Banco del Bajío, S.A., Institución de Banca Múltiple ($BBAJIOO)

Good morning, and welcome to Banco del Bajio's First Quarter 2026 Results Conference Call. My name is Sia, and I will be your coordinator today. [Operator Instructions]. Before we begin the call today, I would like to remind you that forward-looking statements made during today's conference call do not account for future economic circumstances, industry conditions, company performance and financial results. These statements are subject to a number of risks and uncertainties. Please note that this video conference is being recorded. Joining us today from Banco del Bajio are Mr. Carlos De la Cerda, Executive Vice Chairman of the Board of Directors; Mr. Ivan Lomeli, Chief Executive Officer; Mr. Joaquin Dominguez, Chief Financial Officer; and Mr. Rodrigo Marimon, Investor Relations Officer. They will be available to answer your questions during the Q&A session. For opening remarks and introductions, I would now like to turn the call over to Mr. Rodrigo Marimon. Mr. Marimon, you may begin.

Good morning, everyone. Thank you for joining us to discuss BanBajio's results for the first quarter 2026. Today, we will review our quarterly performance, analyze key drivers and provide updates on our strategic execution. The industry data cited today throughout this presentation is based on CNBV's information as of February 2026, which is the most recent public available data. Before we begin our quarterly review, we would like to welcome Mr. Ivan Lomeli, who will assume the position of Chief Executive Officer at BanBajio, effective as of 1st of May of 2026. Mr. Lomeli takes this responsibility with distinguished track record of expertise and a deep understanding of our core business. Since May 2022, Ivan delivered exceptional results as our Executive Director of Corporate Banking for the Metropolitan Area of Mexico City. And earlier this year, he extended his leadership to include the Northern and Southern regions. Ivan's leadership in corporate segments in key regions was instrumental in building the momentum we are reporting today, ensuring a smooth transition and reinforcing our commitment to our historical business focus, company loans. Under his leadership, we will further bolster our focus on this core target base, ensuring that our pace of growth and franchise expansion remains the central pillars of our corporate strategy. Finally, we would like to express our deepest gratitude to Mr. Edgardo del Rincon for his strong leadership, strategic vision and unwavering commitment to BanBajio. We wish him every success in his future endeavors. Having said this, let's start with the presentation of our quarterly results. As we move to Slide 3, you will see a quarter defined by a robust loan growth acceleration in the first 3 months of the year and disciplined execution with sound and stable asset quality metrics. This allow us to deliver solid performance despite the ongoing pressure on our revenue generation as a result of interest rate dynamics and the still challenging operating environment. Starting with our growth dynamics, our total loan portfolio expanded 6.9% year-over-year, reaching MXN 286 billion. On a quarterly basis, we saw a robust 2.9% expansion, which position us firmly towards the upper end of our 8% to 10% loan growth guidance. This reacceleration of growth following 4 quarters of continued deceleration was primarily driven by our core business, company loans, which increased 7.9% year-over-year. This performance is a reflection of our enhanced focus on company loans and the early success of the evolution of our salesforce restructuring implemented in early 2026. In addition, we have been gradually capturing early signals of investment acceleration in key regions and sectors. Furthermore, total deposits grew 8.6% year-over-year, reaching MXN 383 billion, underscoring the continued strength and growth of our franchise. During this first quarter, our risk profile remained a standard feature. The NPL ratio was stable at 1.5%, supported by an ample coverage ratio of 121.7%. Most notably, our cost of risk came in at very sound levels at 0.56% for the quarter. Our healthy asset quality is further bolstered by MXN 399 million in additional reserves currently held on our balance sheet. This provision buffer maintained alongside our stable NPL and coverage ratio provide us with a robust cushion to withstand any unexpected impacts in the coming quarters. Regarding profitability, while we anticipated that this first quarter was going to be characterized by the continued pressure of the interest rate cycle, our results remained within our guided range. Our return on average equity stood at 16.7%, and our efficiency ratio was 44.1%. Finally, our capitalization ratio as of March 2026 stands at a solid 16%, composed entirely of common equity Tier 1 capital. Moving to Slide 4. You can see the reacceleration in loan growth discussed earlier. As the charts illustrate, the 6.9% year-over-year and the 2.9% quarter-over-quarter expansion stands as the best start of the year in the past 6 years, driven by an accelerating pace in our core segments. This is particularly visible in the Metropolitan Area of Mexico City as well as in our newly created regional office, Western Mexico, including Guadalajara City, where we are capturing an increasing credit demand from the developing investment trends in the manufactured services and general trade sectors. The mentioned growth in company loans, which include both corporate and SME segments and the continued and deliberate constructions in financial institutions and mortgages underscores our strategic focus on reallocating capital towards higher-margin business lines. The government loans rise in the last 12 months was driven by a specific exposure originated in December with good levels of interest margins, an opportunity aligned with our focus on profitable growth. Turning to Slide 5. The resilience of our credit profile remains a pillar within our strategy of growth, evidenced by a risk performance that significantly outperforms the industry. Our NPL ratio stood stable at 1.5%, maintaining a wide gap with the system average of 2.2%. The highlight this quarter is our cost of risk, which reached an outstanding 0.56%. This performance validates our outlook from last quarter. The portfolio cleanup completed in the fourth quarter of 2025 position us for a healthier expansion in 2026, while our conservative underwriting standards remain unchanged. Turning to the funding side on Slide 6. Total deposits reached MXN 383 billion, representing a robust 8.6% year-over-year increase. This quarterly rise reflects inflows captured to support the accelerated loan growth reported in the quarter. The 9.7% CAGR in total deposits since 2023 underscores the continued expansion and deepening of our client franchise. Moving to Slide 7. You can see that despite the migration from 0 cost to interest-bearing deposits in the first quarter, we successfully delivered a significant reduction in our overall cost of funds. Demand deposits now account for 41% of our total funding mix. And notably, the cost assigned to these balances decreased by 24 basis points during the quarter. As a result, our total funding costs improved to 4.57%, a decrease of 37 basis points quarter-over-quarter and a substantial 173 basis points reduction compared to the first quarter of 2025, largely explained by the compression in market rates. Similarly, our cost of funds as a percentage of TIIE rate dropped to 62.8%. Turning to Slide 8. The net interest margin for the first quarter stood at 5.4%. While pressure has mounted as anticipated, we kept our metrics within our targets for the year. This decline is explained by 57 basis points from rate sensitivity and 31 basis points from portfolio mix. And this year-over-year contraction should be viewed in the context that average reference rate is now 270 basis points below the first quarter of 2025 levels. Nevertheless, our NIM sensitivity per 100 basis points of reference rate cut remains disciplined at 19.5 basis points, and the decrease in the quarter was largely driven by the migration of 0 cost deposits to interest-bearing accounts. Moving to Slide 9. Total revenues reached MXN 5.8 billion for the quarter. While our reported figures show a 9.5% year-over-year decrease, this primarily reflects the anticipated pressure on interest revenues and a significant market-driven valuation adjustment within non-interest income. Our commitment to the continued underlying performance of our core revenues remains unchanged. Our recurring revenue streams continue to show the sound growth rates reported in previous quarters. Net fees and commissions grew 9.1% with standout performances in bancassurance at 61.1%, appraisals at 30.7% and cash management fees at 15.3%. Moving to Slide 10. Our efficiency ratio for the quarter stood at 44.1%, which remains below the system average of 45.6%. Our operating expenses have shown favorable development, reflecting our disciplined approach to cost management, a core strength of our financial performance. Operating expenses grew by a contained 6.7% year-over-year and reported a 4.2% contraction quarter-over-quarter. While revenue remains sensitive to ongoing external pressures, our strict control over our cost base allow us to partly mitigate the impact, and we remain confident in delivering this metric within our guided range of 43% to 45% for the full year. Turning to profitability metrics on Slide 11. It is important to highlight that despite the expected quarterly compression, our return on average equity of 16.7% remained firmly within our 2026 guidance of 16.5% to 18%. Finally, on Slide 12, we closed the first quarter of 2026 with a preliminary capital adequacy ratio of 16%. This level stands significantly above our 14% commitment and well exceeds regulatory requirements. Our robust capital position provides the bank with substantial flexibility to support our growth reacceleration while simultaneously rewarding our shareholders. Lastly, we are pleased to announce that our Annual General Shareholders Meeting held today approved a cash dividend payment equivalent to 50% of our 2025 net income. The total distribution will amount to MXN 4.5 billion, which represents an attractive 7% dividend yield for our shareholders. As has been our practice, the distribution will take place in two equal installments of 25% each, with payments scheduled for May and September 2026. In conclusion, the first quarter of 2026 has successfully demonstrated a robust reacceleration of our loan growth, validating the execution of our corporate strategy and our sales force evolution. While revenue will remain under anticipated pressure, our disciplined performance position us within the ranges expected for 2026, and we expect this trend to continue throughout the remainder of the year. With a resilient balance sheet, exceptional asset quality profile and a new leadership deeply rooted in our corporate DNA, we remain fully confident in our ability to meet our targets for the year and continue delivering long-term value to our shareholders.

[Operator Instructions] Our first question comes from the line of Pablo Ordonez.

Ivan, congratulations on the CEO appointment. We wish you all the success. Ivan, my question is for you. Can you give us an update on the strategic outlook? What has been the performance of the new commercial strategy? I understand from the remarks that you're starting to see early signs of this in terms of the loan demand and reaccelerating growth? And do you think that there could be upside risk to your loan growth guidance for the year? And finally, on the strategy, what would be your key priority areas? And is there anything new, anything that you would like to change?

Pablo, thank you very much for your questions. And it's important to mention that the business strategy remains unchanged. We really believe that this is an ideal moment to reinforce the bank's focus on company loans, especially in the main markets where we have smaller market share, for instance, Mexico City, Monterrey and Guadalajara. And just to give you an idea, in the loan growth of the first quarter, 80% of that came from new clients for the bank, which is very positive. On the other hand, we have successfully completed the majority of the strategic milestones established at the beginning of the year. Opening regional branches in Mexico City and Guadalajara. We already hired about 50-plus bankers and new business centers specialized in the mid-market segment in Mexico City and Monterrey. 40% of the plan of the new branches have already opened. So the 2.9% loan growth on the first quarter, I think that it's a tangible proof that the new focus on the segments is delivering results, and we see a strong pipeline for the second Q.

Our next question comes from the line of Ernesto Gabilondo.

Ernesto Gabilondo from Bank of America. My first question will be on your net income guidance. So we noted a significant NIM pressure in the quarter. But at the same time, loan growth came at 7%, seems to be accelerating. The easing cycle seems to be at its end. And on the other hand, the asset quality remained resilient. The cost of risk in first quarter is coming below your guidance, and I believe there's still extra provisions of more than MXN 300 million that need to be released before July. So with all this, how comfortable are you to reach your guidance? And if we can expect the midpoint of the guidance range? Then my second question is on your strategy for the consumer portfolio. We know it is small when compared to the Bajio's portfolio. But in the last administration with Edgardo, he was trying to expand it and to represent more than 5% of the loan book. So Ivan, I would appreciate your view on what will be Bajio's strategy for the consumer segment. And for my last question will be on dividends. We saw your 50% ordinary dividend payout ratio. But given your current common equity Tier 1 ratio is high and the potential earnings recovery, just wondering if there's a possibility to discuss or to evaluate a special dividend at the end of the year.

Thanks for your question, Ernesto. The NIM compression is actually not a surprise. It is exactly what we informed the market previously. Delivering a 17% return on equity in what we anticipate to be the toughest quarter of the year, proves that our point of maximum pressure even then, we're firmly within our profitability guidance and confirms that the structural resilience of our balance sheet. So I think we're going to be there. In terms of return on equity, we will be within our guidance on a sustainable basis at a level of 18%. And this is based essentially on 2 main factors. One is, again, we're looking the loan growth strong. We see this as something that happens because of the segmentation that we did at the end of last year. And the other thing is that the core noninterest revenues are growing at a 9% level. So we're confident in that. On the consumer part, I believe that the portfolio is currently entering a phase of healthy normalization. This strategic prudence is due to, I think, 3 different factors. One is seasonality of the portfolio. The other one is that we see the system on the overall -- there's a deceleration of this portfolio. And we've also been very focused on the risk discipline, which that's going to remain. But at the end of the day, the portfolio is going to keep growing. It's going to be growing less than historically, but mainly because of the market, our appetite for the bank is still there, and we will start -- we will keep growing strong.

Ernesto, this is Carlos. Regarding your question about the dividends. Yes, there is always a possibility that we will be considering in the second -- at the end of the second quarter or the beginning of the third to grant an additional extraordinary dividend, just in the case that the macroeconomic conditions make -- lead us to believe that at the rate that our net worth equity is growing, the capitalization rate, we don't want it to be too high, but we also don't want it to be under 14%, which is the lower limit that we like. So we will be -- depending on the loan growth that we see and we expect it to be high, we will consider an additional dividend on the second quarter.

This is Joaquin Dominguez. You were asking about the additional reserves. What we are expecting is that in the second quarter, we will be pretty close in the level of cost of risk we have guided. And there will be -- we are expecting a compensation between the regulatory reserves that we will meet in the quarter with the release of the MXN 300 million reserves. So there will be an exchange between reserves due to the regulation and the additional reserves we already have.

Okay. So at the end, it's a neutral impact and then you expect the cost of risk to be within your guidance?

That's right.

Perfect. And then just in terms of NIMs, as you were saying that it was kind of expected to you. But considering that the easing cycle is coming to an end, and also you're starting to go to the bottom line, do you think that could help in terms of what you guided for the year? I remember you guided between minus 8%, minus 9% to relatively flat net income for the year. So after this first quarter, how do you position within this guidance range? You are more like getting into the bottom, going gradually to the medium part of the guidance? How do you see it?

We believe that we're going to be on the mid part of the guidance. Again, we're focusing heavily on loan growth, is increasing the NIR and the control of our operating expenses. So I think we're going to be there.

Our next question comes from the line of Carlos Gomez.

This is Carlos Gomez from HSBC. First of all, congratulations to Ivan, and good luck in your new role. We know that there will be continuity and you will continue to deliver very well. So my questions. The first one refers to loan demand. And yes, we understand that you want to lend more and you have taken commercial initiatives that will allow you to do more, but that's true as a company. The question is whether you have seen demand, especially corporate demand recover to any degree so far this year. We just had published -- we had figures from the Central Bank, which show a little bit of recovery in March. But at the same time, you are telling us that on the retail side, you expect less demand. So is corporate starting to pick up or not just yet? And second, you have been proactively reducing the interest rate sensitivity of the bank over the last 2 or 3 years as rates went down. Has the process finished? Or do you intend to pursue it further?

Thanks for your question, Carlos. We are seeing a pickup on the credit activity. Again, we are focusing heavily on the big markets in Mexico where we have smaller market share. So we see a lot of opportunity there to get our fair market share in those markets. We see activity particularly in 3 different industries: Real Estate, and this is essentially Commercial Real Estate, warehousing is growing there. Agri business, where, as you all know, where we have a lot of expertise with the Agri business industry, but particularly on what we call very high-end Agri business, which is focused on the export market. And the third one is Energy. We see that as activity that is going to be picking up. We have expertise there, and we're also going to focus on that part of the portfolio.

Carlos, this is Joaquin. Nice to say hello to you. Yes, in terms of rate sensitivity, it is that we are seeing that we are pretty close to the end of the lowering rates period. We are not doing any special additional action in terms to reduce sensitivity. And we feel we are very well positioned for the next cycle. We are expecting that the interest will remain stable for several quarters in the next -- in the near future. So there is no need to make an additional action. And also, as we said in other conferences, we are more focused on the organic growth, as Ivan mentioned, specifically in the loan growth.

And can you remind us of your sensitivity? You may have said it already.

It's pretty close to 20 basis points. It's a little bit lower than 20 basis points for each 100 basis points of change in the lead rate.

Our next question comes from the line of Eric Ito.

Congrats, Ivan. I have 2 questions here. One is basically a follow-up on the NIMs. So if we look at your margins in the quarter, I think, yes, we saw a compression. It was in line with your guidance. But I think if we look at the components there, we saw the cost of funding decreasing in the quarter. And I think even if we compare to your NIM sensitivity, I think the impact was a bit higher. So my first question is, how are you seeing -- I don't know if there's any specific move here that we should follow? And if you give us -- could you give us an update on the competition here on this front? And then the second question is more towards the long term. Ivan, I don't know. I think this quarter, you mentioned 80% of growth coming from new clients. So I just wanted to get an update on how do you feel -- what's your expectation for the mix going forward? Just if you think more towards, let's say, 2027, 2028, if we could see any upside from your NIMs coming from the mix or more loan growth, for example, because of new clients are exploring new markets that you are not on yet.

This is Joaquin Dominguez. I will answer the first question. So during this third quarter, we have some several factors that impact the NIM. Someone that is very obvious, but it has some impact in our case due that our main income comes from interest margin is that February has 2 days, 3 days less in the quarter, we had 2 days less than in the fourth quarter of last year. And that means around MXN 120 million of impact. And also in terms of these lower days of operation impacts commissions and FX income. Well, the other impact is that the last reduction in the last year of the interest rate wasn't at the end of December, and that impacts the whole first quarter of this year. So that's the other one. And another important issue is that in December and in the last quarter, that is seasonally impacted. We brought a lot in noninterest-bearing interest demand deposits, and we decreased in the first quarter. So that made a fixed impact in the cost of funding, and that was also reflected in the NIM. We are seeing that the trend is getting better in 2 ways. The demand deposits is starting to increase again. And also, we are having a better mix of assets. So that's why we are very comfortable with the guidance, as Ivan mentioned, and also being in the mid-term -- in the mid-range of the NIM guidance.

Okay. Just before you go to the second one. So can we say, Joaquin here that this quarter was close to the bottom of your NIM. Going forward, we should expect expansion?

Yes, it could be. It will depend more than the behavior of the interest rates, more and the behavior of the mix of the liabilities and assets. But we are very comfortable that we are really in the big part of the NIM.

Thank you for your question. Regarding the loan growth activity, again, it's going to be strong. We had a meeting with the leadership team last week to review the pipeline, and we strongly believe that it's going to be a second quarter in terms of growth. We're focusing also a lot in new clients for the bank. So this momentum will -- is going to be maintained. And again, the biggest opportunity for us is that in the main markets of our country, we have low market share. So if we get our fair share in those markets, the growth is significant for the bank. So we're going to focus to actually ring-fence our position in the markets where we're strong, we have strong market share and keep growing in the markets that we're underrepresented as of today.

Our next question comes from the line of Andres Soto.

This is Andres Soto from Santander. Welcome Ivan to these calls. My first question is regarding the non-interest income, which both in the fourth quarter of last year and the first quarter of this year was impacted by what I believe is related to losses from previously foreclosed assets. I would like to understand if you have any visibility of these asset sales will continue? Do you expect additional losses related to that? Or how we can think about this line going forward?

Thank you for your question, Andres. This was a specific asset that we already knew that could have an impact, but we don't see further deterioration on that part. So it's very focused. And we actually -- we believe that going forward, the performance of that part is going to be better. The good news is that it's not a portfolio issue. It's a specific issue that we had to deal with.

Understood. My second question is regarding deposits. We have seen significant increase in this line, both in the fourth quarter and also this quarter. How -- what has been the strategy there? How you guys are being able to attract deposits? Are those retail deposits or it's commercial deposits? And how much of this improvement in the funding structure is already reflected in your current NIM?

This growth in deposits has been essentially because we've been very successful with our cash management team and platforms. So the good news about these deposits as they're sticky deposits. They're related to collections, payroll payments. So we feel very confident that the deposits will be strong for the quarters to come. And it's in both segments. We're growing on the Retail piece and also on the Corporate piece. So it's a mix of both, which that's also good news.

And how much of that improvement in the funding structure do you expect to help support NIMs going forward?

The answer is yes, and that has 2 components. The sticky deposits essentially are cheaper. And then the second, that's going to improve the NIR because the cash management platform is very effective in terms of generating non-interest revenues.

Perfect. And with this, when we compare BanBajio today versus BanBajio probably pre-COVID, is it fair to assume that you are now a more structurally profitable bank with a NIM less dependent on interest rates and revenue also diversified into fee income. And therefore, equal to equals in terms of policy rate, you should aspire to higher ROE going forward?

Yes, I believe that we've developed those capabilities very strongly, and we're executing very well. So yes, for sure. Again, on the return on equity part, we believe that it's going to be improving, but we will be within our guidance.

But most likely not at the bottom of the guidance, but rather at least at the midpoint, I believe, right, after this quarter?

Well, we -- it's going to be within guidance, and we see it on a sustainable basis at 18%.

Our next question comes from the line of Brian Flores.

Thank you for the opportunity. Ivan, best of luck, a lot of success. I have a couple of follow-ups, and I have a question. So my first question is, if I understood correctly, the cost of risk perhaps in the second quarter is going to continue to be low. But then after that, I understand we see a normalization towards the guidance. Just wanted to confirm if this is the case, right? And then my second question is perhaps on the efficiency ratio because it is a bit on the midpoint, slightly, I would say, pressured. So I just wanted to understand if there are any specific structural cost-cutting measures that you are implementing to prevent any deterioration here on the cost-to-income ratio? And then finally, seizing the opportunity to have Ivan here. Ivan, obviously, your inheritance here is, I think Eduardo had a great administration. Obviously, he should have left some great best practices. I just wanted to understand where do you think in terms of the strategy you would like to see the bank going into a different direction, thinking about what you just mentioned, monitoring the sustainable ROE levels.

Let's answer the last part, Brian, and thank you for your question. The business strategy will not change. That's going to remain. What we are going to do is we're going to be more focused on company loans that has been historically our main strength. And we do believe that we have a competitive advantage in all segments of business loans. So the focus is definitely going to be there, and we see lots of opportunity for growth in small, medium and big companies, and we see that nationwide. On the risk -- the cost of risk, we are going to be within guideline. I need -- and this is again, we do see that this level is not sustainable. It's going to be growing a little bit, but we do believe that we will meet the guidance.

Perfect. And any comments on the efficiency side?

On the efficiency side, I mean, the operating costs are really under control. We're going to keep that momentum and tension over the operating costs. And again, the -- what is going to help us improve this, is our expectation of loan growth and the increase in the noninterest revenues. What is important here, and this is I believe it's strategic, is that the core NIR are growing at a double-digit level. And again, most of this is related to cash management initiatives that what allow us is to feel confident that deposits -- sticky deposits are going to remain there.

Our next question comes from the line of Tito Labarta.

It's Tito from Goldman Sachs. And Ivan, congratulations on your new position there. My question is on your fee and trading income guidance of 13% to 15%. Fees were down a bit on seasonality, but growing around 9% year-over-year. We did see the trading income decline significantly. I know the trading income is difficult to sort of forecast. But just to get your thoughts, one, I guess, on fees, should we expect that to accelerate for the rest of the year? And what would drive that? And any sort of thoughts on how you think the trading income can evolve to get to that guidance?

Tito, this is Joaquin Dominguez. Well, we are really -- we really feel comfortable with the guidance we provided, and we feel comfortable also that we will make that in first because we had an impact in the first quarter due to the increase in the rates along the yield curve, and that impacted a position we have in status, that create a negative valuation or decrease the positive valuation we used to have. And that is already fixed with the actual yield curve. So that is a temporary impact that not worry us in part, is a position that is with a very good rate of portfolio yield. So we will maintain that position that allows us to also provide a sustained -- a very stable NIM in terms of what we do in the money market side in the treasury. In the other part, an important component of the non-interest income is the FX. We had a difficult quarter in terms of low volatility in the FX rate. And that -- and also the lower level of the interest rate during January and February decreased mainly in those months because March was a good month. There were very low operation of our clients. They were expecting to sell their positions with a better FX, and that happened until March. So we are seeing a normalization in the market, and we are expecting that we will take the normal or the usual and the expected income from FX. So in terms of intermediate intermediation, we feel that we will meet the guidance. For fees, I will let Ivan explain.

Tito, thanks for your question. Strategically, what we're focusing is on the core NIR. Again, the cash management platforms have been very successful. And we've been cross-selling a lot with our own client base and with the new customers that the bank is acquiring. So going forward, we're very confident that the growth of fees on the core piece are going to be there and because they're linked essentially to the payments, collections, payrolls, et cetera, of our clients. So I mean, we're going to keep doing what we've done in the last quarter and keep growing at a double-digit level. That's what -- that we want to keep doing.

We have not received any further questions at this point. I would now like to hand the call back over for closing remarks.

Thank you very much, everyone, for joining us today. We remain available to address any follow-up questions via e-mail and any further meeting request. We look forward to speaking to you again in July 2026 when we release our second quarter 2026 results. Thank you very much, and have a nice day.

That concludes today's call. You may now disconnect.