates. And the tenure has reduced slightly down to two point six years. This is everything I wanted to share. Isidro, take it away.

Isidro, CEO, Unicaja Banco: Thank you very much, Pablo. Well, let me continue with a brief update on the guidance for this year. Given the positive evolution in the first half of the year, we’re comfortable with improving some of the benchmarks that we offered together with the annual results. Starting with net interest income. After recent positive evolution, we slightly increased the minimum amount expected for the year as a whole from over £1,400,000,000 to an amount of over 1,450,000,000.00 As the same occurs in the case of fees, as Pablo explained, their positive evolution, mainly in higher value added fees, allows us to improve the guidance for the year from flat to low single digit growth, which we refer to in English as low single digit growth.

For costs, we maintain our guidance of around 5%, reflecting the aforementioned investments we are making. The cost of risk is also expected to continue at very stable levels, and we repeat our guidance of 30 basis points. The other provisions confirm their decline, and therefore, we continue to expect them to fall below €100,000,000 this year. We also reiterate the forecast regarding the volume of business, the sum of on balance sheet deposits, off balance sheet deposits and loans growing at 3% this year, above the growth achieved in 2024. And finally, as a consequence of foregoing, we also improved the adjusted RoTE guidance from a level close to 10% that we expected earlier, and we’ve improved this to a level close to 11%.

As you can see, the strategy we are following with customer funds focused on off balance growth, as reflected in the 25% annual increase in mutual fund balances, allows us to reduce some further the cost of deposits, improving expectations of spreads and fees, which largely explains our higher profitability forecasts. To conclude, please allow me to share some quick conclusions before turning to the Q and A. As you will see, in the first six months of 2025, we’ve continued on the path of improvement in different areas. Six months ago, we presented a new strategic plan that we’ve begun to implement scrupulously. Although a few months have passed, we’ve taken numerous decisions, reaching agreements and changing many aspects.

In short, we have started to land and execute the plan by boosting commercial dynamics, something that, as we’ve explained during this presentation, is also beginning to be evident in the evolution of certain items, such as the growth in business volume underpinned by better trends in lending and a significant increase in custom funds in general and in mutual funds in particular. This improvement in business dynamics is also enabling us to improve our results, which rose 15% in the first six months of the year and which have also boosted profitability by 12%. These higher results, coupled with the continued fall in nonperforming assets, which declined 37% in net terms compared with June, also enabled us to continue improving the bank’s solvency to reach a CET1 ratio of 15.8%. And as a consequence of all of the above, we can today announce our intention of paying an interim dividend on the first half’s results, which is 10% higher than last year’s first interim dividend. And we conclude our presentation here.

And Jaime, perhaps we can now move on to the Q and A. Thank you very much, Isidro and Pablo. We’ll now move on to questions. We’ll start with the phone line in the original version in Spanish. Please identify yourselves and try to limit yourselves to two questions each so that we can receive as many questions from as many analysts as possible.

Thank you, ladies and gentlemen. We will now open the Q and A session. If you would like to ask a question, please click asterisk five on your telephone keypad. If you would like to change your opinion, press And our first question comes from Ignacio Ilargi from BNP Paribas. Please, your question.

Hello, good morning. Thank you very much for the presentation. I would like to ask a couple of questions. The first on NII. In terms of wholesale investment or funds, would like to know with respect to the potential reduction in costs how much you will have actually captured with 30 bps decline.

And I would like to know how much you would expect to achieve in the coming quarters with regard to the reduction in funding. I would also like to ask if you can shed some more light on the growth in business lending, whether this is in larger companies, whether this is more medium term or in which type of capital and SMEs? And the second aspect regarding capital. In January, when you presented the strategic plan, you said that you were going to reserve part of the excess capital in order to look at potential opportunities for growth opportunities for organic growth. I’d like to ask for an update in this regard and also ask to what we can expect to see and where part of that capital may be allocated or assigned?

Thank you. Thank you very much, Nacho. Okay, I’ll answer the question. As regards wholesale funding, as you know wholesale funding or lending is largely swapped with a reference or benchmark cost to six months and therefore this reprices faster than the credit portfolio. It’s also important to bear in mind that we’ve also had certain redemptions this quarter at €1,500,000,000 and the cost was very similar.

Therefore, part of or much of the reduction has already actually been absorbed, although there’s still certain room for maneuver in terms of reduction. We’re talking about reduction levels in terms of wholesale funding costs which are slightly lower than those that we’ve seen before. Good morning, Ignacio. My name is Isidro. I’m going to answer your question and answer the other questions.

As regards company lending, you asked what the status was and exactly where those improvements were being achieved in terms of performance. I think it’s well largely distributed between SMEs and corporate and also there’s a variety in terms of typology in terms of short and long term. As you know, our strategy was also incremental to increase working capital. Therefore, a large proportion in relative growth terms is also observed in working capital and in the short term. As regards to your question on capital, when we presented the strategic plan, as you know, we set aside say, a period of time to look at certain alternatives and we’re still in that scenario.

We are generating capital. But as you will remember, since the end of last year there have been certain problems of repurchase and also for increasing our value for shareholders. Six months ago in terms of our commitment, our aim was to remunerate 85% of what we generated in the last three years. So there’s not really much more new things to add in this respect. Thank you very much.

Question comes from Mas Missing, JB Capital. Your question please. Hello, good morning. Thank you very much for the presentation and the opportunity to ask questions. My first question is the cost of risk guidance given that you have a conservative performance, given the evolution of NPLs.

And are there any reasons that would prevent you from providing guidance for 2025 in this respect? And the second question concerns the mortgage book. It seems that you’re losing market share in this regard and I would like to know if that’s intentional and what you’re trying to do to stabilize your portfolio. Morning, Maas. As regards to the cost of risk, we’ve maintained our guidance.

In cost matters in risk matters, sorry, it’s important for us to be cautious. The first two quarters. We’re slightly below our initial guidance but we are growing in terms of lending. And therefore, from now forward, I think we should also take into account the macroeconomic uncertainty and we do feel comfortable in that respect. There’s no reason, as you were perhaps trying to insinuate, Medh, there was any reason why we were maintaining cost risks of 30 basis points despite the performance in the last two quarters.

As regards our lending book, in terms of lending growth, the better perform there’s been better performance in other segments such as companies and consumer credit. And we’re better than we were we’re better off at the end of last year. The market is very positive. There’s an increase in prices and we’re trying to perform a good selection of mortgages focusing on good profiles and looking at the way in which the and always taking into account the way in which the market is performing. But we don’t have a strategy of not growing in mortgage lending.

We’re simply trying to balance growth and profitability and to try to improve the company, the bank’s income statement as much as possible. Thank

Pablo, Financial Executive/CFO, Unicaja Banco: you very much, Cecidro. Please the next question operator. The next question comes from Carlos Arrizotto from CaixaBank. Please go ahead with your question. Hello, good morning.

I have two questions. The first on the NII. And the guidance that you’ve given us, there is an upgrade, but it is still slightly lower than the first half of the year. I assume this has to do with what you explained earlier about wholesale funding, right? And how it appreciates faster than the asset.

But still, I would like to understand what’s your expectation for 2026? Do you think it will improve a little bit in the second half of the year? What can we expect? And in the strategic plan that you’ve presented, you’ve mentioned a EUR 1,400,000,000.0 NII per year, but this year you’re already slightly over that. So what’s your plan for next year?

Do you think you will be at $1,400,000,000 higher or lower? What’s your expectation? And then regarding the lending portfolio, I would like to understand the variation this quarter, how much of that has to do with the advanced effect? And believe it’s in the public sector, right, if I’m not mistaken? And then what’s the evolution of risk weighted assets going forward?

Thank you. Thank you, Carlos. This is Pablo. Let me address your question on the NII guidance. As you can very well imagine, the evolution of the NII has been better than we initially expected.

The reason for that has been basically a better performance of our retail cost, but also wholesale. And as I mentioned, the sensitivity and the tenure of wholesale and retail liabilities that are sensitive to rates, meaning a wholesale funding and term deposits from retail clients and site remunerated site deposits from retail clients are sensitive and have shorter terms that are lending investments. So we’ve covered for part of that sensitivity to assets, we’ve covered for part of that risk, and we’ve reduced the term slightly, but if you look at variable rate mortgages, the impact of lower rates and therefore investments I mean, income that we get from mortgages will continue to drop over the next few quarters. It might not be such a steep drop as we’ve seen probably towards Q4. But if you look at the volume and the new inflows, they want offset for that until Q1 twenty twenty six.

So if you bear in mind, the sensitivity of the asset is linked to euro over twelve months, and that’s depreciated once a year. And the term of IPFs on the liability side is lower than six months and the sensitivity and variable rate terms are also updated more frequently and wholesale funding as well as we’ve mentioned. Our forecast is slightly lower over the next few quarters than you’ve seen this quarter. I think you were also asking about the effect of advances on lending, right? As we mentioned, the growth including the 4% double pays, once you remove the effect of the double pay, the growth is at 2%.

Thank you very much. Pablo and Isidro, I believe there are more questions in the English line. Operator, please, whenever you’re ready. That’s right. Next question from the English line comes from Cecilia Romero at Barclays.

Please go ahead.

Cecilia Romero, Analyst, Barclays: Thank you very much for taking my questions. My ones are on NII. Your cost of deposits is already lower than many peers. And after the strong reduction this quarter and with rates potentially stabilizing, how much more room do you see to cut from here? And also, I wanted to ask with LCR or liquidity ratios that’s still well above peers, do you see room to add ALCO?

And just on NIM, I believe you have just kind of touched upon this topic, but it has increased one basis point this quarter. Do you see this as an inflection point? And should we expect NIM to stabilize around the current levels for the rest of the year? Thank you.

Isidro, CEO, Unicaja Banco: Gracia, Cecilia.

Pablo, Financial Executive/CFO, Unicaja Banco: Thank you very much, Cecilia. I will address your question on the cost of deposits. So there are two sides to the cost of deposits. On one side, you need to look at the evolution at the beta and the way of remunerated deposits on total deposits. So if you look at enterprise and public segment, they account for 60%.

The retail accounts for slightly less. The repreciation is slightly delayed. There is a lag and there’s still some room for upside because the average cost at June 30 is lower than the average for the quarter. However, going forward, given the interest rate stabilization that we are experiencing makes us think that there is not that much more room for upside. So that potential drop in deposits, very much in line with what I mentioned about wholesale funding is coming to an end.

Yes, there is still a little bit more room, but we understand and this is the big unknown when we estimate the NII. It will be north of $1,400,000,000 but it very much depends on the evolution of deposits. Up until now, we’ve been very prudent with our forecasts. But in this case, given our expectation on the interest rate evolution and comments made by the ECB, something major needs to happen for the interest rates to continue to go down. Therefore, what I gather from that is that the cost of deposits will stabilize from now on.

Regarding your second question and the significantly higher LCR compared with our peers, will that allow us to grow our ALCO portfolio? Well, in our strategy to manage rates, this is what we’ve been doing since early ’twenty four and late ’twenty three, which is when the bank changed its view to a downward trend. We’ve increased the term by three, four years to stabilize the NII until the rates stabilize,

Cecilia Romero, Analyst, Barclays: and

Pablo, Financial Executive/CFO, Unicaja Banco: there is a rebound going forward. I think our strategy is paying off. We’ve read the interest rate evolution well and thanks to that we’ve been able to increase both the term and the size of the fair value portfolio. We’ve been doing that over the last few quarters. This quarter has been mainly flat.

There’s been a bit of an increase in average balances because it had increased in previous quarters. We’re going to take tactical decisions. It will very much depend on the structural evolution rather than the LCR ratio. The size of the portfolio right now is comfortable for us. It meets its purpose as I’ve always mentioned.

The point is to manage interest rate risk for the entire bank’s balance and managing the excess liquidity, having a loan to deposit ratio of 70%. So if there are opportunities, we will leverage them, but we are not going to significantly grow or shrink our portfolio. We do see a certain stability in this contribution, slightly low as it is amortized. And if these trends come to happen in the way we think, then over the next few quarters as well. Regarding the net interest margin, have we seen the end of it?

I think over the next few quarters, the margin might still fall a little bit more. It won’t be significant, but because assets have to repreciate, particularly variable rate mortgages, provided of course that the interest rate trend is confirmed. So what the market is discounting right now is that the marginal facility will stabilize at 2%. If that comes to happen, lending will continue to drop to the first half of twenty six percent and both wholesale and retail funding will shrink. So eventually this will have a slightly negative impact on the net interest margin.

Thank you very much, Pablo. Let’s move on to the next question. The next question comes from Ignacio Cerezo from UBS. Please go ahead. Good morning and thank you for addressing my questions.

I have two, one regarding the customer spread. Could you give us an estimate where do you think the customer spread And then can you give us some color on the timing for that stabilization? My second question is regarding the cost of risk. Can you quantify what part of the cost of risk that you’re booking at 25 basis points is linked to the reduction in NPAs.

So how this is linked to the cost of risk you’re reporting on your P and L? So about the customer spread. Well, first, hello Ignacio. The customer spread and when will it stabilize? I think this is very much in line with what I mentioned.

I would think the downward trend will continue, unfortunately, for at least two quarters, maybe three. We really don’t know. It will depend on the interest rate evolution and the size of the new lending, the spreads that we get and the growth of deposits that we have. But my best estimate right now would be Q4 twenty five, Q1 twenty six. How much further in this downward trend?

I think we’ve seen the most of it. It’s behind us. The adjustment to the spreads have already taken place, but we will continue down this downward trend because the adjusting to the cost of deposits I mean, adjusting the cost of deposits will be slightly less than the assets than on the asset side. And because we’re talking about clients, I would think that it could still go down by 2,030 or even 40 basis points. It really depends on the evolution.

I cannot give you a figure, but around those numbers. Thank you very much. Let me address your question regarding the cost of risk. In the first two quarters, the cost of risk has been maintained below the 30 basis points guidance. That has to do with the way we’ve managed things in the past two years.

We’ve drained in the past two years, as I mentioned earlier, the stock of loans of NPLs vary considerably and the cost of risk therefore is much lower. We’re not jittery anymore because the NPL is not material. And the cost of risk should be at 25 to 30 basis points. We strive to maintain the 30 basis point guidance because we need to look forward with caution and understand that there might be situations of uncertainty and that’s why we’re maintaining that guidance. But to your question, a lot of that has to do with having reduced significantly the amount of NPLs, yes.

Isidro, CEO, Unicaja Banco: Thank you very much, Pablo Onisidro. Operator, we’ve got time for one last question. So if you could give way to the next question, please. And then we will end. The next question comes from the line of Ferdinand of Hill from Santibanes from Intesa Sanpaolo.

Your question, please. I have a question regarding the excess prices in certain products. The first concerns mortgages and secondly consumer credit, consumer lending. What strategy is the bank pursuing which has seen a slight decrease in the market share in lending? And what’s your strategy for growing in relation to consumer lending for the next quarter?

I’ll answer the question. Well, evidently, I think that there’s stronger price competition in all segments in which we operate in the financing industries, precisely in mortgages. There’s been significant growth as regards, let’s say, new production and new lending, and this is something that’s affecting the entire sector. Our strategy in relation to mortgages, particularly in this context, very competitive prices is geared towards good selection of our customer profiles. We’re more competitive in prices with customers who offer a profile of higher guarantees with low risk.

And let’s say this pressure or let’s say competition in mortgage pricing is not the same perhaps in consumer lending. We were able to achieve significant growth and maintain prices which are perhaps more profitable for the institution. Thank you. Fernando, just one clarification regarding consumer lending and particularly in the quarter. We have seen an increase because if you look at quarter to quarter growth, it’s more than 27%.

But you have to take into account the seasonal impact of advances in the second quarter. If we were to exclude that impact, it’s just below €700,000,000 which €170,000,000 so the growth would not be as high as it would have been evident in the quarter of 17% in that period of 317% in that period. Well, having said that, thank you very much for all your questions and all of the interest that you’ve shown every quarter. And we would like to wish all of you a good holiday. And please contact us if you have any further questions.

Thank you very much indeed.

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