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

Good morning. My name is Juan Pablo, and I will be your conference operator. [Operator Instructions] This is FHipo's Third Quarter 2022 Conference Call. FHipo released its earnings report on Thursday, October 27 after market close. If you did not receive the report, please contact FHipo's IR department directly, and they will e-mail it to you. Please note that this call is for investors and analysts only. 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 for guidance on this matter. We are joined by Daniel Braatz, Chief Executive Officer; Jesus Gomez, Chief Operating Officer; and Ignacio Gutierrez, Chief Financial Officer. I would now like to turn the call over to Daniel Braatz. Daniel, please go ahead.

Thank you. Good morning, everyone, and thank you for joining us today. I'm pleased to announce FHipo's third quarter 2022 results. I would like to start by addressing FHipo's performance and achievements during the quarter. Let's move on to Slide #4 of this presentation. As we reach the end of 2022, we will continue to experience the effects of the pandemic and volatility in the macroeconomic environment. Despite this, we keep posting strong numbers as a result of the strategies that we have been implementing for the past quarters to increase profitability and investor's value. The accumulated net income as of the third quarter of this year was MXN 673 million, that is MXN 19.3 million increase compared to the same period of 2021. The net income per CBFI or per share for the third quarter was $ 0.499 which demonstrates the strength of our business model and FHipo's ability to generate attractive returns to our investors. I would like to highlight the following achievements for the quarter. As you can see in this slide, our ROE for the first 9 months of the 2022 period closed at 9.2%. That is 30 basis points growth compared to the accumulated ROE of the third quarter of 2021. Moreover, FHipo's accumulated distribution as of the third quarter of this year has grown more than 39% in the last couple of years. These results demonstrate FHipo's resilience in a very challenging macroeconomic environment that we all have seen recently. At FHipo, we have proven our strong and conservative financial liquidity by decreasing our exposure to floating rates as part of the conventional leverage strategy that we have been implementing during the past couple of years. Now we have an exposure of floating rates of only 17.1% of the consolidated debt as of the third quarter of this year. Our debt-to-equity ratio reached 0.64x for the quarter, representing a slight decrease for the 0.67x reported for the third quarter of 2021. In the third Q of this year, we more than doubled our origination with YAVE. We reached MXN 1.2 billion, that is MXN 644 million increase compared to the third quarter of last year in a span of 5 years. YAVE's balance sheet has managed to go from MXN 41 million starting in 2018 to MXN 1.2 billion this period. Also, the portfolio maturity contributes to higher margins and value to the company's assets that has obviously been transferred into the financial margin that I'm going to be describing. You'll see that there's been a significant increase over the past couple of years from 44.2% in the third Q of this year -- of 2020 to 56.5% on the third Q of this year, which demonstrates FHipo's commitments to generate value to investors. Now I'll hand the call over to our COO, Jesus Gomez, who will discuss our portfolio composition.

Thank you, Daniel. Good morning, everyone. Thank you for joining us today. I would like to continue on Slide 6 to discuss the breakdown of our mortgage portfolio for the third quarter of 2022. At the end of the third quarter, FHipo's consolidated portfolio totaled MXN 25 billion and was comprised of 85,000 loans, a decrease of 5.8% and 8.6%, respectively, when compared to the third quarter of 2021. This is mainly explained by the natural amortization of our portfolio. Our loans come from our partnerships with several origination programs such as Infonavit Total, Infonavit Mas Credito, Fovissste and YAVE. The average loan-to-value ratio slightly increased from 77.9% in the third quarter of '21 to 78% in the third quarter of '22, while the payment-to-income ratio decreased from 24.3% to 23.9% over the last year. As of the third quarter of 2022, 94.9% of our portfolio remained current, leaving the consolidated NPL ratio at 5.1%, which is explained mainly by the natural amortization of the portfolio. This ratio remains in line with our expectations. Our portfolio continues to be diversified across different programs with the following breakdown. Infonavit Total has MXN 8.3 billion, Infonavit Mas Credito has MXN 13.1 billion, Fovissste MXN 2.5 billion and YAVE, which is our currently main origination program and had a significant growth over the last 12 months, has MXN 1.2 billion. Moving on to Slide 7. We can see how FHipo's portfolio continues to be geographically diversified across all 32 Mexican states. With the most significant participation in the state of Mexico and Nuevo Leon with 12.7% and 11.3%, respectively. Regarding our partnerships and origination programs, our portfolio divided as follows: First, Infonavit Mas Credito program represents slightly more than half of our portfolio at 52.3%. Infonavit Total Pesos represents 18.1%. In Infonavit Total VSM, the minimum wage index loans, represents 14.8% of the consolidated portfolio. The Fovissste portfolio represents 9.9% of the total portfolio. And finally, the YAVE portfolio, which more than doubled over the last year, represents 4.9% of the total portfolio. As always, we continue to monitor the evolution of our portfolio, particularly in this challenging macroeconomic environment. I will now hand the call over to our CFO, Ignacio Gutierrez, to discuss FHipo's financials.

Thank you, Jesus. And again, good morning, everyone. I will continue the presentation by going through our diversified sources of funding on Slide 10. Our funding sources continue to be well diversified, including securitizations, short-term non-secured bonds, long-term covered bonds and revolving warehousing facilities. As of the end of the third quarter of 2022, our consolidated debt-to-equity ratio was 1.8x, and our on-balance debt-to-equity ratio was 0.6x, 0.4x lower compared to the onetime reported for the third quarter of 2021. This decrease is mainly explained by the full amortization of several loan balance financing structures such as the long-term covered bonds and warehousing facilities through the issuance of securitizations carried out during the fourth quarter of 2021 as part of our leverage strategy and optimization of our funding structures. If we move to Slide 12, and here we will go through the asset quality of our portfolio, our NPLs and our allowance for loan losses. We continue to maintain a solid allowance for loan losses with our expected loss coverage standing at 1.47x and our NPL ratio at 0.76x both in consolidated terms. Our consolidated NPL ratio remained at a healthy level, standing at 3.8% when considering portfolio balance at origination and a 5.0% considering current portfolio balance. If we move to Slide 15, and here, we will go through the financial results for the quarter. The net income for the third quarter of 2022 was MXN 192.2 million. In accumulated terms, as of the third quarter of 2022, the net income was MXN 673 million, which increased by MXN 19 million when compared to the accumulated net income reported in the third quarter of 2021 of MXN 654 million. Considering the outstanding CBFIs as of the date of the report, this resulted in a net income per CBFI or earnings per share for the quarter of $0.499 and in a net income per CBFI subject to our current distribution policy of $0.474. Total interest income from mortgage loans amounted to MXN 304 million, a 21.3% decrease when compared to MXN 387 million reported in the same quarter of 2021. This decrease was mainly due to the portfolio securitizations issued during the fourth quarter of 2021 as the interest from the securitized portfolio is now recognized as part of the valuation of receivable benefits and securitization transactions. Interest expenses for the quarter were MXN 148 million, a 31% decrease when compared to the MXN 217 million reported in the third quarter of 2021. This decrease is mainly related to the amortization of certain liabilities carried out during the last quarter of 2021. Such amortizations were made with resources obtained from the securitizations issued as previously mentioned. With these and considering the investment income, the financial margin for the quarter was MXN 192.8 million, representing an increase of 5% when compared to the MXN 183 million reported in the same period of the last year. The allowance for loan losses for the quarter was of MXN 34.8 million, a positive result derived in part to the portfolio evolution during the quarter and the natural seasoning of the portfolio. The valuation of receivable benefits from securitization transactions, representing the net income generated on our off-balance securitizations was of MXN 26 million. At quarter end, we maintained 8 equity residuals. There's CDVITOT 13U, the 14U and 15U. FHIPOCB 17U, 20, 21, 21-2 and 21-3. The administrative expenses for the quarter, which included INFONAVIT servicing fee, were MXN 61.4 million in the quarter. With this, if we move to Slide 16 for some ratios. As you can see, we closed the first 9 months of 2022 with a financial margin of 57.7%, which represents a 10.4% percentage point growth compared to the same period of 2021. The accumulated return on equity was of 9.2% and the consolidated nonperforming loan ratio considering portfolio balance at origination stood at 3.8%. With this, we conclude the summary of the financial results, and I will now pass the call back to our CEO, Daniel Braatz, for the closing remarks before the Q&A session.

Thank you, Ignacio. I would like to end by saying that we are proud of the third Q 2022 results. I look forward to our end of the year results. FHipo will continue to seek mortgage loan origination opportunities that generate attractive returns for the company and to our investors. I would now like to hand the call back over to operator to start the Q&A session.

[Operator Instructions] We would like to take this moment to thank you for joining FHipo's Third Quarter 2022 Results Conference Call. We will pause once more for any further questions. Our first question comes from the telephone line ending in 8563. Please state your full name and company name and ask your question.

This is Martin Lara from Miranda Global Research. I have some questions. The first one is, could you please explain the reduction in the valuation of receivable benefits and in administrative expenses compared to the previous year? And the second one is what can we expect in terms of reserves in the next few quarters?