Thank you for waiting. The meeting will begin shortly. Good afternoon, ladies and gentlemen. Welcome to join us for First Financial Holding third quarter 2024 webcast investor conference. We will start the 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 the QA session. You can type your questions at the bottom part of the webcast. The presentation material will be put on our IR website, and we would provide one-year replay service for your convenience. Before we proceed with the presentation, I would like to disclose the following information. Starting from December 2016, in order to improve corporate governance code, First Financial Holding has drew up and best practice principles in the conducting procedures and guidelines. For more information, please refer to our website.
Okay, I will turn the microphone to Ms. Yating Chang to start the presentation.
Thank you, Keith. Greetings to everyone online on the first working day of December. In about the next ten minutes, I will bring you the nine-month update of First Financial Holding. Let's kick off on slide three, our prepared commentary. We registered a good year so far and is on course to achieve another good yearly result. As of September 2024, net income amounted to TWD 20.8 billion, an increase of 9.4% year-on-year. Earnings per share was 1.48, and subsidiaries reported a net income of TWD 19.4 billion, up by nearly 8% year-on-year, while other subs' net income totaled TWD 1.8 billion, up by 12.8% year-on-year. For the year till September, banks' fee and service income had outperformed swap gains, pushing up the earnings growth. The interest income contracted due to heightened funding costs. Loan book increase was fueled by mortgage and large corporate banking.
SME and USD credits remained steady. We will parse earnings more with financial data later. Looking back at the year from December now, the themes we compete and operate in Taiwan include a lifted housing market and the subsequent cooling measurements enacted by Central Bank. An economy propelled by artificial intelligence and consumer spending. The equity market reaching record high is directed to a generation looking for defending wealth against inflation and preparing for wealth transfer. Plus the late coming of rate cuts. The themes should stretch into 2025 in the context of decoupling trade wars, decarbonization, geopolitical tension, and volatile capital and financial markets all present opportunities and strengths affecting our business plan and beyond. Our IR head, Annie, will address both operating strategy and 2025 outlook in the Q&A session. Let's move on to core earnings.
In slide seven, we highlight Group's key financial data for the first three quarters this year. ROE was 10.8%. Book value per share was TWD 18.9. ROA was 0.61%. Liquidity coverage ratio was 128.5%. Total leverage ratio was 112%. Total assets grew steadily at an annual rate of 6.5% and grew to TWD 2.6 trillion now. This joint pie chart shows which subsidiary drove total profit the most. It accounted for over 90% of Group's profits. Next, in slide eight, key elements of Group's consolidated P&L statements are listed in the accompanying bar chart. For the first three quarters 2024, Group's consolidated revenue was about TWD 55 billion, up by 7% year-on-year. Meanwhile, income tax was down about 5% due to the timing of tax benefits recorded. In a nutshell, First Group reported a net income of TWD 20.8 billion as of September 2024, up by 9.4% year-on-year.
Details of net income numbers for the first three quarters this year and last year are given in slide nine. Coming up, we zoom in looking at bank operating results. Starting on slide 11. Bank's ROE was 9.84% as of September 2024, down by 0.08% on back of a net income of TWD 19.4 billion, which was up by 8% year-on-year. We discuss pre-tax profits in slide 12. Year-on-year top-line growth was around 8%. Net revenue was TWD 48.4 billion. Split into net revenue categories, fee income was decent, and it was TWD 88.8 billion, up by 33% year-on-year. Within that fee, wealth management generated TWD 5.3 billion, up by 41% year-on-year. Hands-on financial products was close to TWD 18 billion, up by 14.5% year-on-year. In this category, swap gains of TWD 14 about TWD 12.1 billion versus TWD 10.3 billion made for the same period last year.
Interest income was TWD 20.9 billion, down by about 5%. Turning to expense categories, gross provision was TWD 6.4 billion, down by 5% year-on-year. The CRE loan loss was behind us after first quarter. The provisioning set aside for the past two quarters was general provisions. Operating expense was TWD 20.6 billion, up by 6.5%, reflecting bank-wide pay hikes this year. Now we discuss key items affecting the interest income release in slide 13- slide 17. Firstly, the loan growth. In slide 13, the total loan book grew 7% annually to about TWD 2.6 trillion. It was fueled by mortgage and large corp lending. Mortgage was up by 15.7% year-on-year to about TWD 700 billion. Large corporate was up by 15% year-on-year to about TWD 340 billion. In slide 14, quarter-on-quarter loan book breakdown is presented. Next, we look at net spread and loan-to-deposit ratio over time in slide 15.
By September 2024, spread and NIM both inch down seasonally by 0.02%. Spread was 1.18%, NIM was 0.68%, and add-on adjusted NIM was 1.08% after taking swap gains of TWD 12.1 billion into consideration. As shown in the slide, loan-to-deposit ratio was up to 71%, mainly because of the growth of NT dollar loan book. Currently, NT dollars loan-to-deposit ratio was 82% versus 80% from the prior quarter. U.S. dollars loan-to-deposit ratio was around 41% now. Slide 16 is the data of NT dollar loan spread and U.S. dollar loan spread. Quarterly average lending rates, quarterly average deposit rates and spreads are provided. Slide 17 is our deposit pickup. Total deposit was about TWD 3.6 trillion by end of September 2024, up by about 6% year-on-year.
Comparing to the same period, USD deposit grew at a pace of 14% to about TWD 1 trillion equivalent. TWD deposit, on the other hand, was up about 3% year-on-year to about TWD 2.6 trillion, with CASA ratio at 63.37%. Circling back to talk a bit more about our loan book, in slide 18, our loan concentration data is supplied. Turn to slide 19 to show our mortgage business details. Let's first look at the mortgage volume we underwrote in the third quarter. Monthly mortgage volume shown in the bottom graph was down sequentially since the Central Bank's tightening measurements kicked in in July. Total mortgage underwritten for the third quarter was close to TWD 60 billion, down by about 7% versus the volume in the second quarter. Regarding the location of the mortgages, they were categorized into six regions, as shown in the pie chart.
The proportion is the same as previous reporting. Data on new mortgage loan to value ratio, the average mortgage loan to value ratio, and the average mortgage yield were in the upper left graph. In the next two slides, we drill down on bank's fee revenue of TWD 88.8 billion, which was about 18% of bank's net revenues. In slide 20, in addition to 41% increase in wealth management fee, loan related fees ended up by 42% year-on-year to TWD 2.3 billion. The number included a one-off fee of TWD 2.57 billion. It was about High Speed Rail syndication fees recorded in the first quarter. In slide 21, we provide quarter-on-quarter fee breakdown. Particularly, wealth management fee was further divided into three sublines. The asset business, asset assurance, and fund sale. The latest quarterly growth rates for asset assurance and fund sales were down slightly.
Year to September, the accumulated income for asset assurance was TWD 25.5 billion, up by 46% year-on-year. The accumulated income for fund sales was TWD 22.7 billion, up by 40% year-on-year. Moving on to slide 22, bank's Cost-to-Income Ratio on cumulative basis. It was 42.56% by September 2024. The bar chart shows bank's net revenues and operating expenses on quarterly basis. Slide 23, we show coverage and NPL ratios. Coverage ratio inched up to nearly 770%. Overall, NPL ratio kept at 0.18%. NPL ratios on personal mortgage, large corporate lending, and SME financing are shown in the bottom left. Asset quality at the bank in conclusion remained intact. In slide 24, we review bank's overseas operating results. Post-tax profits and debt from overseas operations are listed in the bar chart. In the first quarter, contributions from overseas operations were down because of CRE credit trade-off.
In the second quarter, it increased because of one-off credit recovery mainly, which was about TWD 73 million. For the first three quarters 2024, accumulation of tax profits from overseas operation was about 23% of bank's total tax profits. Lastly, in slide 25, we show bank's capital strength. Bank's CAR was 14.68%. Tier 1 was 12.47%. For your info, CET1 was 10.88%. That's it.
Okay. Thanks, Ya ting. We already have several questions coming in. From Eileen at Yuanta, Peggy at Morgan Stanley, Eric at KGI, and Senior Vice President Tina , they all want to ask the same questions about our swap. So far, till the end of September, for first three quarter, what's the amount of our swap gain so far? Under the rate cut from the Fed, what are expectations for the outlook of the 2025 swap gain?
Okay. For this year's swap gains, up to the end of first three quarters, we have generated about TWD 12.1 billion swap gains. Up to end of October, we still managed to book accumulated TWD 12.9 billion swap gains. In total, for this year, we would see our swap gains will still manage to meet our expectation that we may reach around TWD 14.2 billion or TWD 14.5 billion, which is quite similar to the level that we achieved last year. Even though the U.S. has started its rate cut cycle, still the portfolio that we managed to put out continues to generate a decent gain because of our strategic prolonged the swap transaction. After we book whole year swap gains around TWD 14.2 billion- TWD 14.5 billion swap gains.
Next year, we would manage to project a swap gains about 10%-15% lower than this year's level, at around TWD 12.5 billion- TWD 12.8 billion next year, as we will continue to manage a decent swap portfolio during the rate cut cycle. For next year's swap projection 2025, we would still project a slightly lower swap gains next year, around TWD 12.5 billion- TWD 12.8 billion for the whole year next year. This year will be TWD 14.2 billion- TWD 14.5 billion.
Okay. Let me repeat it. For this year's projections for our swap gains, till the end of this year, it might be reached about TWD 14.2 billion- TWD 14.5 billion. Next year, under the Fed rate cut, so far, our projection is about TWD 12.5 billion- TWD 12.8 billion. The following question is, under those amounts of swap gains, what's our expectation of adjusted NIM for so far this year, the first three quarters and the end of this year and then the projection of next year?
Until the end of third quarter, our adjusted NIM reached 1.08%. However, due to the starting of the rate cut in USD, our average NIM actually dropped to 1.05% for the first 10 months of this year. As we still expect there will be more rate cuts.
Going forward. For this year, we would try to maintain a NIM around 1.04% amid rate cut simulation. Going into next year, as we would shift part of our focus to the investment to some higher investment grade and high yield portfolio in the foreign bond. That would, to some extent, compensate for the gap left behind by the rate hike and the falling swap gains. Next year we would continue to project our NIM would maintain around 1.03% based on a moderate rate cut cycle in the next year. We would focus more on to boost our FX loan expansion and also the investment into fixed income products, which will help to produce some decent capital gains when the rates are coming cheaper and that we can dispose this portfolio that generate some decent gains.
For this year, the NIM projection will be 1.04%, and next year is just slightly lower than this year's level, around 1.03%, just a marginal decline next year.
Okay. Thanks, Annie. I think because the swap gains will reduce a little bit next year, but our adjusted NIM will continue to maintain similar level to this year. I think that's because our original NIM might be improved a little bit. The following question, Peggy likes to know is our loan growth project for this year and also the next year.
This year, the main focus from our loan book expansion, mainly driven by the mortgage book and also the large co lending. For the whole year, this year, natural growth from higher margin SME and FX loan remain quite flattish. SME only grew by less than 2% and the FX lending quite flattish. The good thing is that as U.S. rate has already entered into a more softened phase, the borrowing of the FX loan will gradually accelerate. We would see for this year, the loan book may end at around 6.5% this year after we posted more than 7.5% growth in the first three quarter. Going into next year, our loan book was mainly focused on our niche markets, including SME and FX lending, particularly in the overseas markets.
That will help us to make a comeback for the higher margin products that will help to improve our lending spread. As currently, the FX lending spread normally would enjoy more than 100 basis point spread than the US lending. After we book a very flattish loan book expansion in the FX lending, next year, we are targeting a loan book at around 5.5%-6% for the whole year next year. The main growth driver will come from SME. We managed to grow by about 3%-4% after we only book a 2% growth this year. The FX lending would manage to achieve 12% next year after a flattish growth this year. On the other side, that the lower margin mortgage lending would decelerate to slow down its growth to just around 7% next year.
As a whole picture to see our strategy next year would be back to normalized lending momentum that we would focus more on a higher margin SME and FX loan, we would target a 5.5%-6% loan book growth for the total portfolio.
Okay. Let me read out the conclusions for our projection of next year's loan growth. The total loan growth should be around the 5.5%-6% growth. We have slightly adjusted our loan book structures. The higher margins like SME, we expect to grow by about 3%-4%. The FX, because this year is kind of flat, we have a low basis this year, we expected next year it would have a double-digit growth, maybe around the 12% growth. For the mortgage, it might slow down a little bit. Our production with mortgages is about 4% growth. Let me see the following questions. Yeah. Peggy just had to learn more about the mortgages. It's about 7%. Let's move to the next part, the wealth management fee.
Since 2024, the wealth management fee income was kind of a high base growth. What are our expectations for next year? Outlook for our wealth management and the total fee income.
Yes, we really took a high growth on our fee revenue growth to grow at least 30%, including wealth and non-wealth. Thanks to a very booming demand from both the mutual fund sales, which is more concentrated on the foreign bond investment, high yield bond investments, and the other popular products would be the bank insurance products, which we posted more than 30% growth. Next year, definitely will be a slowdown due to a high base period. We are only targeting slower growth for wealth management around 16%-17%, including mutual and bank insurance. For fee revenue, in total, we would target around 8%-9% growth after we book more than 30% growth this year.
Okay. I think our wealth management fee income still has a strong growth next year, even though it's kind of slowly comparing to the growth this year, because this year is stronger.
Yeah.
Of course.
Historical low.
Yeah. Historical high, we think that next year still we can still maintain, I think it's, yeah, 16%-17% growth.
Wealth.
Wealth management.
For fee, 8%-9%.
Total fee.
High single digits.
Okay. Total fee income is 8%-9% growth.
Yes.
Okay. Sorry. Because Tina wants to know, because I think she has followed our slide 15, because she saw that our both spread and the original NIM are still under the trend to tension up. She was wondering, when will this trend to turn around to have a growing trend for both spread and our NIM?
Well, I guess that will wait until when more USD borrowers come into the markets that actually boost our FX lending. That will help to improve the total loan spread. As you can see that the LDR remains relatively low, below 50%, which is also historical low, because most of the borrowers actually place their money into higher return US dollars deposits or other fixed -income investment. Actually funding are more cost efficient than USD borrowing. I suppose that as we boost our FX lending next year to double-digit growth, then that will help to also improve or expand our total lending spread if we manage to grow our loan book in the projection that we planned. Next year, because we're only in the early stage of rate easing cycle, that may be wait until to the second half of or even the year after next one.
The spread extension will become more evident as maybe some of the borrowers will wait until when the rate easing cycle move into an end, then they can actually have a more cheaper funding after that.
Okay. Thanks, Annie. I think we jump to the cost part of the statement. What about our credit costs for this year, 2024, and also the projection of 2025 credit cost?
For this year's credit charge, we strategically heightened our coverage ratio after we charged off most of our overseas exposure in the first quarter this year. You can see that our coverage ratio actually moved upward, approaching 800%. I remember that I projected this year that the projection for whole year's credit cost would be around 15. In the first half conference, that now as we manage to boost our coverage ratio to a higher level, that the overall net credit cost will also rise up to around 17 this year, mainly to improve our coverage ratio, that we can catch up with the level of our peers. As most of our bank peers, their coverage ratio maintain above 800%. That will be this year's target, around 17 basis points for net credit cost.
Going into next year, we would still continue to maintain the quality assets that we would target around 19 basis points net credit cost in order to further boost our coverage ratio and to safeguard our assets when we expand our business in the overseas market.
Okay. For this year, our projection is about 17 basis points for credit cost. In the next year, because we still want to make sound of our coverage ratio, so even without any deteriorator case. We still think a higher projection of 19 basis points credit cost next year.
Yeah. Still below 20 basis points, lower than our previous level.
Okay.
Yes. I mean, our historical average level, around 20, normally 20 basis points- 22 basis points. This year actually is lower than the prior level, less than 20 basis points. This year, only 17 basis points. Next year, a slightly higher up to 19 basis points. That's still lower than the previous cycle, after we charge -off most of the delinquent portfolio.
Thanks, Annie. Another question about our asset quality from Eric. He'd like to know, even though we think we don't have a deteriorator for the CRE exposures since first quarter. He still wants to know our U.S. CRE exposures and the LTV ratios so far for our CRE. Can Annie update a little bit of our CRE situation?
Our overseas CRE exposure accounted for less than 4%, around 3.9%, and the amount, around $3.1 billion. Actually, we have set aside, not just sufficient, but we have over-provisioning against this exposure, as we did not engage in any fresh exposure in this portfolio. The average LTV for the existing portfolio will be somewhere around 20%, 16%, which can be regarded as decent for the moment. Even though the rate easing cycle will not be so aggressive as most people projected, as the LTV remain not so high. Also, we have already provided more provision against this potential exposure, that we actually increased our provision by more than TWD 3 billion this year. That can be reflected in our net credit cost, about two basis points higher than our original projection. That would help us to safeguard any potential downside of the CRE exposure.
We don't see any imminent risk for the moment, as there is no more fresh delinquent losses for the moment. Two points. One is that no more fresh NPL risk. The other thing is we have provided over-provision against any potential downside for the overseas CRE exposure. Two ways to protect potential downside.
I think our CRE situation is nothing to worry so far.
LTV is not so high. 20%-60%.
Yeah. Okay. CRE situation is controllable.
Yeah.
Several of the analysts and investors today all have the interest about the questions about our different policy for-
Yes, definitely.
It's okay.
The thing is that as we would implement the G-SIBs compliance end of next year, we have to meet the requirements from the regulators, and we are nearly hit the target. If we maintain this loan book expansion and the investment guidance at the moment. we still have to retain some earnings to finance any potential downside or the expansion of our assets. I must say that we'll have to adopt a more prudent dividend payout ratio that is quite similar to the level that we have adopted this year. I guess the payout ratio will be somewhere around 3% for next year's dividend policy. 50, five -zero, yeah.
The good news is that we have applied for the IRB model to the regulators and, hopefully, until the beginning of one year later, 2026, if we are allowed to implement this new IRB model, we would be able to release more than TWD 400 billion risk-weighted assets. Our total capital adequacy ratio can be heightened to as high as 2.1% extra. That will help us to release from this risk-weighted spend of dividend payout. Next year will be much more prudent and conservative dividend payout policy anyway. After that, if we get the approval for IRB, everything can be different.
Okay.
That's the truth.
Okay. For the next year, for the dividend payout for this year's earnings, we still might be out for a cash dividend. Payout ratio might be still just 50% something. However, maybe after we applied for the IRB, we can have-
a more generous
-generous payout ratio, maybe back to our original ratio before.
Yeah.
Okay. So far there is no more questions coming in. If you have any further questions, you may raise the questions in the ask and raise your questions. In the meantime, maybe Annie can address something more about the outlook for next year, because we have already projected for some questions.
Okay.
But-
Let me just go through our projection for next year's top line and the cost side. Our loan book would manage to grow by 5.5%-6%, mainly driven by SME and FX lending, which would grow by [inaudible] FX lending, 12%, while for mortgage book would decelerate to less, around just 7%. In terms of NIM projection, it will be pretty much flattish, similar to this year's level to around 1.03%, slightly lower than this year's level, 1.04%. Move on to the fee business. Next year, we plan to grow our fee revenue by 8%-9%, and mostly come from the wealth management business, which would target a 16%-17% by both mutual and bank insurance. However, the non-wealth would remain 10% flattish.
In terms of the treasury business, due to a slowing swap gains next year, which we are targeting swap gains around TWD 12.4 billion-TWD 12.8 billion next year. The total treasury gains would contract about 8%, hopefully can be compensated by the trading or the disposal gain from the fixed -income portfolio. Move on to our cost side. The SG&A operating cost would manage to grow by around 5.8% due to a pay hike, projected pay hike about 6% next year. For the credit cost next year, we would manage to target 19 basis points for the net credit cost in order to further boost our coverage ratio and improve and safeguard our asset quality. For Cost-to-Income Ratio, the efficiency ratio would stay similar level, around 45% next year, which may be slightly higher than this year's 44%. That would basically wrap up my projection for next year.
Okay. Thanks, Annie. I think Annie has give you guys more than your questions for projections next year.
A clear picture.
Yeah
of the model.
So far there is no more questions coming in. Maybe we'd like to stop our conference today here and, maybe hope you to have a great week and join us for our conference meeting next time.
Next year.
Oh yeah, next time.
Yeah. We wish you a merry Christmas and happy New Year, and everybody has a prosperous and fruitful results this year and in the coming years. Thank you all. See you then. Bye bye.
Okay, thank you. Bye bye.