Unicaja Banco, S.A. (UNI) Earnings Call Transcript

Good morning, and thanks for being with us for the presentation of our third quarter results. Before we start, I'd like to confirm that this presentation, along with the remaining financial information, was published earlier this morning on the CNMV and on our corporate website, ahead of the market opening. As is customary for our third quarter results, our Chief Financial Officer, Pablo Gonzalez, will walk you through the presentation today. It should take about 25 minutes, and after that we'll have our usual Q&A session. So without further ado, I'll hand things over to Pablo.

Thank you so much, Jaime. I'll begin on page 3, which lays out the quarter's key highlights. To start with business activity, I'd point out that growth in business volume has picked up to nearly 5%. That result is underpinned by a 5% rise in total customer funds, among them a 14% gain in mutual funds, a segment where we've captured a 15% share of net inflows. Expansion in performing loans has likewise sped up, hitting 5% year-on-year. Turning to profitability, net income across the first 9 months of the year came to €543 million, an 8% improvement over last year. Adjusted return on tangible equity climbed to 12.2%, or 16.6% when computed over CET1 so as to strip out the equity required to absorb DTAs deductions. Asset quality is again displaying favorable trends for one more quarter. NPL balances dropped 15% year-on-year, putting the NPL ratio at 1.8%, while its coverage rose further to 85%, well ahead of the 74% recorded a year ago. Cost of risk likewise stayed positive, at 19 basis points. Finally, on solvency and shareholder remuneration, we're announcing today a second interim dividend of 6.4 cents, payable next 17th of December. That brings 2026 interim dividends to €382 million, which is 126% higher than last year.

Our CET1 ratio declined during the quarter, reaching 15.5%, driven by valuation adjustments, an increase in risk-weighted assets, and accruing for our 95% payout ratio — a solid solvency level that underpins the generous shareholder remuneration. Lastly, I'd point out that tangible book value per share, after adjusting for dividends, rose 10% year-on-year, reaching €2.62. To sum up, the quarter showed favorable trends, which confirm that commercial activity is accelerating and will keep enhancing our results. Over recent months, the movement in interest rates has been striking. Near term, our rate sensitivity is quite limited, since liabilities reprice more quickly than assets. Over time, a growing share of assets will reprice at elevated rates, which supports positive revenue trends going forward. On slide 4, you can see the specifics of the second interim that we confirmed this morning. For 2026, we've chosen to distribute roughly 25% of net income as what we term additional remuneration, which, alongside the ordinary dividends, brings the payout to 95%. That's why today we're announcing a cash dividend of €6.42 payable in December. This is the second interim dividend for this year and, combined with the ordinary dividend to be paid in April following the AGM, will amount to the 95% payout commitment.

For this year, interim dividends will come to 14.86 cents and €382 million — that's 126% higher than the interim dividend distributed in 2025. It's a meaningful boost in shareholder remuneration, and the reason behind it is the improvement in our results together with the higher payout, which we can afford thanks to our best-in-class solvency position. Moving on to page 5, you'll see several of the steps we're taking as we execute our strategic plan, where the three main levers are innovation, customer focus, and diversification of revenues. Beginning with innovation, in earlier quarters we've already walked you through the work we're doing on conversational banking, backed by market leaders such as NVIDIA or Google Cloud. In recent months, we've also advanced considerably with Rosetta, Unicaja's technology knowledge and AI platform, which brings code, data, processes, and documentation together into one conversational environment. It functions as an intelligent AI-powered software accelerator, improving system transparency and visibility while cutting substantially the time needed for onboarding, analysis, and technology audits. On customer focus, our payroll market share has risen from 4.2% to 4.7% during the last 12 months. We've also made big gains in our NPS, which is partly attributable to the strategy behind our loyalty campaigns — that strategy has a short-term impact on banking fees, but we think it will prove far more positive over the long term.

I should also point out that over 1 million clients are using Bizum with us — it's the leading instant payment app in Spain — and roughly 800,000 of those clients use it each month. On the commercial side, I'd also note that we're expanding at a very healthy pace in certain strategic segments and products, such as corporate loans, consumer, and mutual funds. Overall, this is a very favorable trend stemming from how we've carried out our strategic plan. Moving on to commercial activity on page 7. As you can see, total customer funds rose 4.6% year-on-year. On-balance-sheet funds were up by nearly 3%, or 2% if you exclude the public sector, while off-balance-sheet funds climbed 10%, powered by a notable 14% increase in mutual funds. Worth noting is that mutual fund balances have risen from under €13 billion to over €19 billion across the last two years. On the following page, you can see the specifics of our assets under management and insurance business. As we flagged on the prior slide, assets under management were up 10% year-over-year, with mutual funds posting especially robust growth of 14%. Even with a tough environment this quarter, net inflows kept rising and hit €1.6 billion, equal to a 15% market share, which leaves Unicaja as the second asset under management company with the highest net inflows year-to-date.

On the right-hand side, we present revenue from those two businesses, and those revenues are up 9% versus a year ago, making up 19% of total revenues. Turning to page 9, you'll see the lending trends. As the slide shows, loan volumes increased year-on-year across every segment. Total performing loans stood 5% higher than September 2025. Corporate loans were up 11%, while household loans rose 3%. Within household, consumer trends are still strong, but mortgage balances were up 2% year-on-year, reflecting more stable trends thanks to intense competition. Looking at quarterly terms, private sector loans were up 1.2% once you exclude the seasonal advances from the second quarter. On page 10, we lay out the details on new loan production. Over the first 9 months of the year, new loan production came to €8.1 billion, which is 12% higher than 2025. New corporate lending held very steady, at roughly €4.5 billion. In household, though, new lending was up around 30% year-to-date, and on a quarterly basis, the third quarter of '26 also delivered a positive performance versus the same quarter a year earlier. The next slide shows the strong progress we're making on our ESG strategy this quarter. Beginning with sustainable business, the ESG corporate portfolio is up 16% this year. On responsible investments, 79% of the mutual funds are classified as Article 8 or 9.

When it comes to the social dimension, our commitment continues to be a top priority. During this quarter we ran 17 volunteering initiatives, and the Edufinet project, which works to advance financial education, reached nearly 25,000 beneficiaries over the first 9 months of the year. Through our green bond framework we kept financing renewable energy and green buildings, and eligible collateral has risen 92% since we issued our first green bond in 2022. Lastly, we stayed on our decarbonization path, with six portfolio targets on track that cover 80% of our private sector loans. We'll now move on to reviewing the P&L in the next section, on slide 13. Net interest income was up 3.5% quarter-on-quarter, supported by the continued repricing of assets, which more than offset the higher cost of deposits. Fees declined 3.8% in the quarter, largely due to lower banking fees after the additional rollout of loyalty plans at the start of the quarter. On a cumulative basis, net interest income rose 3% over the first 9 months of the year, while fees were up 1%. Gross margin exceeded €1.6 billion, which is 3.5% higher than last year. Total costs keep expanding at the same mid-single digit run rate, reflecting our investment and hiring activity.

Provisions overall kept getting better, which left pre-tax profit at €760 million — that's 7.4% higher than 2025. Now let's go through the P&L in detail. Beginning with net interest margin on page 14, the slide shows customer spreads hit bottom during the second quarter of '26. As you can see, they rose from 226 basis points to 228 basis points during the quarter, thanks to loan yields increasing a bit more than deposit costs did. We expect that trend to repeat over the coming quarters, while loans keep repricing at higher yields. How fast and how far this goes will hinge on deposit costs. Certain quarters may be steadier than others, but net-net, we anticipate customer spreads will be higher in the quarters ahead. Net interest margin also increased 7 basis points during the quarter, reaching 180 basis points. As all of you know, in our case net interest margin also serves as a good reference for commercial activity, since our loan-to-deposit ratio is 70% and surplus retail funding gets invested via our debt portfolio. On the next page, we show the breakdown of how net interest income evolved each quarter.

That €13 million increase came primarily from stronger contributions out of loans and the debt portfolio, which more than compensated for rising deposit costs. Costs on deposits rose by €11 million, whereas interest income from loans went up €16 million, with the debt portfolio and liquidity management accounting for the other €9 million. Moving to fee income, the split trend we've seen over recent quarters between banking and non-banking fees persists, and it even widened after we rolled out extra loyalty programs in the third quarter of '26. As we've said previously, these programs are being introduced so we can strengthen and boost cross-selling and keep clients loyal. At the bottom of the slide you can see that since the close of 2024, the share of highly engaged customers has risen from 32% to 41%. As noted earlier, our Net Promoter Score has improved markedly. That stems, among other things, from the loyalty programs we've brought to market. Under these programs, clients who are more loyal pay lower transaction fees, and in the bottom right you'll see that the proportion of clients benefiting has climbed from 22% to 53% in under two years. This is a long-term play, much like the investment we're making across other segments and businesses, which drags on P&L in the near term but should pay off down the road.

This strategy accounts for the two opposing movements we see in fees: banking and transactional fees will dip in the near term, while non-banking fees that carry greater value for clients—such as mutual funds and insurance—are rising by nearly 12% year-on-year. That same strategy also explains the low single-digit to flat fee guidance we've given for the quarters ahead. Still, we think over the long run it will let us deepen profitable, lasting relationships with a larger client base. Slide 17 lays out the specifics of the remaining revenue lines, where every category improved against 2025 apart from trading income, whose contribution is down because of market conditions. The gain in other revenues comes from a number of drivers. These include a modest positive one-off from affiliates—chiefly one in the hotel sector—plus somewhat lower real estate asset costs this quarter. Turning to total costs, personnel expenses keep climbing as a result of the salary raises negotiated with the unions and recent hires. Growth in other administrative expenses stems from the initiatives and investments we're undertaking under our strategic plan. Taken together, total costs were up 5% year-on-year, consistent with our mid-single-digit guidance. On the following page, we move on to cost of risk and other provisions, which, combined with higher revenues, more than offset the cost effort just described and let us continue delivering stronger results.

Looking at the left-hand side, you'll notice that the cost of risk held steady at 19 basis points. Provisions that remained, legal ones included, came in below what we saw in 2025 as well, which brought total provisions to €124 million across the first 9 months of the year — 20% lower than 2025, a very positive evolution over one more quarter. If you turn to page 20, you'll find the profitability trends, and there you can see they have improved significantly over the last couple of years. On the left, we set the reported return on tangible equity against the one adjusted by the excess capital. As you can see, the 10% return on tangible equity rises to 16.6% once adjusted by excess capital and calculated over the CET1, because our equity is relatively higher to absorb DTAs deductions. We regard the return on CET1 as a reliable benchmark for us, since it effectively isolates this impact. In September, the return on CET1 adjusted for excess capital stood at 16.6%, which, as you can see, is well above the 11.1% we had two years ago. On the right-hand side, you will also find our tangible book value per share plus dividends. The higher net income and dividends, supported by our strong solvency position, have allowed us to increase this metric by 10% in the last 12 months.

Now let's turn to the credit quality part, on page 22. On the slide, you can see that favorable trends continue. NPLs have declined 15% year-on-year, and coverage has risen to 85%. NPAs overall have also fallen 22% year-on-year, with coverage improving as well, to 83%. That's a very favorable development, leaving total net problematic exposure at a symbolic 0.5%. Turning to solvency, page 24 shows a quarterly bridge. CET1 declined 28 basis points during the quarter, due to higher risk-weighted assets and valuation adjustments. The rise in risk-weighted assets was driven mainly by loan growth and commercial trends. As for the valuation adjustments, the 9 basis points impact stems from the negative mark-to-market of our debt portfolio. That said, it was partly offset by a positive effect from EDP, which contributed 7 basis points. Altogether, CET1 stayed at a very comfortable 15.5% at the end of September. On the following page, you'll see our solvency requirements and our MREL position. As you likely know, earlier this week we published our solvency requirements for 2027, including a Pillar 2 requirement that is 10 basis points lower. On the left, as you can see, this marks the third consecutive year in which our Pillar 2 requirement has gone down, clear proof of the bank's improvement.

At quarter-end, our MREL ratio came in at 26.6%, which gives us a substantial cushion over the key requirement shown on the right, including an MDA buffer above 620 basis points. On liquidity, every ratio stays among the highest in the sector, with the NSFR at 151% and the LCR at 239%. And our loan-to-deposit ratio was 71%, which sums up the bank's excess of retail funding and, among other things, explains the size of the structural ALCO portfolio we present on the next page. The portfolio's yield keeps climbing — from 2.6% last quarter and 2.6% in the same quarter a year ago to 2.8% at the close of this quarter — an improvement driven by reinvestment and active management. Duration and size also rose modestly during the quarter. Worth noting as well: 82% is public debt and 84% sits in the amortized cost portfolio. Lastly, on page 28, we show how current trends stack up against our final-year 2026 guidance. We won't give 2027 guidance until the fourth quarter of '26. For 2026, though, all trends stayed supportive. Net interest income is expanding at 3%, in line with our guidance.

All right, total fees rose 1%, and that's because of the loyalty programs we've walked you through — a strategy that over the near term is going to keep net fees income roughly flat, though we anticipate a favorable return over the medium term. Total costs are climbing as well, consistent with guidance. Cost of risk, which had improved the prior quarter, now sits a bit under the 20 basis points we guided to. Business volumes picked up speed, growing 5%, which is a touch above the 3% guidance too. And lastly, net income was up 8% year-on-year — again, a good direction relative to the mid-single-digit guidance. Every one of these is a favorable trend that lands in line with or modestly above the guidance we currently have. Let me wrap up, finally, on page 29 with a few remarks. Execution of the strategic plan is delivering, and it's already demonstrating some of the targets we expected. We're putting substantial investment in because our work is aimed at the long run and at the bank's future structural profitability. That carries certain near-term negative effects — for instance, on costs, which are rising at 5%, or even in banking fees, which, as I said, are coming down. Even so, we think these near-term choices will benefit us down the road. The strategy we've put in place is already producing some favorable trends in the near term as well, since we're carrying out these measures at the same time as we lift business volumes, net income, and profitability.

All of this comes alongside a substantial boost in what we return to shareholders. That wraps up my update for the quarter. Thanks so much — I'll now pass things to Jaime for the Q&A.

Thanks so much, Pablo. Now we'll move on to the Q&A portion. A reminder to keep it to 2 questions, and please mute your line once you've asked them. Operator, could you open the line for the first question?

Thanks. Ladies and gentlemen, we're starting the Q&A portion now. To ask a question, hit star five on your phone's keypad. Should you decide to withdraw it, just hit star five once more. Before you go ahead with your question, make sure your device is unmuted locally. Maks Mishyn from JB Capital has our first question. Go ahead, please.

Good morning, and thanks a lot for the presentation and for taking our questions. I have two, please. The first concerns growth in loan volumes. It looks like you're expanding in the corporate segment, especially among large corporates. Could you give us more color on what kind of lending that is and how sustainable you consider it? My second question is about the customer spread. With the interest rate curve as it stands now, where do you see your customer spread heading over the coming quarters? Thank you.

Thank you, Maks. When it comes to growth under our strategic plan, our aim is to broaden where our revenue comes from and to strengthen our position in corporate and consumer lending. Along those lines, we concentrated on raising the working capital share of wallet among our existing customers, with the main emphasis on working capital lending, while continuing to bring in new customers — meaning we try to reach every major industry, working with the corporates we lend to that deliver the strongest results. This still comes with a sound, prudent approach to risk, but it spans most of the sector. On customer spread, we saw improvement this quarter, since the second quarter of this year marked the low point in how customer spread has evolved, and we anticipate that spread continuing to rise over the coming quarters — for the next few, at least through the next year.

Thanks, Maks. Operator, could we go ahead and take the second question now?

Much appreciated. Our following question arrives via Carlos Peixoto of CaixaBank BPI. The floor is yours.

Yes, hello, good morning. I have a few questions of my own as well. My first one is actually about NII, and I realize you don't give guidance for 2027, but I was just glancing at consensus, which now sits at €1.55 billion for next year, a bit above the strategic plan targets. I just wanted to get a sense of how comfortable you are with that, or whether you feel consensus has gotten somewhat overheated. Then, essentially on fee income, I was just trying to check whether I understood it right — you now see fee income leaning toward flat to low single-digit growth, as opposed to the earlier guidance of low single-digit growth — just to clarify that part. Then, sorry, just a follow-up on what Maks asked earlier, I just wanted confirmation that regarding the corporate lending growth we saw this quarter, there isn't any one-off effect.

Thanks, Carlos. On NII, I believe it should keep growing, as I said, because the customer spread is getting better and volumes—which, as you've seen, picked up materially over the last few quarters—will continue to improve going forward. Our view on how NII will evolve is quite positive. We won't provide guidance for '27. Guidance will come at the final year result presentation, but what I can tell you is what I've been saying: when interest rates are higher, we have a trend that is lifting NII in the quarters ahead. On fee income, we keep the guidance of low single digit for the year, but as you've seen, we've rolled out new loyalty programs that affect transaction and typical banking fees, and that will carry on in the quarters to come. Obviously, those programs aren't just for one quarter—they'll continue through the whole year. When I said low to flattish, I meant the quarterly evolution of fee income rather than year-on-year. It isn't one-off; it's more a structural evolution of the fee, because the trend for the years ahead will be similar, with wealth management fees, assets under management, mutual funds, and insurance continuing to grow at a very good pace as they have so far, but also with some stabilization going forward on banking fees, albeit from a lower level.

Thanks, Pablo. There was a follow-up question about corporate lending that I can address. You asked whether there's a one-off item in the quarter. There isn't one. Naturally, some volatility exists, but as you can see over recent quarters, the trend in corporate lending has improved considerably. As Pablo explained in one of his earlier responses, this stems from some of the measures we've implemented under the strategic plan. Among other things, we're more active in short-term financing and in working capital, as he noted, but there is no specific one-off. Operator, please, can we move on to the next question?

Sofie Peterzens from Goldman Sachs has the next question — please go ahead.

Hello, this is Sofie calling from Goldman Sachs. Many thanks for giving me the chance to ask a question. I realize it's a bit awkward to return to net interest income, and I apologize for that, but early in this call you said rate sensitivity is somewhat lower, and after that it rises. Could you briefly remind us about your rate sensitivity and how we ought to think regarding the impact in year one and year two, and also at the quarterly level? Should we anticipate that NII growth will begin to speed up over the next few quarters? My second question concerns mortgage pricing. You raised prices during the summer, yet mortgage volumes are holding up fairly well versus the prior quarter. Perhaps you could say a bit about what you are observing regarding mortgage pricing and what you are seeing in terms of the volume outlook, and whether peers are kind of matching your moves on the pricing side — that would be extremely helpful. Thank you.

Thank you. Returning to NII and how it evolves, as we mentioned, we carry a structural rate sensitivity stemming from the duration of our non-maturity deposit. That deposit duration rolls over as time passes, and over on the asset side, the duration there ties to contractual duration—chiefly the fixed income portfolio and the loan book at fixed rate, which typically matures and gets renewed at a higher level when rates rise. On interest rate sensitivity, we've stated that we've had hedging in place since 2023 covering most of our interest rate sensitivities for the coming two, three years; for the next 12 months, we anticipate NII growth, though with quite low interest rate sensitivity, and then beyond that 12-month window, this sensitivity rises to slightly above 5% over the subsequent 12 months. That's more or less the same level we're at.

I'll take the mortgage question. Sofie, you're likely aware that the competition authority has an investigation underway, so we'd rather not go into too much detail about pricing trends. What I can say is that the broader trends—not just in mortgages but across overall lending—show that spreads on new production and loan yields on new production have been rising because of the higher rates, as you can imagine. The sector as a whole is trying to pass through those higher rates on some of the loans as much as possible, since that's the contest we're dealing in. Apologies for not being more specific on the mortgage segment. I believe you understand this. Operator, could you please move to the next one?