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 2025 Conference Call. There will be a question-and-answer session after the speaker's opening remarks, and instructions will be given at that time. FHipo released its earnings report on Thursday, July 24, 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. 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 Gutiérrez, Chief Financial Officer; and Jesús 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 would like to share with you FHipo's financial results and key accomplishments for the second quarter of 2025. For FHipo 2025 continues to be a year of transition in which we will execute our strategy with a disciplined approach. Thanks to our strategy focused on execution, we have maintained a solid balance sheet and preserve financial flexibility, enabling us to capitalize on investment opportunities that continue delivering profitable to our investors. As part of this ongoing commitment to delivering long-term sustainable value, as of the end of the second quarter of 2025, we have distributed over MXN 7 billion to our investors, showing our long-term commitment and value generation. Our solid financial performance continues to support this strategy. During the quarter, our financial margin stood at 55% of interest income, underscoring the company's operational efficiency and profitability. Also, our strategy has proven effective in building a dynamic and forward-looking investment platform. We continue our strategy prioritizing assets with stronger risk-adjusted returns. The balance of the mortgage origination through our digital mortgage platforms reached MXN 3.5 billion, reflecting a compounded annual growth rate of 45% over the past 2 years. It is important to notice that during the quarter, the full early amortization of the RMBS, CDVITOT 13U, took place on April 21 of this year. This securitization was comprised by Infonavit mortgages denominated in veces de salario mínimo or VSM. Moving into Slide 5, we highlight our strong and consistent distribution track record. For the second quarter of this year, our annualized yield per CBFI stands at 10.7% based on an estimated quarterly distributions of approximately MXN 0.35 per CBFI, subject to the current distribution policy. This result reflects not only our attractive yield, but also our ability to consistently generate value to our investors. As of the end of the quarter, we have distributed over MXN 7 billion to our investors, since inception, equivalent to MXN 18.96 per share, demonstrating the strength of our business model and our consistent execution through time. Moving on to Slide 6. FHipo continues to show a solid capitalization profile driven by efficient financial and operational management. Over the last 6 years, we have reduced our total debt-to-equity ratio by nearly 40% in parallel to our financial margin that remains strong. That stands today at 55% for the second Q of 2025 and 52% on an LTM basis. This continued performance underscores the efficiency of our business model and our ability to preserve profitability and financial strength even in a challenging environment. On Slide 7, we show how we continue to strengthen origination in higher-yielding assets. As of the second quarter of this year, mortgages originated through the digital mortgage platforms represented 18% of our total portfolio compared to just 7% back in 2023. This segment has maintained a strong expansion trend, growing at 45% on a CAGR, since second quarter of 2023. Our portfolio remains solid with an average loan-to-value of 77% at origination and an estimated loan-to-value of 28% based on current market value. Turning to Slide 8. As of the second quarter of 2025, our nonperforming loan ratio, considering the accumulated balances of the total portfolio at origination stood only at 3.4%. This KPI reflects the solid historical credit performance of our portfolio. Finally, moving into Slide 9. FHipo remains committed to sustainability and ESG best practices. Our focus goes beyond financial returns, since we aim to create long-term and positive impact value. FHipo has helped finance over 100,000 loans with about 55% of our borrowers coming from low-income households. Loans to women represents 31% of our total portfolio. And internally, women make up 39% of our total workforce. These figures reflect our commitment to fostering an inclusive and equitable environment, both for our clients and within our organization. On governance, our Nomination, Audit and practices committees are 100% independent and over 50% of our technical committee members are independent as well. On the environment side, 100% of our Infonavit borrowers in our portfolio are eligible for receiving additional credit through the green mortgage program promoting eco-friendly home improvements, and we have also implemented internal policies to cut paper, plastic and water consumption. These efforts underscore our ongoing commitment to strong ESG practices, driven environmentally sustainable initiatives, sound governance and social impact into every aspect of our operations. With that, I will now turn the call over to our CFO, Ignacio Gutiérrez, who will discuss the leverage strategy.

Thank you, Daniel, and good morning, everyone. I will continue the presentation by going through our diversified sources of funding. Since early 2019, FHipo has made steady progress in strengthening its balance through a consistent deleveraging strategy. As of the second quarter of 2025, our total debt-to-equity ratio, including both on and off-balance sheet financings, has declined nearly 40% since 2019. This has enhanced our financial flexibility and ability to adapt to changing market conditions. We maintain a diversified sources of funding base that combines securitizations, long and short-term bonds and warehousing lines. This structure enables us to efficiently manage liquidity needs, while supporting a solid and resilient capital position. With this, I'll turn the call over to our COO, Jesús Gómez, who will go through our portfolio breakdown before I discuss our financials.

Thank you, Ignacio. Good morning, everyone. Thank you for joining us today. Let's now continue on Slide 14 to review the breakdown of our mortgage portfolio as of the end of the second quarter of 2025. As of June 30, 2025, FHipo's consolidated portfolio comprised 53,381 loans with an outstanding balance of MXN 19.1 billion. The portfolio continues to reflect sound credit fundamentals with an average loan-to-value origination of 77.9% and a payment-to-income ratio of 24.4%. At the end of the quarter, 92.1% of the portfolio remained performing. Our portfolio remains diversified across several origination programs, including Infonavit Total, Infonavit Mas Crédito, Fovissste and our digital mortgage platforms portfolio, which continues to show strong growth, now representing 18.5% of the total consolidated portfolio compared to just 13.3% in the previous year. This evolution reflects our continued strategy to prioritize assets with stronger risk-adjusted returns, shifting origination focus toward higher-yielding loans that strengthen portfolio profitability. Moving on to Slide 15. FHipo's consolidated portfolio remains geographically diversified across all 32 Mexican states. Nuevo León, Estado de México and Jalisco make up for the largest portions together accounting for approximately 28.7% of the total portfolio balance. In terms of our partnerships and origination programs, here is a breakdown of the portfolio. Infonavit Mas Crédito program accounts for 48.1% of the total portfolio, equivalent to MXN 9.2 billion. The digital mortgage platforms portfolio accounted for 18.5% equivalent to MXN 3.5 billion. The Infonavit Total pesos program represented 13.5% of the total portfolio equivalent to MXN 2.6 billion. The Fovissste portfolio accounted for 11.3% of the total portfolio equivalent to MXN 2.2 billion. And finally, the Infonavit Total VSM denominated reached 18.6% equivalent to MXN 1.6 billion. Additionally, as the Mexican government continues to prioritize housing development and address the country's housing demand, we believe there will be greater need for mortgage financing solution. FHipo is well positioned to participate in this growth, while maintaining strong focus on profitability. I will now return the call back to our CFO, Ignacio Gutiérrez, to discuss FHipo's financial results for the second quarter of 2025.

Thank you, Jesús. On Slide 17, we will discuss our NPL and reserve coverage levels. As of the second quarter, as you can see of 2025, our nonperforming loan ratio stood at 7.9%, but we continue to maintain a solid allowance for loan losses with an expected loss coverage of 1.5x and an NPL coverage of 0.63x. If we move to Slide 19, and here, we will go through our financial results for the quarter. The total interest income for the second quarter of 2025 was MXN 325.4 million, showing a slight decrease compared to the second quarter of 2024, which is primarily attributed to the natural amortization of the portfolio, which has been partially offset by the growth in origination through our digital mortgage platforms. The interest expense totaled MXN 145 million, representing an 11.5% decrease compared to the second quarter of 2024, mainly driven by a lower interest rate environment. Our financial margin stood at MXN 179 million compared to the MXN 173 million recorded in the second quarter of 2024, maintaining stable profitability levels. The financial margin for this quarter represented 55% of the total interest income. The allowance for loan losses generated in the income statement for the second quarter of 2025 was of MXN 20 million, reflecting the performance of the portfolio during the quarter. The total allowance for loan losses on our balance sheet as of the second quarter of 2025 amounted to MXN 378 million, representing approximately 4% of the total loan portfolio reported in people's balance sheet. The valuation of receivable benefits from securitization transactions showed a loss for this quarter of MXN 2.7 million, but in an accumulated basis, a gain of MXN 56 million as of the second quarter of 2025. This figure mainly reflects the performance of the underlying portfolios as well as the early amortization of this very top 13 new securitization carried out in April. The operating expenses for the quarter were MXN 107.9 million. And as a result, the net income for the quarter stood at MXN 47.8 million, resulting in a net margin of 14.7%. With this, the estimated distribution for the second quarter of 2025, subject to the current distribution policy is of MXN 0.356 per CBFI, which considering the price for CBFI as of the end of the second quarter of 2025 results in an annualized dividend yield of 10.7%. We continue to prioritize profitability and operational efficiency, ensuring a robust position to capitalize on future opportunities. With this, I'll now hand the call back to our CEO, Daniel Braatz, for some closing remarks before we move to the Q&A session.

Thank you, Ignacio. So far during the first half of this year, we've continued to strengthen the portfolio, maintaining stable profitability and prudent risk management despite all challenging environments. Looking ahead, we will continue directing our efforts towards enhancing asset quality and reinforcing long-term value generation, supported by a solid capital base and a disciplined investment approach. This approach positions us to continue evolving our platform and exploring selective investment and acquisition opportunities aligned with our strategy. We also remain committed to further advancing our ESG efforts, creating value for our stakeholders and including the people and communities with whom and where we have an impact. Thank you once again for your continued trust. I'll now hand the call back to the operator and open the Q&A session.

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

I have 2 questions. The first one is the financial margin increased 4% in the quarter, which was a favorable performance because of lower interest payments. So do you expect a similar performance going forward? And the second one is, could you please explain the $2.7 million loss in the valuation of receivable benefits in the quarter? And what can we expect in the next few quarters?

Martin, thank you for your questions. Yes, on the first one, the financial margin, yes, we expect the financial margin to keep improving as interest rates in Mexico keep converging or falling going forward. It will depend a lot on where the reference rate states in Mexico. As you know, part of our financial position is basically in floating rate. And as that continues to evolve, we will see a reduced interest expense on the P&L, and that will increase, obviously, the margin on the company. Part of our strategy, it's also linked to that and also part of the strategy that we will pursue in leveraging the company going forward, it's also based on where the interest rates in Mexico will stay, and we always compare and benchmark it to the asset yield that we are originating that, as you know, it's also 100% on a fixed rate approach. So that's on that one. And on the second one, on the residual valuations. So as you know, it's very common for our valuation of the equity receivables for those transactions to be variable throughout either the year or accordingly to the strategy that the company carries out. In this case, this quarter, we have, as we mentioned in the call, a couple of one-offs. The most important one was basically the early amortization of the CDVITOT 13U, that was basically executed through a cleanup call. When you do this, we're basically accelerating cash flow coming into the company by paying down all bondholders that were remaining at that point. And also, it's linked to the performance of the portfolio during the quarter. So it depends a lot what will be happening with the future securitizations of the company. We have a couple of other securitizations that are approaching an outstanding balance on the debt side that will be close to that 10% that will allow us to trigger a cleanup call. So depending on that, that's how you will be expecting the valuations for the company.

We have not received any further questions at this point. So that concludes our question-and-answer session. I would now like to hand the call back over to Daniel Braatz.

Thank you all for joining us today. Please don't hesitate to reach out to us if you have any more questions. We appreciate your interest in FHipo and look forward to speaking to you soon. Thank you.

That concludes today's call. You may now disconnect.