Banco de Credito e Inversiones

SGO:BCI

Good morning, everyone, and welcome to our first Bci's Quarter 2025 Conference Call. I am Andres Atala, Head of Investor Relations at Bci. And joining me today are Jose Luis Ibaibarriaga, Bci's CFO; Mr. Sergio Lehmann, Chief Economist; and Jose Marina from City National Bank of Florida, our CFO.

Today's presentation will cover 3 areas. We'll begin with a macroeconomic overview as usual, including a discussion of the market fluctuations we have recently experienced. Next, we will provide a detailed review of our first quarter 2025 financials, followed by a business update on CMB. And finally, we will open the floor for a Q&A session. Now I will hand the mic over to Sergio, who will continue with the macroeconomic outlook.

Thank you, Andres, and welcome, everybody. I'll do a quick macroeconomic review of the U.S., Peruvian and Chilean economies, as always. Starting with the U.S. economy, we have seen a negative adjustment in growth perspective in response to high level of uncertainty and direct impact of tariffs.

In the latest release, the Bureau of Economic Analysis said that the U.S. economy would have fallen by 0.2% in the first quarter of this year, below expectations. Imports experienced a substantial surge ahead of the implementation of tariffs and the response from that side.

The economy is expected to grow around 1.6% in 2025 this year and 1.2% by 2026. Notably, Florida's GDP has outpaced the national average. The labor markets exhibits less dynamism, but with job creation still exceeding pre-pandemic levels. The unemployment rate for both the U.S. and Florida has risen slightly with the national average starting at 4.2% having examined the growth dynamics, let's now turn our attention to the inflationary pressures and monetary policy landscape in the U.S.

Total and core inflation has eased recently, but we should expect a reversion of this trend due to the impact of higher tariffs. We anticipate the Federal Reserve will undertake its flexibilization process faster in line with the impacts of the trade war.

Fed officials have stated that tariffs will have a onetime inflation impact, and this is going to pass through and that higher import prices could be offset by weakening consumer demand. Regarding the U.S. yield curve, interest rates have decreased significantly compared to the fourth quarter of 2024, especially for 1 to 7 years maturities. This fall is attributed to a more accelerated Fed sudden rate cuts.

Let's now move to consider the key economic indicator for Peru on the next slide. Peru has demonstrated a significant dynamism, primarily fueled by the robust performance of the mining and fishing sectors. We anticipate this trend will persist through the first half of the year.

In the fourth quarter of 2024, the Peruvian economy expanded by 4.2% year-over-year with the mining sector and other sectors serving as a key driver. Our outlook for economic growth this year is approximately 2.8%, a slightly downward revision, reflecting the potential economic impact of the U.S. trade policy.

The Central Bank of Peru is continuing its monetary easing cycle with the current policy rate at 4.25% and inflation around its target. We foresee further rate reduction occurring slowly, reflecting a cautious approach in response to prevailing global uncertainty.

Now moving on to Chile. Chile's GDP grew by 2.6% during 2024, primarily driven by a positive contribution from exports. However, the outlook for this year anticipates growth reaching around 1.8% in a context where tariffs impacting our main trade partners are expected to dampen external demand and consequently, economic activity.

The labor market in Chile has exhibited increased weakness with the unemployment rate remaining significantly above pre-pandemic levels at 8.7% and job creation experienced a notable decline.

Turning our attention now to inflation and interest rates. Next slide, please. Inflation in Chile increased through 2024, primarily driven by the lifting of the freezing of electric tariff with the most recent adjustment in January this year, coupled with a depreciation of the exchange rate during the last month of last year and beginning of the present year and labor costs associated with the implementation of new laws.

This is mainly related to shortening of working hours and the increase in the minimum wage. Our baseline scenario for inflation this year is at the end of this year, at December, 4.3%, exceeding the Central Bank 2% target, but we anticipate a gradual convergence towards the target by 2026.

Reflecting highlighted global uncertainty and anticipated slowdown in the economic dynamism, the Chilean yield curve has decreased compared to the fourth quarter of last year. Consequently, we anticipate that the Central Bank will continue its rate cutting process, expecting the monetary policy rate to reach 4.25% by the end of this year with the monetary policy rate currently starting at 5% above its estimated neutral level, which is 4%. Now I will pass the mic to Jose Luis, who will continue with bank's results. Jose Luis, the floor is yours.

Thank you, Sergio, for your comprehensive overview, especially valuable in this today changing environment. We appreciate your time with us today. Let's now review our first quarter results and the main drivers behind our performance. As highlighted in this slide, first quarter net income reached a record of USD 287 million, a 31.8% year-over-year increase. This result was driven by gross operating income reflected in both net interest margin and fee income generation. Provision expenses declined, although operating costs rose due to a onetime provision, which we'll address later in this presentation. At City National Bank, we also began the year with a strong performance growing our client deposit base by USD 1.3 billion as of March. Our net interest margin expanded for the fifth consecutive quarter, reaching 2.55%, reflecting effective pricing strategies and prudent cost of fund management.

In parallel, we continue to unlock growth opportunity in the U.S. through project win with more details to be shared by Jose Marina later in this session. On the balance sheet side, we saw healthy loan growth of 4% year-over-year, mainly by mortgages and commercial segments, along with a 2.5% increase in deposits.

Capital and liquidity ratio are well above regulatory requirements, both at the consolidated levels and at our U.S. operations. Turning to the corporate governance. We recently held our Annual Shareholder Meetings during which the bank's Board of Directors was elected for a new 3 year terms. The main changes was that Mr. Mauricio Larraín was selected as an independent director. Mr. Diego Yarur transitioned from a management position to now serve on the Board and Mr. Ignacio Yarur was elected as Chairman of the Board of BCI. Strategically, we made significant advances during this quarter. First, MACH transitioned into MACHBANK, launching credit card in early 2025 with consumer loans set to follow in the second half of the year, rounding out its digital financial offering.

Two, BCI Líder reported positive financial results for the first quarter. And third, we are honored to be named Chile's Most Sustainable Company for the 13th consecutive year by Merco ESG. This quarter, results showcased strong execution, operational resilience and sustainable focus in growth in both our Chilean and in our international operations.

As part of our international strategy, we are capitalizing on opportunity across Latin America by building a strategic corridor connecting Chile, Peru and Florida. This approach allowed us to diversify our revenue streams, expand our customer base and strengthen our cross-border capabilities. Today, BCI ranks as the 12th largest bank in Latin America by total assets, underscoring our commitment to international growth. This scale allowed us to serve over 6 million customers and reflects the strength of our operations.

With 40% of our assets held abroad, our local and international presence is a key driver of sustainable growth, enable us to diversify both funding sources and income streams by leveraging regional opportunities.

We will now continue the presentation by reviewing the main consolidated figures for the first quarter 2025. As shown on the slide, operating revenues grew 11.9% year-over-year, reaching USD 829 million. This increase was driven by a 5.4% rise in net interest income, supported by higher loan volumes and effective treasury management.

Net fee income rose by 27%, fueled by strong performance in mutual funds, credit cards and financial advisory services. Other operating income increased by 86%, primarily due to the enhanced FX hedging and trading gains.

Regarding provision expenses, they declined by 21.5% on a yearly basis, reflecting a strong asset quality, proactive provisioning and improvement in recoveries with a 22.95% increase year-over-year.

Operating expenses rose by 24.5% largely due to a onetime provision expense. This item impacted the efficiency ratio, which reached 51.34% in first quarter 2025. Without this onetime effect, the efficiency ratio should be 46.9%.

Regarding taxes, it is worth mentioning that the significant appreciation of the exchange rate this quarter led to a substantial reduction in tax expenses, primarily to the impact of the monetary correction of the investment in City National Bank.

Additionally, while Article 104 resulted in losses during the fourth quarter 2024, this quarter, we experienced a positive effect, reinforcing the market decrease in the effective rate this quarter. These results highlight the continued strength and momentum of the bank on a consolidated basis, where net income reached $287 million as of March.

Equity grew by 7.9%, reinforcing our strong capital position and total assets declined by 5.6%, primarily due to the FX effects. Let's now review our local operations. As shown in this slide, total local loan grew by 2.9% year-over-year, primarily driven by growth in the commercial and mortgages segments.

Commercial lending increased by 1.3%, outperforming the system, which registered a slight decline of 0.2%. BCI continued to lead the market in SMEs and wholesale banking loans. Residential loans grew by 6.9% in a nominal terms compared to the same period last year.

Our consumer loan portfolio saw a modest increase, accompanied by a decline in the nonperforming loans, reflecting our risk appetite. Now let's focus on 2 key areas where we have made significant progress. MACH digital transformation and the expansion of BCI ecosystem. These initiatives are crucial for enhancing our competitive position and delivering more value to our customers.

Since mid-January, MACH was -- has evolved into MACHBANK, establishing itself as 100% digital bank. This transformation reflects a strategy that began in 2017 with a goal of promoting financial inclusion. And today, it has fully materialized into a comprehensive banking platform.

In early this year, MACHBANK expanded its value proposition by introducing a credit card. And in the second half of this year, it will launch consumer loans, thus completing a full suite of digital financial products and services.

MACHBANK continued to demonstrate a strong performance in key growth indicators. Our checking account balance grew by an impressive 43% year-over-year, reinforcing our strategy to become the main bank for our users.

Total balances, including the balance in the customer account and our savings account, Cuenta Ahorros, grew 46% year-on-year this quarter. Additionally, our gross merchant value grew 48% year-over-year, a critical milestone that highlights the increasing role of MACH plays in our customers' financial lives and our goals of becoming their primarily financial institution.

Simultaneously, we continue to strengthen BCI retail ecosystem. During the first quarter of this year, we established new partnerships with key brands such as Starbucks, Copec, Mercado Libre, Despegar.com and McDonald's, among others. These partnerships enhance BCI Plus, our loyalty program, which by March 2025 has been used by over 129,000 customers to access cashback benefit in the last 12 months.

Our local NIM increased by 4.4% in the first quarter 2025, up 13 basis points from the previous quarter. This improvement reflects effective rate management, asset repricing, lower cost of funds and a 1.24% inflation operation in this period, demonstrating our ability to optimize margin in a dynamic interest rate environment. Net fees income reached USD 98.4 million, growing 24.5% year-over-year.

This result reflects the success of our cross-selling strategy, enhanced performance in asset under management and credit card services and financial advisory, all of which continue to benefit from raising demand and commercial initiatives across our platform.

Together, this result confirm our ability to sustain healthy margin and growth fee-based revenues, key pillars on our diversified income strategy. Moving forward, this quarter's increase in operating expenses were mainly due to a onetime provision of approx USD 36 million recorded under other expenses. This account has an increase in contingency provisions related to a strategic project.

Excluding that, the growth of underlying expenses remained consistent with our disciplined approach of cost management. The management of expenses is a central component of our strategic planning and a crucial mechanism for enhancing profitability and strengthening return on equity in the long term.

Consequently, we are maintaining our projection of core expenses growth at inflation levels. Looking at the cost structure, personnel expenses represent 54% of total local cost remained under control, reflecting a careful balance between retaining specialized talent and maintaining operational efficiency.

Meanwhile, technology spending accounting for 21% of our total expenses grew modestly as we continue investing in automatization and digital infrastructure to support long-term growth.

We will now continue the presentation by reviewing our capital and liquidity position, which remained robust and well above regulatory requirements. As of March 2025, our CET1 ratio stood at 11.03%, it is also important to note that the CMF has reaffirmed that BCI is not subject to additional Pillar 2 capital requirement for the second consecutive year, underscoring the regulators' confidence of our capital management and risk governance framework.

On the funding side, total deposit reached USD 27.3 billion, and local time deposit stood at USD 16.5 billion, reflecting a 2.6% year-over-year growth. Regarding our loan-to-deposit ratio, it stood at 141%, maintaining a solid and balanced funding structure.

Altogether, this metric reinforce the bank's strong liquidity position and capital resilience. Now let's move into the asset quality and credit risk section. We are pleased to report a positive evolution of the quality of our overall local loan portfolio this quarter. Risk indicators improved compared to previous quarter as shown by the downward trend in the total nonperforming loans ratio, which decreased to 1.93%.

This improvement reflects the positive impact of our disciplined risk management approach and a more selective strategy regarding client origination. The improvement in the nonperforming loan ratio this quarter is driven by a combination of factors, mainly by healthy portfolio growth and a few wholesale loans that were restructured once they turn in a positive outlook.

Regarding provisions, it is important to highlight that in January, approximately CLP 36 million in voluntary provision were released during the first quarter, primarily due to the stabilization of the most relevant risk indicator in the consumer portfolio.

Also, during this period, BCI did a buildup of provisions specific to that portfolio as a result of the B1 regulation changes. We hold over CLP 230 million in additional provisions with a coverage ratio standing in 143.49% at the end of this quarter, reinforcing BCI prudent risk posture.

Focusing now in the local commercial loan portfolio, we continue to see improvement in the most risk indicators during this quarter. As explained in the previous slide, we continue to see good growth momentum in terms of volumes, particularly with a strong well-established clients.

This positive trend has enabled us to increase our market share in this core segment, positioning us favorably for sustainable growth in the stability moving forward. As selected in the black dotted line, there is still substantial provision coverage allocated to this portfolio, translating into a firm cushion against potential and unforeseen risk due to the current tariff situation.

Turning now to the residential mortgage portfolio. It has shown growth resulting in a slight increase in our market share. However, as we have indicated, we are closely monitoring the asset quality in this segment. This is due to the impact of persistent macroeconomic factors, including high interest rates, unemployment and effect of inflation.

In response to this, we have implemented tactical decisions in order to adjust our credit risk appetite to a more constrained macroeconomic environment. As well, we have implemented significant measures to help our customers' debt services capacity, both in terms of loan life and rates, leading to more customers restructuring their obligations. This action have allowed us to partially contain delinquency while we continue to closely monitor the evolving environment, proactively working to maintain responsible risk management in the origination.

Our portfolio remains well collateralized and any materialized impact are offset by a favorable mix of loan-to-value ratio and long-term profile within the book.

Finally, let's look to our consumer loan portfolio. This portfolio has returned to a growth path, supported by a prudent origination strategy, while the total nonperforming loans ratio has continued its downward trend.

This improvement is largely to the result of significant portfolio rebalancing towards more resilient customer segments and product structures as well as loan clear effort undertaken over the past 2 years, during which sustained write-offs were registered.

These necessary actions have significantly enhanced the overall asset quality of the portfolio. BCI Lider or Lider BCI has also shown a meaningful improvement in its nonperforming loans indicators, represented in the green line, reflecting disciplined risk management and focused recovery strategies. The main challenge and focus of this portfolio now shift to driving sustainable growth.

This segment represents a key area of potential for BCI. Our strategy is centered on deliberate more move towards high-income customer segments and maintaining a risk appetite that is carefully aligned with the prevailing macroeconomic conditions.

Now I will leave you with Jose Marina, City National Bank of Florida CFO, to discuss their performance.

Thank you, Jose Luis. Good morning, everyone. My name is Jose Marina, and I'm the CFO of City National Bank. It is my pleasure to be here with you this morning to discuss our strong performance during the first quarter. I am pleased to inform you that our earnings continued their upward trend, while we continue to grow our loans funded by substantial deposit growth during the quarter.

In particular, I'd like to point out the following highlights. First, our client deposits increased by about $1.3 billion or 7% in the first quarter, including DDAs growing by $392 million or 9%.

In comparison, the banking industry as a whole grew by 2%, including broker deposits. Therefore, we grew our deposits at a rate that is about 4.5x the growth rate of the overall industry. It is also important to note that the growth figures for City National Bank specifically reflect only client deposits and do not include any broker deposits.

We maintained approximately $10 billion of available liquidity, representing 37% of total assets and covering 119% of our uninsured and uncollateralized deposits. Also, our net interest income and margin expanded for the fifth consecutive quarter and is the third consecutive quarter of double-digit NIM expansion. NIM expanded 18 basis points quarter-over-quarter or 13 basis points normalizing for a onetime benefit.

Both our net interest income and margin are at the highest levels in over 2 years. We continue to enhance our already strong capital profile with $973 million of excess capital in our CET1 ratio, even if we applied on unrealized AFS and HTM losses to capital.

We maintained an investment portfolio with minimal credit risk that provides a significant annual cash flow and has a reasonable duration of about 4.5 years. Our CRE portfolio continues to perform well with a weighted average LTV of 49%.

Additionally, the economy and the CRE market in Florida continued to outperform the rest of the nation. Our solid results resulted in our ROE continuing to improve 161 basis points over the prior quarter and 275 basis points year-over-year. These results demonstrate our market reputation built for over nearly 80 years, our relationship-centric model, strong employee culture and continued success in executing our strategic vision.

Our client deposits increased by $1.3 billion or 7% in the first quarter, again, with DDAs growing by about $392 million or 9%. As we demonstrated in the prior slide, the banking industry as a whole grew by 2%, including broker deposits. In other words, we have remarkably grown our client deposits outpacing the industry by about 4x.

Our strong client deposit growth enabled us to reduce our broker deposits by $175 million during the first quarter. Furthermore, our quarterly cost of client deposits decreased by 17 basis points compared to the prior quarter.

Total noninterest-bearing deposits represent a healthy 22% of our total deposits. Our assets surpassed the $27 billion mark in the first quarter, and we lowered our loan-to-deposit ratio to 85%. We remain very well capitalized as evidenced by our total risk-based capital ratio and Tier 1 leverage ratio, which were 15.14% and 10.5% as of March 31, respectively.

Additionally, the unrealized losses on the investment portfolio decreased due to the decline in the 5-year U.S. treasury during the quarter. Total loans increased by $554 million or 3% during the most recent quarter, as shown on the right-hand side of the slide.

We continue being highly selective when it comes to lending, not only from a credit risk and spread perspective, but also from a relationship standpoint by focusing on holistic client relationships.

Our strong credit culture and low risk appetite led to excellent asset quality results as well. The NPL ratio, for instance, remained low at 74 basis points of total loans, while our ACL coverage ratio increased by 4 basis points over the prior quarter.

On this slide, we provide details on our CRE portfolio, representing 48% of our overall loan book. Our CRE portfolio has a conservative weighted average loan-to-value of 49%, supported by a strong debt service coverage ratio of 1.9x with full or partial recourse on 62% of the loans. It is also well diversified across all segments.

Our pure-play Florida bank strategy resulted in only 16% of CRE loans being outside of the state of Florida, representing only 8% of total loans. The CRE portfolio outside of Florida is also very well diversified with the largest exposure in growth states in the southern region of the U.S.

Additionally, it has a conservative weighted average loan-to-value of 56%. Our credit risk management framework is comprehensive and specialized. We underwrite deals with a holistic approach, focusing on our risk appetite, relationship banking and continuous oversight.

Our excellent asset quality and strong Florida economy are important factors in our ACL ratio, which as of December 24 is about 1.01% for all of the CRE portfolio. This slide represents our complete income statement. I would like to emphasize the positive trend in our net income, which increased by over $9 million or 20% quarter-over-quarter and by $20 million or 57% year-over-year.

This growth was primarily driven by an increase in our net interest margin. We expanded by 18 basis points over the prior quarter and 65 basis points over the prior year. As we discussed with you last year, we implemented strategic actions to further strengthen our balance sheet and accelerate earnings growth.

Our first quarter results reflect significant success from those strategies as well as the implementation of our strategic plan, which we will discuss later. Additionally, I would like to point out that we continued expanding our NIM organically by maintaining our discipline on loan spreads and deposit costs as there were no Fed funds cuts during the first quarter of the year.

We remain well positioned to take advantage of any potential rate changes in the near future. On the left-hand side of the slide, you can see our net income increasing by $9 million or 20% quarter-over-quarter, mainly due to our net interest income increasing by $12 million as our margin grew by 18 basis points.

Our fee income also grew quarter-over-quarter, increasing by $3 million. The higher expenses were primarily driven by lower incentive compensation expense recognized during the fourth quarter of the prior year, which was basically offset by $12 million of lower loan loss provisions during the first quarter.

However, we still reported a healthy loan loss provision of $15 million during the first quarter, driven by strong loan growth and qualitative factors. On the right-hand side of the slide, we show our net income increased by $20 million or 57% year-over-year. This increase was primarily driven by $43 million of additional net interest income as our margin expanded by 65 basis points as compared to the prior year.

This was partially offset by $8 million of additional noninterest expenses, particularly higher personnel expenses as we have executed our strategic plan of adding talent, primarily in client-facing positions. Our noninterest income was lower by $4 million over the prior year, mainly due to a onetime gain of $7 million related to the sale of the BCI Capital Leasing Company in the first quarter of 2024.

This slide illustrates the growth of our net income and margin for the fifth consecutive quarter. Our net interest income increased by $12 million or 8% quarter-over-quarter with our NIM expanded by 18 basis points or 13 basis points when normalizing for the onetime gain referenced in the beginning of the meeting.

This growth was primarily driven by a decline in our cost of funds of 11 basis points and an increase in the yield on earning assets of 7 basis points or 2 basis points once normalized for that onetime $3 million benefit.

Our NIM increased 72 basis points when comparing Q1 '25 to fourth quarter of '23. This increase was primarily attributed to a 47 basis point decline in our cost of funds and a 24 basis point increase in our yield on earning assets. The NIM expansion is a result of several strategies, which include obtaining strong spreads on new loan originations and renewals with the commercial spread on both new and renewed loans surpassing 300 basis points in the first quarter.

It is also the result of our strong deposit growth, including DDAs growing by $392 million in the first quarter, which translated into our wholesale funding ratio reducing from 21% as of December 31 to 18% as of the end of the first quarter.

The reduction in our wholesale funding, coupled with our disciplined deposit pricing approach resulted in our cost of funds declining by 11 basis points quarter-over-quarter. This slide displays our quarterly trend for normalized net income after taxes and ROE.

In 2024, we had several nonrecurring items, which included our BOLI and investment portfolio repositioning and fees for a top consulting firm, which we have partnered with to implement our 5-year strategic plan. The first quarter of the year also includes some of those consulting fees, which is the only thing that we are normalizing in the first quarter in addition to the goodwill amortization expense.

As you can notice, normalized earnings are in an upward trajectory with an ROE of over 9% for the quarter once normalizing for this -- for goodwill and other items. Last year, we launched Project Win, our 5-year strategic plan to achieve profitable and diversified growth.

Our plan focuses on key objectives that will create immense organizational value. The first objective is to achieve moderate growth and diversification from new and existing clients.

We are focused on our growth markets outside of Miami-Dade County, adding more clients and relationship managers to the bank, especially small business clients and increasing C&I loan production.

Deposits are central to our relationship approach as we want to establish ourselves as a leading deposit gathering bank in the state of Florida. We also continue our path of enhanced profitability by expanding our NIM, increasing our fee income by cross-selling and launching new revenue streams such as capital markets and insurance.

We also continue to build upon the scalability and digital experience of our platform. We are increasing process automation, streamlining our commercial loan production and closing processes and working hard to further enhance our data analytics to name just a few items.

Next, we are focused on building a talent base that includes the best professionals in the market we serve while also fostering a work environment and culture that maximizes employee retention. Recently, we hired 2 new executives to lead our sales efforts across all of our client segments with the exception of the Private Banking and Wealth Management divisions.

These seasoned and respected leaders will guide our bankers in executing our strategic plan. We will achieve all of this while preserving a long record of regulatory excellence. To achieve these ambitious goals, we have designed 10 work streams aimed at enhancing our front office while simultaneously strengthening the foundation of our business. They range from recruiting and investing in people to enhancing the effectiveness of our sales force from optimizing our credit process to becoming the bank of choice for small and medium businesses.

We have defined concrete goals, established specific time lines and assigned subject matter experts from across the organization in each of these work streams to guarantee their success.

In summary, we have carried on the strong momentum from 2024 into 2025, executing on our strategic plan that will guarantee our ongoing success and sustainable growth for the long term. On that note, I will pass it back to Jose Luis for final comments. Thank you for participating this morning.

Thank you, Jose. Before we open to question section, let me quickly recap the key highlights of this quarter. We are starting 2025 with a strong momentum, delivering record net income up to 31.8% year-over-year. This performance reflects the disciplined execution of a strategic road map, the resilience of our business model and solid results across all core metrics.

Deposits grew by 2.5%, supported by strong capital and liquidity positions. Fee income and operating revenues showed meaningful growth, while provision expenses declined. The increase in operating expenses was largely driven by a onetime provision.

At City National Bank, we continued to gain traction, expanding our client deposit base by over USD 1.3 billion and delivering a fifth consecutive quarter of net interest margin expansion, now at 2.55%. Project Win remains on track, reinforcing our diversification strategy in Florida.

Meanwhile, MACH successfully transitioned into MACHBANK, our fully digital bank, expanding its product offering and reinforcing our leadership in the digital financial space. We are once again named Chile's Most Sustainable Company by Merco ESG. Although these results reflect our ongoing commitment to sustainability growth, operational excellence and consistent execution through various economic cycles.

Regarding guidance, we are in the process of concluding our update forecast for the year, and we plan to make a formal update in the following quarterly conference call. Preliminarily, we can disclose our expected increase in our estimates with net income increase in a level increased to 13% to 15% year-over-year range, up from the previously commented 10% and a return on equity of around 13%. Thank you again for your trust and continued support. I will now pass the call back to Andres Atala, who will lead the question-and-answer session.

Thank you, Jose Luis, and thank you, Sergio and Jose Marina from City National Bank. Now we will open the room for the Q&A session. The first one is coming from Yuri Fernandes from JPMorgan.

I have a first question regarding expenses. And I think you were clear when you discussed the local that you believe the core expenses should normalize. So I would like to understand what is the -- what the core expenses mean? And what do you mean by normalizing?

Because I think last quarter, the message was for expenses to grow more or less around inflation, right? And this quarter, even when we remove the others because I know I got the CLP 38 billion that drove like your anticipatory expenses and this line can be very volatile.

But when we look to local expense on personnel, administrative, everything is growing like 10%, 12%, 13%. So I just would like to understand the moving parts here on expenses, especially for the Chilean operation. And what is the core? And what should we expect for this going forward?

And the second follow-up is just on MACH, and congrats on showing some data on deposits and TPV and all those things. But I just would like to understand the monetization on MACH. What is the road map here? What is the profitability or how much the losses are coming from MACH? And how do you see the breakeven? Because this is a date that we discussed in the past. So I just would like to get the last message on this, Jose Luis.

Super. And thank you, Yuri, for being so active always in our conference calls. First of all, regarding expenses. We have a clear commitment of controlling expenses, and we have guidelines that we are pushing for an efficiency ratio in the range of 42% in the next coming years to arrive to a return on equity of a consolidated return on equity of 14%.

Having said that, we have maintained that during the year in local expenses in Chile, we will be around inflation. And that guidance, we will maintain it. We have 2 main issues that happened and your numbers are correct. One is that we do have a onetime effect that we did it. And during the course of the year, you will be see -- reflecting how the expenses will be decreasing as we expenses in the first quarter.

And the second thing, if you compare this first quarter with the last year first quarter, we did have last year some specific provisions issue that when you compare one-to-one do not really reflect the real increase in expenses.

In summary, Yuri, the expenses during this year, the core expenses, which is the 54% in personnel and basically, the rest is around 40% in IT and operation will be around inflation. That is key in our strategy.

We have delivering a control expenses during the last couple of years. And we have discussed why we are there, but we are very comfortable that we are achieving those goals.

And regarding MACH, well, we have discussed this in several conference calls. We are very proud about the evolution of MACH. We started with a digital wallet to start with a way of increasing the financial opportunity for the Chilean people. And now we are having insurance, we are having account that has some fees. We do have credit card, as I mentioned in the conference call.

And all of this, Yuri, will bring us the monetization that we are having. So we are on track on what we did. We have around 5 million customers, of which they use it frequently is around 1.5 million. And we are monetizing doing commissions and savings account and insurance and deposits. So that is the plan. We are on track, Yuri, and we are showing more numbers as you have asked us in the past.

Jose Luis. Just a final follow-up on the expenses. Is the provision on the other line part of the guidance or this is excluded? Because that line...

It is part of the guidance.

Next question is coming from Lindsey Shema from Goldman Sachs.

I have 2 quick questions. I mean I understand that you're still in the process of reviewing your guidance, but could you give a brief overview of what you think the main drivers are for your increased net income guidance? And is it cost of risk, loan growth, NIM, everything along that line?

And then my second question is, given the ongoing uncertainty in the United States, what are your expectations for City National Bank this year? Are you still expecting that $230 million in net income? Or is it a bit lower now?

Thank you, Lindsey. The -- while we are finishing the forecast that we will present to you in the second quarter review, what we clearly see is that the first quarter is performing much better than expected. The main drivers is that margin is increasing. As you saw, we have a huge increase in commissions. We have increase in NIM. We have an excellent performance of treasury.

At the same time that we are growing the loan portfolio, the risk expenses, especially in the consumer side has significantly decreased, and we are delivering much better risk expenses. And finally, if we see all the affiliates, all of them, both in Chile and in the U.S. are performing better than expected. And the only thing that you can see that is not online today that is expenses, it will be online according to the forecast that we do have.

So in summary, we have better margin, better expenses, credit expenses, especially in the consumer side, which represent around 90% of the expenses in that area. And the expenses of the bank is under control. And regarding City National Bank, I don't know, Jose, if you can give some highlighted idea of what are you seeing?

Of course, Luis. Well, Lindsey, as Jose Luis indicated, we are seeing results ahead of plan, ahead of what we anticipated. Loan growth has been stronger than anticipated. More importantly, deposit growth and DDA growth has been strong as has fee income. So we've gotten off to a good start.

We feel good about our portfolio in terms of the uncertainty and the tariff impact. When you look at our loan portfolio, 80% of our loan portfolio has some kind of real estate collateral. A little less than half is nonowner-occupied CRE, about 20% is residential and about 10% is owner-occupied commercial real estate with a weighted average LTV of all 3 of those buckets of about 50%, 51%.

So we feel good about our portfolio. We're reaching out to clients that maybe in impacted segments. And obviously, it's still early, but there isn't anything of great concern at this point. So we feel good about our ability to reach that $230 million number that you referenced, and we think we're going to have a strong year.

Next one is coming from Ewald Stark from BICE Inversiones.

In general, the entire banking industry in Chile is going through a period of really loan growth, higher delinquency, increased charge-offs. And I wanted to ask -- BCI has been no exception in Chile. And I wanted to ask, are you comfortable with the current cost of risk you're seeing? How do you expect recoveries to evolve? And what about the release of additional provisions? Cost of risk seems pretty low when you take into consideration these other credit metrics.

We do feel comfortable with the levels that we do have today in Chile. As you saw, we have strong results during the first quarter. In the commercial side, we are not seeing any significant impact as of today. We do not know exactly which impact could have all the tariff that is going on. But as what we have seen today and the due diligence that we have done to our loan portfolio in the commercial side, we feel pretty comfortable.

In the mortgages loan portfolio, I think that we are arriving to a level that will maintain for a while. We are not seeing a significant increase. And in the consumer side, according to what we talk of the different decisions that we took a couple of years ago, we are seeing a significant improvement in the cost of risk.

We don't see that, that is something that we are going to change. Our risk appetite is what we are having today. So everything that you are seeing today, Ewald, is something that we feel comfortable that it will go to the future.

Regarding the voluntary provisions, these provisions are built according to a model that is associated with some macroeconomic environment. And we feel that we will maintain it because we are not seeing any significant change in the macroeconomic that will allow us to really change it for the moment. But having said that, as you have seen in the market, volatility is really high, and it could change in the future.

More on consumer loans, one final question. It may be early to assess, but you mentioned earlier that your main focus now is growing on consumer loans, specifically on MACHBANK. And I wanted to ask how does the client profile of MACH clients compared to the client profile of Bc Inversiones?

Well, one thing that we have invested significantly in the past is creating a data analytic way of doing things. We strongly build different models and the risk appetite that we do have in MACH is basically small loans associated with the risk that we are promoting for that segment. And in -- in Lider Bci, we went through a period of time where we were adjusting, cleaning, making all the business model to really adapt to that segment.

It's a segment that is really important for us. It's part of our retail ecosystem where we -- all of them, we believe that we have the best loyalty program, and we strongly believe that Lider Bci will start growing with a specific segment of the best client of those segments. And in the margin, if you see the behavior of the loan portfolio of Lider this quarter, it starts growing again.

So we went through a process. We are in good shape to growth now. It's a growth that is in a segment where you have -- in that segment, you have a specific segment that is really attractive and in line with our risk appetite.

The next one is coming from Neha Agarwala from HSBC.

Just 2 quick ones. First is a follow-up on MACH. So for the segment that MACH is targeting, who is MACH competing with? Who are the main players in that segment? And what is differentiated with MACH in your view?

And my second question is, in terms of the macro, I mean, inflation and rates are coming down, how do you see the impact of that play out in the coming quarters in terms of margin? And politics seems to be moving in the right direction, but is that something that -- is there something that worries you for the year? What are the main risks in your mind for the bank this year?

Thank you, Neha. Sergio, can you address the macroeconomic, please?

Sure. We are -- thank you, Neha. We are expecting the acceleration in the economic activity for the coming quarters given the trade war. And in terms of inflation, we are expecting going to be decreasing gradually in the coming months, ending the year by 4.3% and then coming down to 3% very rapidly in 2026.

Given that, we are expecting that the Central Bank is going to be reducing the monetary policy rate in a more accelerated path compared to the view that we had some months ago. So in that sense, well, in terms of the impact on margin, I'm going to pass the mic to Jose Luis.

Thank you, Sergio. Neha, we are competing with Tempo, Mercado Pago, some applications like Copec, BancoEstado. But if you really see the value propositions that we have built in MACH, we really believe that we have the right to win. We have the best -- we have a full digital bank. We have the best value proposition. And now that as we told you that today, we are MACHBANK with basically all products and services, we believe that we are going to be really well prepared to deliver the business case that we do have in the next years to come.

Understood. Anything that concerns you? Do you see complacency around politics? Or do you think we'll continue to move in the right direction for Chile?

Sergio, Can you answer that?

Well, we have seen at least during this government some moderation in terms of the view with respect to reforms. We are -- we have expectation that probably the next government is going to go probably forward with some reforms that in Chile will require, especially related to bureaucracy [Foreign Language], we call that phenomena in Chile using that word.

Also, we're expecting some increase in capital spending. So in that sense, we are, in some way, having some positive view for the next government, given that there is some consensus that macro reforms are required in order to recover economic growth. Today, as you know, the potential growth of the Chilean economy is just 2% or around 2%. We're expecting that we could move to 3% or even 4% if we make the reform that we require.

Next one is coming from Daniel Mora from CrediCorp Capital.

I have 2 questions from my side. First one is regarding margins. I know that you will revise the guidance, but I would like to understand in the last conference call, you mentioned that NIM in the local operations will be flat, but we already observed a NIM that is 23 basis points above the 2024 figure. So I would like to understand what will be the drivers for the normalization? It is just a lower inflation throughout the year? Or should we think of a faster repricing of assets considering a more limited reduction in the cost of funding? Or will the NIM will be revised to the upside? That will be my first question.

And the second one is regarding Servicios Financieros. Jose already pointed out that this is the first quarter with a loan growth increase in a long time. And if we think -- and we remember the Servicios Financieros profitability before pandemic, before the social unrest, it was close to 20% or even above 20%. So I would like to understand if you expect to reach those numbers? And when do you expect to reach those numbers in Servicios Financieros?

Thank you, Daniel. Regarding margin, yes, we are going to review the margin in the next forecast going up. What we have seen is a higher inflation. But at the same time, we are seeing the impact of the strategy that we have been implementing in pricing and in commissions. Those elements will give us the upside that you mentioned in the margin side.

And regarding Servicios Financieros, this is a segment that is really attractive to our strategy. We are expecting to grow according to our risk appetite. At the same time, we are going through some expenses program in order to align it with the return on equity that we are expecting for Servicios Financieros.

So we are working in growing, Daniel, at the same time, controlling our cost. And with that, we expect to have a return on equity. The guideline specific of the return on equity, we are not delivering today to the market, but we are expecting to come something nearly to what it did -- used to have before pandemic.

And the final question is coming from Paloma Echeverría from Banchile.

I have a short question regarding CMB. And given its excess of capital, are you considering an inorganic growth, maybe an M&A in the north of Florida? Or are you open to that possibility?

Jose, you want to answer?

Sure, of course, José Luis. So Paloma, we are always have our radar up to see what opportunities may be, whether inorganic or organic. Right now, we're focused on our strategic plan and implementing that. But at the same time, we are actively, as we always do, monitoring the market for M&A opportunities. And if something arises that is of interest, we will analyze as we always do. So it is always a part of the plan.

Well, with that, we finished this first quarter conference call. Always thanks to all of you for the interest. We are very, very proud of what we have achieved this quarter, and we expect to continue doing and delivering during the next 3 quarters. So thank you very much.