Grupo Aval Acciones y Valores S.A. ADR (Each representing 20 preferred shares)

Welcome to Grupo Aval Second Quarter 2021 Consolidated Results Conference Call. My name is Jenny and I'll be your operator for today's call. Grupo Aval Acciones y Valores S.A. Grupo Aval is an issue of securities in Colombia and in the United States. As such, it's subject to compliance with securities regulation in Colombia and applicable U.S. securities regulations. Grupo Aval is also subject to the inspection and supervision of the Superintendency of Finance as holding company of the Aval Financial Conglomerate. The consolidated financial information included in this document is presented in accordance with IFRS as currently issued by the IASB. Details of calculations of non-GAAP measures such as ROAA and ROAE, among others, are explained when required in this report. This report includes forward-looking statements. In some cases, you can identify these forward-looking statements by words such as, plans, anticipates, believes, estimates, predicts, potential, or continue, or the negative of these and other comparable words. Actual results and events may differ materially from those anticipated herein as a consequence of changes in general economic and business conditions. Changes in interest and currency rates and other risks described from time to time in our filings with the Registro Nacional de Valores y Emisores in LISEC. Recipients of this document are responsible for the assessment and use of the information provided herein. Matters described in this presentation and our knowledge of them may change extensively and materially over time, but we expressly disclaim any obligation to review, update, or correct the information provided in this report. including any forward-looking statements and do not intend to provide any update for such material developments prior to our next earnings report. The content of this document and the figures included herein are intended to provide a summary of the subject discussed rather than a comprehensive description. When applicable in this document, we refer to billions as thousands of millions. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. I want to turn the call over to Mr. Luis Carlos Sarmiento Gutierrez, Chief Executive Officer. Mr. Sarmiento, you may begin.

Good morning, and thank you all for joining our second quarter 2021 conference call. I trust that all of you and your families are keeping healthy. Today, it is my pleasure to present our strongest quarter ever. In doing so, I will cover the following, an update on the macroeconomic environment of the regions where we operate, the status of the loan reliefs granted to our clients, the progress of our digital efforts, and the main highlights of our financial performance. Let's start with a macroeconomic scenario of the last few months. During the second quarter of the year, the global economy continued to recover. There are, however, material differences in the recoveries of countries depending on the effectiveness of these countries' vaccination programs. Additionally, new variants of the virus, such as the Delta Plus, and more recently the Gamma variant, continue to appear. For now, it is apparent that the vaccinations being administered are effective against these new variants. However, were this not the case, economic recoveries would be curtailed. In any case, clear evidence of the effectiveness of the vaccination programs resides in the fact that although people continue to get infected, the lethality of the virus has drastically dropped. Colombia has not been the exception to the economic recovery or to a well-administered vaccination program. To date, more than 30 million doses have been administered and more than 13 million people have been fully immunized. This progress in the vaccination program along with better external conditions have boosted the recovery of the Colombian economy. This recovery has not been devoid of headwinds, specifically the violent demonstrations and strikes that plagued the country, mostly during the months of April and May. However, after a drop in consumer confidence, not surprisingly during April and May, as of July, this indicator has recovered and is now at its highest level since the start of the pandemic, supported by the progress of the vaccination campaign, better unemployment numbers, renewed commercial activity, and higher prices of export commodities such as coffee and oil. High frequency data such as energy demand suggests that business activity is advancing towards its pre-pandemic level. As a result, analysts have continued to raise their estimates of the GDP growth forecast for Colombia during 2021. The OECD, for example, now forecasts a GDP growth of 7.6% for 2021 And the IMF is expected to raise its projections in August, given the positive outcome of recent months. In its latest meeting, the central bank revised its own growth forecast from 6.5% to 7.5%. And in aval, we now forecast that the economy will grow approximately 7% in 2021. Moving on to the labor market, in June, the unemployment rate fell to 14.4% and the number of jobs increased by 161,000. The average unemployment rate during the second quarter was 15% compared to 15.8% during the first quarter and 20.3% a year earlier. Of course, there is still a long way to go on this front. Despite the mentioned improvement, there are still approximately 1.4 million jobs that still need to be recovered to bring us back to the pre-pandemic levels of employment. If these jobs were recovered, the country would experience a drop of between 6% and 7% in unemployment. For now, as the recovery process continues, we expect a further decline in the unemployment rate to 12% by year's end, reaching an average of 14.8% for 2021. In June, 12-month inflation reached 3.63%, 204 basis points higher when compared to inflation during 2020. This year's number has been driven mainly by supply factors and by statistical base effect. In fact, the surge of food prices of 5.5% in May was triggered by the disruptions of supply and logistics that arose from the strikes. As of July, 12-month inflation had risen by 34 basis points versus June to 3.97%. This increase was driven by food prices, which rose by 40 basis points and by higher prices in service sectors as a result of higher activity in leisure industries, such as restaurants, hotels, recreation, and culture. We expect that inflation for 2021 will reach 4% as food prices revert, offset by the pass-through of higher commodity prices and as shipping costs. Although medium-term inflation expectations remain well anchored at 3%, given the recent surge in consumer prices, the weaker peso, and the growth prospects, we expect that the central bank will start a monetary policy tightening cycle in the last quarter with a high probability of two 25 basis point hikes before the end of the year. In that scenario, The repo rate will increase to 2.25% from its current 1.75% level. Regarding the exchange rate, in the last few weeks, the peso has weakened to as high as 4,000 pesos per dollar due to the strengthening of the dollar in international markets, as investors seek shelter in safe assets caused by the renewed uncertainty owing to the spread of the Delta variant and also due to the increasing Colombia's risk premiums. However, with the projection that the central bank will start a new monetary tightening cycle and if, as expected, Congress approves the proposed tax reform to which I will refer in a minute, it is likely that the Colombian peso will seek a level close to 3,700 pesos per dollar in the next few months. The government has presented a new tax reform that seeks to increase tax revenues by 15 trillion pesos or 1.2% of GDP. The additional revenue would mainly originate from increasing the corporate tax rate to 35% starting in 2022, instead of reducing it to 30% as approved in the 2019 tax reform. The financial sector, however, will continue to pay a 3% surcharge over the corporate rate until 2025. This surcharge was expected to cease by 2023. Other components of the tax reform include reducing tax deductible expenses, strengthening legal measures to fight tax evasion, and up-freezing government spending. This new tax reform has greater political support and is expected to be approved in Congress in the next few months. In the meantime, the government expects the fiscal deficit to reach 2021 at 8.6% of GDP, with a primary deficit of 5.3% of GDP. Regarding the current account deficit, it is expected to widen to 4.4% of GDP by year's end, up from the 3.3% of GDP observed at the end of 2020. Pent-up demand should translate into a larger trade deficit that will be partially upset by larger and better priced oil and coffee exports. With respect to Central America, the IMF expects a 5.7% growth of the region's economy in 2021. As discussed in the past, Central America greatly benefits from the recovery of the U.S. economy, as certain Central American countries are highly dependent on cash remittances incoming from the United States. Economic growth of the region should be positively impacted by the infrastructure sector, as these countries that were affected by storms Ada and Iota need to invest heavily in the reconstruction works. During the first two months of the second quarter, Panama estimated an annual GDP growth of 16.5%, and during the same period, Costa Rica estimated GDP growth of 12.3%. Panama benefits from the reactivation of global trade and foreign investment, given its role as a global maritime transportation hub, and the consequential increase in canal activity. In Costa Rica, 6 out of 15 economic sectors reached pre-pandemic production levels. Remittances have surged year and year, 55% in El Salvador, 43% in Guatemala, and 44% in Honduras. Annual economic growth estimated for the first two months of the second quarter was 28.1% in El Salvador, 15.8% in Guatemala, and 28.4% in Honduras. Guatemala and Honduras growth will be boosted, as I said before, by increases in fiscal spending to reconstruct damaged infrastructure after the mentioned storms. Finally, based on leading indicators, year-on-year economic estimated growth reached 15.2% in Nicaragua during the first two months of the second quarter. Despite internal and external favorable economic conditions, growth in Nicaragua could be limited by the challenging political context. Moving on to the status of our loan relief programs, As of June, we had active reliefs represented approximately 11.5% of our total consolidated loan portfolio, or approximately 24.5 trillion pesos in loans. In Colombia, as of June 30th, active relief amounted to 8 trillion pesos, or 5.9% of the Colombian loan portfolio, including 7.7 trillion in structural agreements with clients. In Central America, reliefs amounted to 16.5 trillion pesos, representing 20.9% of the region's portfolio. These reliefs in Central America were driven by Panama, which accounted for more than half of the region's active reliefs. Of all loans in both geographies that have concluded their relief periods, those currently past due 90 days or more represent only 1% of our total consolidated loan portfolio, And those currently past due 30 days or more represent 1.8% of our total consolidated loan portfolio. Our cost of risk, as it's been booked, reflects our estimation of losses related to the complete unwinding of these relief programs. We continue to execute our digital strategy in accordance with our expectations. Allow me to elaborate. As I have mentioned before, we have prioritized the transformation of our core products into digital solutions and the digitalizations of core processes in our banks. We believe that both those efforts will yield additional net income via additional sales revenues and cost savings. We have successfully concluded the digitalization of most of our retail bank products Products then are now in the process of rolling those out to all our banks. This has led us to increase our digital retail sales substantially. In Colombia, 60% of all sales of retail products for which a digitalized solution has been developed are currently conducted through the digital applications, and 40% of those are end-to-end digital sales without human intervention. These sales represent almost 40% of our total digitalized and non-digitalized retail products sold. In Central America, approximately 25% of total sales are sales of digitalized products. As part of our IT transformation process, our digitalization effort is cloud-based, allowing us to scale up faster and cheaper than with traditional IT infrastructure models. Allow me to explain. First, all of our digital products are already 100% in the cloud or cloud native. As a result, we do not need to further invest to migrate the infrastructure of our digital products to the cloud because we're already there. Secondly, our centralized data platforms in our digital labs, such as Augusta and Matilde, are also in the cloud, allowing us to be more efficient in our processes, reduce operational costs, and increase our client penetration. Matilding is a marketing platform which has allowed us to acquire new digital clients at what we currently believe is the lowest acquisition cost in the market. This adds to the capabilities of our data platform, Augusta, which has allowed us to improve our cost of client acquisition, cross-selling, customer retention, and risk mitigation, among others, through advanced analytical models. As of June 2021, our active digital clients totaled 5.2 million, increasing approximately 31% in the last 12 months. Even though adding active digital clients is a necessary step for digital transformation, obtaining long-term sustainable value as a result of this effort is the primary objective. High acquisition costs of digital clients have led us to be watchful of what we have denominated net loss growth, associated with one transaction users or those that lack potential to be monetized. In Colombia, a country with very strict usury rate restrictions, transactional platforms with low or no fees will find it difficult to sell profitable banking products regardless of their number of digital customers. We have been working in alternative ways to acquire new digital clients that meet our profitability criteria, leveraging ecosystems that provide services that are valuable to our clients and were profitable products of our banks are part of the solution. Among those, first, in Colombia, a lot of digital labs has been working to redesign popular existing websites, such as Carroya, Metro Cuadrado, and ElEmpleo.com, and to add to those ecosystems additional products, including banking digital products, to further our goal of adding profitability to digital growth. Being part of these ecosystems afford our banks the opportunity to increase digital clients through auto loans, mortgages, payroll loans, and other products. These ecosystems currently serve over 10 million users. In Central America, we recently launched Cash with a K, a transactional app available across the region that already has 100,000 digital clients, 70% of which are not PAC clients, with more than 350,000 transactions to date. Family remittances will be available through our cash app. This will allow us not only to acquire at least 500,000 additional profitable digital clients by year-end, but also to increase our remittances fee income and to make our app profitable. Finally, in Colombia, we're improving our digital channels to better fit our customers' needs. Banco Popular launched recently its banking app, at the beginning of the year, and we expect Banco de Occidente and Banco de Villas to launch their new apps in the next couple of months. These apps have a more modern, intuitive, and secure design that will contribute to a better customer experience. In Central America, our focus has been primarily on customer service. In 2021, 54% of client interactions have been conducted through digital channels and 46% through our call centers and others. Customers have quickly adopted the mobile channel as their preferred means to make their requests. Almost 20% of those queries are picked up and handled by chatbots and resolved without human intervention. To finish, regarding our financial results, Diego will refer next in detail to our financial performance during the second quarter of 2021. However, allow me to highlight the following. To start with, Grupo Aval registered its best results ever for a quarter with attributable net income of approximately $950 billion. Aval's attributable net income for the first half of 2021 was $1.74 trillion. This resulted in a return on average equity for the quarter of 18.2% and of 16.7% during the semester. Among the principal reasons for these results, I would include the following. First, 2021 has been a year with excellent results in the pure banking business, where we have been able to defend our intermediation spread mainly through pricing discipline while successfully growing our loan book. Our loan portfolio has been behaving better than expected resulting in better cost of risk. In fact, cost of risk has moved to near pre-pandemic levels. Thirdly, we have benefited from a well-structured fixed income portfolio in terms of durations and yields. Fourthly, our non-financial sector was able to quickly regain momentum and return to pre-pandemic activity within a very short period, resulting in the recovery of significant income contribution to our bottom line. Our pension fund manager has been successful in defending its market leadership, in managing costs, and in obtaining healthy yield from the portfolios it administers. Lastly, throughout all our companies, we continue to stress the importance of a cost containment and or cost reduction culture. I do thank you for your attention, and now I'll pass on the presentation to Diego, who will explain in detail our business results. You have a good day.

Thank you, Luis Carlos. I will now move to the consolidated results of Grupo Aval under IFRS. Before covering the following pages, bear in mind that as of June 2021, MFG no longer affects the comparison of our volumes relative to a year earlier, given that its acquisition was completed on May 2020. However, the year-on-year comparisons of our P&L lines are still affected given that the second quarter of 2020 only included one month of MFT's operations. Now starting on page 9, our assets grew 2.2% over the quarter and 3.4% year-on-year. Colombian asset growth continued strengthening, recording 2.3% increase during the quarter and 3.4% year-on-year, while Central American assets recorded a 0.1% quarterly and a 3.6% year-on-year growth in dollar terms. Quarterly depreciation of 1.9% and a 12-month appreciation of 0.2% take quarterly and annual growths in pesos of Central America to 2% and 3.4% respectively. The share of Central America in our book remained at 36%. Moving to page 10, loan growth continued to show a positive trend that now includes a rebound in Central America. In Colombia, The sustained growth of high-quality retail lending products was partially dampened by a still sluggish growth of commercial loans. The social unrest experienced during April and May in Colombia temporarily held back loan origination. Our total loans grew 2.1% over the quarter and 2.2% year-on-year. Colombian gross loan portfolio increased 1% during the quarter, slightly slower than the quarter earlier, while 12-month growth was 1.5%. Demand of consumer loans remain high in Colombia, resulting in a 1.7% increase during the quarter and 11.3% year-on-year. Competition remains high in low-risk products such as payroll loans. However, as a new development, unsecured products have started to regain traction over the past couple months. This may signal an increase in the risk appetite of banks. Parent lending that accounts for 61% of our Colombian consumer portfolio grew 3.1% over the quarter and 21.3% year-on-year. In contrast, although performing better than a quarter area, credit cards contracted 1.6% and personal loans remained relatively stable. These products account for 12% and 20% of our Colombian consumer portfolio reflections. In other secured retail products in Colombia, mortgages remain dynamic, expanding 3.1% over the quarter and 12% year-on-year. Our Colombian corporate portfolio continued its mild recovery, growing at a still-shy 0.4%. Our growth versus that of our peers continues to benefit by our pricing discipline, where we privilege profitable customer relationships over market share. Humulative 12-month growth was negative at minus 4.4%, with a still high comparison base a year ago. Moving to Central America, our gross loan portfolio increased 2% over the quarter and 3.6% year-on-year in dollar terms. Quarterly performance in Central America, the strongest since fourth quarter 2019, was driven by a 2.9% growth of consumer loans. This performance resulted from a 4.4% growth in credit cards and a 1.3% growth in payroll loans. Early growth in credit cards took the year-on-year growth to 5.8%, the first positive figure since second quarter 2020. Commercial loans and mortgages grew 1.7% and 1.1% respectively during the quarter in Central America. Looking forward, fundamentals for loan growth continues to strengthen in both geographies. We expect commercial loan growth to be supported by improvements in economic activity and business confidence. The retail lending front, we expect that the improvement in employment outlook will continue to allow an increase in our banks' risk appetites in products that were de-emphasized during the shock. On pages 11 and 12, we present several loan portfolio quality ratios. The COVID-19 credit juncture continued unwinding favorably for our banks during the second quarter. driven by a stronger and faster recovery in both economies than initially forecasted, that has translated into a better evolution of reliefs and a stronger performance of the rest of our portfolio. This has resulted in a lower cost of risk than initially forecasted. Loan reliefs continue to expire and return to active payment schedules. As expected, these loans have higher delinquency ratios than the average. In contrast, the remainder of our loan portfolio, 88.5%, continues to improve in line with a stronger economy, offsetting the burden of the relief loans. As of June 30, we had 3% of our total gross loans under payment holidays and 8.5% under structural payment programs, together accounting for 11.5% of our loan portfolio. In Colombia, 5.9% of our loans have some type of reliefs, Only 0.2% of our Colombian gross loans are still under payment holidays. The remaining reliefs are under structural payment programs. In Central America, 20.9% of our loans still have some type of relief, with 7.8% of gross loans under payment holidays and 13.2% under structural payment programs. Payment holidays persist mainly in Panama that account for 94% of those in the region. At end of period, 4.2% of our total loans that in the past had benefited either from payment holidays or were restructured and that had returned to active payment schedules were past due more than 90 days. These past due loans represent 1% of our total gross loans. These numbers were 7.3% and 1.8% for loans past due more than 30 days. In Colombia, 5.7% of loans previously relieved that had resumed active payment schedules were 90 days past due, representing 1.1% of gross loans. For 30 days past due loans, these numbers were 9.3% and 1.8%. In Central America, 2.6% of loans previously relieved that had returned to active payment schedules were 90 days past due, representing 0.9% of gross loans. For 30 days PDLs, these numbers were 5.3% and 1.8%. As mentioned before, the deterioration in relief loans was partially offset by the improvement of the rest of our loan portfolio. This resulted in the overall metrics for 30 days and 90 days PDLs remaining relatively stable during the quarter. Our allowance coverage of 30 days and 90 days PDLs remained flat as well as over the quarter. The ratio of charge-offs to average 98 PDLs stood at pre-COVID levels. Regarding 30-day PDL formation, 76% was explained by retail products, with credit cards and personal installment loans contributing 28% and 20% of PDL formation, respectively, despite representing only 8% of 5% of our gross loans. This behavior was mainly driven by relief loans that became delinquent. The quality of our loan portfolio was materially stable quarter on quarter at 4.76% on 30-day basis and 3.42% at 90-day PDL basis. Our 30-day and 90-day PDLs were 71 and 42 basis points higher than those a year earlier. Composition of our loan portfolio in terms of stages shows an improvement in the share of Stage 1 loans compensated by a decrease in Stage 2 loans. As anticipated, part of the Stage 2 loans migrated to Stage 3. This improvement was mainly driven by our consumer loan portfolio in both geographies, which recorded a 146 basis points increase in the share of Stage 1 loans and a 155 basis points decrease in Stage 2. Coverage of each stage remains relatively stable compared to a quarter earlier. Cost of risk net of recoveries was 2%, 23 basis points lower than the 2.2% in the previous quarter, and 111 basis points lower than the 3.1% a year earlier. The quarterly improvement incorporates 58 basis points decrease in retail loans and a 5 basis points increase in commercial loans. quarterly cost of risk improved by 34 basis points in Colombia and 4 basis points in Central America. In Colombia, the cost of risk of retail loans improved 84 basis points, while that for commercial loans remained stable. In Central America, the cost of risk of retail loans fell 22 basis points and increased 17 basis points for commercial loans. On page 13, we present funding and deposit evolution. Funding growth during the quarter continued to reflect a high liquidity environment. Our deposits to net loans ratio and our cash to deposit ratio remained stable over the quarter at 110% and 15.8% perspectives. Our funding structure remained materially unchanged, with deposits accounting for 78% of total funding. Deposits increased 1.7% during the quarter and 6.4% year-on-year. Colombia grew 1.4% during the quarter, while Central America grew 0.2% in dollar terms. The 12-month period, Colombia grew 3.3% and Central America 11.6% in dollar terms. Annual growth of deposits above that of loans reflects a conservative liquidity standing, particularly in Central America. On page 14, we present the evolution of our total capitalization, our total shareholders' equity, and the capital-equity ratios of our banks. Total equity grew 5% over the quarter and 8.2% year-on-year, while our total equity increased 5.3% and 7.6%, respectively, mainly driven by our earnings. Solvency ratios under Basel III remain relatively stable, as net income provides support for risk-weighted assets growth over the quarter. On page 15, we present our yield on loans, cost of funds, spread, and NIM. NIM performance during the quarter was driven by a stable NIM on loans and an improvement of NIM on investments. NIM on loans remained at 5.8% during the quarter, as the spread between yield on loans and cost of funds remained flat at 6%. Yield on loans continued to keep decreasing, however. It was compensated by a similar decrease in cost of funds. NIMA investments was 1.4% during the quarter, returning to positive ground from the minus 0.4% recorded last quarter. The excess liquidity associated with the prudent liquidity standard continues to weigh on our NIMA. On page 16, we present net fees and other income. On this page and the following, we will present several P&L lines and metrics. Please bear in mind that two factors limit the comparability of our results year and year. First, a low baseline, considering that the strongest effect of the pandemic on commercial activity was suffered during that quarter. And second, only one month of MFP operations was part of our second quarter 2020 P&L. Now moving to the content of this page. First half, gross fee income increased 8.7% year and year, while quarterly year and year growth was 17.9%. Gross fees fell 3.6% during the quarter, affected by a temporary pause in recovery associated with the demonstrations held in Colombia during April and May. In addition, performance-based pension management fees in Colombia and bank assurance-related expenses in Central America affected this quarter's performance. Income from the non-financial sector reflects the strong performance of the infrastructure and energy and gas sectors. Our infrastructure sector grew 17.5% over the quarter, mainly due to a strong performance in the construction of some of our programs. First half contribution from the infrastructure sector grew 48% year-on-year, hourly income from infrastructure was 3.8 times that a year earlier, when the spring lockdowns experienced March through May halted construction. The energy and gas sector contribution increased 14% over the quarter due to positive results in gas distribution and pipeline construction. First half income from the energy and gas sector grew 60% year-on-year, while quarterly income was 2.1 times compared to a year earlier when a decrease in industrial gas demand during the lockdowns affected our results. The bottom of the page, the quarterly decrease in other income is explained by lower contribution of OCI realization of fair value fixed income portfolios and by a seasonally high income from dividends during the first quarter. On page 17, we present some efficiency ratios. First half, other expenses increased 2.4% year-on-year, while quarterly expenses grew 4.5% year-on-year. Year-to-date expenses grew 0.6% in Colombia and fell 0.2% in dollar terms in Central America, excluding the effect of MFG. Quarterly expenses increased year-on-year 3.3% in Colombia and 6.7% in dollar terms in Central America, excluding the effect of MRG. Compared to first quarter, other expenses increased 6.1% with Colombia growing at 6.8% and Central America growing at 1.3% in dollar terms. In addition to an increase in cost associated With higher activity, this quarter included provisions of the remaining 50% of the penalty imposed to Corte Colombiana by the Colombian Superintendency of Industry and Commerce in relationship to the concessionaria Ruta del Soldo's investigation. Compared to a year earlier, cost to assets remained stable at 3.2% and improved 45% down from 51.3% on a cost-to-income basis. Finally, on page 18, we present our net income and profitability ratios. A tradable net income for second quarter 2021 was 950 billion Colombian pesos, or 42.6 pesos per share, its best result ever for a quarter. This result was 19.9% higher than the previous quarter and 2.9 times that a year earlier. Our return on average assets for the quarter was 2% and 1.9% year-to-date. Our return on average equity for the quarter was 18.2% and 16.7% year-to-date. I will summarize our guidance for 2020. We expect loan growth to be in the 9% to 10% area, net interest margin on loans to be 5.8%, and total net interest margin to be in the 4.8% to 5% range. Cost of risk to be in the 2.1 to 2.2% range. Net fees to grow in the 8% area. Our non-financial sector to grow in the 5% area. Expenses growth to be in the 4% area. And return on average equity to be in the 15 to 15.5% range. We are now available to address your questions.