19 August 2025 China Banks Equities 1H25 results preview: three key variables China 2Q25 preview: We expect 2Q25 net profit growth for our covered mainland China banks to improve from 1Q25, driven by smaller-than-expected NIM compression, stable credit costs, and effective cost control. Of the key aspects we monitor, we expect three positive, one negative, and two mixed trends in the coming quarter: Investment thesis: Overall, we expect net profit growth for 2Q25 to be better than that of 1Q25, thanks to in ...

Core Viewpoint - State Street Corp (STT) is well-positioned for growth due to higher interest rates, improved fee income efforts, strategic acquisitions, and a solid balance sheet, although rising expenses and concentrated fee-based revenues pose concerns [1] Growth Drivers - Higher interest rates are expected to aid net interest revenues, with net interest income (NII) projected to have a compound annual growth rate (CAGR) of 3.1% over the next three years, despite a decline in NIM from 1.20% to 1.10% in 2023 [2][3] - Total fee revenues showed a four-year CAGR of 1.7%, driven by increased client activity and market volatility, with AUC/A and AUM recording CAGRs of 4.7% and 8%, respectively [4] Strategic Initiatives - State Street is expanding through strategic acquisitions, including partnerships with smallcase and Ethic Inc., and acquiring global custody businesses from Mizuho Financial Group [7][8] - The company is also restructuring its global operations, consolidating its European joint ventures, and enhancing its service offerings to drive revenue and cost synergies [9] Financial Health - As of March 31, 2025, State Street had total debt of $36.7 billion and cash and deposits totaling $124.1 billion, with a 10% increase in quarterly dividends to 76 cents per share and a $5 billion share buyback authorization [11][12] - The company aims to distribute approximately 80% of its earnings to shareholders this year, indicating a sustainable capital distribution strategy [12] Challenges - Rising operating expenses have been a concern, with total non-interest expenses showing a four-year CAGR of 2.3%, and projected increases of 3%, 2.1%, and 4.7% in the coming years [13][14] - Fee income, which constituted 78.3% of total revenues in Q1 2025, faces risks from market volatility and concentration risk, which could significantly impact the company's financial position [15][16] Market Performance - Shares of STT have increased by 28.9%, outperforming the industry average of 19%, and currently hold a Zacks Rank 3 (Hold) [17]

Core Insights - Banco Latinoamericano de Comercio Exterior, S.A. (Bladex) reported a net profit of $51.7 million for the first quarter of 2025, reflecting a 1% year-over-year increase, supported by a 7% rise in total revenues [5][4] - The bank's net interest income (NII) grew by 4% year-over-year to $65.3 million, driven by increased business volumes, while the net interest margin (NIM) was recorded at 2.36% [5][6] - The credit portfolio reached an all-time high of $11,950 million, marking a 22% year-over-year increase, with a significant contribution from the commercial portfolio [5][7] Financial Performance - Total revenues for 1Q25 were $77.9 million, compared to $72.6 million in 1Q24, indicating a 7% increase [4][5] - Operating expenses were reported at $21.0 million, a slight decrease from $22.9 million in the previous quarter [4][5] - The efficiency ratio improved to 26.9% in 1Q25 from 29.2% in 4Q24, reflecting effective cost management despite increased headcount [5][6] Asset Quality and Capital Position - The bank maintained a healthy asset quality, with 97.9% of the credit portfolio classified as low risk or Stage 1, and impaired credits at only 0.1% of the total credit portfolio [5][7] - The Tier 1 capital ratio stood at 15.1%, and the regulatory capital adequacy ratio was 13.5%, both within the bank's risk appetite [5][7] - Liquid assets accounted for 14.9% of total assets, with a strong liquidity position of $1,852 million as of March 31, 2025 [5][7] Recent Developments - The Board of Directors approved a quarterly dividend of $0.625 per share for 1Q25, to be paid on June 3, 2025 [8] - The Annual Shareholders' Meeting held on April 29, 2025, resulted in the election and reelection of several directors and the approval of the bank's audited financial statements for the fiscal year ended December 31, 2024 [9]

Financial Data and Key Metrics Changes - The company reported record revenue for the first quarter of 2025, with end-of-period loans growing 1% quarter-over-quarter to a new record level of $54 billion [6][7] - Net interest income increased to $600 million, up $12 million from Q4, and net interest margin rose by 11 basis points to 3.35% [20][21] - The return on tangible common equity was nearly 16%, and the return on average assets was 1.6% [10] Business Line Data and Key Metrics Changes - Fee income grew by 8%, driven by strong customer activity across various categories [8][21] - Residential mortgage origination remained steady, with a strong pipeline for Q2, while commercial real estate balances also grew [16] - The efficiency ratio for Q1 was 36.4%, indicating industry-leading efficiency [22] Market Data and Key Metrics Changes - The non-performing assets ratio decreased by two basis points to 24 basis points at quarter-end [9][25] - The criticized loans ratio increased to 2.3%, with classified loans rising to 1.38% [25][28] - The allowance for loan losses increased to 1.35% of total loans, reflecting a proactive approach to credit risk management [26][28] Company Strategy and Development Direction - The company aims to capitalize on opportunities arising from economic uncertainties while maintaining a strong capital position [13][28] - There is a focus on diversifying revenue streams and enhancing fee income through customer engagement and service expansion [7][21] - The management emphasized the importance of a strong balance sheet to support customers and navigate economic challenges [13][60] Management's Comments on Operating Environment and Future Outlook - Management noted that clients are adapting to economic uncertainties and diversifying supply chains, which positions the company favorably [11][12] - The company remains vigilant regarding credit risk and is prepared for potential economic downturns [26][60] - Future loan growth will depend on economic conditions, with a cautious approach to lending in uncertain times [62][66] Other Important Information - The company repurchased approximately 920,000 shares for $85 million and distributed $85 million to shareholders via dividends [29][30] - The effective tax rate for 2025 is expected to be below 23% [31] Q&A Session Summary Question: Why is the NII guide not moving higher? - The guidance remains appropriate due to anticipated rate cuts and current economic outlook [35] Question: Can the deposit beta be sustained? - The positive momentum may slow as the forward curve flattens, but the company expects to remain above the 50% guide [37] Question: What is the outlook for capital return and buybacks? - The company will continue to be opportunistic with buybacks while maintaining a strong position to support customers [45][46] Question: Are current tariff risks larger than in previous years? - Clients are better prepared now compared to 2017, and the company is actively engaging with clients to manage risks [50][52] Question: How does the company view loan growth opportunities? - The company has the capital and balance sheet to support clients, but loan growth will depend on economic conditions [60][62] Question: What is the strategy for growing fee income? - The company focuses on domestic lending fees and wealth management, with some fees tied to cross-border activity [71] Question: Can you elaborate on the allowance build rationale? - The allowance increase was driven by a higher weighting for downside scenarios due to economic uncertainties [74] Question: What are the expectations for expenses in the coming quarters? - The company remains comfortable with its expense guidance while continuing to invest in technology and infrastructure [80] Question: What is the strategy for security purchases in liquidity management? - The focus is on purchasing high-quality liquid assets, primarily Ginnie Mae securities [120]

Financial Data and Key Metrics Changes - The company met consensus earnings estimates of $0.35 per share in Q4 2024, with a pre-tax pre-provision ROA of 1.77% and ROE of 1.23% [6] - The net interest margin (NIM) was reported at 3.54%, with a core efficiency ratio of 56.1% [6] - Average deposits grew by 8.7% in Q4, with a year-over-year increase of approximately $451.1 million or 5% [8][15] - Non-performing loans (NPLs) decreased from 0.83% to 0.68%, indicating improved credit quality [11] Business Line Data and Key Metrics Changes - Loans grew by $23.5 million in Q4, reflecting an annualized growth rate of 1.04% [17] - Equipment finance was highlighted as a growth area, with a notable increase of $61 million in Q4 alone [7] - Fee income improved by $800,000 quarter-over-quarter, driven by increases in swap income and mortgage gain on sale income [19][20] Market Data and Key Metrics Changes - The company experienced balanced deposit growth across most regions, with a focus on growing core deposits and transaction accounts [8] - The commercial real estate (CRE) sector showed good activity in Q4 after a period of selectivity due to credit and liquidity concerns [9] Company Strategy and Development Direction - The company aims for mid-single digit loan growth in 2025, with a focus on commercial and industrial (C&I) lending and commercial real estate [10][30] - A strategic acquisition of Center Bank in Cincinnati was announced, expected to enhance market presence and growth potential [12][48] - The management emphasized the importance of maintaining top quartile profitability while pursuing growth opportunities [6][7] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about loan growth in 2025, supported by a strong regional accountability and new leadership in key markets [9] - The evolving interest rate environment is expected to favor NIM, with projections for gradual improvement in fee income [10][18] - Management acknowledged challenges from higher credit costs and deposit pricing pressures but remains focused on growth and profitability [6][10] Other Important Information - The company repurchased 477,000 shares in the quarter but paused buybacks following the acquisition announcement [22] - Customer experience metrics improved, with historic highs in Net Promoter Score and branch customer satisfaction [12] Q&A Session Summary Question: Can you discuss the fee income, particularly in mortgage banking and card income? - Management noted that card income has stabilized post-Durbin impact, with mortgage banking performing well despite market conditions [25][26] Question: What are the expectations for loan growth in 2025? - Management anticipates mid-single digit growth, with contributions from both CRE and C&I lending [30][31] Question: How does the company plan to manage NIM expansion? - The company expects NIM expansion to come primarily from loan growth and positive replacement yields, with conservative deposit cost forecasts [42][46] Question: Can you provide insights on the Center Bank acquisition? - The acquisition is seen as a strategic move to enhance market presence in Cincinnati, with expectations for significant growth potential [48][49] Question: How is the credit quality holding up? - Management reported improvements in asset migration trends and a reduction in non-performing loans, indicating a positive trajectory [60][62]