Hello everyone. All right. Welcome to our Bci second quarter 2025 conference call. I'm Andrés Atala. Thank you. Head of Investor Relations at Bci, and joining me today are José Luis Ibaibarriaga, Bci CFO, Sergio Lehmann, Chief Economist, Juan Enrique Pino, Head of Credit Risk, and Jose Marina, City National Bank of Florida's CFO. In this presentation, we will cover three areas. We will begin with a macroeconomic overview, 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 CNB. Finally, we will open the floor for a Q&A session. Now, I will hand the mic over Sergio, who will continue with the macroeconomic outlook.
Thank you, Andrés. I'll do a quick macroeconomic review of the U.S., Peruvian, and Chilean economies. The U.S. economy expanded by 3% in the second quarter. This was mainly because of a significant decrease in imports given distortion provoked by tariffs that the Trump administration has been implementing. In the first quarter, we observed an enormous increase in this GDP component. For the next quarters, we expect slower economic activity driven by reduced consumer spending and high ongoing uncertainty. Current forecasts suggest the economy will grow about 1.5% in 2025 and 1.6% in 2026. It's worth noting that Florida's economy was consistently growing faster than national average, showing strong regional performance. The labor market exhibits less dynamism with job creation below historical average.
The unemployment rate for both the U.S. and Florida has recently stabilized with the national average currently at 4.2%. Now that we have covered the growth trends, let's discuss the inflation challenges and how monetary policy is evolving in the United States. Turning our attention to inflation, both total and core inflation have recently risen, indicating some initial, though still limited, impact from tariffs on specific products. We anticipate that inflation will increase further through this year, but we expect this to be a transitory trend. As a result, we project that the Federal Reserve will proceed with monetary easing cycle at a more cautious pace, but still implement two rate cuts of 25 basis points each. This approach aligns with the current uncertainty surrounding the full economic impact of the tariff.
During their last meeting, the Federal Reserve officials have emphasized that the labor market remains robust as the economy shows a modest dynamic. The maintenance of the Fed's Federal funds rate level was a divided decision this time. Regarding the U.S. yield curve, we have observed a slight increase in the interest rate for two to seven-year maturities, while rates at the longer and shorter ends of the curve have largely remained stable. Today, however, as a consequence of well-below-expected payrolls data, we noted a significant decrease in interest rate along the curve. Let's now move on to consider the key economic indicators of Peru on the next slide. Turning to Peru, the economy has demonstrated significant resilience.
In the first quarter of 2025, the Peruvian economy expanded by 3.9% year-on-year, with the agriculture and mining sector acting as key growth drivers. Our forecast for economic growth this year is approximately 2.9%. Regarding monetary policy, the Central Reserve Bank of Peru is indeed continuing its easing cycle with the current policy rate at 4.5%. However, the central bank has adopted a somewhat more cautious stance than anticipated. This cautious approach comes despite inflation remaining around the target range for over a year and the monetary policy rate nearing its neutral level. Nevertheless, we still anticipate two additional 25 basis point rate cuts of the remainder of this year. Now, moving on to Chile.
Moving to Chile, the economy recorded a 2.3% GDP growth during the first quarter of this year, over expectation. This performance was primarily driven by positive contribution from net exports and consumption. However, the economic outlook for 2025 anticipates growth of approximately 2.1%. This forecast contemplates an economy partially affected through foreign trade by tariff on our main trade partners, which are expected to dampen external demand. This scenario projects a growth rate consistent with Chile's trend growth capacity, which is 2%. The labor market in Chile has shown increased sign of weaknesses. The unemployment rate remains significantly above pre-pandemic levels, currently standing at 8.9%, and job creation has experienced a notable decline. This subdued labor market is expected to weigh on household consumption, given its direct link to disposable income.
Moving on, let's consider the current state of inflation and interest rates. Next slide, please. Focusing on inflation in Chile, we have seen an increase through 2024. This was primarily driven by several factors. The lifting of recent electricity tariff, a depreciation of the exchange rate during late 2024 and early 2025, and rising labor costs associated with the implementation of new laws, such as the shortening of working hours and increase in the minimum wage. Our projection for inflation by December 2025 is 3.8%, which will exceed the Central Bank 2% target. However, we anticipate a gradual convergence towards this target by the first half of 2026. Reflecting highlighted global uncertainty and anticipated slowdown in economic dynamism, the Chilean yield curve has seen a decrease compared to the first quarter.
Consequently, this less dynamic economy activity, combined with inflation easing more rapidly, creates room for Central Bank of Chile to implement two additional rate cuts of 25 basis points each this year. In addition to the rate cut applied in the last monetary policy meeting this week, we anticipate the monetary policy rate will reach its neutral level of 4% by early next year. Now I will pass the mic to José Luis , who will continue with the bank results.
Thank you, Sergio, for the comprehensive overview, especially valuable in today's changing environment. We appreciate your time with us today. We have closed a positive first half of 2025, a period that has validated both our long-term vision and strategic execution. Our consolidated net income reached $571 million, reflecting a positive 27% year-over-year increase. This growth underscores the strength of our core businesses, driven by 9% net interest income and 10% expansion in net fee income. Our balance sheet remains sound as we achieve total loans growth of 6.3%, mainly driven by our commercial portfolio, while supported by a 5% increase in deposits. Our capital and liquidity ratio remains healthy, exceeding regulatory requirements across all our operations, providing us with flexibility for future strategic initiatives.
Looking at our international operation, City National Bank's strong performance stands out, with net income reaching approx $151 million, an 82% year-over-year growth, and NIM expanding for the sixth consecutive quarter, closing at 2.57% as of June. The banking operation at Bci Perú continues on a positive track, advancing every day a more comprehensive product and services offering. We reinforce our leadership in commercial banking, where we want to highlight 360 Connect, Chile's first multi-bank business platform, and Bci Finanzas Corporativas, which contribute 12% of our net fee income. In Eco Retail, we renewed our Walmart agreement, offering 6% daily loyalty point savings. We will now turn our attention to the performance of the second quarter, 2025, providing additional context behind the evolution.
As I showed on the slide, operating revenue increased by 9.2% year-over-year, reaching $813 million in the second quarter. This growth was primarily driven by two key factors: a 9.3% rise in net interest income, supported by effective and well-optimized treasury management, and a strong 19.1% increase in net fee income, reflecting increasing client activity and solid results across our diversified portfolio. Provision expenses decreased 5% year-over-year, reflecting a sustained improvement in asset quality. This was driven by our active portfolio management, which has enhanced our overall risk indicator that Juan Enrique will address later in this presentation. Operating expenses rose by 5% to $396.8 million, in line with the continued investment in strategic business initiatives, which we will go into further detail later in this presentation.
Tax increased by 10.53% against the same quarter of last year, totaling $53.7 million. We saw normalization in contracts with the first quarter of 2025, where we saw a favorable impact from the exchange rate and Article 104 on inflation. This result underscored the bank's continued strength and momentum on a consolidated basis. Net income for the quarter reached $277.8 million, reflecting a firm 21.5% year-over-year increase. Lastly, I would like to highlight that as of June, equity grew by 9% year-over-year, reaching $7.6 billion, reinforcing our solid capital position. Let's now review our local operations. As reflected in this slide, local operation growth continued to be underpinned by a strong momentum in the commercial segments.
Loans in this area rose by 6% year-over-year, significantly outpacing the system's 1.9% growth. This performance reinforces our leadership in wholesale banking and SMEs, one of our strategic foundations. Our market share in this segment reached nearly 16% as of May 2025. An increase of 18 basis points year-over-year and 6 basis points year- to- date and year-over-year. We lead the industry in foreign trade and factoring with market share of 19% and 25%, respectively. In leasing, we are the largest growing bank year-over-year with a growth rate of 2.1 times that the market and 18% market share. All of this reflects our vision to be the primary bank for companies in their day-to-day financial management.
One of the latest examples is the integration of the consolidated view in our 360 Connect platform, which offers businesses managers a broad view of their balances across multiple financial institutions, streamlining decision-making. Turning to mortgages, we posted 5.4% year-over-year growth in line with the system. It is worth noting that this growth is mainly driven by loans linked to UF, as demand in this particular sector is still pressured by macroeconomic factors. In consumer lending, our portfolio grew by 2.6%, driven primarily by higher volumes in credit card businesses. Supporting this, Lider Bci grew by 5.2%, highlighting an improvement in net interest margin, which rose by 55 basis points year-over-year, thanks to the higher consumer loan volumes and lower cost of funding.
Fee income also increased, supported by higher credit related insurance and maintenance fees, which rose 4% year-over-year among active cardholders. I want to emphasize that prudent risk management remains a priority. We continue to grow, maintaining a healthy portfolio and robust credit quality, as Juan Enrique will address later in this presentation. Let's quickly refer to the retail ecosystem. We have constructed a diverse service delivery model specifically designed to meet the unique needs of different customer segments across Chile. We aim to be the trusted financial partner offering the sophistication and personalized attention they require. On one front, we have MACHBANK. We serve as a crucial entry point for reaching our customer base, particularly attracting a younger, digitally native demographic. It's designed for seamless, convenient banking on the go, offering an accessible gateway to the Bci ecosystem.
Second, Lider Bci plays a role in serving the mass consumer segment, where the focus is on boosting profitability. We are executing a multi-phased approach. We have enhanced the terms of value proposition to our customers. We are redefining our risk models, and we are driving operational efficiencies by expanding loan origination and implementing advanced automation. Finally, through Bci, our focus is on profitable growth by serving as a primarily financial partner for the middle and affluent segment. We leverage Bci's comprehensive ecosystem of products from investment and advisory services. To bring it all together, our value proposition lies in the synergy of three distinct models. Whether a customer interacts with our traditional Bci branches, Lider Bci, or MACHBANK, all the three models are strategically leveraged to cross-sell different products from the extensive Bci retail ecosystem.
This integrated approach is demonstrably leading to capture new customers in the industry. Coming back to our quarterly performance, our local NIM increased by 4.26% in the second quarter 2025, up 3 basis points from the previous year. This improvement reflects our effective rate management and asset repricing strategies. We have improved our funding costs, driven by a decrease in interest rates compared to the previous period, which allowed us to lower financial expenses even with a higher volume of deposits. Furthermore, positive treasury results and a strong trading operations have also contributed to this expansion. This demonstrates our ability to optimize margins in a dynamic interest rate environment. Net fees grew 20% year-over-year. These results reflect the success of our cross-selling strategy and enhanced performance across multiple key areas.
Especially, we have seen a 25% increase in asset under management income, driven by volume recovery and the expansion of short-term funds. Our credit card services have also seen an increase in fee income leverage by the use of data for our strategic and great reception of the new loyalty program. Moreover, Bci Finanzas Corporativas delivered a sound performance in the first half of the year, contributing significantly to our consolidated net fees. These achievements, alongside significant progress in our insurance businesses, particularly in individual products, where we maintain a leadership position in automotive insurance, all continue to benefit from rising demand and commercial initiatives across our platform in line with our strategic priorities. In this slide, we outline the evolution of local expenses.
As you can see in the bottom left chart, our second quarter expenses grew below 2% on the year-over-year comparison due to higher previous base related to investment taken in the second quarter of 2024. However, our expenses decreased 7.6% against the first quarter of this year. When we consider the accumulated expenses as of June 2025, it is important to address the three main factors that drove the 14% year-over-year variation. The first one is the growth in local personnel expenses that is explained by anticipated costs related to performance incentives, bonuses, and inflation, as our personnel benefits include salary adjustment twice a year. While on the administrative expenses, the increase is explained directly by technology investment.
Three, also, as I previously mentioned, during the first half of the year, we booked provision for contingency related to a strategic project that affect our expenses. We were able to accelerate this investment through a strong operational performance, consolidating our long-term market positioning. Looking ahead, it's important to note that the three things were not recurring actions, and therefore, we expect expenses growth to normalize and moderate during the second half of the year. This strategic investment will be fully consistent with our commitment on our long-term productivity and efficiency target. Now, let's turn our attention to our capital and liquidity position. As you can see, these fundamentals remain robust and significantly exceed all regulatory requirements, providing us with a critical competitive advantage. As of June 2025, our common equity Tier 1 ratio increased to 11.10%.
This reflects our consistent focus on capital generation and prudent risk management, undergirding our capacity to absorb potential shocks and support strategic growth initiatives. On the funding side, our total deposits have reached $28.7 billion. Notably, local time deposits stood at $18 billion, demonstrating a solid 4.7% year-over-year growth. Our loan-to-deposit ratio, a key indicator of funding stability, stands at a healthy 139%. This balanced structure ensures we have ample and diversified funding to support our expanding loan portfolio. Collectively, these metrics powerfully reinforce Bci's strong liquidity and sound capital positions. They are the key pillars that enable us to confidently pursue our strategic objectives, capture market opportunities, and continue delivering sustainable value to our shareholders.
Now, let's move into the asset quality section, where Juan Enrique will continue with the presentation.
Thank you, José Luis, and good morning, everyone. Let's review the evolution of the credit risk in our loan portfolios in Chile. We're pleased to report a positive evolution of our overall local loan portfolio this quarter, both in terms of volume and credit quality. Our 90-day NPL ratio stands at 1.86, which marks a 14 basis points decrease year-over-year and an 8 basis points decrease compared to the previous quarter. We have also seen a significant improvement in our credit loss expenses. Total credit losses fell 14.7% year-over-year, driven by more effective credit recovery across all segments. In line with the proven provision strategy, we also released over CLP 25 billion in additional provisions during this first half of the year. While special provisions were adjusted due to regulatory changes, this release provides us with the flexibility while maintaining our strong reserve position.
Finally, our provisions to NPL ratio stood at a solid 151.73% level at quarter end, reaffirming Bci's strong position to face potential stress scenarios and underlining our conservative risk stance. As to commercial loans portfolio, the ninety-day NPL ratio dropped to 1.68% with an improvement both quarter-over-quarter as well as year-over-year. Similarly, our provisions to NPL ratio in this segment improved to 137.71%. This positive trend comes from both our continued stability in our oil portfolio as well as from positive outcome in resolving situation affecting viable and long-standing customers. These results highlight our consistent efforts to build a resilient portfolio and to solidify our position in the commercial lending market. As José Luis mentioned, Bci has demonstrated strong commercial loan portfolio growth and a leading role in this segment.
By May 2025, Bci's commercial loans represented close to 16% market share. Bci leads the industry in foreign trade loans with 16% market share and factoring with 25% market share, evidencing a crucial role in providing liquidity and financing solutions to businesses. Our ability to offer tailored solutions to customers highlight our deep understanding of client needs. As to mortgage loans, while we observe a slight reduction in our 90-day NPL ratio, which decreased to 1.88% from 2.03% in previous quarter, it's important to note that this ratio is still 23 basis points higher than year-over-year, representing a reality that is consistent across the entire banking system. It therefore suggests that our NPL ratio is still higher than a year ago, but improving.
With that, our residential mortgage portfolio did experience some growth this quarter, leading to a modest gain in market share. Nevertheless, we remain cautious and are very closely monitoring asset quality due to persistent macroeconomic pressures, with key metrics such as unemployment rate, inflation rate, and interest rates still evidencing some stress, which reduces demand for credit and has an impact too on the performance level in outstanding loans. In response to this challenging environment, we've implemented tactical decisions targeted at lowering the debt burden to customers evidencing payment problems, such as by extending their loan tenure or adjusting their interest rate down wherever possible. On new loans, we have remained actively supportive in providing new mortgage loans to our customer base. Finally, our portfolio remains very well secured with extremely limited write-offs.
Moving on to consumer loan portfolio, we have seen a sustained positive trend in asset quality indicators, as José Luis mentioned before. The 90-day NPL ratio has significantly declined down to 2.42%. This is a notable improvement, down from 3.27% year-over-year and 2.47% relative to the previous quarter. This encouraging performance is a direct result of our active portfolio management actions and to rebalancing action towards more affluent segments. This focus, combined with consistent loan efforts and proactive write-offs over the past two years, have clearly paid off. Our strong risk position is further boosted by the provisions to NPL ratio, which stands at an impressive level of 334.51%. Looking forward, our strategy remains centered in supporting cautious growth and rebalancing towards lower risk and more affluent segments.
Now I will leave you with Jose Marina, CNB's CFO, to discuss CNB's performance.
Thank you, Juan Enrique. Good afternoon, everyone. My name is Jose Marina, and I'm the CFO of City National Bank. It is my pleasure to be here with you to discuss our strong performance during the first half of the year. Our earnings continue their upward trend with both our loans and deposits growing at an important pace. Let me highlight a few of our accomplishments through June. Our client deposits increased by $943 million, or 5%, through June, including DDAs growing by $261 million or 6%. Our deposit growth is almost doubling the industry's, which grew by 3%, inclusive of broker deposits.
It is also important to note that the growth figures for City National Bank specifically reflect client deposits and do not include broker deposits. We maintained approximately $10 billion of available liquidity, representing 35% of total assets and covering 116% of our uninsured and uncollateralized deposits. Our net interest income and margin expanded for the sixth consecutive quarter. NIM expanded by 4 basis points quarter-over-quarter, or 9 basis points after normalizing for our one-timers in the first quarter. Both our net interest income and margin are the highest in over two years. Our earnings maintained our upward trend, growing 82% year-over-year and 20% quarter-over-quarter.
Quarterly ROA, excluding goodwill amortization, was 1.02%, surpassing the 1% mark for the first time in over two years, while the quarterly ROE was about 10.4%, exceeding 10%. We continue to enhance our already strong capital profile with $1 billion of excess capital in our CET1 ratio, even if we applied our unrealized AFS and HTM losses to capital. Our CRE portfolio continues to perform well with a low weighted average LTV of 49%. Additionally, the economy and CRE market in Florida keep outperforming the rest of the nation. Our remarkable results led to the ROE improving 124 basis points quarter-over-quarter and 369 basis points year-over-year.
These results demonstrate our market reputation built over 80 years, our relationship centric model, strong employee culture and continued success in executing our key strategic vision. As you can see here, our client deposits increased by $943 million or 5% in the first half of the year, including DDAs growing by $261 million or 6%. Our client deposit growth outperformed the banking industry by nearly two times, which grew at a 3% pace, including the impact of brokerage deposits. Our strong client deposit growth enabled us to reduce brokerage deposits by $273 million during the first half of the year. Furthermore, our quarterly cost of client deposits decreased by 19 basis points compared to the fourth quarter. Non-interest bearing deposits represent a healthy 22% of total deposits.
Our assets increased $559 million or 2% in the first semester, surpassing the $27 billion mark. Our loan- to- deposit ratio continues to be low at 88%. We remain very well capitalized, as evidenced by our total risk-based capital ratio and Tier 1 leverage ratio, which were 15.44% and 10.69% as of June 30th, respectively. Additionally, the unrealized losses on the investment portfolio decreased year to date due to the decline in the five-year U.S. Treasury. Total loans increased by $730 million or 4% during the first half of the year, 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. The NPL ratio, for instance, remained low at 74 basis points of total loans and flat compared to the pre-previous quarter, while our ACL coverage ratio increased by 5 basis points quarter-over-quarter. On this slide, we provide details on our CRE portfolio representing 47% of our total loan book. Our CRE loan portfolio has a conservative weighted average loan to value of 49%, supported by a strong weighted average debt service coverage ratio of 1.9 times, 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 14% of the CRE loans being outside of Florida, representing only 6% of our total loans portfolio. The CRE portfolio outside of Florida is also well diversified, with the largest exposures in growth states in the southern region of the U.S. Additionally, the exposure outside of Florida has a conservative weighted average loan to value of 57%. Our credit risk management framework is comprehensive and specialized. We underwrite deals with a holistic approach, focusing on our risk appetite, relationship banking, and our continuous oversight. This slide presents our income statement. I would like to emphasize the positive trend in our net income, which increased by $10.8 million or 19.6% quarter-over-quarter, and by $54.5 million or about 82% year-over-year.
This growth was primarily driven by an increase in net interest margin. We expanded by 4 basis points quarter-over-quarter and 64 basis points year-over-year. For the quarter, ROA excluding goodwill amortization was just over 1%, while the ROE was 10.4%. As we discussed last year, we have implemented several strategic actions to further strengthen our balance sheet and accelerate our earnings growth. These results reflect the success of such actions, which are part of our strategic plan. We will go over this in more detail later in the presentation. 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 cuts to Fed funds during the first half of the year.
Additionally, we remain well- positioned to take advantage of any potential rate cut in the second half of the year. On the left side of this slide, you can see our net income increased by $11 million or 20% quarter-over-quarter, mainly due to our net interest income increasing by $6 million as our margin grew by 4 basis points or 9 basis points on a normalized basis. Fee income also grew quarter-over-quarter by $3 million, and we recorded $2 million less in loan loss provision compared to the previous quarter. The reduction in non-interest expenses was largely attributed to one-timers in the first quarter and timing differences. On the right side, we show how our net income improved by $54 million or 82% year-over-year.
This increase was primarily driven by $92 million of additional net interest income as our margin expanded by 64 basis points year-over-year. Our non-interest income was also higher by $4 million year-over-year. This was partially offset by $20 million of additional non-interest expenses, particularly higher personnel expenses as we have executed our strategic plan of adding talents, primarily in client-facing positions from Central Florida down to South Florida. Moreover, we recorded additional loan loss provisions of $4 million year-over-year, driven by strong loan growth and qualitative factors. This slide illustrates the growth of our net interest income and margin for the sixth consecutive quarter.
Our net interest income increased by $6 million or 4% quarter-over-quarter, with our NIM expanded by 4 basis points or 9 basis points when normalizing for one-timers, as we recognize the $3 million benefit from a loan paying off in the first quarter. This growth was driven by a decline in our cost of funds of 8 basis points and stable yield on earning assets, which grew 1 basis point on a normalized basis. Our NIM has increased 76 basis points when compared to the second quarter of 2025 to the fourth quarter of 2023. This increase was primarily attributed to a 55 basis point decline in our cost of funds and a 21 basis point increase in our yield on earning assets.
This net 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 half of the year. It is also the result of our strong deposit growth, including DDAs growing $261 million or 6% year to date, which translated into our wholesale funding ratio declining from 21% as of the end of 2024 to 19%, as of June 30th. The reduction in our wholesale funding, coupled with our disciplined deposit pricing approach, resulted in our cost of funds declining by 19 basis points when compared to the second quarter of 2024. This slide displays our quarterly trend for normalized net income after taxes for ROE.
In 2024, we had several non-recurring items which included our BOLI and investment portfolio repositioning, fees for a top consulting firm who we have partnered with to implement our five-year strategic plan, our goodwill amortization, among other items. The first half of this year also includes consulting fees to our strategic partner, goodwill amortization, and some other items that we normalize for. As you can notice, normalized earnings are in an upward trajectory with the normalized ROE exceeding 10% in 2025. Last year, we launched Project Win, our five-year strategic plan to achieve profitable and diversified growth. The first half of 2025 shows that we are already ahead of target. Our first objective is to achieve moderate and diversified growth. Deposits are central to our relationship approach as we want to establish ourselves as a leading deposit gathering bank in Florida.
Our client deposits grew at an annualized rate of 10%, outpacing the industry which grew at 6% annually. We also achieved greater loan diversification, increasing C&I loans by 11% year-over-year. We continued 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 our treasury distribution desk. We were able to improve our ROE to over 10% and expanding our NIM by 64 basis points year-over-year. Our efficiency ratio continues to improve and is below 50%. We also continue to build upon the scalability and digital experience of our platform, optimizing the credit underwriting process, preparing to launch a new wealth management platform, and automating manual processes across the bank. Culture preservation is a cornerstone of our success.
We have seen high engagement from all employees as we execute on our strategic plan. The commitment to achieving these targets is high. Finally, we continue to strengthen our three lines of defense to maintain a robust internal control framework as we grow. In summary, our results reflect the early success in the execution of our Project Win. We are excited not only about delivering strong results in the first half of the year but also for the years to come. On that note, I will pass it back to José Luis for final comments. Thank you. Thanks to you all for participating today.
Thank you, Jose. Before we turn to our outlook and Q&A, let me summarize the key highlights of a strong first half for Bci. We delivered a net income of $571 million, a remarkable 37% increase year-over-year. This powerful result is a direct reflection of our disciplined execution and a solid fundamental of our business. We achieved high quality balanced growth across the board. We strategically expanded our commercial loan portfolio while increasing total deposits by 5%. This balanced approach reinforce our market share and is firmly underpinned by our prudent risk management and robust financial position. Our revenue diversification strategy continued to deliver exceptional value. Our international operations, a key pillar of our growth, performed impressively.
Our teams in Peru and Miami delivered sound results, and City National Bank of Florida achieved significant client growth deposit, with Project WIN advancing firmly and on track. Our growth is sustainable. We are proud that our commitment to a long-term value creation was recognized once again, as Merco ESG named Bci Chile's most sustainable company. Finally, reinforcing all this achievement is our balance sheet. Our robust capital and liquidity position provides stability and strategic flexibility. This financial strength is clearly demonstrated by our CET1 ratio of 11.10%, comfortably above all regulatory requirements. This half of the year defined by strong profitability, quality growth, and strategic execution. Considering this, we have updated our guidelines.
Starting with the macroeconomic scenario, we now project a GDP growth of 2.1%, inflation ending the year around 3.8%, and a monetary policy rate of 4.25%. The updated guidelines for our local operations are the following. We are adjusting loan growth to the lower bound of around 5%-7% range, reflecting a more moderate credit demand environment, consistent with the overall macro trends. Regarding fees, we have revised to a range of 13%-15% increase, driven by higher results in transactional products and effective cross-selling strategies. On core expenses, we are updating our guidelines to an increase around 6%. Regarding City National Bank of Florida, we revised loan growth upwards to a high single digit range.
Consistently, we have raised our full year net income guidelines for City National Bank from $230 million to $250 million. Bringing all together, we are raising our consolidated net income guidelines, projecting a year-over-year growth of 20%-22%, up from the previous estimate of 13%-15% range, marking a clear upward revision and reinforcing the quality of our earnings projection trajectory. Taking into consideration this scenario, our medium-term target of 14% consolidated return on equity by 2026, with 2025 now expected to close the year about 13%. Let's now move on to the Q&A section of the conference call.
Thank you, José Luis , Sergio, Juan Enrique, and Jose from City National Bank of Florida. Now we will go over to the Q&A session. The first question is from Ernesto Gabilondo from Bank of America. Hi, Ernesto.
Hi, Andrés. Thank you. Hi, good morning, José Luis, Jose, and Happy Friday to everyone. It's always a pleasure to see you. Congrats on your results and thanks for the opportunity to ask questions. My first question will be on the political side. Can you give us an update on the last polls on the presidential elections for Chile? At the beginning of the year, polls were showing an easy win from the right, and however, we saw the Jara appointment. Any color on how you are perceiving the political landscape will be very helpful. My second question is on consolidated NIM and asset quality. You have already provided guidance, but we want to understand what will be the strategy going forward. How should we expect for second half of next year?
We have seen very good asset quality as you have been de-risking the consumer portfolio. How should we think for the second half or cost of risk for the full year, next year? Are you expecting maybe to start increasing your appetite for the consumer portfolio? Or we should think something similar to what you have been doing throughout this year? My last question is on fees. You also provided guidance. Just wanted to double-check with you if the guidance is already incorporating the strong second quarter in which a big portion of that was explained by the highway deal that you did. We just wanted to double-check if that is also considering that. Thank you.
Thank you, Ernesto. Well, I will take your first question about the political color. As you know, the most important thing here is to understand that the institution in Chile are strong, and for the next year, we are forecasting a 2% growth rate, which is consistent with our potential. Anyway, we have to focus on reform for the coming years, and in that scenario, anyway, we are according to poll expecting that probably the opposition will win the election. Not only is it important to focus on the presidential election, but also in the Congress. In that sense, we are expecting that probably it's gonna be anyway very balanced the result there.
In general terms, as I said, polls are basically saying that opposition will win, but anyway, the floor is still open, and we have to focus on the debate in the coming months related to reforms for the Chilean economy in order to recover the growth rate, which is today close to 2%, and we expect to, with some reform, to recover growth rate close to 3% in the coming years.
Ernesto, as to asset quality, thanks for your question. Let me address it portfolio by portfolio. In the commercial portfolio, we continue sensing a significant demand for new loans of good quality, so we expect volumes to continue growing. We do have to measure, though, the impact of tariffs on credit quality of exporters to the U.S. So far, we believe that impact has been watered down by the socialization of the impact between the different participants of the chain. We are optimistic that it should not be reflected in an impact in cost of credit, but we have to be continuously monitoring that. In commercial, again, we continue seeing, with optimism, growth in volumes and maintenance in credit quality.
As to mortgage portfolio, we have seen credit requests gradually recovering, so that's optimistic. You also saw that the credit performance metrics have already reached their peak and have stabilized. We expect that to move slowly down now. You may have heard that there were certain actions taken by the government aimed at supporting the granting of mortgage loans by the banking industry, and those come in two ways, one with a 60 basis point subsidy to interest rates, and the other one is a payment guarantee provided by an agency called FOGAIN, which would be in place for the first half of the tenor of certain loans.
They are particularly targeted on loans up to a certain size, which is approximately $150,000 per home, which is significant for a market like Chile. Those two things together make us look very optimistic the evolution of the mortgage loan portfolio. As to the consumer portfolio, as you rightly say, we have been focusing on the rebalancing, but we are optimistic about that already having been achieved. We will continue with that, but we look at the entire range of segments. Because of the market conditions, we have to stay selective for a while, but that without that meaning that we do not impact in volume growth.
We do expect that volume should grow, and we have seen appetite from customers. We have seen an increase in credit requests. We should also be seeing an improvement in terms of volumes with a stable and improved credit quality in the consumer loan side.
Overall, Juan Enrique, can we expect cost of risk to be around 0.7% in the second half of this year, probably that for the full year? In next year, we should start to see probably more appetite also depending on the economy, and then that cost of risk should be gradually going up now but still keeping under control.
Correct.
My assumptions right or?
It's right. It's right, Ernesto. Absolutely.
Perfect. Thank you. That's my last question, please.
Ernesto, regarding the fees, we have increased around 37%. Basically, it's a consequence of the building of this Eco Retail platform where we do have Bci, MACHBANK, Lider Bci, where we are basically cross-selling, increasing credit card transactions, increase our investments products, and with the complement of Finanzas Corporativas, all of that, we believe that we will continue growing, and we update the guidelines to a growth of 13%-15% year-over-year for this year.
Thank you. That includes the deal that you did in the second quarter now, so probably second half, can we expect softer fee growth? That is reasonable.
Yeah. We will continue growing in the Eco Retail arena. We believe that the second semester will be not as spectacular in Finanzas Corporativas because it takes some time to close the deals. Even though we have a good funnel, we did have an incredible first semester.
Perfect. Thank you very much, everyone. José Luis , Juan Enrique, and Sergio.
Thank you, Ernesto. Next one is coming from Jorge Pérez from Itaú BBA. Hi, Jorge.
Hi, Andrés. Hi, team. Good morning. Hi, José Luis. Thank you very much for the opportunity, and congratulations for the results, for the new guidance. My question is on CNB. We saw that the NIM already reached the 2.6%, which is the high end of the guidance, but at the same time you're seeing higher loans growth. Just to understand, how do you see the evolution of margins? Could we see some upside risk on that front? How do you expect to get to the 3% target in the mid long term?
Jorge , thank you for the question. Yeah, I think we're. As you saw, our NIM this quarter was right there, right about 2.60%. Our NIM for the month of June was 2.62%, so we're already at the, you know, above the guidance there. I think our NIM average for the year will be, you know, just above 2.60% as we, you know, again, for the 12 months. And, you know, as you said, we're getting good loan growth. And as I mentioned in the call, we're getting good spreads on our loan growth and our commercial loans. Our average spread so far this year is about 325 basis points for new loans.
We're not just focused on loan transactions, but on the relationships. We're making sure that we're getting deposits for each new loan that we do, that we're getting DDAs wherever possible, treasury management, et cetera. All that is gonna help continue to enhance the NIM. As part of Project Win, we're working on various channels to grow our deposit base. That will also help with our NIM, whether it's international, HOA, doing more C&I, which will bring more DDAs. All that will help us in the medium term get closer to that 3% NIM range.
When do you expect to get this 3%, and how relevant is the 3% to get to your target, your internal target ROE?
Well, as you saw, our ROE is already over 10% for the second quarter, about 10.4% after you take out goodwill. I think it's gonna take us another year and a half, two years to be in that 3% range of NIM as we continue to grow. We continue to be focused on that. It'll take us roughly another. I'd say call it 18 months to get to the 3% range.
Perfect. Very clear. Thank you very much, and congratulations again for the results.
Thank you.
Thank you, Jorge. Next question is coming from Daniel Mora from Credicorp. Hi, Daniel.
Hey, good morning, thank you for the presentation and the opportunity of asking questions. I have two questions from my side. First one is regarding risk. I would like to understand whether risk 0.6 quarter is sustained in the future quarters, given Bci's current strategy. What will be considered a normalized sort of risk under the loan book strategy? Also, I would like to understand if the historically 0.9% sort of risk is very high under the new confirmed C&I. That would be the first one, and second one is regarding the identity of the net income increase. Say, it's between 20% and 22%, but if I'm not mistaken is more stable for going of the half of the year, I think for me, which is between CLP 200 billion and CLP 220 billion.
Sorry, Daniel. We are not hearing you very well. If you can talk a little bit louder so we can take your question, I would appreciate.
Yeah. What part did you get? The first one regarding cost of risk is completely clear.
No, the cost of risk, I think that is okay.
No, Juan Enrique doesn't catch your question correctly, too. If you can speak louder you have some noise i n the communication, Daniel.
Sorry for that. Sorry for the connection problems. I will be slower. The first one is regarding cost of risk. I just want to understand if the 0.6 cost of risk is sustainable in the coming quarters, considering Bci's strategy, and if the historically cost of risk that you have had around 0.9% is right now very high compared to what we can see right now with Bci's loan profile. That will be the first one. The second one is regarding the guidance of net income.
You mentioned that you expect a net income increase between 20% and 22%, and for me, it implies a more stable net income for the second half of the year between CLP 210 billion and CLP 220 billion per quarter, compared to what we already observed in the first half of the year, around CLP 260 billion-CLP 270 billion per quarter. I would like to understand what will be the drivers for seeing the quarterly decrease in net income, or why are you thinking about a more stable net income? It was all clear, right now?
Yes. Yes.
Perfect.
Really clear, Daniel. Thanks.
Okay. Thank you so much. Sorry for the connection.
Daniel, Juan Enrique here. On your cost of credit question, going forward, we don't believe the cost of risk would be radically different from the one that you're seeing right now. It may change because of mix between portfolios. As you heard from my answer to previous questions, the commercial loan portfolio keeps growing very healthy. Mortgage loans has already stabilized. Consumer loans, which would be the one that we want to grow faster and that has more cost of risk, may move the cost of risk slightly higher, but it would be because of the mix aspect rather than a deterioration in the portfolio. We're optimistic about the performance of the three portfolios.
What may happen going forward is that you can see the consumer loan portfolio growing slightly faster than the other ones, therefore having a slight impact on cost of credit. I would anchor the projections on what you're seeing today in the first semester of this year. Of course, if macroeconomic projections remain as predicted.
Thank you, Juan Enrique. Daniel, the second semester, we are slightly a little bit more conservative, and we have some reasons for that. One is that, and it's important to mention, the fundamentals of the bank are working really well. You hear how City National Bank is performing in terms of growth, in terms of risk, in terms of NIM. In Chile, we are growing very well in loan portfolio, especially in commercial, slightly in the market in mortgages. On the consumer side, we are catching up with a prudent risk policy, as I mentioned in the presentation, really focused in the affluent segment. In the second semester, we are expecting to grow fees at a rate a little bit lower than the first semester.
Not in the fundamentals, but as I told you, Finanzas Corporativas did have an extraordinary first semester, and we are conservative in the second one. Inflation, we are expecting inflation to be lower. At the end of the day, there's a lot of uncertainty in the market and we have to be cautious with our projections. We are performing our fundamentals. We are really proud, as we said in the presentation, on the strategy and the execution of the strategy. That is basically the reason, Daniel.
Thank you very much. Very clear in the two angles. Thank you so much.
Thanks to you, Daniel. The last one is coming from Lindsey Shema. Lindsey, s he works in Goldman Sachs. Hi, Lindsey.
Hi. Thank you for taking my question. On the note of updated guidance, I was just wondering what kind of drove the increase in consolidated net income guidance. We see that loan growth is expected to be a little bit lower. Fee growth is a little bit better, but you also expect higher operating expenses on the local level. Is the main driver really that lower cost of risk? Is it the City National Bank, U.S. operation? Just trying to get a sense of what made you more constructive on the year. Thank you.
Lindsey, our growth. I think that you asked for the loan portfolio growth or the net income growth.
The consolidated net income growth.
Okay. Okay.
Is that driven just by better-
Okay.
CNB expectations or is it more of a local thing?
Okay.
Yeah.
In City National Bank, as Jose Marina explained, we are going to have a significant growth compared to last year. Last year, as many of you are aware, we took some decisions in order to improve our investment portfolio, and we are benefiting of that. In the Chilean market, we are doing really well in growing in the commercial side with our return on equity in that segment over 23%. We are performing very well in mortgages and in the consumer side, where we took some decisions in order to focus in revenue net of risk. The market share that we have there is okay.
Having said that, we are really putting a lot of effort and focus in our Eco Retail system, where we do have more than 6 million customers between Bci, Lider Bci, MACHBANK, all the credit cards and debit card of BCI, with the best loyalty program according to us, and with the acquiring payment company that we do have. What we are doing basically in the revenue side, the fundamentals are really strong. In the risk side, Juan Enrique already gave a very clear view of where we are, so we are performing very well. In the expenses side, in City National Bank, we are growing faster due to the excellent execution of the WIN project. We are anticipating some employees coming on board.
We have hired more than 150. 50, Jose? 140?
Yeah, about that. Yes.
Employees. Putting a lot of effort there. In Chile, expenses, we grew the first semester at a higher pace than in the second one. The second one, we are going to be almost flat. Overall, the expenses year-over-year in Chile will be around 6%. In the U.S., it's going to be around 8%-9%. What we are trying to deliver here, Lindsey, is that all the diversification that we do have in line of businesses, in segments, internationally is the reason why we have been able to deliver such a sustainable net income growth. There's something that I need to complement, team? No. No?
That is the answer, Lindsey.
Thank you.
Thank you for asking.
Okay. With that, we finish this conference call. We appreciate your participation on this. Only give a reminder that the presentation is still already available in our website, also the earnings report and any other financial report that we uploaded. Thank you very much to all of you, and see you in the next meetings. Thank you.