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

Good morning. My name is Daniela, and I will be your conference operator. [Operator Instructions] This is FHipo's First Quarter 2023 Conference Call. [Operator Instructions] FHipo released its earnings report on Friday, April 28, after the market closed. If you did not receive this 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 meeting 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; Ignacio Gutierrez, Chief Financial Officer; and Jesus Gomez, Chief Operating Officer. I would now like to turn the call over to Daniel Braatz. Daniel, please go ahead.

[Audio Gap] FHipo's first quarter '23 results. I would like to start by addressing FHipo's performance and achievement during this quarter. So let's move on to that slide, please. During the first quarter of '23, FHipo maintained a stable position in the mortgage industry by executing a portfolio diversification strategy. Despite the challenging environment characterized by high interest rates and inflation, we were able to apply appropriate risk management strategies and reduce our exposure to floating rates. Our focus on developing, coupled with portfolio origination via other lending platforms such as YAVE and KREDI, allow us to maintain our financial stability. We remain committed to delivering value to our shareholders. Our estimated distribution stood at MXN 0.25 per CBFI. Nonetheless, we are confident in our capabilities to continue delivering results in these challenging times. Now in this slide, I would like to highlight the following. FHipo continues to maintain another quite and conservative financing strategy despite the current high interest rate environment. We are pleased to report that only 16.4% of our total debt is exposed to floating rates, which has enabled us to reduce our exposure to interest rate risk. Moreover, we have implemented a successful deleveraging strategy in the past quarters, leading to a decrease in our leverage ratio from 0.69x in the first quarter of 2022 to 0.62x as of the first quarter of this year. Our interest income has continued to increase, and our financial margin for the first quarter of this year stood at 50%, only slightly lower than the one reported in the same period of last year. We are confident that our focus on financial discipline and risk management strategies will enable us to maintain our financial margin going forward. In addition to our financial success, FHipo is proud to contribute to the development of the mortgage market in Mexico. As shown on this slide, our loan portfolio from our newest and most innovative originator partners, YAVE and KREDI, doubled compared to the figure reported in the first quarter of last year. We are excited about the potential for continued growth and development in this area, and we expect to increase the loan balance from this portfolio in the coming periods. We're actually pushing both CEOs of both companies, Juan Bernardo Silva and the other one, Javier Aldape to keep pushing origination on a monthly basis. Hopefully, these guys are listening to us on this call. Now I hand the call back to our COO, Jesus Gomez, who will discuss our portfolio breakdown.

Thank you, Daniel. Good morning, everyone, and thank you for joining us today. I would like to continue on Slide 6 to discuss the breakdown of our mortgage portfolio for the first quarter of 2023. As of March 31, 2023, FHipo's consolidated portfolio comprised 81,000 loans for MXN 24.3 billion. These represented a decrease of 11.4% and 9.3%, respectively, compared to the first quarter of 2022. The portfolio contraction is mainly explained by the natural season in amortization of our portfolio. Our loans come from our partnerships with several origination programs such as Infonavit Total, Infonavit Más Crédito, Fovissste, YAVE and KREDI. The average loan-to-value, payment-to-income ratios remained without significant changes compared to the ratio reported in first quarter of 2022, closing the quarter with a loan to value of 78.1% and a payment to income of 24.4%. As of the first quarter, our performing portfolio continues to be in line with our company's expectations, as it stood at 93.3% in consolidated terms, which implies an NPL ratio of 5.6% considering portfolio balance of origination. Our portfolio is even more diversified than in previous quarters, as KREDI and YAVE's portfolios continue to increase. The breakdown of our portfolio is as follows: Infonavit Total, MXN 7.5 billion -- MXN 7.8 billion; Infonavit Más Crédito, MXN 12.5 billion; Fovissste, MXN 2.5 billion; YAVE, MXN 1.4 billion, which implies an increase of 82% relative to the first quarter of 2022; and KREDI, MXN 47 million. Moving on to Slide 7. We can see how FHipo's consolidated portfolio continues to be geographically diversified across all 32 Mexican states. The state of Mexico and Nuevo Leon comprise the largest share of our portfolio, accounting for 12.6% and 11.3%, respectively. In relation to our partnerships and origination products, our portfolio is comprised as follows: Infonavit Más Crédito program represented more than half of our portfolio, standing at 51.4% of the total; Infonavit Total peso program represented 17.7% of the total portfolio; Infonavit Total VSM, the minimum wage index loans, reached 14.3%; Fovissste represented 10.5% of the total portfolio; the YAVE portfolio reached 5.9%; and KREDI's portfolio represented 0.2% of the total portfolio. As always, we continue to monitor the performance of the portfolio, particularly in the recurring high interest rate environment. I will now hand the call over to our CFO, Ignacio Gutierrez, to discuss FHipo's financial results.

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 structure is well diversified, including securitizations, short-term unsecured bonds and revolving work housing facilities. We believe that diversifying our funding sources is crucial through our financial stability and resilience in a challenging economic environment. As of the end of the first quarter of 2023, our consolidated debt-to-equity ratio decreased to 1.7x, down from 1.9x in the first quarter of 2022. Our on-balance debt-to-equity ratio was 0.6x, representing a decrease compared to the 0.7x reported in the first quarter of 2022. This reflects a commitment to our leverage strategy and the optimization of our sources of funding. We continued with the amortization of several loan balance financing structures, which mainly explains the decrease reported in our debt-to-equity ratio. We remain focused on financial and disciplined risk management to achieve sustainable growth and success for the company. If we move to Slide 12, in here, we will go over the asset quality of our portfolio, our NPLs and our allowance for loan losses. As you can see, we continue to maintain a solid allowance for loan losses with our consolidated expected loss coverage standing at 1.41x, and our consolidated NPL coverage ratio at 0.72x. Moreover, our consolidated NPL ratio stood at 5.6% considering portfolio balance at origination and at 6.7% considering current portfolio balance. Moving to Slide 15. In here, we will go through the financial results for the quarter. Total interest income amounted to MXN 351.6 million, a 7.1% increase when compared to the MXN 328 million reported in the first quarter of 2022. This difference is mainly due to an increase in investment income. The financing expense for the quarter was MXN 175 million, representing a 28.2% increase compared to the MXN 137 million reported in the first quarter of 2022. This increase is mainly explained by a higher interest rate environment, which impacts directly on our interest expense. Moving on, the financial margin for the quarter resulted in MXN 175.7 million, representing a decrease of 8% when compared to the MXN 191 million reported in the same period of last year. The allowance for loan losses for the quarter was MXN 60 million, which showed an increase compared to the amount reported in the first quarter of 2022. The valuation of receivable benefits from securitization transactions, driven by the equity residuals of our securitization transactions, generated an income valuation of MXN 64.5 million. This represented a 28.4% decrease compared to the figure reported in the first quarter of 2022. The net income for the first quarter of 2023 stood at MXN 104 million, showing a decrease when compared to that of the first quarter of 2022, mainly driven by the higher interest expense and the allowance for loan losses. Considering the outstanding CBFIs as of the date of this report, with this net income, the net income per CBFI or earnings per share for the quarter stood at MXN 0.27 and the net income per CBFI is subject to our current distribution policy at MXN 0.257. If we move to Slide 16, in here, you can see a highlight of some of the key metrics. As you can see, the financial margin for the quarter stood at 50% and the return on equity at 4.3%. With this, I will now hand the call back to our CEO, Daniel Braatz, for some closing remarks before the Q&A session.

Thank you, Ignacio. In closing, I would like to express how pleased we are with FHipo's first quarter '23 results, which reflect our unwavering commitment to disciplined risk management practices. Despite the challenging high interest rate environment, we remain committed to our approach to seek out profitable mortgage loan origination opportunities and diversifying our portfolio. FHipo's firm dedication to its conservative and focused approach, coupled with its proven deleveraging strategy, has positioned FHipo to navigate these uncertain times with steady confidence. As we move forward, we are determined to deliver unparallel long-term value to our shareholders through prudent financial management and strategic decision-making as well as our unrelenting drive to push the boundaries of innovation and excellence in the mortgage market. I would now like to turn the call back over to operator to start the Q&A session.

[Operator Instructions] Our first question comes from Martin Lara from Miranda Global Research.