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 Second Quarter 2023 Conference Call. [Operator Instructions] FHipo released its earnings report on Friday, July 28. 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 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; 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.

Thank you. Good morning, everyone, and thank you for joining us today. I'm pleased to announce FHipo's second quarter 2023 results. I would like to start by addressing FHipo's performance and achievements in this quarter. During the second quarter of this year, FHipo achieved a positive result, with a net income of MXN 189 million, resulting in an estimated distribution per CBFI of MXN 0.47. Also, in a challenging macroeconomic condition characterized by high interest rates, FHipo has been able to monetize a portion of its debt, carrying out an efficient leverage strategy and managing risk through this challenging environment. In addition, the nonperforming loan portfolio has evolved in line with our estimates, staying at 6.2%. Now moving to Slide 4, I would like to highlight the following achievements for the quarter. In the second quarter, the financial margin influenced by external economic factors reached a level of 47.8% in line with the 50% in the previous quarter. The return on equity closed the quarter at 8%. The net income per CBFI resulted in MXN 0.50. The annualized yield per CBFI stood at 11.6%, and we believe that these results are in line with our commitment to generate profitability to our investors. We remain focused on achieving an optimal leverage strategy, maintaining healthy levels despite the interest rate levels we see in the market. We are glad to share that at the end of the quarter, FHipo's on-balance debt-to-equity ratio decreased to 0.57x from 0.62x in the first quarter of this year. Also, we seek to maintain an adequate level of exposure to floating rates and mitigate risk. As of the end of the second quarter, 76% of our total debt was hedged at fixed rates. In terms of our portfolio, I would like to highlight that mortgage loan origination through YAVE and KREDI, our most recent origination partners, grew by more than 70% on an annual basis, exceeding FHipo's growth expectations. Now I will hand the call over to our COO, Jesus Gomez, who will discuss our portfolio breakdown.

I would like to continue discussing the breakdown of our mortgage portfolio at the end of the second quarter of 2023. As of June 30, 2023, FHipo's consolidated portfolio reached 79,127 loans, totaling MXN 283 billion. Compared to the second quarter of 2022, these figures decreased 10.2% and 7.7%, respectively. This reduction in the portfolio is mainly explained by the natural amortization of the portfolio. Our loans come from our partnerships with several origination products, such as Infonavit Total, Infonavit Mas Credito, Fovissste, YAVE and KREDI. The latter two being our most recent partners have shown exceptional growth in the past year. The average loan-to-value ratio closed the quarter at 78%, a slight increase compared to the second quarter of 2022, while the payment-to-income ratio remained at the same level when compared to the ratio reported in second quarter 2022, standing at 24.4%. As of the end of the second quarter of 2023, our performing portfolio continued to meet the company's expectations, reaching 92.5% in consolidated terms. When considering portfolio balance origination, the NPL ratio was 6.2%. Our portfolio remains diversified as KREDI and YAVE portfolio continued to increase and now represents 7% of our total portfolio. The breakdown is as follows: Infonavit Total, MXN 7.5 billion; Infonavit Mas Credito, MXN 12.2 billion; Fovissste, MXN 2.5 billion; YAVE, MXN 1.6 billion; and KREDI, MXN 104 million. Moving on to Slide 7. We can see how FHipo's portfolio continues to be geographically diversified across all 32 Mexican states. The state of Mexico and Nuevo Leon comprise the largest part of our portfolio, representing 12.5% and 11.3%, respectively. Regarding our partnerships and origination programs, our portfolio is comprised as follows: Infonavit Mas Credito program represents a little bit more than half of our portfolio, standing at 51.1% of the total. Infonavit Total peso program represented 17.6% of the total portfolio. Infonavit Total VSM with minimum wage index loans totaled 13.9%. The Fovissste portfolio accounted for 10.4% of the total portfolio. The YAVE portfolio stood at 6.6%. And finally, KREDI comprised 0.4% of the total. Compared to the previous quarter, the KREDI portfolio originated during the quarter grew by 121%. As always, we continue to monitor the performance of our portfolio, particularly in the current 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 over our diversified sources of funding on Slide 10. Our funding structures continue to be well diversified, including securitizations, short-term unsecured bonds and our revolving warehousing facilities. Diversifying these funding sources is crucial to maintaining our financial stability and resilience, even more given the persistent challenging economic environment. During the second quarter of 2023, our consolidated debt-to-equity ratio decreased to 1.6x, down from 1.9x in the second quarter of 2022. Our on balance debt-to-equity ratio was 0.6x, a 0.1 decrease compared to the 0.7x reported in the second quarter of 2022. We carried out several amortizations on our on-balance funding structures, which mainly explain the decrease in funding of debt-to-equity ratio. Our leverage strategy has been proven on the challenging economic conditions. So we remain confident that this places us in a favorable position to take new opportunities once the interest rates decline. On Slide 12, regarding the asset quality of the portfolio, NPLs and our allowance for loan losses, as you can see, we continue to maintain a solid allowance for loan losses with a consolidated expected loss coverage at 1.3x and our consolidated NPL coverage ratio standing at 0.66x. If we move to Slide 15, here, I will go through our financial results for the quarter. The total interest income amounted to MXN 236 million. This income had a decrease when compared to the previous quarter and to the same period of the previous quarter -- of the previous year, mainly due to a smaller portfolio balance as a result of the natural amortization of the portfolio. Interest expenses for the quarter were MXN 175.8 million. This expense practically remained flat compared to first quarter of 2023. And while comparing this financing expense to the second quarter of 2022, it increased by 14%, which is mainly explained by the high interest rates that impact directly our interest expenses. The financial margin for the quarter stood at MXN 160 million, representing 47.8% of the total interest income and 48.9% on a cumulative basis for 2023. The allowance for loan losses for the quarter was of MXN 9.3 million, a positive figure, mainly explained by the portfolio performance during the quarter. The valuation of receivable benefits from securitization transactions, driven by the net income generated under the equity residuals of our securitization transactions, was MXN 115.5 million. And the operating expenses, which included INFONAVIT and Fovissste servicing fees, were MXN 94 million. The net income with this for the quarter was MXN 189.4 million, which, considering the outstanding CBFIs as of the date of the report, results in a net income per CBFI or earnings per share for the quarter of MXN 0.50 and an estimated distribution, subject to the current distribution policy, of MXN 0.475 per CBFI. On Slide 16, as we highlight some of the key metrics and as we mentioned earlier, the financial margin for the quarter reached 47.8% and the return on equity for the quarter was 8%. 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. As we conclude, I want to emphasize that we remain committed to the conservative portfolio growth and origination approach, carefully selecting opportunities that enhance our profitability in the long term by avoiding negative impact to our capital value. We will continue working to maintain these results for the rest of the year. And as always, we will continue to selectively grow our mortgage portfolio, while implementing an efficient leverage strategy. I would now like to hand the call back to the operator to start the Q&A session.

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

Congratulations for these results. I have one question. Where do you see the NIM and the expense ratio during the rest of the year?