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 ...

Financial Data and Key Metrics Changes - Banco de Chile reported a net income of CLP 654 billion for the year to date, representing a growth of 2% year on year, with a return on equity (ROE) of 21.9% [4] - The bank's operating income totaled CLP 763 billion in 2025, reflecting stable performance despite subdued business activity [27] - The net interest margin reached 4.7% for the quarter and 4.8% as of June 2025, maintaining a leading position in the industry [30] Business Line Data and Key Metrics Changes - Customer income increased by 2.7% year on year to CLP 626 billion, driven by a 6.2% rise in net income from loans and an 8.1% increase in fee income [28] - Total loans reached CLP 39.4 trillion as of June 2025, reflecting an annual increase of 3.9%, with mortgage loans growing by 8.1% year on year [31][33] - The SME portfolio within commercial loans expanded by 4.8% year on year, contributing to customer income growth [29] Market Data and Key Metrics Changes - The Chilean economy showed signs of recovery, with GDP growth of 2.3% year on year in the first quarter of 2025, above the estimated long-term trend [6] - The unemployment rate stood at 8.9% in June 2025, up 60 basis points from a year earlier, indicating mixed signals in the labor market [9] - Inflation remained above the central bank's target of 3%, with a headline rate of 4.1% in June, down from 4.9% in March [10] Company Strategy and Development Direction - Banco de Chile's strategic framework focuses on supporting the development of Chile through efficiency, collaboration, and a customer-first mindset [19] - The bank aims to achieve sustainable, long-term industry-leading profitability and market leadership in both commercial and consumer loans [20] - Recent initiatives include enhancing digital capabilities, integrating subsidiaries for operational efficiency, and participating in state-guaranteed credit programs to stimulate economic activity [24][25] Management's Comments on Operating Environment and Future Outlook - Management highlighted the ongoing challenges in the global macroeconomic landscape but emphasized the bank's strong fundamentals, including asset quality and capital base [5] - The bank revised its GDP forecast for 2025 upwards to 2.3%, reflecting stronger-than-expected economic performance in early 2025 [13] - Management expressed confidence in maintaining a return on average capital of approximately 21% for the full year, supported by strong cost control and productivity gains [50] Other Important Information - The bank's common equity Tier 1 ratio reached 14%, positioning it among the top performers in the industry [41] - Total provisions amounted to CLP 1.5 trillion, with a coverage ratio of 252%, reflecting a conservative approach to credit risk management [46] Q&A Session Summary Question: Insights on the political landscape and potential regulatory impacts - Management noted the likelihood of a second round in presidential elections and emphasized the importance of economic growth discussions among candidates [54][55] Question: Outlook on net interest margins (NIM) and overnight rates - Management expects lower interest rates in the future, with a potential NIM of around 4.5% to 4.7% in the medium term, depending on market factors [59][60] Question: Comments on cost control initiatives and future expense growth - Management highlighted significant improvements in efficiency through digital tools and branch network reductions, with an aspiration to maintain an efficiency ratio below 42% [78][81] Question: Loan growth outlook and industry comparisons - Management indicated a guidance to grow slightly above the industry average, which is projected at 4% [86]

Lending Market Growth - Active loan growth of $400 million since June [1] - Focus on DEX (Decentralized Exchange) Lending [1] Market Sentiment - Positive sentiment expressed regarding growth, indicating a "flywheeling" effect [1]

Financial Data and Key Metrics Changes - The company reported net income of $109.8 million or $1.6 per diluted share in the second quarter, a notable 21% increase year-over-year [10] - Return on assets (ROA) improved to 1.65%, and return on tangible common equity rose to 15.8% [11] - Efficiency ratio improved to 51.63% from 52.83% in the previous quarter, indicating better operating leverage [10][11] - Tangible book value per share increased to $41.32, reflecting a strong 15.5% annualized growth [11] Business Line Data and Key Metrics Changes - Loan growth was primarily driven by commercial and industrial (C&I) loans, with a total loan production of $1.9 billion, up from $1.5 billion in the previous quarter [16] - Non-interest income increased by approximately $4.9 million, largely due to a 36% growth in mortgage production [14] - Total non-interest expense rose by $4.2 million, mainly due to higher salaries and employee benefits related to increased mortgage production [14] Market Data and Key Metrics Changes - Non-interest bearing deposits grew over 3% annualized, increasing their share to 31% of total deposits from 30.8% in the previous quarter [17] - The company experienced a seasonal decline in cyclical municipal deposits, offset by an increase in broker deposits [17] Company Strategy and Development Direction - The company remains focused on organic growth, with plans to utilize excess capital for growth opportunities, stock buybacks, and dividends [28][29] - Management emphasized the importance of maintaining a strong core deposit base and leveraging growth in attractive Southeastern markets [9][10] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism for the remainder of 2025 and into 2026, citing a robust margin, strong capital, and liquidity [9] - There is a cautious but positive outlook on loan growth, with expectations for mid-single-digit growth in loans and deposits [18] Other Important Information - The company repurchased approximately $12.8 million in common stock during the quarter [11] - The provision for credit losses was $2.8 million, with reserves remaining strong at 162% of loans [15] Q&A Session Summary Question: Loan growth trends and competition - Management noted a resurgence in loan activity and expected third-quarter activity to be similar to the second quarter, with increased competition [24][25] Question: Future growth opportunities and capital deployment - The company plans to focus on organic growth first, with stock buybacks and dividends as secondary options, while being cautious about M&A [27][29] Question: Deposit growth and margin outlook - Management indicated that deposit growth would continue, with a focus on non-interest bearing deposits, and anticipated some pressure on deposit costs [44][46] Question: Mortgage segment trends and capacity - The company is prepared for a potential refinancing wave and has the capacity to handle increased production without needing additional hires [66][67] Question: Overall competitive landscape and charge-offs - Management observed increased competition beyond pricing, with a focus on treasury management and deposit growth [55][56]

Financial Data and Key Metrics Changes - The pretax, pre-provision net income increased by 15% compared to the prior quarter and 85% compared to the prior year to date [4] - Net interest income rose to $25,900,000, primarily due to a higher balance of average earning assets and a seven basis point increase in net interest margin [10] - The total risk-based capital ratio stood at 16.25% and the tangible common equity (TCE) ratio was 9.95% [8] Business Line Data and Key Metrics Changes - Total loan originations were $68,800,000, with $50,200,000 in fundings, consistent with the prior quarter [5] - The average yield on loans increased by seven basis points from the prior quarter, reflecting higher rates on new loan production compared to paid-off loans [10] - Noninterest income was negative due to losses from securities portfolio repositioning, but most other areas remained consistent with the prior quarter [11] Market Data and Key Metrics Changes - Total deposits declined in the second quarter due to normal client activity, but year-to-date growth in deposits was noted, with over 70% of outflows recouped in July [6][7] - The competitive rate environment remains, but limited attrition of deposits was observed as clients value service levels and community commitment [7] Company Strategy and Development Direction - The company is focused on maintaining disciplined underwriting and pricing criteria while expanding its banking teams to drive future growth [5] - Plans for further securities portfolio repositioning are in place to enhance earnings and net interest margin [14] - The company aims to increase market share and generate profitable growth through strategic hiring and technology enhancements [15][16] Management's Comments on Operating Environment and Future Outlook - Despite economic uncertainty, loan demand remains healthy, and the loan pipeline is strong, indicating expectations for loan growth in the second half of the year [14] - Management expressed optimism about continued positive trends in net interest margin and revenue, with expectations for improved financial performance [15] Other Important Information - The company declared a cash dividend of $0.25 per share, marking the 81st consecutive quarterly dividend [12] - The company repurchased $2,200,000 of shares during the quarter [8] Q&A Session Summary Question: Details on the two CRE loans that migrated this quarter - The loans are generally retail or mixed-use, located outside San Francisco, and are experiencing tenancy or cash flow issues, but management is not particularly concerned due to good sponsorship [20][21] Question: Appetite for restructuring the HTM securities portfolio - The company is cautiously considering this, weighing the impact on capital and potential shareholder dilution [22] Question: Update on share buyback plans - The company has renewed its buyback allocation and is looking to buy back shares below tangible book value, balancing this with other capital uses [25][26] Question: Performance of the AFS book and reinvestment rates - The final yield on purchases was slightly above 5%, aligning with expectations [33][34] Question: Recent deposit rate cuts - Targeted deposit rate cuts were implemented, with a recent cut of about 15 basis points, contributing to a small benefit to net interest margin [38][40] Question: Expectations for loan growth in the second half of the year - Management is optimistic about net growth, supported by a strong pipeline and new market leaders joining the bank [42][49] Question: Credit upgrades anticipated in the third quarter - Upgrades are expected across various segments, with some meaningful amounts involved [58][62]

Financial Data and Key Metrics Changes - The company reported net income of $18.3 million or $0.67 per diluted share, with a return on average assets of 1% and return on average equity of 13.04% [12] - Net interest income increased by 3.6% quarter over quarter to $59.8 million, with net interest margin expanding by 13 basis points to 3.44% [13] - Total other operating income was $13 million, reflecting a $1.9 million increase quarter over quarter [13] Business Line Data and Key Metrics Changes - The loan portfolio slightly declined to $5.29 billion, with growth in construction and consumer loans, while other categories saw declines [10] - Total deposits were $6.54 billion, also showing a slight decline from the prior quarter, but with a favorable shift towards noninterest-bearing deposits [11] Market Data and Key Metrics Changes - Hawaii's construction industry showed solid performance with completed construction reaching $14 billion in 2024, with steady growth expected in 2025 [6] - Visitor arrivals in Hawaii were up 2.8% year to date, with total visitor spending increasing by 6.5% compared to the prior year [7] - The unemployment rate in Hawaii remained low at 2.8%, outperforming the national rate of 4.1% [7] Company Strategy and Development Direction - The company aims to deepen customer relationships and grow market share in Hawaii, select Mainland markets, and Asia, targeting low single-digit growth for loans and deposits in 2025 [10] - The focus remains on managing the cost of funds while growing core deposits in a competitive environment [11] Management's Comments on Operating Environment and Future Outlook - Management maintains a cautiously optimistic outlook for Hawaii's economy, acknowledging potential headwinds but emphasizing sound fundamental economic drivers [9] - The company is confident in its core business environment and sees opportunities ahead despite a muted loan growth in the first half of 2025 [10] Other Important Information - The effective tax rate was 23.5% in the second quarter, expected to remain between 22% and 24% [14] - The company repurchased approximately 103,000 shares of common stock at a total cost of $2.6 million [14] - A quarterly cash dividend of $0.27 per share was declared, payable on September 15 [15] Q&A Session Summary Question: Growth trends and client demand - Management noted that loan growth was muted in the first half but expects a robust pipeline and strong net loan growth in July, contributing to revenue growth in the second half [25][27] Question: Competition in the market - Competition remains average in the Hawaii banking market, with no significant changes in strategy from competitors [30] Question: Non-interest bearing deposit growth - The company is focused on growing low-cost core deposits through relationship management and prospecting, which has shown early success [34] Question: Expense run rate and investments - The near-term guidance for total other operating expenses is projected to be between $43.5 million and $44.5 million per quarter, excluding one-time impacts [37] Question: Credit quality and concerns - Management indicated that the uptick in credit metrics is not systemic and that expected losses remain within risk appetite, with no anticipated losses from downgraded loans [40][41]

Financial Data and Key Metrics Changes - The company's net income increased over 23% compared to the prior quarter, driven by higher net interest and noninterest income, good expense control, and lower provision expense [7] - Total loans increased by approximately $59 million or 0.4% from the prior quarter, with the largest increase in the C and I portfolio [8] - Total deposits increased slightly in the second quarter, with public deposits growing by $166 million, offsetting declines in commercial and retail deposits [10] - Net interest income was $163.6 million, up $3.1 million from the prior quarter, with a net interest margin (NIM) of 3.11%, an increase of three basis points [11] Business Line Data and Key Metrics Changes - The C and I portfolio saw a $125 million increase in dealer floorplan balances, while payoffs from completed construction projects offset some growth [9] - Retail deposits decreased by $23 million, and commercial deposits fell by $127 million due to normal operational fluctuations [10] - Noninterest income was $54 million in the quarter, with expectations for recurring noninterest income to be around $51 million per quarter [12] Market Data and Key Metrics Changes - The statewide seasonally adjusted unemployment rate was 2.8% in June, compared to the national rate of 4.1% [5] - Visitor arrivals were up 2.8% compared to last year, with year-to-date spending at $9 billion, an increase of 6.5% compared to 2024 [6] Company Strategy and Development Direction - The company plans to maintain its investment portfolio balance and has resumed reinvesting cash flows from the investment portfolio [7] - Capital priorities include organic growth, maintaining a stable dividend, and share repurchases, with $50 million remaining under the approved 2025 stock repurchase plan [7][26] Management Comments on Operating Environment and Future Outlook - Management noted that while there is uncertainty regarding tariffs affecting car dealers, tourism spending has remained strong, particularly from the U.S. mainland [24] - The company expects full-year loan growth to be in the low single digits, adjusting guidance due to the performance of construction loans [22] Other Important Information - The bank recorded a $4.5 million provision for credit losses in the second quarter, with classified assets increasing by $31.6 million [13][15] - The allowance for credit losses increased to $167.8 million, with coverage remaining flat at 1.17% of total loans and leases [15] Q&A Session Summary Question: What is the outlook for C and I growth and demand from CRE borrowers? - Most C and I growth came from dealer floor plans, with a current balance of $786 million, up $125 million from the previous quarter. There is uncertainty regarding future balances due to tariffs [20][21] Question: How are capital priorities evolving? - Capital priorities remain focused on organic growth, stable dividends, and share repurchases, with more repurchase authority expected to be utilized in the back half of the year [26] Question: What is the impact of the tax law change on the tax rate outlook? - The effective tax rate outlook for the rest of the year is 23.2%, slightly higher than the previous estimate of 23% [45] Question: What is the outlook for loan growth and competition in the market? - Loan growth is expected to be lower than initially anticipated, with competition primarily from institutional buyers for completed construction loans [52][73]

Financial Data and Key Metrics Changes - The company's net income increased over 23% compared to the prior quarter, driven by higher net interest and noninterest income, good expense control, and lower provision expense [6] - Total loans increased by approximately $59 million or 0.4% from the prior quarter, with the largest increase in the C and I portfolio [7] - Net interest income was $163.6 million, up $3.1 million from the prior quarter, with a net interest margin (NIM) of 3.11%, an increase of three basis points [11] Business Line Data and Key Metrics Changes - The C and I portfolio saw a significant increase of $125 million in dealer floorplan balances, while payoffs from completed construction projects offset some of this growth [7] - Total deposits increased slightly, with public deposits growing by $166 million, while commercial and retail deposits declined [10] - Noninterest income was $54 million in the quarter, with expectations for recurring noninterest income to be around $51 million per quarter [12] Market Data and Key Metrics Changes - The statewide seasonally adjusted unemployment rate was 2.8% in June, compared to the national rate of 4.1% [4] - Visitor arrivals were up 2.8% compared to last year, with year-to-date spending reaching $9 billion, an increase of 6.5% compared to 2024 [5] Company Strategy and Development Direction - The company plans to maintain its investment portfolio balance and has resumed reinvesting cash flows from the investment portfolio [6] - Capital priorities include organic growth, maintaining a stable dividend, and share repurchases, with a focus on deploying capital effectively in the back half of the year [26] Management's Comments on Operating Environment and Future Outlook - Management expects full-year loan growth to be in the low single digits, reflecting a cautious outlook due to uncertainties in the market [8] - The company is not observing broad signs of weakness in credit performance, with credit risk remaining low and stable [13] Other Important Information - The company recorded a $4.5 million provision for credit losses in the second quarter, with the allowance for credit losses increasing to $167.8 million [15] - The effective tax rate outlook for the rest of the year is projected at 23.2%, slightly higher than the previous estimate [47] Q&A Session Summary Question: How is the pipeline in terms of C and I? - Most of the C and I growth came from dealer floor plans, which have normalized, and there is uncertainty regarding future balances due to tariffs [20] Question: Have tariffs impacted tourism spending? - Tariffs have created uncertainty for car dealers but have not significantly impacted tourism spending, which has increased [24] Question: What are the capital priorities moving forward? - Capital priorities include organic growth, maintaining dividends, and share repurchases, with a focus on deploying repurchase authority in the back half of the year [26] Question: What is the outlook for M&A? - The company is open to considering M&A opportunities but currently has no specific targets [34] Question: What impacted loan yields in the second quarter? - The mix of loans, with higher margin loans being paid off and replaced by lower margin loans, affected loan yields [37] Question: What is the outlook for fee income in the third quarter? - Fee income is expected to be in the range of $51 million to $52 million for the third quarter [40] Question: What is driving the increase in residential mortgage non-performers? - The consumer at the lower end is getting stretched, leading to an increase in non-performing loans, but the company is not concerned about loss content [64] Question: How does the company view the increase in commercial criticized assets? - Most criticized assets are expected to cure themselves, and the company remains confident in its credit portfolio [71]

Financial Data and Key Metrics Changes - Net income increased by 36% from the prior quarter, reaching $42.7 million or $0.50 per share, with adjusted net income rising 39% sequentially to $44.5 million or $0.52 per share [4][7] - Return on assets improved to 1.08%, and return on tangible common equity rose to 12.8%, with an efficiency ratio of 55% excluding merger-related charges [8] - Tangible book value per share increased by 12% year over year to $17.19 [9][10] Business Line Data and Key Metrics Changes - Annualized loan growth reached 6.4%, with loan production of $854 million in the second quarter [4][16] - Net interest income rose by 7% from the prior quarter to $126.9 million, with net interest margin expanding by 10 basis points to 3.58% [9][11] - Noninterest income, excluding securities activity, increased by 10% year over year to $24.5 million, driven by treasury management services and wealth management [13] Market Data and Key Metrics Changes - Total deposits decreased by $77 million, reflecting seasonal slowness and a strategic focus on exiting high-rate deposit relationships [21] - Customer transaction accounts represented 47% of total deposits, indicating a strong relationship-focused approach [22] Company Strategy and Development Direction - The company successfully closed the Heartland Bancshares acquisition and is on track to close the Villages Bancorporation acquisition, which is expected to enhance profitability [5][10] - The company aims to maintain a strong capital position and continue organic growth while integrating recent acquisitions [24][23] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth outlook, citing strong economic conditions and demand for credit, with expectations for mid to high single-digit loan growth [34][36] - The competitive landscape is becoming increasingly competitive, particularly in commercial real estate, but the company remains optimistic about its growth trajectory [35][66] Other Important Information - The allowance for credit losses totaled $142.2 million, or 1.34% of total loans, with net charge-offs at $2.5 million, reflecting strong credit quality [18][19] - The company expects to exit the year with a core net interest margin of approximately 3.35%, with potential upside from acquisitions [12][84] Q&A Session Summary Question: Growth trends and competitive landscape in Florida - Management highlighted that growth is driven by recruiting top talent and strong economic conditions, with a robust pipeline for the upcoming quarters [32][34] Question: Outlook on funding costs and core deposit growth - Management indicated a focus on growing core operating accounts while managing deposit costs, with expectations for seasonal trends to turn favorable [39][41] Question: Loan pricing and spreads in commercial real estate - Management noted increased competition and some spread compression for high-quality assets, but credit quality remains stable [66][68] Question: Charge-off expectations and credit quality outlook - Management expressed confidence in stable credit quality moving forward, with expectations for mid-cycle charge-offs around 20 to 25 basis points [70][71] Question: Balance sheet optimization and margin expectations - Management discussed plans to optimize the balance sheet with the upcoming acquisitions, guiding for a core margin of 3.35% and potential increases from the acquisitions [83][84]

Financial Data and Key Metrics Changes - The company achieved record revenue of $226.3 million, a 5% increase year-over-year, with adjusted earnings per share of $0.74, a return on assets of 1.54%, and a return on tangible common equity of 20% [4][5][14] - The net interest margin increased to 4.05%, a 17 basis point increase from the previous quarter, while funding costs declined by 12 basis points [9][10][14] - Adjusted noninterest income was $67.8 million, an 11% increase from the previous quarter and a 10% increase year-over-year [5][17] Business Line Data and Key Metrics Changes - Loan growth was 2% on an annualized basis, with broad-based growth in most portfolios except for commercial real estate, which declined due to higher payoffs [5][15] - Noninterest income growth was driven by double-digit increases in mortgage, bank card, leasing, and foreign exchange income [5][11] - Adjusted noninterest expenses increased by 1% compared to the first quarter, with core expenses rising primarily due to higher incentive compensation and marketing expenses [6][17] Market Data and Key Metrics Changes - Average deposit balances increased by $114 million, primarily due to a seasonal influx in public funds and higher noninterest-bearing deposits [10][15] - The company maintained 21% of total balances in noninterest-bearing accounts, focusing on growing lower-cost deposit balances [10][15] - Adjusted uninsured deposits were $3.8 billion, representing 27% of total deposits, with a comfortable concentration level [16] Company Strategy and Development Direction - The company expects loan growth in the low to mid-single digits for the third quarter, with a strong loan pipeline and easing payoff pressures anticipated [21][22] - The Board of Directors approved a 4.2% increase in the common dividend to $0.25, reflecting the company's commitment to delivering shareholder value [7][20] - The company is actively engaged in the integration process following the announcement of the acquisition of Westfield Bank, expecting regulatory approval and closing within the year [22][23] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about asset quality, expecting net charge-offs to remain in the 20 to 25 basis points range for the remainder of the year [6][22] - The company anticipates continued strong performance in the second half of 2025, driven by solid loan production and effective expense management [21][23] - Management highlighted ongoing efficiency initiatives aimed at improving processes and reducing costs across the organization [36] Other Important Information - The company recorded a decline in net charge-offs to 21 basis points of total loans, with stable asset quality trends [6][12] - Tangible common equity increased to 8.4%, with tangible book value per share rising to $15.4, a 4% increase from the previous quarter [7][19] Q&A Session Summary Question: Outlook on funding costs and deposit rates - Management indicated that deposit costs are expected to decrease slightly, with a potential rate cut in September influencing future costs [28][29] Question: Impact of seasonal deposit outflows - Seasonal deposit outflows are expected to average around $100 million, primarily related to public funds [32] Question: Efficiency initiatives and cost-cutting focus - The company is reviewing all functions and departments to improve processes and drive operating leverage, with significant progress made [35][36] Question: Loan growth normalization excluding payoffs - Management anticipates long-term loan growth of 6% to 7%, with expectations for improved production in the upcoming quarters [38][39] Question: Asset quality concerns and nonaccruals - A quarter-over-quarter increase in nonperforming assets was attributed to downgrades of two commercial borrowers, with expectations for resolution by year-end [44][46] Question: Integration of Westfield Bank and asset sensitivity - The acquisition is expected to slightly improve asset sensitivity, bringing the company closer to a neutral position [47][50]