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 Third Quarter 2024 Conference Call. There will be a question-and-answer session after the speakers' opening remarks, and instructions will be given at that time. FHipo released its earnings report on Friday, October 25, after market close. If you did not receive the report, please contact FHipo's IR department directly, and they will e-mail to you. Please note that this call is for investors and analysts only. Therefore, 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 Third Quarter 2024 results, which by the way is our best quarter of the year as of to date. I will start by discussing FHipo's performance and achievements on the first slide. So during the third quarter of 2024, FHipo reported a net income of 20% higher than the second quarter of last year, which implies an estimated distribution subject to the current distribution policy of MXN 0.44 per CBFI. These results represent the most remarkable accomplishments reached so far in the 2024 period and highlight our commitment to continue creating value for our shareholders. With our financial strength along with our successful leveraging strategy and strong portfolio origination through our Digital Mortgage Platforms, we are well positioned to take advantage of opportunities when they arise, particularly within a favorable economic environment marked by lower interest rates and a new federal administration expected to encourage mortgage loan originations. Now as shown on Slide 4, I would like to highlight the following achievements for this quarter. In terms of profitability, our return on equity for this past quarter was 7.3%, which represents an increase of 120 basis points compared to the 6% of last year. Our financial margin of this quarter was 51%, increasing by 3.2 percentage points when compared to 48.6% reported in the same period of the previous year. With these results, it's important to notice our commitment to delivering value to our investors and how we remain confident that our focus on financial discipline and risk management strategies will enable us to maintain positive results in the longer term. As previously mentioned, at the end of this third quarter, FHipo's net income grew 20% to MXN 173 million, representing a net income per CBFI of MXN 0.46, a solid result when compared to MXN 0.38 reported in the second quarter of last year (sic) [ this year ]. This translates into an annualized yield of 12% per CBFI. During the last 12 months, the origination through our Digital Mortgage Platforms grew 62%. We maintained the growth of this origination program, which has contributed to a diversification of our portfolio. The company's stable financial position allows us to amortize debt, closing the quarter with a debt-to-equity ratio of 0.5x. Also, during this quarter, we renewed our credit facility with HSBC for up to MXN 5 billion, demonstrating the confidence that the banking sector and capital markets have in our financial strategy and business model. This financing will allow us to focus on maximizing the company's profitability, better position us to take advantage of future opportunities. Now I will hand the call over to our COO, Jesus Gomez, who will discuss our portfolio breakdown.

Thank you, Daniel. Good morning, everyone, and thank you for being with us today. Let's turn to Slide 6, where I'll provide an overview of our mortgage portfolio for the third quarter of 2024. As of September 30, 2024, FHipo's consolidated portfolio comprised 66,829 loans with a total balance of MXN 21.5 billion. This represents a decrease of 2.7% compared to MXN 22.2 billion registered in the second quarter of 2024, primarily due to the 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%. By the end of the third quarter, our performing portfolio was 92.7% on a consolidated basis. When looking at the portfolio balance and origination, the NPL ratio was 5.2%. Our portfolio remains diversified across several origination programs, including Infonavit Total, Infonavit Más Crédito, Fovissste and our Digital Mortgage Platforms, which have grown at an annual rate of 62%, and now account for 15% of the total consolidated portfolio compared to 13% for the previous quarter. The breakdown of our portfolio is as follows: Infonavit Total, MXN 5.9 billion; Infonavit Más Crédito, MXN 10.1 billion; Fovissste, MXN 2.3 billion; and the Digital Mortgage Platforms, MXN 3.2 billion. 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 entities of our portfolio, representing 12.3% and 11.5%, respectively. In terms of our partnership and origination programs, our portfolio is composed as follows. Infonavit Más Crédito product represent a bit less of half of our portfolio with 47% of the total. Infonavit Total Pesos program represented 15.7% of the total portfolio. Infonavit Total VSM or minimum wage index loans reached 11.7%. Fovissste portfolio accounted for 10.6% of the total. And the Digital Mortgage Platforms now represent 15% of our total loan balance, increasing its share over the previous year. As always, we continue to monitor the performance of our portfolio. We're optimistic about future growth prospects, especially with the new federal government's focus on housing, which could drive further demand for financing solutions. 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 by going through our diversified sources of funding. Our funding sources remain well diversified and includes securitizations, short-term unsecured bonds and revolving warehousing facilities. As always, we have maintained a conservative approach to mitigate risk and deliver sustained profitability to our investors despite challenging environments. At the end of the third quarter of 2024, our consolidated debt-to-equity ratio improved to 1.4x, down from 1.6x in the third quarter of 2023. And additionally, our on-balance debt-to-equity ratio decreased to 0.5x when compared to the 0.6x reported in the third quarter of 2023. This reduction is primarily explained by the amortization of on balanced financing structures. We believe these results place us in a strong position to capitalize on new opportunities that create value for the company and our investors as the economic landscape continues to evolve positively. Now let's turn to Slide 12. And here, we'll discuss the asset quality of our portfolio, including our nonperforming loans and our allowance for loan losses. As Jesus mentioned, our consolidated NPL ratio stood at 5.2% considering portfolio balance at origination and at 7.3% considering current portfolio balance. Additionally, we continue to maintain a solid allowance for loan losses with our expected loss coverage standing at 1.46x and our consolidated NPL coverage ratio at 0.72x. These ratios reflect our commitment to continue optimizing the company's performance through a conservative risk management strategy. Moving on to Slide 15. In here, I will go through the financial results for the quarter. Our total interest income for the third quarter of 2024 amounted to MXN 332.5 million, in line with the MXN 339.2 million reported in the third quarter of 2023. This result is mainly due to the natural amortization of the portfolio, which is being balanced by the growth of our portfolio originated through Digital Mortgage Platforms. The interest expenses in the third quarter of 2024 were MXN 160.4 million, which implies a decrease of 8% in comparison to the MXN 174.2 million reported in the third quarter of 2023, mainly due to the debt amortization in our warehousing credit facilities. We continue to be prudent in our debt management, and for this reason, as of the third quarter of 2024, the on-balance debt decreased by 14% in comparison to the third quarter of 2023. Our financial margin closed at MXN 172 million, an increase of 4.4% when compared to the MXN 164 million reported in the third quarter of 2023. The financial margin for this quarter represented 51.8% of the interest income in comparison to the 48.6% reported in the third quarter of 2023. The allowance for loan losses for the third quarter of 2024 was MXN 15 million, a positive result mainly due to the portfolio's performance during the quarter. The valuation of receivable benefits in securitization transactions driven by the equity residuals of our RMBS transactions generated an income of MXN 109 million, and the administrative expenses for the quarter were MXN 122 million, resulting in a net income for the third quarter of 2024 of MXN 173.8 million, an increase of MXN 29 million when compared to the MXN 144.8 million in the second 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 0.466 and the net income per CBFI subject to our current distribution policy at MXN 0.442. We believe these results highlight the strength, resilience and consistency of FHipo's business model, providing consistent results 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. We are pleased with the results achieved this quarter and they represent the best quarterly performance of the year. We're optimistic about the future so we are reinforcing our commitment to consistently generate value to our investors. So thank you for your ongoing trust and support. I would now like to hand the call back over to the operator to start the Q&A session.

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

Thank you for the call and congratulations for these results. I have the following questions. The first one is, do you anticipate any changes in your alliances with Infonavit and Fovissste under the new administration? The second one is how do you see the interest rate spread and financial margin going forward if interest rates decline? And the third one is what can we expect in terms of leverage for next year?