First Financial Holding Co Ltd

TWSE:2892

Q1-2025 Earnings Call

[Keith Ke, executive]

Good afternoon, ladies and gentlemen. Welcome to join us for First Financial Holding First Quarter 2025 Webcast Investor Conference. We will start the investor conference. We will start investor conference with the presentation, which includes the snapshot, financial highlights and operating results. Then we will invite Ms. Annie Lee, our EVP and IR Head, to proceed with the Q&A session. [Operator Instructions] The presentation material will be put on our IR website, and we would provide 1-year replay service for your convenience.

Okay. I will turn the mic on to Ms. Yating Chang to start the presentation, Yating.

[Yating Chang, executive]

Thank you, Keith. Good afternoon to everyone online. By the way, Happy June. Coming into reporting first quarter earnings for 2025, we start with a summary on Page 5. First Financial Holdings recorded a net income of TWD 7.2 billion, up by 2.7% year-on-year, while EPS was TWD 0.51, contrast to the first quarter last year when Taiwan stock market was rising, trading volume was expanding and economy outlook was upbeat. This year, in the context of Trump effect and the U.S. tariff policy, big environment is not as beautiful.

Against this backdrop, key subsidiary, First Bank held up well. It recorded a net income of TWD 6.8 billion, up by 4% year-on-year. However, nonbank subs total earnings was about flat to a total of TWD 0.65 billion as weak markets impacted broker business, trading gains and the valuation of securities.

Next point highlights profit drivers at First Bank. Wealth income grew by 32% year-on-year. SWAP gains increased by 14%. Net provision was down by 94% on back of normalized provision and more recovery. In terms of bank's loan book, it expanded by 7.2% to TWD 2.7 trillion. Loan growth was broad-based across key categories. Mortgage grew at a slower pace by 13% year-on-year, large corp by about 11%, FX was up by 9.6% and SME by nearly 3%. One more point before moving on to more details for the first quarter 2025 earnings results.

That is our dividend payout for 2024. In light of a fortress capital position, our Board has proposed to pay TWD 1.2 per share, including a cash dividend of TWD 0.95 and a stock dividend of TWD 0.25. The proposal is pending approval at the upcoming AGM on June 20.

Back to more details. Starting from Page 7. For the first quarter 2025. First Financial Holdings total asset grew by 5.3% year-on-year to TWD 4.8 trillion. Book value per share stood at TWD 19.7 million. ROE was 9.6%, ROAA was 0.6%. Group CAR was around 133%. Double leverage ratio was 111.68%. Next, we turn to key items of group's consolidated income on Page 8. We consolidated revenue closed at TWD 18.3 billion, down by 2.4% year-on-year, mainly due to weaker revenue from securities on.

On the expense side, with about 94% decrease in credit charge-off or about TWD 1.1 billion less versus last year, all expenses items, including income tax, reduced by 5.5%. As a result, first quarter net income was TWD 7.2 billion, up by 2.7% year-on-year.

On Page 9, we show major subs net income for the first quarter 2025 and 2024. We'll parse First Bank's earnings later. For First Securities, net income was down by 62% to TWD 0.12 billion, a result of lower brokerage revenue and trading gains.

For First Life, net income surged by 385% to TWD 0.345 billion. That's a result of jumps on investment disposal. Starting on Page 11, we look into First Bank's results. ROE for the first quarter 2025 was 9.68%. Next, we review bank's key items before pretax profits on Page 12. Net revenue was TWD 15.6 billion, which was at the same level when compared to the period last year.

In the bottom chart, 3 major revenue items listed all grew from last year, offsetting the item other revenue not listed in the chart. Other revenue reduced by about TWD 0.6 billion to TWD 0.25 billion this quarter, given the mentioned onetime receipts such as expense reversals.

Appendix Page 32 has the history of other revenue. Now let's pick up on 3 major revenue items. Net interest income was about TWD 7.1 billion for the first quarter 2025, up by 2% year-on-year. Net fee was about TWD 3.3 billion. Last February, the recognition of onetime fee of 0.7 -- sorry, TWD 0.57 billion related to high-speed rail created a high base effect, making annual growth rate for fee for the quarter at 1.8%. We'll break out fee components later.

Gain on financial product was TWD 4.9 billion, up by 8.8% year-on-year. SWAP gain accounted for 70% of the gains, reaching TWD 3.4 billion or up by 14% from last year's TWD 3 billion. Provision for the quarter was down by 35% year-on-year without overseas CRE charge-off like last year. At the same time, recovery was much more and up by 120% year-on-year. Consequently, Net provision decreased by 94% year-on-year to TWD 68 million, offsetting the 7.8% increase in operating expense due to bank-wise pay hike.

Operating expense was about TWD 7.1 billion. From Page 13 to 17, we follow up on data related to generating net interest income. Page 13, bank's total loan book. We recap earlier briefly with numbers here. Total loan grew by 7.2% year-on-year to about TWD 2.7 trillion. Mortgage increased at a slower pace by 13% year-on-year to TWD 732 billion. Large corp lending grew by about 11% to about TWD 343 billion. FX loan was now TWD 458 billion, up by about 9.6%. SME financing was nearly TWD 955 billion, up by about 3%.

On Page 14, shifting from a yearly basis to quarterly basis to view loan book. In a nutshell, quarter-on-quarter loan growth was moderate for all key categories. Coming into Page 15, loan-to-deposit ratio, spread and NIM over time. For the first quarter 2025, total loan-to-deposit ratio was 70.68%. NT dollars loan-to-deposit ratio was 84.1%. U.S. dollars loan-to-deposit ratio was 41.1%. Spread was 1.11%. NIM capped at 0.67%. If including SWAP gains of TWD 3.4 billion, adjusted NIM was 1%.

Page 16, we look at the quarterly spread on NT dollar loan and U.S. dollar loan. NT dollar loan spread was 1.26%. U.S. dollar loan spread was 2.08%. On Page 17, our deposit mix. Total deposit was TWD 3.75 trillion by end of March 2025, up by about 4.7% year-on-year. U.S. dollar deposit was up by 14% to about TWD 1.1 trillion equivalent. NT dollar deposit was up by 1.2% to about TWD 2.63 trillion with CASA ratio slipped a little to [ 61.69% ].

On Page 18, we supply bank's loan concentration data. Page 19, we add on more details for bank's Mortgage business. New Mortgage volume on a monthly basis is given in the bar chart, which is in its downward trajectory since May 2024. The pie chart shows the proportion of mortgage locations. It remains almost the same as previous reporting. In line graph, new Mortgage loan-to-value ratio maintained around 65%.

The average mortgage loan-to-value ratio capped at 49%. The average mortgage yield remained at 2.28%. Coming into fee components breakdown on Page 20. Wealth income for the first quarter 2025 continued being strong. It increased by 32% year-on-year to TWD 2.3 billion. Loan-related fee dropped by 43% year-on-year for high base effect, which has been discussed earlier. Loan-related fee was up by 15% if removing onetime revenue from 2024.

On Page 21, fee revenue breakdown on a quarterly basis. For the first quarter 2025, total fee was up by 7.8% quarter-on-quarter from TWD 3.1 billion to TWD 3.4 billion. Looking into 3 sublines of wealth income, custody revenue was tepid. Bancassurance increased by 8.7% and fund sales was up by 26%.

Coming into Page 22, cost-to-income ratio. Bank's operating cost for the first quarter 2025 was about TWD 7.1 billion against the net revenue of TWD 15.6 billion. Cost-to-income ratio for the quarter was 45.35%.

Next, on Page 23, coverage ratio and NPL ratio. Coverage ratio was close to 801.27%. Overall, NPL ratio stood at 0.17%. Bottom graph gives out NPL ratio on individual loan, mortgage, large corp lending and SME financing. Overall, First Bank's asset quality sustained solid footing.

On Page 24, we review bank's overseas operating results. Bank's quarterly pretax profits and that from overseas operations are supplied in the bar chart. Accumulated pretax profit from overseas operations was about TWD 2.3 billion, which accounted for about 27% of bank's total pretax profits.

Bank's capital adequacy ratio was on Page 25. It was 15.3% for the quarter. Tier 1 was 13.11%. CET1 was 11.51% for your note. This quarter, we add one last page showing First Financial Holdings dividend payout for past years. For the 2024 dividend to pay this year, total payout ratio was about 66.3% with cash payout at 52.5%, subject to June AGM's approval.

Now back to Keith for Q&A session.

[Keith Ke, executive]

Okay. Thank you, Yating. [Operator Instructions] Now the first question is from KGI, Eric. Eric raised several questions. The first one is based on the current U.S. Fed rate cut time line, does management team revise up '25 forecast of the FX SWAP revenue and also the adjusted NIM?

[Annie Lee, executive]

Well, most of market consensus with the U.S. Fed might postpone its rate cut time frame, probably until the final quarter of this year or after the autumn. So our FX SWAP transaction did receive the boost due to the postponement of the U.S. rate cut. Actually, up to the first 4 months of this year, our total FX SWAP gains amounted to TWD 4.9 billion. So it was still above the level that we achieved at the same time last year.

So yes, we may revise up our FX SWAPs results this year, possibly just slightly higher than our original projection above TWD 14 billion, TWD 14 billion, slightly lower than the results that we generated around TWD 15.3 billion last year, just around 10% lower than the level.

And that also can translate into better adjusted NIM that we can achieve or maintain our adjusted NIM around similar levels that we had last year, around 1.03% to 1.04% due to the funding cost of the U.S. dollars may be not so imminent that can help us to expand our FX lending and also to boost the overall lending spread as originally projected.

[Keith Ke, executive]

Okay. Thank you, Annie. So due to the current U.S. Fed rate cut time lines, we think -- and also our strong performance from first 4 months SWAP revenues. So we project our full year SWAP revenues to up a little bit to TWD 14 billion. And also our projected adjusted NIM was around 1.03% to 1.04%. And Eric also like to know, do we -- the management team also adjust our projections for our core earnings, like our loan growth and our fee revenue part?

[Annie Lee, executive]

In terms of the Lending business, we did see some revised projection for the total lending, mainly we dragged by decelerated mortgage lending. Actually, the Mortgage book contracted a bit even though it recorded still extended the growth up to 13% Y-o-Y. We actually witnessed that the demand for Mortgage borrowing has already decelerated about 1.4%, which was around 25% to 26% lower than the demand.

Therefore, we revised down our mortgage lending for the whole year from the prior -- around 7% down to 5% something for the mortgage. And for other parts of our lending business, including SME, FX loans, we still maintain a similar projection that SME can grow around 3% like it did in the first quarter. And FX loan remains strong that the relocation of the supply chain and investments from the corporate sector may sustain its strength.

So our FX lending, particularly in the overseas loan book may continue to expand that we would project our FX loan can grow by 10% to 11% like we originally forecasted. So in terms of the falling mortgage book, so the total loan growth may slow down to just about 4% to 5%, which was slightly lower than our original prediction up to 5% to 6%, just slightly downward revision for the loan book expansion.

[Keith Ke, executive]

Okay. So for the loan book, we revised down a little bit to 4% to 5% because mainly due to the mortgage, we dropped a little bit to 5% something. And for the FX lending, it's still double digit, 10% to 11%. And SME follow-up the GDP, it will go up about 3%.

And about the fee revenue because Eric found that our first quarter fee revenue was still strong, especially comparing with peers. But he was kind of worried that for the coming quarters, we'll first keep the momentum for the fee revenue or what the management team expect for the fee revenue for coming quarters?

[Annie Lee, executive]

Frankly speaking, all the markets are confronting very uncertainties in the -- I mean, near future because we have to face how this tariff war will settle prior to summer. And also the -- I mean, the downgrade of the U.S. fixed income products did hurt the confidence of most of the investors around the world.

So I suppose that the investment bond in the prior cycle may slow down as well. But we were quite keen to divert the demand for the investment, particularly from the high net worth and also the retail clients to other non-U.S. assets, including euros or Japanese yen or even Swiss franc or Aussie dollars will be some destination that to digest the repatriated U.S. investment going forward.

Currently, there is certain demand that our clients will be quite anxious to reallocate their investment destination to the so-called non-U.S. assets, and that will help us to distribute some other products to help these clients to well manage their assets going forward. So in that sense, we still see that the overseas investment will continue its demand.

And in terms of the domestic products like the bancassurance products, we actually see decent demand that our bancassurance products by more than 45% in the first quarter, and we should see this momentum will sustain as the demand to transfer wealth from the old generation to the younger one will maintain and that will help us to generate a decent fee revenue from this bancassurance product.

So we still manage to target the wealth management fee revenue to grow by 11% to 12%, not very much slowdown going forward. And the total fee revenue may be slightly slower, but still maintain at around 7% something, definitely slower, but the momentum would sustain throughout the following quarters. So I guess the momentum to reallocate the assets in the overseas market and in the domestic bancassurance demand would help to sustain our fee revenue growth.

[Keith Ke, executive]

Okay. Thank you, Annie. So our projections for Wealth Management fee income will still have double digit for 11% to 12% growth Y-o-Y. And total fee revenue, we will slightly revise down a little bit, still have 7% something growth. because Eric also reflect that on our Slide 20 about our fee income breakdown this slide because we just show up our cumulative net fee income growth by only 1.8% Y-o-Y. He knows that because our loan related, most of the peers, we had one-off loan-related fee revenues from the Taiwan High-speed Rail for about TWD 560 million last year. So that's the main reason why our fee income growth Y-o-Y for first quarter, just about 1.8%.

So Eric suggest us that maybe we can make some adjustment without this one-off THSR fee income last year, the total fee income growth will be -- adjusted would be 15%. So that's not just 1.8%. Okay. Thanks, Eric.

And Eric, maybe that's the top line about the question. But what about the cost part? Eric also wants to know what's our credit cost for 2025. Do we revise our credit cost projection?

[Annie Lee, executive]

Fortunately, after we clean up the balance sheet, the overseas portfolio, the new influx in the first quarter remained relatively, I mean, actual low, less than TWD 1 billion in the first quarter. So actually, for this year, net credit cost projection will be pretty amazing, less than, let's say, 20 bps, which was the average level in the historical data. So we -- but the truth is that we still managed to grow our loan book by about 4% to 5%, and we would have to set aside general provision at around 1% something. So we will maintain our growth credit charge at not a very low level.

That's why we only slightly revised down our net credit cost to just 15 to 16 bps, mainly to cover the general provision that we have to provide for the growth of our loan book. But anyway, the less than 20% net credit cost is still quite beautiful for us anyway after we charge most of the overseas NPL. And the good thing is that after the second half of last year, there's no more new influx from overseas book, and that would help us to -- I mean, with any future downside if this Trump impact will gradually loom into the economy domestically or in the overseas market. So around 15 to 16 bps for this year.

[Keith Ke, executive]

Okay. Thanks, Annie. So that's -- we revised down our credit cost. And there is a question is not for the bank, but for our Life, First Life. Eric also wants to know because we know that the FX rate changed a lot in last months. So he wants to know based on 1% Taiwan dollar appreciation, how much would it impact for the FX loss to -- he wants to know First Life.

[Annie Lee, executive]

Just 1% appreciation or $1.

[Keith Ke, executive]

Okay. And maybe you can use $1.

[Annie Lee, executive]

I can better explain that results. Currently, our Lifers own the foreign investment portfolio around USD 1 billion, which is relatively small. And they actually hedged 80% of their overseas portfolio and which implies that there was 20% left unhedged position. It's an open position for this USD 1 billion overseas portfolio. And every USD 1 depreciation would result in TWD 200 million exchange losses because the unhedged position was amounted to around TWD 200 million.

So every $1 depreciation of U.S. dollars will equivalent to TWD 200 million losses. Up to now, our Life subsidiary actually set aside nearly TWD 180 million FX reserve to try to offset or absorb these FX losses. However, NT dollars had appreciated more than 3 or TWD 2.25 right, TWD 32.5 to TWD 30 up today. So that implies about 8% depreciation of U.S. dollar.

So we have actually depleted most of this FX reserve at our Life. So they actually suffer losses in the prior 2 months and including this month, the losses would deepen even more. But frankly speaking, because our size are quite manageable, only USD 200 million exposure. So I guess this U.S. dollar depreciation may -- I mean, slow down a bit after it's already depreciated nearly 8% to 10%. It really runs into $29.5 or $29.

So these losses can be viewed as manageable because the unhedged position is just USD 200 million. So if the U.S. dollars continue to depreciate up to, I mean, further down to $28, so every $1 depreciation would create or generate TWD 200 million exchange loss, yes. And I don't see the U.S. dollars would depreciate further down to $27, $25 in the near term. So we plan to apply for the new FX reserve mechanism, yes, we do. But that will be at a later stage after the exchange rate more stabilize anyway. TWD 200 million, every $1 depreciation.

[Keith Ke, executive]

Okay. Every USD 1 depreciation, it will cost us TWD 200 million loss. Yes. And you also answered another Eric's question is that we will apply to new FX reserve mechanism, right?

[Annie Lee, executive]

Yes.

[Keith Ke, executive]

And so far, there is no more questions coming in. So maybe if you have any questions, you can type your questions at the bottom box of the webcast. And in the meantime, maybe Annie can tell us about the difference because everybody knows that in April and May, the world has changed a lot. So maybe our projections for 2025 may change a little bit and maybe Annie can conclude some our strategy for the coming quarters for this year.

[Annie Lee, executive]

Well, as we are still in the ongoing mode to see how the tariff impact and the tightened regulation in U.S. investments, how will that impact the real world. But for banks and our group will be quite, I mean, relative to face any potential impact. We had a very minimal exposure to the U.S. government debt, which only represent less than 6% of our total overseas portfolio.

So the risk can be viewed quite manageable. And in terms of the exposure to the corporate sectors, what we should be more cautious will be how the impact, not from the tariff, but actually will be the exchange rate. A stronger NT dollars did hurt the exporters, especially for those SME players.

We closely monitor how that will perform their borrowing, how they -- can they continue to serve the debt. The impact ratio for the exchange rate or the tariff represent less than 15% of our total corporate lending. So I suppose that this will be something we have to closely monitor going forward. But up to now, the asset quality remains quite well contained. So we should see how this is moving on, and we would continue to see how we would react to this very dynamic and changing world anyway.

[Keith Ke, executive]

Okay. And Mandy from Fubang, she just wants to ask to remind what's our SWAP gains for 2025 for the projections. And it's about -- we revised up to TWD 14 billion. the whole Yes. From last quarter, it's about TWD 12.5 billion, but we revised up to TWD 14 billion.

[Annie Lee, executive]

And for the first quarter results of FX SWAP gains amounted to TWD 3.4 billion, which was more than the level at TWD 3 billion same period last year, more than the prior year's. TWD 3.4 billion for the first quarter this year.

[Keith Ke, executive]

Okay. And here comes in another question from Tina. Uni President, Tina. And she'd like to know our dividend policy because she think our CAR and Tier 1 was achieved the requirement for -- especially for the ESIPs requirement. So what about cash dividend next year, the percentage? Will it go back to about 60% to 70% for our cash dividend?

[Annie Lee, executive]

Right, Tina, yes. We will try hard to achieve your expectation. Yes, we did achieve the ESIP requirement or standards first quarter this year. And we are applying for the IRB model currently, and that will help us to boost our total CAR ratio for another 3% more, and that would really help us to release more earnings to distribute our dividend next year. Yes, I guess that will be our target anyway next year. But with the payout ratio up to 7%, it depends anyway, but 60% may be the target. 70% is a bit aggressive anyway.

[Keith Ke, executive]

Okay. Thank you, Annie. So that's all questions, we have finished. [Operator Instructions] So you can also e-mail us or call us after the conference any time. And maybe Annie want to wrap up for the conference today.

[Annie Lee, executive]

All right. No more questions, then we should stop here. Well, we will have to wait to see if there are any more initiatives that U.S. may propose, then we would have to closely monitor and propose effective or efficient strategy to move on. But we will stick to our target to continue to grow our profits and make decent results this year. Thank you.

[Keith Ke, executive]

All right. Thank you. Do we need to tell our analyst and investors we will change for next time.

[Annie Lee, executive]

No, no.

[Keith Ke, executive]

Okay, thank you for coming.

[Annie Lee, executive]

See you next quarter.