Bankinter, S.A.

Good afternoon, and thank you for joining this earnings presentation call for the first half of 2025. Financial statements were posted with market authorities earlier this morning.

All materials can be found on our corporate website as well. Please refer to the disclaimer in the presentation and note that this call is being recorded.

Today, we are joined by our Chief Executive Officer, Gloria Ortiz; and our Chief Financial Officer, Jacobo Diaz. Before handing over to Gloria, I'd like to mention that Bankinter is celebrating its 60th anniversary, marked by innovation, business diversification and steady organic growth, as illustrated on the cover page in the timeline we've included.

Thank you very much, and over to you, Gloria.

Good afternoon. I appreciate Laurie highlighting our 60th anniversary since our continued focus and adherence to our core values over the past 6 decades have been fundamental to our success, which stems from a strategy focused on innovation, excellent customer service and effective technology use, topics I will expand on later.

Let's start on Page 5 with the key highlights for the first 6 months of the year. 2025 continues to be marked by accelerated growth and resilient margins.

Commercial activity demonstrates positive momentum as overall customer volumes have increased by 9% compared to the previous year. We see solid trends in customer lending activity balanced with retail deposit growth and an exceptional wealth management dynamics with assets under management increasing by 18%.

Our business margins have remained strong, supported by ongoing balance sheet growth and effective management of deposit costs in alignment with asset yields. Gross revenues rose 6% this semester despite lower NII, which reached its inflection point in Q1 and Q- on-Q has now increased by 4%.

Fee income continues to be an integral contributed to growth with 11% increase. Our key management ratios remain best in class due to the strict cost control and prudent underwriting, both crucial for sustained profitability across any economic cycle.

We reported a net profit of EUR 542 million with return on tangible equity surpassing 19%. The following pages examine several key factors that have contributed to these results.

Starting with volumes on Page 6. Our differentiation strategy continues to drive diversified volume growth across each category, geography and products.

Customer volumes increased in total by EUR 19 billion this past year, reaching EUR 231 billion. When including the volume of assets under custody, either equity or fixed income with our retail and institutional clients, total volumes exceed EUR 300 billion.

Customer volumes in our core market in Spain grew high single digits, 8%, with Portugal and Ireland both achieving double-digit growth, Portugal 15% and Ireland 20%. Looking at asset origination trends, on the right-hand side of the slide, new mortgage origination is up by more than 20%, corporate and SME banking increased by 15%, and a drop in new customer finance origination specifically in Spain where we made the conscious decision last year to reduce origination in what we refer to as pure open market.

Moving to the next page. Net interest income increased this quarter by 4%, passing the inflection point in Q1 and delivering an increase even above fourth quarter of 2024.

Gross operating income increased by an impressive 6%, supported by strong fleet growth. With core revenue stabilizing and strong fee growth, we remain confident in achieving our revenue targets for this year.

On Page 8, prior to moving to the final page in this section, I would like to take a moment to share a few of our digital transformation priorities as well as the tangible impact these initiatives are having on improving our efficiency and productivity metrics. Bankinter has a long-standing commitment to technological innovation.

We are focused on artificial intelligence and cloud initiatives, having implemented over 20 new generative artificial intelligence cases in customer management, internal commercial productivity and back-office operations. With our new cloud platform deployment, we have enhanced our capabilities currently running over 100 AI and advanced analytical models in production.

This approach enables us to reduce processing times, store larger sources of data and improve scalability to support future business growth. IT investment also supports our strategic commitments as seen in the EVO merger and integration of its IT systems into Bankinter, laying the groundwork for the expansion of Bankinter's new digital organization achieving greater economies of scale.

Most importantly, an analysis of productivity and efficiency trends indicate that our targeted IT investments yield positive outcomes. We observed an increase in volume managed per employee in the graph on the left as well as a reduction in unit operating costs, enabling [ future growth ], maintaining our industry-leading cost-to-income ratio.

To close this section of the presentation, I would like to reaffirm our commitment to leading the industry in cost-to-income ratios and maintaining excellent asset quality levels. Both are strongly associated with maintaining high profitability levels across different economic cycles and have been key contributors to achieving ROTE exceeding 19% and an ROE above 18%, placing Bankinter in the top quartile of our European peers.

I will now hand over to Jacobo to review the financial and business performance.

Thank you, Gloria. Good afternoon, everyone.

We are quite pleased with our first half results, once again delivering growth and profitability, achieving a 6% increase in gross operating income driven by higher volumes in all businesses and geographies, increased fees and effective margin management despite the falling rate environment. As stated earlier this year, we are now distributing operating costs more evenly over quarters.

The current year-on-year increase should decline in coming quarters as quarterly cost volumes remain stable. Cost of risk and related provisions declined by 10% compared to the prior year, reflecting the continued positive trend in losses.

Net profit rose 14% to EUR 542 million, supporting our goal to exceed EUR 1 billion in 2025. In the following slides, I will provide additional details about each line.

On Page 12, net interest income reached its trough in the first quarter of 2025 and now recovering above the fourth quarter of 2024 levels to reach EUR 560 million this quarter. This upward trend in NII has been achieved despite a 140 basis points decline in Euribor on average during the first 6 months compared to the average for the same period in 2024.

Asset yields are still in decline with this quarter's average at 3.71%, down 24 basis points from last quarter after a 30 basis points drop in Euribor between March and April. Customer margin remains above our 270 basis point target, demonstrating effective management of deposit costs, which dropped 23 basis points this quarter.

This now brings down the average cost of deposits below 1%, and we expect this trend to continue targeting to end the year below 80 basis points. Deposit costs declined this quarter due to lower front book pricing, a deposit mix shift reduction over 5% and higher proportion and repricing of our digital deposit accounts, which led to decreased site account costs.

Our NIM remains above 180 basis points as a result of effective balance sheet management, lower wholesale funding costs and an expanding ALCO portfolio. On Slide 13, we present our ALCO portfolio, which has increased to EUR 14.7 billion as we continue to leverage a steeper yield curve while remaining with prudent levels relative to our balance sheet size and equity size.

Let's move into fees on Slide 24 (sic) [ 14 ] Fees increased by more than 11% on a year-on-year basis reaching EUR 380 million this quarter, up 2% on a quarter-on-quarter basis. We continue to achieve exceptionally strong results in fund management and brokerage services increasing by 13%, now representing more than 50% of total gross fees.

On Page 15, improved results in the trading dividend and equity method lines. However, the most significant factor this year has been the lack of any banking tax charge that we announced already last quarter.

On operating expenses, as we work to further minimize the seasonality of our expenses, we also maintain rigorous control of costs across the group. Quarter-on-quarter volumes have remained stable, reflecting a 2% increase compared to the average quarterly cost in 2024.

Cost-to-income ratio remains at an exceptionally low level of 36%, remain committed to maintaining positive operating jaws this year. On the following page, you can find an overview of the distribution of costs by geography and by category.

And on Page 18, loan loss provisions continued to decrease, leading to a cost of risk of 32 basis points. Other provisions also remain under control and performing well, down to 8 basis points this period.

Net profit of this quarter totaled EUR 272 million comparable to the quarterly high record last year. These results contributed to a solid first half of 2025.

Regarding credit quality, credit and asset quality indicators remained strong with an NPL ratio of 2.14% overall, Spain at 2.5%, Portugal at 1.3% and Iran at 0.3%, all well below sector averages. We also continue to strengthen coverage ratio, reaching an unprecedented high of 70%.

On liquidity, loan-to-deposit ratio increasing slightly to 97% this quarter. And capital, at the close of the quarter, our CET1 ratio stood at 12.57%.

During this period, we consolidated a gain of 59 basis points in retained earnings and allocate 34 basis points to our risk- weighted assets growth, resulting in a net organic increase of 25 basis points. Valuation adjustments increased 13 basis points, mainly from our financial investments in Linea Directa and the ALCO portfolio.

Let's move on to review the performance across each region and business segment. Commercial momentum remained strong, with customer volumes up 8% in Spain, 15% in Portugal and 20% in Ireland.

On Page 25, in Spain, loan growth remains strong, increasing 4% to EUR 68 billion, growing both in corporate and retail loans. Retail deposits also demonstrated solid growth, increasing by 5%.

The strong performance in wealth management reflected by a 15% increase in assets under management and assets under custody resulted in a notable 12% rise in fee income. Profit before tax rose 8%, reflecting robust returns and solid income from our core Spanish business.

On Page 26, Portugal delivered exceptional volume growth in lending, up 11% as well as deposits up 20%. Assets under management and assets under custody also continued to grow up 13%.

Moving to Ireland, we continue to see excellent commercial momentum in asset growth in mortgages, up 22% as well as in our commercial financial activity growing 13%. In terms of financial, profit reached EUR 21 million, with a strong increase in NII, up 15% this year.

The corporate and SME segment continues to demonstrate robust performance with customer lending increasing by 6%, which is twice the sector growth rate in Spain. The international business remains a key growth catalyst growing currently at 14%.

Regarding wealth management on Page 29, the management of customer wealth in both retail and private banking businesses continues to be a key driver in deposit gathering as well as investment fund inflows and securities trading, all supporting a strong fee income growth. Given our high-quality customer base, we typically see an annual increase between 5 billion to 7 billion of net new money into the bank after just 6 months this year, we have already -- we are near the lower limit of this range and very optimistic about reaching or surpassing the upper limit by year-end.

Including this year's market effect, our private and retail banking division saw a EUR 9 billion increase in wealth with total assets rising 13% or EUR 16 billion year-on-year. On Page 30, continue with retail banking trends.

Commercial activity remains strong with increased new client acquisition growing by 7% in our insignia salary and digital accounts, an accelerated mortgage origination up 21% year-on-year, growing each quarter with solid market shares of new production in Portugal, Spain and Ireland at 6%. The mortgage back book grew by a strong 6% year-on- year, outperforming sector growth in every region.

To conclude this section on Page 31. Our focus on a niche high-quality client base has enabled us to maintain double-digit growth in assets under management across proprietary and third-party funds, pension plans and alternative investment vehicles.

Another key source of recurring fees in our wealth management business is assets under custody, which have grown by EUR 80 billion across retail, private and institutional clients. So let's move to some closing remarks.

After considering these results, I want to revisit our ambitious -- or ambitions for this year. Regarding loan volumes, we anticipate growth across all regions and business segments in line with current trends, maintaining, therefore, our ambition of a mid-single-digit growth.

Regarding NII, since May, Euribor rates have stabilized above 2%. Despite declines in these rates during the first month of the year, we effectively managed deposit costs and achieved NII growth this quarter.

The expectation is to achieve flattish NII in 2025. Our current assumption is that we will end the year with 12 months Euribor above 2% --, slightly above 2%, and we remain confident in our ability to manage customer margins close to 2.7%, as we have done up to date.

We continue with a positive outlook regarding fee income trends, and we target high single-digit growth for the year. We continue to distribute and balance cost volumes over the quarters, and we target full year annual cost to grow between low to mid-single digits.

Since we expect revenue growth to exceed cost growth, we aim to deliver positive operating jaws in 2025. Given this year's improvement in credit quality, we now expect cost of risk for the full year to be 35 basis points.

And finally, we remain committed to surpassing EUR 1 billion in net income in 2025. So Gloria, back to you for any closing comments.

Thank you, Jacobo. Our results are strong and consistent with our plans.

We are optimistic as growth accelerates across our markets and segments. Our high-quality customer base, differential business model, positive macro environment and exceptional teams give me confidence in our ability to navigate global uncertainty and maintain margins.

Looking ahead, our continued focus on organic growth and diversification remains essential to achieving our long-term objectives. The value created over time for the bank's shareholders is both distributed and strategically, we invested in initiatives that support sustainable and profitable growth, thereby compounding the value of Bankinter over time.

Typically, we project key KPIs from Page 35 during our Q&A session. However, on this occasion, I would like to move to a slide commemorating our 60th anniversary, celebrating 6 decades of profitable growth and extend my sincere appreciation to our clients, shareholders and both current and former employees who have supported us throughout this journey.

For 60 years, what we call the Bankinter way has remained a constant, and I am proud of our past achievements and look forward to continued success. Well, Laurie, let's move now to the Q&A.

Thank you both, Gloria and Jacobo. Let's now move on to the live Q&A session, please.

[Operator Instructions] The first call on the phone we have is Maks Mishyn from JB Capital. Maks, please go ahead.

Year-to-date, you are growing 11%. Is there any reason to not improve guidance for the full year?

And also, what was the reason for a quarter-on-quarter decline in AUM fees? And the second one is on M&A.

There was -- there were some news in the Spanish press on your potential plans for M&A. Any chance you could give us more color on your thoughts on this?

Sorry, Maks, could you repeat the first question? I missed the beginning.

Yes. Sure, Jacobo.

It's -- year-to-date, your fees are growing 11% and your guidance is high single digits. So I was just wondering is there any reason for them to slow down in the coming quarters?

And also why there was a quarter-on-quarter decline in AUM fees?

Okay. Thank you, Maks.

I got it. So I mean, basically, we are targeting a high single digit for the end of the year in fees, and it's basically because last year, in the fourth quarter, we had some success fee that normally tends to be one-offs.

So that's why this is the main reason. Because apart from that, we still -- I mean, quite -- we feel quite strong in terms of our AUMs activity, our brokerage activity and transactionality is still strong.

So there's no other reason apart from that, that I mentioned is the comparison to the fourth quarter last year that had some success fee. Regarding to the assets under management, there is a slight decline.

Remember, we have a month of April with the Liberation Day, brought a little bit of a volatility to the market and uncertainty. So the month of April was probably a little bit more defensive.

But since then, we have a very strong commercial activity. So months like May or June have been very strong like other months in the year.

So from a commercial activity, things are running pretty well. So no big deal for that.

I will answer about M&A. Actually, what we have said and that we are looking -- part of our strategy is actually the diversification of sources of income and namely geographically as well as in terms of different businesses.

So at present, around 16% of our gross margin comes from Portugal and Ireland. And our objective would be like in the next, say, 3 years to have a contribution, 3 to 5 years to have a contribution that is around 20%.

And looking to a further future to get -- to have a contribution from overseas of 1/3 in our income lines. But said that, there is nothing that we are -- that we have to say or there are no news.

We are not working on any acquisition for the moment.

Our next question comes from Ignacio Ulargui from BNP Paribas.

I have two questions. I mean one on lending.

If I just look to the loan growth in the quarter, you have seen a bit of an improvement in Spain versus Ireland. Just wanted to take a bit of your thoughts on how you see dynamic trends in terms of lending demand in corporates in Spain and mortgages in Spain, how -- whether that perception that we have seen in the second quarter will continue into the second half.

And the other question I have is on NII. I mean how should we think about the progression of NII in the coming quarters?

I mean, Jacobo, you have said that clearly, 1Q was the trough of NII. Should we see an acceleration?

Or do you think that we may get kind of this level towards the end of the year?

Ignacio, so taking the first question. I mean lending growth in Spain had a very good behavior in this quarter.

I think you were mentioning that probably are stronger than probably in Ireland. I think Ireland has -- is growing also pretty well.

I think there is -- the mortgage market is -- has a little bit more probably of seasonality there. So we are expecting a quite good second half of the year in Ireland in mortgages in special.

The corporate segment in Spain is behaving very good. The mortgage segment in Spain is behaving very good.

So we don't foresee any major changes in those trends. So we think there is a quite strong trend.

I mean the market is growing, as you know, pretty well. And of course, we are also taking advantage of this good momentum and we are doing our best in this market.

And in terms of NII, yes, I mean, we've gone through the trough in the first Q. So we should expect that the third quarter should be more or less the same, flattish compared to the same quarter of last year.

So we will be already equal. And we definitely expect a quite a very strong comparison in the fourth quarter that will bring us to that flattish NII in the accumulated figure for the year.

So once again, we are managing quite strongly the client margin, as I mentioned. So we are targeting this 2.7% client margin to be the target for the year, and we will keep managing the cost of deposits as we have done in the previous -- in the first half of the year in order to make sure that these levels of client margin are preserved across the year.

Let's move on to our next question now from Ignacio Cerezo from UBS.

I've got two on NII. The first one is if you can give us on, the deposit side actually, the cost of the site and the time balances in the quarter.

And related to that, actually, obviously, we have seen a big swing of time deposits into site balances. I think time is around 20% now.

If you have a feel basically of how low that number can go in the future? And then the second one from a timing perspective.

When do you think the loan yield is going to bottom? And so far, actually, if we have a look at the pass-through view on actually your lending yields, since the moment rates has started to go down.

We're probably talking about around 35%, 40% lending pass-through. That is below, obviously, the percentage of fixed floating you have in your balance sheet.

So should we assume actually, are you going to be converging towards floating percentages? Or are you going to be able to squeeze a little bit of loan yield as rates go down?

I'm going to try to answer. I'm going to start with the second.

I think your question was regarding the loan yields and where should we expect the levels. I think the way we see it is in terms of spread over Euribor.

So we are managing levels of loan spreads versus Euribor in average of around 150 basis points. So if we do expect levels of Euribor around 2%, that means that at the end of the year, the yield should be somewhere around the 350.

I think this is what you were asking. In terms of the cost of deposits, we mentioned that by the end of the year, we should end up in levels below 80 basis points.

I don't have here right now the split of the cost between the term and the site deposits. But the percentage or the proportion of term deposits will still go down in the coming quarters.

And the difference or the change that you've seen in this quarter is also due to the integration of EVO Banco. EVO Banco was considering the vast majority of their deposits as term deposits, while once they have been integrated in the Bankinter accounts, they've been considered a remunerated site accounts.

So that's the main difference in terms of the split and the percentage. Having said that, this will provide us much more flexibility in terms of cost management, as you can imagine.

Our next question comes from Carlos Peixoto from CaixaBank BPI.

Yes. I have a couple of questions on NII as well.

The first one is actually on the follow-up on the previous question. So you mentioned before that you expect first Q NII to be roughly flat year-on-year.

And then in the fourth quarter performance towards the flat NII performance you expect was in the full year. The question here is that implies basically 6% quarter-on-quarter increase in NII in the fourth quarter.

Is this driven by the lower deposit costs that you mentioned? And is the 80 basis points deposit cost that you mentioned the average for the full year or the fourth quarter level?

Carlos, yes, I was mentioning that we do expect to see the cost of deposits around 80 basis points, which is the, I would say, at the end of the year. And this is why you were mentioning and this is what I said is that the NII in the fourth quarter, we expect to be higher, much higher than 1 year before.

And this is basically because we are working hard in terms of keeping the client margin at the current levels. And the way to make sure that we achieve those targets is managing the cost of deposits.

Our next question comes from Alvaro Serrano from Morgan Stanley.

Just hopefully, very quick questions. On the guidance, I think you've said around flat NII.

I'm conscious that before, it's just flat to slightly up. Is there any sort of intended fine-tuning of the guidance on NII?

Or just you phrased it differently? And then -- so that's a clarification.

Then two quick questions, please. On the improvement in the mix of deposits, I realized part of it is EVO Banco that you just mentioned.

Is there a risk that some of these term deposits offer sort of the natural mix shift that is now in current accounts. Does the deposits leave the bank or go back into term?

And a very quick last question on loan growth. You've maintained a mid-single-digit loan growth, but you are pretty much at 5% or 4.7%, I think, year-to-date.

So the run rate looks like it's going to be much better than mid-single digits. Is there anything I'm missing on the loan growth?

Alvaro, I will be answering you about the loan growth. I mean, actually, we are seeing very good dynamics in the market.

And we are very confident that we'll be in the 5-ish percent growth this year. So very similar to mid-single digit.

I think that was the guidance. And then with respect to deposits in EVO Banco, we are seeing no churn at all or nothing significant of clients or balances.

So -- and the products they have is a product that very popular in Spain, more popular than deposits, which is remunerated current accounts. I mean, you probably know them, these digital accounts.

And no, we don't expect them to go deposits because they are much less flexible for the clients and also for the bank. So the client is not interested, and we aren't either.

So we expect them to stay more or less in the percentages they are now.

Yes. And regarding your first question regarding the guidance.

Yes, basically, in April, we had a quite sharp decline in Euribor of 30 bps, and that has an impact in terms of delaying or impacting in the short term, the repricing of the loan side versus the deposit side. So at the end of the day, yes, it's a fine tuning, but it is just a lagging effect.

It's just basically, we will come to the improvement in the NII in coming quarters. But of course, after 30 bps of sharp decline in a very short period of time, the repricing of the assets, basically in the corporate banking business has impacted a little bit.

At the end of the day, we keep our flattish NII guidance, but we do expect growth in the following quarters.

Our next question comes from Britta Schmidt at Autonomous Research.

Just a follow-up on the net interest income. Just with regards to the trajectory, so we arrived in back solving that you're targeting EUR 600 million plus NII in Q4.

Can you just explain a little bit more that all driven basically by a delayed decline in the deposit costs? And if the exit NII is around EUR 600 million in Q4 and rates remain more or less flattish, do you expect to growth on that annualized number of EUR 2.4 billion?

And then secondly, just coming back to the mix effect. Was there any repricing also in terms of moving the EVO accounts to the La Cuenta Inteligente?

And is that more or less a one-off effect that is done? Or do you expect more to come there?

Britta, so I mean the NII effect is, of course, is not just the cost of deposits because we have also a higher size of our ALCO portfolio. We have an ALCO portfolio, which is already close to EUR 15 billion, and it is yielding 2.5%.

So we also have, of course, our wholesale funding, which is repricing downwards and it makes our NIM resilient at 1.85% levels. Yes, but of course, bear in mind that we have barely fully repriced the corporate banking loan book because it reprice very, very fast.

So that means that the repricing of the asset side of the loan side in the coming months will be basically focused on the mortgage book. And we think that by September, October, things will be much fully repriced.

So that's why we do expect that in the last quarter, things will be much better, optimistic in terms of the comparison. In terms of the mix effect, I mean, we are not expecting any changes.

I mean the Cuenta Inteligente is behaving exceptionally well. All the EVO clients have come into Cuenta Inteligente.

I remind you that in parallel, we are we are quite active in terms of the digital account as well and salary accounts. So in terms of mix effects regarding the EVO, we are not expecting any changes.

Apart from that, we are commercially very active as usually, in bringing good clients and resources and et cetera.

Our next question comes from Hugo Cruz at KBW.

I would like to repeat the question from Britta actually because I think it's a very good question, which is if your exit rate of NII is EUR 600 million in Q4, should we annualize that for starting for next year? I don't know if you answered the question.

And then question on M&A. I can understand the logic of Portugal because it's very close.

But I mean, you have very good ROE. Spain is growing nicely.

You still have low market share. So why are you so focused on geographical expansion?

Is it just really a matter of diversification? Or do you think like it's just to continue to look for good ROE opportunities?

What's driving the international expansion logic?

Well, I will take the international expansion question. We are not focused at all.

I mean, I think it's more the press that has a very flashy -- how do you it? Whatever, yes.

So they're taking this very seriously. I've only said that in next 10 years, so it's a very long period.

We would like to have 1/3 of our income coming from overseas because we think diversification, geographic diversification is important to our business model. But for the moment, we have a lot on our plate.

We are actually transforming Ireland into a full-fledged bank, and we investing in Portugal, both in [ universal ]. And we are also investing in digitalization of our Portugal branch.

So we are focusing that. We don't have in our agenda any purchase, any M&A in Spain nor in Portugal or anywhere else.

So just to be clear, okay? So I think the press has given a lot of light to something that is not so important.

And okay, I pass to Jacobo.

Yes, sure. Yes, I think the -- what's important here is that we do not provide guidance on 2026.

I think that's the first point of the answer. So unfortunately, I cannot directly answer your question.

However, if expectations on rates are to stay above 2% in the coming quarters, and I mean in 2026. And of course, our track record of loan growth in the past has been around mid-single digit, then I'm sure that you can figure out what can happen in 2026.

Thank you very much to everyone for participating in this call, and we thank you as well for adapting your time schedules to us today. And that concludes our Q&A session.

And if any questions come up after the call, the Investor Relations team is here to answer you. Thank you, Jacobo.

Thank you, Gloria, and have a nice day, everyone.