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

Good morning, everyone. My name is Andrea and I will be your conference operator. [Operator Instructions] This is FHipo's Second Quarter 2024 Conference Call. There will be a question-and-answer session after the speakers' opening remarks and instructions will given at that time. FHipo released its earnings report on Friday, July 26, after market closed. 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; 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. Thank you for joining us today. I'm pleased to announce FHipo's Second Quarter 2024. I will start by addressing FHipo's performance and achievements during the quarter. So please move into the next slide. In the Second Quarter, FHipo reported a net income of MXN 144 million translating to an estimated distribution subject to the current distribution policy of MXN 0.36. This performance is in line with the first quarter of this year, underscoring the consistency and stability for financial results. By adhering to our proven portfolio diversification strategy, we have consolidated our position in the Mexican mortgage industry. Despite a challenging macroeconomic environment, we have prioritized profitability and maintain a strong financial position. Our conservative approach, coupled with other deleveraging strategies and the use of Digital Mortgage Platforms for portfolio origination has been instrumental in sustaining our financial stability. Now as shown in this slide, I would like to highlight the following achievements for the quarter. At the end of the Second Q, FHipo reported a net income of MXN 0.38. That is 2.1% higher than the First Quarter of this year and this represents an annualized yield of 9.9% per CBFI. FHipo's return on equity stood at 6.1%, and I believe that these results reflect the commitment to maintaining profitability despite macroeconomic challenges such as a high interest rate environment in Mexico. The company's stable financial position allow us to amortize debt within our structures, wrapping up the quarter with a debt-to-equity ratio of 0.53x, decreasing by 0.04x when compared to 0.57x in the second Q of last year. Regarding our Digital Mortgage Platforms, the portfolio balance surged by 75% in the last 12 months. This strong growth underscores our commitment to diversifying our portfolio and showcases the effectiveness in our strategy in leveraging with other partnerships to meet market demand. Financial margin for the second Q of this year was 51.3%. That's an increase of 3.5% when compared to the 47.8% reported in the second Q of last year as a result of our continued focus on profitability and quality in mortgage origination. Having said that, I'll hand the call over to Jesus Gomez, who will discuss the portfolio breakdown.

Thank you, Daniel. Good morning, everyone, and thank you for joining us today. Moving on to Slide 6. I would like to discuss the breakdown of our mortgage portfolio for the Second Quarter of 2024. As of June 30, FHipo consolidated portfolio comprised 69,538 loans with a total balance of MXN 22.1 billion. These balance decreased by 1.7% when compared to the MXN 22.6 billion registered in the first quarter of the year, which is mainly due to the natural amortization of the portfolio. The average loan-to-value ratio at origination remained stable at 78.2%, while the payment-to-income ratio was 24.5%. At the end of the Second Quarter, our performing portfolio was 92.6% on a consolidated basis, in line with the company's expectations. When considering portfolio balance at origination, the NPL ratio was 5.3%. Our portfolio remains diversified across several origination programs, including Infonavit Total, Infonavit Mas Credito, Fovissste and our Digital Mortgage Platforms. The Digital Mortgage Platforms have shown exceptional growth, now accounting for 30.3% of the total consolidated portfolio. The breakdown of our portfolio is as follows: Infonavit Total, MXN 6.3 billion; Infonavit Mas Credito, MXN 10.6 billion; Fovissste, MXN 2.3 billion; and the Digital Mortgage Platforms, MXN 2.9 billion. 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, Nuevo Leon represent the largest share of the portfolio accounting for 12.3% and 11.5%, respectively. In terms of our partnerships and origination programs, our portfolio is composed as follows: Infonavit Mas Credito represented a bit less than half of our portfolio standing at 47.6% of the total. Infonavit Total Pesos represented 16.3% of the total portfolio. Infonavit Total VSM, the minimum wage index loans reached 12.2%. Fovissste portfolio accounted for 10.6% of the total portfolio, and finally, the Digital Mortgage Platform portfolio now represents 13.3% of the total loan balance, reflecting a steady increase in its share over the recent quarters. As always, we continue to monitor the performance of our portfolio, particularly in the current 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. Good morning, everyone. I will continue the presentation by going through our diversified sources of funding. Our funding structure remains well diversified as into securitizations, short-term unsecured bonds and revolving warehousing facilities. This diversification is essential for sustaining our financial stability and resilience, particularly in the face of the ongoing challenging economic environment. As of the end of the Second Quarter of 2024, our consolidated debt-to-equity ratio decreased to 1.5x, down from 1.6x in the second quarter of 2023. Our on-balance debt-to-equity ratio was 0.5x, down from 0.6x reported in the Second Quarter of 2023. This was mainly due to the amortizations of on-balance financing structures. This reflects our ability to adapt to different conditions with a conservative leverage strategy and the optimization of our sources of funding as we remain focused on financial and disciplined risk management to achieve sustainable growth for the company. Now if we go to Slide 12. And here, we will go through the asset quality of the portfolio, our NPLs and our allowance for loan losses. As Jesus mentioned, our consolidated NPL ratio stood at 5.3%, considering portfolio balance origination and at 7.4%, considering current portfolio balance. Additionally, we continue to maintain a solid allowance for loan losses with our expected loss coverage standing at 1.43x and our consolidated NPL coverage ratio at 0.71x. The allowance for loan losses is aligned with our conservative approach, demonstrating our commitment to maintaining a robust balance sheet. This emphasis on asset quality ensures that FHipo remains resilient amid a challenging economic environment while continuing to deliver stable returns to our investors. If we move to Slide 15, and here, we'll go through the financial results for the quarter. Our total interest income for the Second Quarter of 2024 amounted to MXN 337.6 million, an increase of MXN 1.2 million compared to the MXN 336.4 million on the Second Quarter of 2023. This was primarily driven by the expansion of our Digital Mortgage Platform origination. Our financial margin improved by -- improved to MXN 173 million, an increase of 7.7% compared to the MXN 160.7 million in the Second Quarter of 2023. This improvement underscores our ability to effectively manage our interest expense, which decreased by 6.4% when compared to the Second Quarter of 2023, mainly due to the debt amortization in our warehousing facilities. The allowance for loan losses for the quarter was of MXN 1.7 million. This positive result reflects the portfolio performance during the quarter. The valuation of receivable benefits in securitization transactions driven by the equity residuals of our securitization transactions generated an income of MXN 84.3 million, and the administrative expenses for the quarter were MXN 113 million, resulting in a net income for the quarter of MXN 144.8 million, in line with the MXN 142 million reported in the first quarter of 2024. Considering the outstanding CBFIs as of the date of this report, the net income per CBFI or earnings per share for the quarter stood at MXN 0.388 and the net income per CBFI subject to our current distribution policy at MXN 0.369. Overall, these results demonstrate the strength and resilience in FHipo's business model, enabling us to deliver consistent returns to our investors. 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. I would like to emphasize that we're well positioned to capitalize on new programs, partnerships and strategies in the coming months. I'm confident in the resilience of our business model and believe that our continued focus on conservative approach will drive sustained profitable growth, adding value to our shareholders. I will now like to hand the call over to the operator, so we can start the Q&A session.

[Operator Instructions] Our first question comes from the line of Martin Lara. [Operator Instructions]

This is Martin Lara from Miranda Global Research. I have the following questions. The first one is, where do you see the leverage ratio at the end of the year? The second one is that the spread between active and passive interest rates was 189 basis points in the quarter. How do you see this indicator in the second half? And the last one is if you have the NPL ratio of the Digital Platform Portfolio.

Thank you for your questions, Martin. In regards of the debt-to-equity ratio, I would argue that you should expect the leverage to keep the same until the end of the year. We will keep originating mortgages through the digital platforms, and that will allow us to keep the size of the assets. And at the same time, we're going to be drawing down on certain financial facilities to keep the leverage of the company at that level. Your second question in regards of the asset yield vis-a-vis the liability cost as well, that spread should increase. We believe that as we keep originating through the platforms that are creating this new rate at market levels should allow us to increase the spread against the financial cost that you're looking into the presentation. So you should expect that increase perform even better as we keep originating through these third-party strategies. And finally, in terms of the NPL ratio of the digital platforms, let me check on the presentation, I believe that is information that is included, if not in this presentation, in the financial report, but we can follow up with that question in direct.