Grupo Financiero Galicia S.A.

Good morning ladies and gentlemen, welcome to Grupo Financiero Galicia second quarter 2025 earnings call. This conference is being recorded and the replay will be available at the company's website at gfgsa.com. We would like to inform that all attendees will only be listening the conference during the presentation and then we will start the question and answer section when further instructions will be provided. Some of the statements made during this conference call will be forward-looking statements within the meaning of the safe harbor provisions of the US Federal Securities Law and are subject to risks and uncertainty that could cause actual results to differ materially from those expressed. Investors should be aware of events related to the macroeconomic scenario, the financial industry and other factors that could cause results to differ materially from those expressed in their respective forward-looking statements. Now, I will turn the conference over to Mr. Pablo Firvida, Head of Investor Relations. You may begin your conference.

Thank you, Sofia. Good morning and welcome to this conference call. I will make a quick speech. I'm here with Gonzalo Fernandez-Cobaro, CFO of Grupo and of the bank. Later, he will make some additional comments, and of course, we will be both available for Q&A. According to the monthly indicator for economic activity, EMAE, the Argentine economy recorded a 6.4% year-over-year increase during June. reaching an expansion of 6.2% during the first half of 2025. During the second quarter, the primary surplus reached 0.4% of GDP and the overall surplus was 0.2% of GDP, explained by primary revenues increasing 37.7% year over year, whereas primary spending rose 42.1%. During the first seven months of 2025, the primary balance stood at 1.1% of GDP, while the financial balance amounted to 0.3% of GDP. The National Consumer Price Index accumulated a 6% increase during the second quarter of 2025 and a 17.3% year-to-date increase as of July. Between May and July, monthly inflation slipped below 2% threshold. In July, monthly inflation stood at 1.9% and accumulating 36.6% in year-over-year terms. The monetary base increased by 6.6 trillion pesos in the quarter, recording an 84.2% increase in year-over-year terms. On April 11th, 2025, the central bank implemented a foreign exchange band system within which the exchange rate may fluctuate freely. These bands were initially set between 1000 pesos per dollar and 1400 pesos per dollar and are adjusted monthly at a rate of minus 1% for the lower bound and plus 1% for the upper bound. The exchange rate averaged 1,181 peso per dollar in June 2025, a 23.5% devaluation in year-over-year terms. During the first half of 2025, the benchmark interest rate was set by the central bank. However, on July 10th, the monetary authority ceased offering LEFI's and the interest rate is currently determined endogenously by the market. in line with the regime focus on monetary aggregates. In June 2025, the average rate on PISO-denominated private sector time deposits for up to 59 days stood at 32.2%, 1.1 percentage points below the June 2024 average. Following the change in monetary policy, in mid-July interest rates increased and ended the month at Private sector deposits in pesos averaged 89.1 trillion pesos in June, increasing by 10.6% during the quarter and 69.1% in the last 12 months. Time deposits in pesos rose by 0.3% during the quarter and 93% in the year, while peso-denominated transactional deposits increased 16.4% during the second quarter and 49.6% in year-over-year times. Private sector dollar denominated deposits amounted to $30.4 billion in June 2025, increasing 2.5% during the quarter and 71.8% in the last 12 months. Peso denominated loans to the private sector averaged 72.3 trillion pesos in June, showing a 19% quarterly increase and a 181.7% year-over-year expansion. Private sector dollar-denominated loans amounted to 15.8 billion dollars, recording a 12.1% quarterly growth and a 147.3% annual increase. Turning now to Grupo Financiero Galicia, I would like to mention that at the end of June, we successfully finished the merger with Galicia Mas, former HSBC in Argentina. We unified the banking unit with Banco Galicia, the mutual fund management with Galicia Asset Management, and the insurance companies with Galicia Seguros. The change for the clients was very smooth with no frictions, and we grew around 2.5% in market share of both loans and deposits. For comparison purposes, figures for the first quarter of 2025 include the balances of the merged companies, while the figures of the second quarter of 2024 are not fully comparable as they do not include any HSBC figures. Going now to the results for the quarter, net income amounted to 73 billion pesos, 70% lower from the year-ago quarter. The result comes from profits from Banco Galicia for 98 billion pesos, from Naranja X for 32 billion pesos, from Galicia Asset Management for 27 billion pesos, and from Galicia Seguros for 13 billion pesos. This profit represented a 1.9% annualized return on average assets and a 9.5% return on average shareholders' equity. The result from Banco Alicia was negatively affected by the increase in the cost of risk associated with the growth of the loan book and the increase in the non-performing loans in the retail segment, particularly in personal loans and credit card financing. The net income for the quarter was 76% lower than in the same quarter of 2024, due to a 67% lower operating result. This was primarily a consequence of a 40% decrease of net operating income. As net interest income decreased 36%, net results from financial instruments were down 37%, and loan loss provisions increased 192%, which were partially offset by a 30% growth of net fee income. average interest in assets reached 17.3 trillion pesos, 38% higher than in the same quarter of 2024, primarily due to 117% increase of the average portfolio of loans in pesos and a 262% higher dollar denominated loan portfolio. Partially offset by a 94% reduction in the average balance of other interest earning assets in pesos. In the same period, its yield decreased 35 percentage points, reaching 37.4%. Interest-bearing liabilities increased 74% from June 2024, amounting to 14.8 trillion pesos. primarily due to the increase of time deposits in pesos and of saving accounts in dollars. During this period, its cost decreased 15 percentage points to 15.6%. Net interest income decreased 36% when compared to the second quarter of 2024. This was the result of a 29% decrease in interest income because of a 62% lower interest on government securities and a 99% lower interest on repo transactions together with a 13% decrease in interest expenses due to a 6% lower interest on time deposits and a 27% lower interest on other deposits. Net fee income increased 30% from June 2024 due to a 51% higher income from credit card fees and a 28% from fees from on-deposits. Net income from financial instruments decreased 37% due to a 53% lower result from government securities. Gains from FX quotation difference were 12% lower from the year-ago quarter, including the results from foreign currency trading. It is worth to mention that during April, many regulations that limited the access to the FX market were removed, mainly for individuals, and thus FX trading increased significantly, growing 153% when compared to the first quarter of this year. Other operating income increased 150% in the quarter, mainly due to the 290% increase in other adjustments and interest on miscellaneous receivables, and of 145% in other operating income. Provision for loan losses increased 192% because of the growth of the financing portfolio and to an increase in delinquency that is circumscribed to the portfolio of personal loans and credit card financing to individuals. Personal expenses were 3% lower than a year before. It is worth to mention that in the first quarter, we began to use the provision for restructuring expenses established in the fourth quarter of last year. Administrative expenses increased 35% due to a 77% increase of expenses for maintenance and repairment of goods and IT, and to a 62% increase of higher administrative services. Other operating expenses increased 13% due to a 12% higher turnover tax related to financial operations. Results from the monetary position decreased 56% year over year following the declining evolution of inflation. The income tax charge was 75% lower than in the year-ago quarter due to lower operating results. The bank's financing to the private sector reached 16.9 trillion pesos at the end of the quarter, up 123% in the last 12 months, with peso financing increasing 106% and dollar denominated financing growing 181%. While by credit line, promissory notes increased 92%, credit card financing 66% and personal loans 201%. Net exposure to the public sector decreased 33% year over year primarily due to the 39% decrease in government securities adjusted by CPI at amortized cost and to the 99% reduction of repo transactions with the central bank. This exposure represented 19% of total assets as of the end of the quarter compared to 42% of the year before. Deposits reached 19.9 trillion pesos 72% higher than a year before, mainly due to a 162% increase in saving accounts in dollars, a 76% increase in time deposits in pesos, and a 47% increase in peso-denominated checking accounts. The bank's estimated market share of loans to the private sector was 14.5%, 260 basic points higher than at the end of a year-ago quarter, and the market share of deposits from the private sector was 16%, 550 basic points higher than in the same quarter of 2024. The bank's liquid assets represented 94.3% of transactional deposits and 65.2% of total deposits compared to 147.7% and 101.5% respectively from a year before. As regards asset quality, the ratio of non-performing loans to total financing ended the quarter at 4.4%, recording a 240 basis points deterioration as compared to the 2% of the second quarter of the prior year. And as I mentioned before, the deterioration is limited to the personal loans and credit card financing portfolios. At the same time, the coverage with allowances reached 117.9% down 42.4 percentage points from the 160.3% recorded a year ago. As of the end of June 2025, the bank's total regulatory capital ratio reached 23.7%, decreasing 510 basic points from the end of the same quarter of 2024, while the tier one ratio was 23.2%, down 460 basic points during the same period. In summary, in a challenging and volatile political and macro environment, Grupo Financiero Galicia was able to keep liquidity, solvency, and profitability metrics at healthy levels, adapted its strategy for credit granting to the new context in order to prioritize lower risk segments and to revert the trend of deterioration in asset quality, and completed a very fast and successful integration with Galicia Más. Lastly, on August 6th, the board of directors of Banco Galicia elected Diego Rivas as CEO of the bank, while Fabián Kohn will remain as the CEO of Grupo Galicia. This will be implemented as of September 1st. Now, I would like to give the word to Gonzalo Fernandez-Cobaro for additional remarks.

Thanks, Pablo. Hi, everyone. Well, regarding how we see the rest of the year, as you know, government has tightened its monetary policy, increasing minimum liquidity requirements, and that has generated a significant increase in short-term interest rates together with high volatility. The market rate has increased from 30% levels to 60% levels in a very short period of time. These changes in interest rates are impacting the local financial system as our funding is very short term, so the price is very fast, but assets are taking more time to reprice as now we have more loans in our asset composition. We are seeing a margin compression in the third quarter that is expected to be temporal and could finish after elections once the political side is clear, but it's something that we cannot define when this will stabilize and change again. Of course, this is something we didn't expect a couple of months ago, and we are still evaluating the impact as the rate is very volatile and changed significantly from one day to the other. And also, we have been having new regulations and changes in minimum liquidity requirements in a short period of time. On the other hand, as we have been explaining in prior calls, the portfolio performance of the consumer Lending in Argentina has deteriorated. It's a market issue as people need to get used to manage credit in low inflation environment, coming from negative interest rates to very positive interest rates. Also, the effect of having lower disposable income as utility prices went up. We are expecting stabilization of the NPLs on the consumer lending by the end of third quarter. We started to see a lower or slower deterioration. and start stabilization end of third quarter, beginning of the fourth quarter. As we also have told in prior calls, we have implemented many changes in our load origination, in collections, in changing grade limits that are being successful, but takes some time to fully impact the portfolios. Consider these effects. We expect our ROE to be in the range of 9% to 11% for 2025. To give also more context, this guidance does not include any additional restructuring cost one time that we may have in the second half. As we have been anticipating in all the calls and presentations, we have implemented the voluntary redundancy program that we implemented to achieve the structure right-sizing after the HSBC acquisition. And it's been very successful, as you can see in our press release. We already made a significant headcount reduction from first quarter to second quarter. If this continues, it could imply additional one-time expenses in the second half of the year, as the provision that we booked last year may not be enough. We expect that the impact could go up to two points of ROE that are not included in the guidance that I just mentioned, if all eligible people sign up for the program. If this happens, of course, it's excellent news for us. Yes, we will achieve our right sizing by year end, much better than what we expected at the beginning of the year, with a one-time P&L impact that will not repeat in the future. So, as we said, for that's something that we don't know if it will happen, but the pace that the program is happening may infer that that could happen. As we said in prior also calls, we consider this year a transition year where we finish the HIVC integration, we right-size the structure, grow and stabilize portfolio performance so we can start 2026 with all our potential and deliver our sustainable ROEs. But that were the remarks I wanted to make. So open for questions if you want.