Bladex, Inc. Class E

gentlemen, and welcome to Bladex second quarter 2024 earnings conference call. A slide presentation is accompanied today's webcast and is also available on the investor section of the company's website, www.bladex.com. There will be an opportunity for you to ask questions at the end of today's presentation. Please note today's conference call is being recorded. As a reminder, all participants will be in a listen-only mode. I would now like to turn the call over to Mr. Jorge Salas, Chief Executive Officer. Sir, please go ahead.

Good morning, everyone, and thank you for joining us today for our second quarter 2024 earnings call. I'll start by summarizing our performance for the quarter. Then as usual, Annie, our CFO will provide a detailed analysis of our financial statements. After that, I will update you on a key initiative from our strategic plan before we open the call for questions. So moving on to slide two, you can find a high level summary of our quarterly results. I'm pleased to report that they are very much aligned and even slightly better than the guidance that we provided at the beginning of the year. Our commercial portfolio achieved a solid 6% growth quarter on quarter, primarily driven by our unfunded business. That includes loan commitments and also letters of credit. Deposits kept growing steadily and have reached a record level of $5.3 billion, an increase from the last quarter and an impressive 29% year-on-year growth. This $500 million surge marks our largest quarterly deposit increase since the implementation of our strategic plan a couple of years ago. This growth was largely fueled by deposits from corporate clients and financial institution clients, as well as our Yankee CD program. Deposits provided by central banks, Class A shareholders, also increased by 18% during last quarter. Back in 2021, deposit growth was identified as a key goal of our strategic plan, not only from the point of view of further enhancing the diversification of our funding sources, but also from the cost efficiency perspective. With this purpose in mind, the bank focused on reengineering and automating key processes to support higher transactional levels, while also implementing a targeted commercial plan with clear KPI for deposits and the balance records of our frontline teams. There's still a lot of work to be done in this front, but there's no doubt that the alignment of clearly defined commercial and operational objectives has been essential to achieving this substantial increase in our deposit or base. Deposits have grown $2.2 billion, 73% since we started implementing the plan at the beginning of 2022. Today, Black's loan-to-deposit ratio is 1.4 times as opposed to 1.9 times, with a portfolio that is now almost $1.7 billion bigger than a couple of years ago. Moreover, they now represent 58% of total funding as opposed to 45% a couple of years ago. Also on the funding side, Black successfully raised $400 million with a syndicated loan this quarter, the largest syndicated loan in our history, involving 33 banks from across Asia, Europe, and the Americas. I am proud of my Treasury team for this achievement that highlights our robust global bank relationships and access to international debt capital markets. On the P&L side, despite the significantly more competitive environment with capital markets widely open or top Latin American names and a clear increase in liquidity, both in dollars and in most domestic currencies in LATAM, our net interest income remained essentially unchanged. Annie will delve into this later. Net interest margin stood at 2.43% for the quarter, slightly below last quarter. Having said that, our projections are still aligned with our guidance for the year with the net interest margin in the 2.5% area. Moving on to fees, we have great news in this front. Fee income generation has been another key focus of Plex's new plan. We have achieved a 32% quarter-on-quarter increase and 93% year-on-year increase. This exceptional performance was driven by our syndications and structuring team, who had a record-breaking quarter. The enhanced syndication team led five transactions reaching $1.2 billion during the quarter. Transactions were closed across Mexico, Guatemala, Colombia, Chile, and the Dominican Republic, serving clients in energy, industrial, and also the financial sectors. Furthermore, the team has a robust pipeline for the second half of the year, which should sustain the momentum we've achieved in our fee income. I am proud of the traction our syndication team is gaining, which reinforces their well-deserved reputation of one of the region's top structuring and syndication teams. Also on fees, our letters of credit business also continue to perform strongly with a 9% increase quarter on quarter. On the expense front, we closed the first half of the year with an efficiency ratio of 25%. As I said in our last call, you should expect an increase in expenses in the second half of the year due to planned initiatives to keep enhancing, I'll say, operational capabilities. We may, however, still end the year with an efficiency ratio below our projected 30%. All this led to a strong net income of $50 million for the quarter, consistent with the previous quarter and representing a substantial 35% increase compared to the same period last year. There is no doubt that this robust year-over-year growth on the bottom line is a testament of our continued strength of our business model and the successful execution of our strategic plan. Finally, I'm pleased to report a return on equity of 16.2% for the second quarter, an increase of 279 basis points compared to the same period last year. This reflects the strong profitability of a bank that has optimized its capital allocation and operates with a minimal liquidity gap, no effects risk, and historically excellent asset quality. I'll now hand it over to Annie, our CFO, for a detailed financial analysis. Annie, go ahead.

Thank you, Jorge, and good morning, everyone. Let's now move to slide three. As Jorge mentioned, the bank has maintained a strong performance trend, with quarterly net income reaching over $50 million for the second consecutive quarter, marking an annual increase of 35%. These results represent a 2% return on assets and a 16% ROE and add up to a $101.4 million net income for the first half of the year, up by 37% from last year. Jorge has touched upon the main drivers of this bottom line performance. So let me expand on it a bit more, starting with our asset growth and composition on slide four. Loans increased by 9% on an annual basis and were up by 1% from the previous quarter. Including off-balance sheet items, commercial portfolio grew by 13% from last year. During this second quarter, we have observed a substantial increase in liquidity in our operating markets, leading to heightened competition and margin pressure. Nonetheless, we continue to see demand and business growth, particularly in our trade-related lines of business, such as letters of credit confirmation and the discounting of cross-border receivables or vendor finance. This growth is driven by our efforts to add new clients and cross-sell, as well as by increased structured transactions on both products. all while maintaining our focus on providing tailor-made solutions for our clients. We were also able to increase longer tenor transactions with a robust performance of our newly formed project finance and infrastructure business, along with the ones originated through our syndications desk, where we see a strong pipeline going forward. Overall, average loans and lending spreads remain stable quarter-on-quarter and denote an increase from last year. In the next slide, we present our commercial portfolio on the right, which continues to be well diversified throughout the Latin region, with top exposures to Brazil at 12% and to Mexico and Colombia at 11% each, closely followed by Guatemala and the Dominican Republic at 10% each. both countries in the central american and caribbean region with good economic prospects where we continue to execute on solid risk reward opportunities on the left hand side the bank's investment securities portfolio remained at 1.1 billion dollars at quarter end same as the prior quarter 78% of this portfolio is placed with non-LATAM issuers, mostly from the US, providing country risk diversification to our credit book. Furthermore, 86% is placed with investment-grade issuers and is eligible to be discounted with the Federal Reserve through our New York agency, thus providing contingent liquidity funding. The average remaining tenor of the portfolio is a little over two years. On slide six, you can see our credit exposure. That is loans, investments, and off-balance sheet items combined, classified by stages as per IFRS 9. Stage one or low risk exposure accounted for 94.5% of total exposure at $9.8 billion, an increase of over $300 million or 3% from the previous quarter, which explains most of the increase in credit reserves. Of the $6.7 million in credit provision charges for the quarter, Stage 1 growth represented most of it, totaling $6.2 million. On the other side, Stage 2 exposure now represents 5.5% or $563 million. Notably, although stage two exposure has increased from 3% of total exposure on the preceding quarter, its overall quality has improved. This is explained by the collection of scheduled maturities of high-risk exposures categorized as special mentioned and or monitoring, which has been offset by the increase of low-risk, mostly very short-term and quasi-government exposures with revised downward risk ratings as part of our proactive client risk evaluation process. As a result, Stage 2 allocated reserves remained relatively stable, with a credit reserve requirement of only $0.4 million during the second quarter. Finally, only a minimal 0.1% of total exposure remains classified as Stage 3 impaired credits, or MPLs, amounting to $10 million, with a total reserve coverage of 7.5 times. Overall, the quality of the portfolio remains strong with a robust reserve coverage. Now moving to slide seven, our funding base remains well diversified with deposits now accounting for 58% of the total financial liabilities. As highlighted by Jorge, our deposit base continues to show a robust growth trend. reaching $5.3 billion, which represents a 29% increase from last year and of 11% from the preceding quarter. Central banks are Class A shareholders who place part of their U.S. dollar international reserves with us, account for 39% of total deposits, a very stable source of funding over time. The remaining 61% comes from our client banks and corporations, a source that has been showing a strong growth over the last several quarters as a result of our cross-selling efforts. As Jorge pointed out, our Yankee CD program, which operates out of our New York agency through broker-dealers distribution, continues to provide both volume and granularity, representing 26% of total deposits at the end of June. Jorge has also already mentioned another important funding transaction in the global syndicated market, which, along with our recurrent access to global capital markets and a broad network of correspondent banks worldwide, provides a solid funding base with ample geographic and tenor diversification. The bank's equity position presented on slide eight continues to be enhanced by strong earnings generation. Our board recently declared a 50 cents per share quarterly dividend unchanged from the preceding quarter on the back of strong financial performance. Even as we continue to grow our business and our balance sheet, we aim to maintain our capital ratios at current levels as a reflection of our internal risk appetite and in defense of our investment ratings. Moving on to P&L performance, on slide nine, you can see the evolution of net interest income and margins, the main component of revenues. Net interest income has remained stable over the last two quarters at close to $63 million, representing an annual increase of 15%. Sustained margins and higher average asset volumes have driven this strong top-line performance. Over the last year, we have seen a positive trend in net interest spread, or NIS, and net interest margin, or NIM, continuing the momentum that began with the execution of our new strategy in 2022. Enhanced financial margins reflect improved lending spreads with a strict emphasis on pricing and optimization of capital allocation at a transaction level. It also reflects efficient cost of funds management supported by a higher deposit base along with higher market interest rates. During the second quarter, we saw a slight reduction in NIS and NIM from the preceding quarter, reaching 1.74% and 2.43% respectively, mainly resulting from the effect of the inverted yield curve on a higher, very short-tenured deposit base, reducing the base rate differential between assets and liabilities. When market interest rates begin to decline as widely anticipated, we expect a correction in the yield curve, which should benefit our short-term interest rate gap position. Slide 10 showcases our solid fee income performance. In the second quarter of 2024, it nearly doubled compared to the same period of last year. Our letter of credit business, a key strategic pillar, has grown to a quarterly level of $6.5 million, having streamlined processes, benefiting from new client additions, as well as some very profitable, punctual opportunities. Once we complete the automation phase of this key trade finance product, we should be able to continue to scale this important revenue stream. As Jorge mentioned, we also had a strong quarter in our structuring business, having closed five transactions during the quarter, generating $3.7 million in fees for a total of $5 million in the first half of the year, denoting an outstanding performance. On slide 11, expenses remain stable quarter on quarter at $18 million, improving efficiency to a level of 24% for the quarter on strong revenue growth. The annual 17% increase in quarterly expenses mostly relates to a higher salary base as our workforce increased by close to 50% over the last couple of years, in line with our focus on strengthening Bladex's execution capabilities as outlined in our strategic plan. Let me now turn the call back to Jorge. Thank you.