Fideicomiso Irrevocable F/2061 FHipo (FHIPO14) Earnings Call Transcript & Summary

Good morning. My name is Emma, and I will be your conference operator. [Operator Instructions] This is FHipo's Second Quarter 2021 Conference Call. [Operator Instructions] FHipo released its earnings report on Wednesday, July 28, after market closed. If you did not receive the report, please contact FHipo's IR department directly. Please note that this call is for investors and analysts only, and questions from the media will not be taken nor should the call be reported on. Any forward-looking statements made during this conference call are based on information that is currently available. Please refer to the disclaimer in the earnings release is binding vital on this matter. We're joined by Daniel Braatz, FHipo's Chief Executive Officer; Jesús Gómez, Chief Operating Officer; and Ignacio Gutiérrez, Chief Financial Officer. I would now like to turn the call over to Daniel Braatz. Daniel, please go ahead.

Good morning, everyone. Thanks for joining today. I am happy to announce FHipo's second quarter 2021 results. I would like to start by addressing FHipo's performance and achievements during the quarter. We move on to Slide 4. I would say that we are pleased with the financial results we achieved during the quarter. The net income was MXN 262.5 million, that is a 54.2% increase when compared to the same period of last year. Earnings per CBFI grew more than 60% to MXN 0.664 per share, one of the highest levels of FHipo in its history. The return on equity increased 360 basis points compared to the first quarter of '21, demonstrating our ability to create value for investors. Going forward, we will continue to implement innovative strategies that allow us to improve profitability and continue creating value for our shareholders. So this quarter, I would like to highlight 3 strategic initiatives that are shown on this slide. The first was the issuance of our second RMBS transaction collateralized by loans originated by Infonavit in the Mexican market. This was a peso-denominated issuance on the ticker symbol, FHIPOCB 21. This transaction is part of our program of up to MXN 10 billion. The total offering amount was MXN 2.5 billion with a fixed interest rate of 8.06%, denominated also in pesos, and it was oversubscribed in the market and received the highest credit ratings that is a AAA rating in local scale by Moody's, S&P and HR Ratings. The second strategic achievement was the amortization of our FHipo 16 long-term covered bond in tenth coupon date, reflecting our strong balance and solid financial position that has always allowed us to meet our financial obligations. Finally, the third strategic initiative was that as of May 18, 2021, we changed the listing of our CBFIs FHIPO14 from Bolsa Mexicana de Valores to Bolsa Institucional de Valores after receiving BIVA's favorable opinion and the authorization of our technical committee. So this basically summarizes the performance and our achievements in this quarter. We're going to now review part of our portfolio and go deeply into our financial results. So for the coming slides regarding the portfolio composition, I'll hand over the call to our COO, Jesús Gómez.

Thank you, Daniel. Good morning, everyone, and thank you for joining us today. I would like to continue with the Slide 6 to discuss the breakdown of our mortgage portfolio for the second quarter of 2021. At the end of the quarter, FHipo's consolidated portfolio stood at MXN 27.3 billion, comprising a total of 95,000 loans, which represents a decline of 5.7% and 6.4%, respectively, compared to the second quarter of 2020. This was mainly due to the natural amortization of our portfolio. Our loans come from our partnerships with several origination programs such as Infonavit Total, Infonavit Más Crédito, Fovissste and YAVE formerly known as Smart Lending. Both the average loan-to-value and payment-to-income ratios remained stable compared to the second quarter of 2020 at 77.8% and 24.3%, respectively. As of the end of the second quarter of 2021, 95.5% of our portfolio remained current, leaving an NPL ratio of 4.5%, which is explained by the natural seasoning of our portfolio. Our portfolio remains diversified across different programs with the following breakdown: MXN 10.1 billion belong to Infonavit Total, MXN 14.2 billion belong to Infonavit Más Crédito, which is currently our main origination program, MXN 2.6 billion belong to Fovissste and MXN 500 million belong to YAVE, again, the program, formerly known as Smart Lending. Moving on to Slide 7, we can see how FHipo's portfolio continues to be geographically diversified across all 32 Mexican states. Regarding our partnerships and origination programs, our portfolio is divided in the following ways: First, Infonavit Más Crédito represents slightly over half of the portfolio at 51.9%. Second, Infonavit Total pesos represents 9.4%. Third, Infonavit Total VSM with minimum wage index loans represented 17.5% of the consolidated portfolio. Fourth, the Fovissste portfolio represents 9.4% of the total. And lastly, the YAVE portfolio, which increased by 36% compared to the second quarter of 2020 represents 1.8% of the total portfolio. As always, we continue to monitor the performance of our portfolio, particularly in the context of the COVID pandemic. I will now hand the call over to our CFO, Ignacio Gutiérrez to discuss financials.

Thank you, Jesús. Again, good morning, everyone. I will continue the presentation by going through our diversified sources of funding on Slide 10. Our funding structure is well diversified, including securitization, short-term unsecured bonds, long-term covered bonds and warehousing facilities. As of the end of the second quarter of 2021, our consolidated debt-to-equity ratio was 2x, and our on-balance debt-to-equity ratio stood at 1x. If we look to Slide 12, and here we go through the asset quality of our portfolio, our NPLs and our allowance for loan losses. We maintained a conservative allowance for loan losses with our expected loss coverage standing at 1.5x and our NPL coverage ratio at 0.77x both in consolidated terms. Our NPL ratio remained at a healthy level, standing at 4.46% of FHipo's consolidated portfolio. This represents an increase of 1.14 percentage points compared to the same period of 2020. Our portfolio quality remained stable even during these challenging times and continues to perform strongly. This is certainly helped by our diversification across several origination programs, income levels and geographies. If we move to Slide 15, here, we will go through the financial results for the quarter. The net income for the quarter was MXN 262.5 million, an increase of 54% compared to the net income of MXN 170 million reported in the second quarter of 2020. This increase in net income compared to the second quarter of 2020 is in part due to lower interest expenses and an increase in the valuation of receivable benefits in securitization transactions as a result of higher inflation impacting our VSM denominated loans and the addition of 2 more securitizations, the FHIPOCB 20 issued during the fourth quarter and the FHIPOCB 21 issued during this quarter. Considering the outstanding CBFIs as of the date of this report, this results in a net income per CBFI or earnings per share for the quarter of MXN 0.664 and in net income per CBFI subject to distribution of MXN 0.631, which represents the higher distribution paid in recent quarters. This demonstrates the strength of our business model and our commitment to shareholders. Total net interest income from mortgage loans amounted to MXN 473.4 million, a decrease compared to the MXN 609 million reported during the same quarter of 2020. This decrease was mainly due to the natural amortization of the portfolio and to the FHIPOCB 20 and FHIPOCB 21 securitizations issued in December '20 and June '21, respectively. Since the income from these securitized portfolio is now considered as part of the valuation receivable benefits in securitization transactions. On the other hand, interest expenses for the quarter were MXN 258.9 million compared to the MXN 415 million in 2020, a 37.6% decrease due to less borrowings driven mainly by the partial amortization of our liabilities, in part also as a result of the last 2 securitizations we carried out. Our financial margin reached MXN 227.5 million during the quarter and an increase -- representing an increase compared to the MXN 222.8 million reported during the second quarter of 2020. The allowance for loan losses for the quarter was MXN 13.5 million, an increase compared to the MXN 9.5 million reported in the second quarter of 2020. The valuation of receivable benefits in securitization transactions generated a profit of MXN 137 million, an increase of MXN 96 million compared to the same period of the previous year, explained in part by the 2 recent securitization issuances and by a higher inflation impacting our VSM issuances as previously mentioned. The administrative expenses for the quarter, which including Infonavit's administration and collection services were MXN 87.7 million, which were in line with our expected budget. Moving on to Slide 16. As you can see, we closed the quarter with a financial margin of 46.8% and a net interest margin of 6.5%. The total expense over gross operations stood still at 14.1% and the return on equity was 10.9%. With this, we conclude the financial results, and I will now pass the call back to our CEO, Daniel Braatz, for closing remarks before the Q&A session.

Thank you, Ignacio. As I mentioned before, we are very pleased with the results for the quarter and are confident that they will continue to improve as the economy continues to recover. Going forward, we will continue to manage our strategies and look for new opportunities to keep delivering attractive results to our shareholders. So now I would like to hand over the call back to operator and start the Q&A session.

[Operator Instructions] We have not received any questions at this point, as that concludes our question-and-answer session. I would now like to hand the call back over to Daniel Braatz for some closing remarks.

Thank you all for joining us today. Please don't hesitate to reach out to us if you have any more questions or concerns. We appreciate your interest in FHipo and look forward to speaking with you soon. Thank you.

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