Banco de Chile SA :BCH-US: Earnings Analysis: Q1, 2017 By the Numbers : May 8, 2017

Banco de Chile SA reports financial results for the quarter ended March 31, 2017.

We analyze the earnings along side the following peers of Banco de Chile SA – Itau Corpbanca Sponsored ADR, Banco Bilbao Vizcaya Argentaria, S.A. Sponsored ADR, Banco Santander-Chile Sponsored ADR, Citigroup Inc, Banco Santander S.A. Sponsored ADR and Banco Latinoamericano de Comercio Exterior, S.A. Class E (ITCB-US, BBVA-US, BSAC-US, C-US, SAN-US and BLX-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 662.98 million, Net Earnings of USD 214.19 million.
  • Net interest income margins widened from 61.35% to 70.05% compared to the same period last year.
  • Year-on-year change in operating cash flow of -8.35% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth due to the contribution of one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income (See complete table at the end of this report):

2017-03-31 2016-12-31 2016-09-30 2016-06-30 2016-03-31
Relevant Numbers (Quarterly)
Revenues (mil) 662.98 678.72 704.99 747.7 745.68
Revenue Growth (%YOY) -11.09 2.91 -1.42 -0.61 12.26
Earnings (mil) 214.19 186.05 218.5 224.97 192.16
Earnings Growth (%YOY) 11.46 -6.48 11.85 -16.5 2.9
Net Margin (%) 32.31 27.41 30.99 30.09 25.77
EPS 1.31 1.14 1.34 1.37 1.17
Return on Equity (%) 19.75 17.23 20.44 21.54 19.2
Return on Assets (%) 1.8 1.58 1.86 1.93 1.69

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Market Share Versus Profits

Revenues History
Earnings History

BCH-US‘s change in revenue this period compared to the same period last year of -11.09% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that BCH-US is holding onto its market share. Also, for comparison purposes, revenues changed by -2.32% and earnings by 15.12% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s earnings growth was influenced by the following factors: (1) Year-on-year improvements in net interest income margins from 61.35% to 70.05% and (2) improvement in loan loss provisions. As a result, net interest income after provisions margins improved from 48.76% to 55.49% compared to the same period last year. Loan loss provisions as a percentage of net interest income were 20.79% this period and 20.52% a year ago.

Net Interest Income Margin Versus Loan Loss Provisions Margin

Quadrant label definitions. Hover to know more

High Risk; High Reward Loans, Risky Loan Portfolio, Conservative Loan Portfolio, Safer Loan Portfolio
Net Interest Income Margin History
Loan Loss Provisions Margin History

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

BCH-US‘s change in operating cash flow of -8.35% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

The company’s operating margins narrowed from 41.39% to 35.33%. In spite of this, the company’s earnings grew. This rise was influenced primarily by the presence of one-time items, which contributed to an improvement in pretax margins from 29.54% to 38.64%.

EBIT Margin History
PreTax Margin History
EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables

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Company Profile

Banco de Chile SA engages in the provision of banking services. It operates through the following segments: Retail; Wholesale; Treasury and Money Market Operations; and Subsidiaries. The Retail segment focuses on individuals and small and medium-sized companies and offers checking accounts, credit cards, credit lines, consumer, commercial, and mortgage loans. The Wholesale segment includes corporate clients and large companies where the product offering focuses primarily on commercial loans, checking accounts, liquidity management services, debt instruments,. foreign trade, derivative contracts, and leases. The Treasury and Money Market Operations segment includes revenue associated with managing the bank’s balance sheet and liquidity, including financial instrument and currency trading. The Subsidiaries segment corresponds to companies and corporations controlled by the bank .The company was founded on October 28, 1893 and is headquartered in Santiago, Chile.

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