Financiera Independencia S.A.B. de C.V. SOFOM E.N.R. ($FINDEP)

Good morning, everyone, and welcome to Financiera Independencia's First Quarter 2026 Results Conference Call. My name is Sophia, and I will be your operator for today's call. [Operator Instructions] FINDEP released its earnings report yesterday after the market closed. If you did not receive the report, please contact FINDEP's IR department directly, and they will e-mail it to you. As a reminder, this video conference is being recorded. Joining us today from Financiera Independencia is Mr. Eduardo Messmacher, Chief Executive Officer; and Mr. Jose Maria Cid, Chief Financial Officer. I would now like to hand the call over to Mr. Jose Maria Cid. Mr. Cid, you may begin.

Good morning. Thank you for joining FINDEP's First Quarter 2026 Results Conference Call. Our earnings report was published yesterday and is available on our Investor Relations website at findep.mx. Before we begin, I would like to remind you that the information shared during this call may include forward-looking statements. These statements are based on management's expectations and are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those described. Now I will turn the call over to Eduardo Messmacher.

Thank you, Jose Maria. Good morning, everyone. Financiera Independencia reported first quarter '26 results consistent with current strategy and cycle navigation. We remain focused on asset quality, selective origination and maintaining cost discipline, while navigating the current economic conditions in Mexico and the resilient demand in the U.S. Hispanic segment. I will share performance highlights from our first quarter '26 operations. Reported net profit for the quarter reached MXN 147.3 million, representing a 15.4% decrease compared to the MXN 174.1 million reported in first quarter '25. The first quarter includes a pre-tax FX-related loss of MXN 1.4 million compared to a loss of MXN 7.9 million in the prior year. This year-on-year difference is related to exchange rate variation on our dollar-denominated liabilities and not the operation. Interest income reached MXN 1.1 billion, a 9% decrease from the prior year, primarily resulting from the contraction of our average loan portfolio. Non-interest expenses decreased 5.7% year-over-year to MXN 626.3 million, reflecting continued discipline and the efficiency gains from our technological transformation. Net profit for the quarter remained at similar levels compared to the fourth quarter '25, a positive development given the contractions in net results between fourth quarter and first quarter experienced in the past years. The average portfolio decreased 6.9% versus the prior year and 1.7% under constant FX. Liquidity is strong with cash and cash equivalents at MXN 1.4 billion. Our equity-to-asset ratio was 49.2% at quarter end, remaining robust despite the dividend distributions carried out in 2025. During the quarter, in Mexico, we continue observing moderation in private consumption due to the lagged effects of our tight monetary policy. Although BANXICO recently initiated a rate cutting cycle in March, bringing the reference rate to 6.75%, we maintained a cautious approach to risk. In the United States, recent developments have brought uncertainty to the macro environment despite the Federal Reserve holding rates steady. Private domestic demand continues to drive the economy, allowing our U.S. portfolio to grow 8.7% in dollar terms compared to first quarter '25. In the first quarter '26, total loan originations reached MXN 931 million, a 12.7% decrease compared to last year and only 6.4% decrease on a constant FX basis. The decline in originations reflect our selectivity in Mexico with 24% contraction in originations year-over-year, partially offset by the 28% growth in U.S. originations in dollar terms, underscoring our successful strategy in the Hispanic segment. The consolidated NPL ratio stood at 5.6% in the first quarter '26 improving 30 basis points from the prior quarter. This improvement is a direct outcome of our technological transformation and the integration of advanced analytic tools in our origination and collection work streams. The company's write-offs amounted to MXN 386 million in the quarter, a 5.4% decrease compared to the first quarter of '25. Compared to the average portfolio trailing 12 months write-offs were 21.2%. NPLs plus trailing 12 months write-offs over the total loan portfolio stood at 23%, flat compared to the prior quarter. Now I would like to share some performance highlights from each of our businesses during the quarter. Independencia represents 33% of the total portfolio. Its portfolio Stage 3 ratio was 5.8%, improving 50 basis points over the fourth quarter '25. Apoyo Economico Familiar represents 27% of the total portfolio. AEF loan Stage 3 ratio was 7%, an improvement of 1 percentage point over the fourth quarter '25. Apoyo Financiero represents 40% of the total portfolio, while decreasing 4.8% year-on-year in pesos due to the currency fluctuations, the portfolio grew 8.7% in dollar terms. Its portfolio Stage 3 ratio was 4.6%, 40 basis points higher quarter-on-quarter, but 80 basis points better than last year. First quarter results reflect ongoing operational controls and continued progress in our core capabilities, including our technological transformation. The company remains focused on strategic execution, financial discipline and asset quality to navigate the current economic cycle. I will now hand the call back to Jose Maria for the financial review.

Thank you, Eduardo. I will now provide a more detailed review of our financial performance for the first quarter of 2026. Our total interest income for the period was MXN 1.1 billion, a 9% decrease compared to the first quarter of 2025. This trend is primarily driven by the contraction in our average loan portfolio, which stood at MXN 7.8 billion, down 6.9% year-over-year or 1.7% at a constant FX. It's important to highlight that despite the smaller portfolio base, we keep on optimizing our funding costs and expenses. Interest expenses reached MXN 129.4 million, representing a 14.6% year-over-year reduction. This improvement reflects our proactive approach to managing debt maturities and a more efficient allocation of our interest-bearing liabilities, which decreased 14% annually to MXN 4.4 billion. Our net interest income was MXN 1 billion, declining 8% compared to the prior year. Moving to the asset quality and risk management, we observed an improvement in our credit cost structure. The provision for loan losses, PLL for first quarter '26 was MXN 286 million, which is 12% lower than last year and a 23% decrease on a sequential basis. PLL to average loans was 14.8%, a substantial improvement from the 18.7% reported in the fourth quarter of 2025. Write-offs for the quarter were MXN 386 million, representing a 13% sequential decrease and a 5.4% improvement compared to the MXN 408 million reported in first quarter '25. On a trailing 12-months basis, our write-offs to average portfolio ratio was 21.2%, which remains consistent with our current underwriting standards. Our 12 months Stage 3 loans over write-offs ratio stood at 23%, flat compared to the previous quarter. Our coverage ratio remained solid at 222.5%, ensuring a prudent buffer against potential credit volatility. In terms of operational efficiency, we continue to see the financial benefits of our technological transformation. Non-interest expenses totaled MXN 626 million, a 5.7% year-over-year reduction. Non-interest expenses as a percentage of average portfolio stood at 32.3% in the first quarter compared to 31.9% in the first quarter of '25, reflecting continued discipline and control in managing the expense base. This discipline in managing our fixed cost base, combined with the scale provided by AI tools has been essential in maintaining our profitability levels. Regarding our financial position and solvency, we maintain a solid liquidity profile. We closed the quarter with MXN 1.4 billion in cash and cash equivalents, accounting for 12.4% of total assets. Net debt was down MXN 290.4 million or 9% from the prior quarter as we continue to prioritize balance sheet flexibility. Our operating cash flow during the first quarter of 2026 was MXN 542.8 million. Our solvency remains a core strength of the company with an equity-to-asset ratio of 49.2%. Finally, our performance indicators for the quarter remained resilient in the current environment with a return on equity of 10.6%, a return on assets of 5.2% and a return of tangible equity of 13%. In summary, our first quarter results underscore a balanced performance where significant improvements in our funding and credit costs have helped mitigate the impact on our portfolio growth challenges. Operator, we are now ready to open the call for questions.

[Operator Instructions] Our first question comes from Juan Pablo.

This is Jaime from Toku. And I would like to know more about your collection strategy. If you've done anything different in the last quarter to improve your collections stream?

This is Eduardo Messmacher. Yes, I mean, at the end of the day, collections is a core part of our operation, and we're continually improving and optimizing our strategy. So during the last few quarters, there have been a couple of risk mitigating strategies, some having to do with originations, specifically in Mexico. And also specifically in Mexico, we have been improving our collections operations through further systematizing our operation in the branch. And also, we have been improving our centralized collection operation in the call center. And we have decided actually to give the centralized operations a higher weight on our overall collection strategy. In terms of the U.S., the collection strategy has remained roughly the same. Remember that collections in the U.S. is highly regulated, and therefore, the changes in the operations are quite slower than what we can do -- than what we can do in Mexico. So in short, yes, and we will continue optimizing the collection strategy through analytics, through understanding much better the segmentation of customers to understand which ones are self-healers, which ones respond properly to centralized collections and where we better use our branch network to collect. And that's an ongoing effort and should be an ongoing effort for the rest of our operations.

[Operator Instructions] We will pause again for any further questions.

This is Jaime again. And my second question would be, what would be your goal for the next quarter in terms of loan origination?

So we tend not to give forecast in that sense or guidance. I mean, what we're seeing is -- let me first address the U.S. Now the U.S., in terms of risk, we're seeing positive metrics in our portfolio. However, we are concerned about the possible inflation derived from the geopolitical situation of the world. And in particular, our segment is quite sensitive to the price of gas. And we're seeing prices of gas going up. So we remain there, I would say, cautiously positive. And we probably will see a similar level of originations. However, we are vigilant on the impact of the geopolitical situation in the country. In terms of Mexico, the first quarter '26 was, I would call it, a transition period. We are focusing more on formal clients as we have seen that the slowdown in the economy has particularly hit the informal segment. And we continue -- we will continue with that strategy. The focus of our company right now is not the growth of the portfolio, but rather the quality of our originations and obviously, the effectiveness of our collections. So I would expect something similar to the first quarter.

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 Jose Maria Cid for some closing remarks.

Thank you very much for your time and interest in Financiera Independencia. As always, my contact information is in our website, findep.mx. So if you have any further comments or questions, please do not hesitate to reach out to me. Have a great day.