Grupo Financiero Galicia S.A.

Good day and welcome to the first quarter 2023 earnings release. Today's call is being recorded. Your lines will be on listen only. However, you will have the opportunity to ask questions at the end. This can be done by pressing star 1 on your telephone keypad to register your question. If you require assistance at any point, please press star 0 and you'll be connected to an operator. I will now hand you over to your host. Pablo Vida Vida to begin today's conference. Thank you.

Thank you. Good morning and welcome to this conference call. I will make a short introduction and then we will take your questions. Some of the statements made during this conference call will be forward-looking statements within the meaning of the safe harbor provisions of the U.S. federal securities laws and are subject to risk and uncertainty that could cause actual results to differ materially from those expressed. According to the monthly indicator for economic activity, EMAE, the Argentine economy recorded a 1.3% year-over-year expansion during March. In year-to-date terms, the economic recovery reached 1.5% as compared with the first three months of 2022. During the first quarter, the primary deficit reached 0.4% of GDP. This implied an increase as compared to the 0.2% deficit of the first quarter of 2022, result that was explained by the 78.3% increase of revenues, whereas primary spending rose 89.8%. The National Consumer Price Index recorded a 21.7% increase during the quarter, and a 32% rise between January and April. Inflation reached a 108% annual variation in April 2023, which entailed an acceleration against April 2022's 58% inflation, with inflation hitting its highest mark in 30 years. On the monetary front, the Argentine Central Bank expanded the monetary base by 165.7 billion pesos in the quarter, recording a 52.8% increase on year terms. The exchange rate averaged 203.1 pesos per dollar in March, a 17.5% increase against the 14.9% peso devaluation averaged in December. When compared to March 2022, the Argentine peso underwent a 46.1% devaluation. In March 2023, the average rate on peso denominated private sector time deposits for up to 59 days stood at 71.5%, 30.7 percentage points above the March 2022 average. The average rate displayed a similar level to the 70% average recorded last December. However, the Argentine Central Bank has been increasing interest rates as of mid-March, and the minimum interest rate for retail dump deposits currently stands at 97%. Private sector deposits in pesos averaged 17.8 trillion pesos in March, increasing 17.5% during the quarter and 110.7% in the last 12 months. Time deposits in pesos rose 20% during the quarter and 121.1% in the year, while peso-denominated transactional deposits increased 15.3% during the first quarter and 101.7% in year-on-year terms. Private sector dollar denominated deposits amounted to $16.4 billion in March, increasing 3.9% during the quarter and 7.1% in the last 12 months. During March, peso denominated loans to private sector averaged 7.6 trillion pesos, increasing 13.2% in the quarter and 73.6% when compared to March 2022. while private sector dollar denominated loans amounted to $3.7 billion, recording a 5.8% expansion during the first quarter, but a 4.2% contraction when compared to March 2022. Turning now to Grupo Financiero Galicia, their income for the first quarter amounted to 18.1 billion pesos, 71% higher from the year-ago quarter, mainly due to profits from Banco Galicia for 15 billion pesos, from Galicia Asset Management for 2.2 billion pesos, from Galicia Seguros for 697 million pesos, and from Naranja X for 607 million pesos. This profit represented a 1.9% annualized return on average assets and a 9.8% return on average shareholders' equity. In Coalicia, net income for the quarter was 55% higher than in the year-ago quarter. The net operating income increased 30%, mainly due to 166% increasing results from net interest income, offset by a 34% lower result from financial instruments. Adding up both concepts, the growth was 26%. Average interselling assets were up 5%, reaching 2.23 trillion pesos, mainly due to a 38% increase in the average volume of government securities in pesos, offset by an 18% decrease in the average volume of peso-denominated loans. In the same period, its yield increased almost 25 percentage points, reaching 63.3%. Interest-bearing liabilities increased 2% from the first quarter of 2022, amounting to 1.92 trillion pesos. This growth was mainly due to a 12% increase in the average balance of time deposits in pesos, offset by a decrease of the average balance of saving accounts, both in pesos and in dollars, and by dollar denominated time deposits. During this period, its cost increased 23.3 percentage points, to 45.5%. Net interest income for the quarter increased 166% from the same quarter of 2022, with interest income growing 124% and interest expenses growing 110% in the same period. Net fee income increased 14% from March 2022, mainly due to a 47% increase of fees on collection and a 9% increase of fees on credit cards. Net income from financial instruments decreased 34% as a consequence of the change in the valuation model of the instruments issued by the Argentine Central Bank from fair value to amortized costs. Gains from gold and FX quotation differences were 253% higher from the year-over-quarter, including the results from foreign currency trade. As regards provisions for low losses, the amount for the quarter was 92% higher than those recorded in the year-ago quarter, reaching 9.1 billion pesos. Personal expenses were 22% higher in the first quarter of 2022, primarily due to salary increase agreements with the union and to a 4% increase of staff. While administrative expenses were 7% lower, due to lower expenses for maintenance and requirement of goods and IT and for higher administrative services. Other operating expenses increased 52% due to higher turnover tax on financial operations as a consequence of the increase in the holdings of . The income tax charge was 15% higher than in the first quarter of 2022 with an effective tax rate of 28.6%. The bank's financing to the private sector reached 1.26 trillion pesos at the end of the quarter, down 9% in the last 12 months, mainly due to a 14% decrease of peso-denominated loans. Exposure to public sector increased 17% year over year, and excluding the exposure to a central bank, net exposure represented 12% of total assets, compared to 19% as of the end of the first quarter of last year. Deposits reached 2.26 trillion pesos, 2% lower than a year before, mainly due to decreases of checking and saving accounts in pesos, partially offset by a higher balance of peso denominated time deposits. The bank's estimated market share of loans to private sector was 11.69%, 39 basic points lower than at the end of a year-ago quarter, and the market share of deposits from the private sector was 9.75%, 44 basic points lower than in the same quarter of the previous year. As regards asset quality, the ratio of non-performing loans to total financing ended the quarter at 2.50%, recording a 61 basic points improvement as compared to the 3.11% of the first quarter of the prior year. At the same time, the coverage with allowances reached 186% up 580 basis points from the 180.2% recorded a year ago. As of the end of March, the bank's total regulatory capital ratio reached 23.47%, decreasing 62 basis points from the end of the same quarter of the previous year. The bank's liquid assets represented 114% of transactional deposits and 57% of total deposits, up from 94% and 52%, respectively, from a year before. In summary, in a very challenging and volatile market environment, Grupo Financiero Aricia was able to keep asset quality, liquidity, and solvency metrics at very healthy levels, and to improve its profitability in spite of the significant impact of the very high inflation of the quarter. We are now ready to answer the questions that you may have. Thank you.

Thank you. As a reminder, if you'd like to ask question, please press down one on your telephone keypad. Our first question comes from Brian Flores from Citibank. Please go ahead.

Hi, Tim. Good morning. Thank you for the opportunity to ask questions. I have two questions. The first one is on the technical side. We wanted to ask on the classification of debt securities. Just can you elaborate a bit on what is the rationale behind this and what treatment would you give to these securities? And then the second is just a follow-up regarding discussions on ROE for I think we mentioned somewhere around 9% inflation adjusted. We wanted to know if, you know, with this harder perhaps environment, you're reiterating this figure. Thank you very much. Hi, Brian.

Well, the first question regarded the change in the model of accounting of the leaks. Basically, that is the instrument issued by the Argentine Central Bank that changed from fair value to amortized cost. At the beginning of the year, the accounting department decided to change that because when the leaks were first issued by the Central Bank, we thought they were going to be instruments for trading that could be purchased and so within the month. Actually, as they are so short, they are issued for 28 days and the average maturity is roughly 14 days. We decided to count them as amortized goals. So in, I would say the main output for, for your analysis is that in the past, the interest coming from the LELICs were within results from financial instruments, while now they are within interest from public securities within financial income, basically. It makes, I would say, the comparison easier And in this way, I think we are aligned with most of our peers in terms of accounting the results from the leads. The second question regarding ROE, the first quarter was 9.8%, and we think we can maintain this level for the full year, so around 10% ROE for 2023. Very clear.

Thank you. You're welcome.

Thank you. Our next question comes from Yuri Fernandez from JP Morgan. Please go ahead.

Hello, everybody. I have a question regarding cost. It was very good, like, you know, on interest expenses this quarter. So my question is how should we think about this, you know, like how much room has Galicia to continue delivering on cost and what should they expect? That's the first one. And just to follow up on the LELIC, on you moving from trading to kind of health maturity from what I understood, the LELIC rates are higher now, right? Like there was a big increase in April, another one now in May. And being at a more tight cost, you should not see any market-to-market impact, but you should accrue lower interest, right, on those securities. So just trying to understand, like, what is the impact? of higher for you. Like, I imagine positive, but we'd love to hear, like, your thoughts on how, you know, higher rates impact your securities book and your margins going forward. Thank you.

Okay. Hi, Yuri. First, on costs, you could see an increase in personal expenses and a decrease in administrative expenses. I like to see them together because part of the increase in personal expenses was due to a 4% increase in staff. And basically that is something that the bank has been doing in the last couple of quarters, I would say, that is hiring IT people that used to be third-party suppliers. So it was hired services. And now they became a part of our staff. And so basically when you look at the number of employees, you will see a slight increase. And the main trend, I would say, is more IT guys. And, well, you will not see it, but the net effect is that there is a reduction in people of, I would say, old tasks. mainly in the branch network, we are seeing some slight reduction there. The objective for us is to keep reducing as a whole the expenses. It's, I would say, one of the main variables we can manage. with not only in terms of personal that in the last couple of years, the total number of employees has been decreasing between four and 5% per year, but also the rest of the administrative expenses. So, I would say the guidance would be a couple of percentage points below inflation. And when we think about personal expenses, we have this target of a slight reduction in number of people that of course we are every or many times a year now within negotiation with the union that typically try to match salary increases with inflation, perhaps with some lags in certain quarters or in other quarters salary increases slightly higher than the inflation, but for the full year should be the same. In terms of LELIPS, we invest the money, the liquidity we are having as deposits are growing much more than loan demand. And the interest rate is determined by the central bank Now the LELIC stands at 97% and the higher the interest rate and the higher the stock of LELICs, the more significant or the bigger impact on interest income. The change in valuation really doesn't have any impact in terms of potential shadow or difference the difference between book value and market value. Because as I said, there are maturities 14 days and we keep them till they mature. So this is basically a change of, I'll say, it was a decision trying to reflect really the reality and not what we did at the beginning that was seen as a trading instrument. And now it's really, an instrument that is to keep liquidity or to invest our liquidity in this instrument.

No, super clear. Thank you very much.

You're welcome, Yuri.

Thank you. As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. There are no further questions. I would like to hand the call over to your host to conclude today's conference. Thank you.

Okay. Thank you, Naomi. Thank you all for attending this call. If you have any further questions, please do not hesitate to contact us. Good morning. Have a nice long weekend here in Argentina.

That concludes today's event. Thank you for your participation. You may now disconnect. Thank you.