Banco Macro S.A.

Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Banco Macro's first quarter 2021 earnings conference call. We would like to inform you that the first quarter 2021 press release is available to download at the investor relations website of Banco Macro at www.macro.com.ar front slash relations dash investors front slash. Also, this event is being recorded and all participants will be in a listen-only mode during the company's presentation. After the company's remarks are completed, there will be a question and answer session. At that time, further instructions will be given. Should any participant need assistance during this call, please press star zero to signal the operator. It is now my pleasure to introduce our speakers. Joining us from Argentina are Mr. Gustavo Manriquez, Chief Executive Officer, Mr. Jorge Scarrenci, Chief Financial Officer and Mr. Nicholas Torres of Investor Relations. Now I would like to turn the conference over to Mr. Nicholas Torres. You may begin your conference, sir.

Thank you. Good morning and welcome to Banco Macro's first quarter 2021 conference call. Any comment we may make today may include forward-looking statements which are subject to various conditions. And these are outlined in our 20F, which was filed to the SEC, and it's available at our website. First quarter 2021 press release was distributed yesterday and it's also available at our website. All figures are in Argentine pesos and have been restated in terms of the measuring unit current at the end of the reporting period. As of the first quarter of 2020, the bank began reporting results applying hyperinflation accounting in accordance with IFRS IAS 29 as established by the Central Bank of Argentina. For ease of comparison, Figures of previous quarters have been restated, applying IAS 29 to reflect the accumulated effect of the inflation adjustment for each period through March 31, 2021. I will now briefly comment on the Bank's first quarter 2021 financial results. Banco Macro's net income for the quarter was 2.2 billion pesos, 39% lower than in the fourth quarter of 2020, and 77% lower than the result posted a year ago. the bank's first quarter 2021 annualized ROE and ROA of 5.4% and 1.1%, respectively, remained healthy and showed the bank's earnings potential. Net operating income before general and personal expenses for the first quarter of 2021 was 37.2 billion pesos, increasing 5% or 1.8 billion pesos quarter-on-quarter due to lower loan loss provisions, and higher income from financial instruments at fair value through profit or loss. On a yearly basis, net operating income decreased 10% or 4.1 billion pesos due to lower net interest income and lower net pay income. Operating income after general administrative and personal expenses was 18.9 billion pesos, 16% or 2.6 billion pesos higher than the fourth quarter of 2020, and 19% percent lower than in the first quarter of 2020. In the quarter, net interest income totaled 23.8 billion pesos, 3 percent or 761 million pesos lower than the result posted in the fourth quarter of 2020, and 22 percent or 6.6 million pesos lower than the result posted one year ago, as a result of different regulations adopted by the central bank that set caps on lending rates and floors on deposit rates. In the first quarter of 2021, interest income totaled 45.1 billion pesos, 4% or 1.9 billion pesos lower than the fourth quarter of 2020, and 2% or 1 billion pesos higher than the previous year. Within interest income, interest on loans increased 1% or 194 billion pesos quarter on quarter. Interest income decreased 20% or 5.4 billion pesos year on year. In the first quarter of 2021, Interest on loans represented 50% of total interest income. Net income from government and private securities decreased 6% or 1.3 billion pesos quarter-on-quarter due to lower income from government securities. Compared to the first quarter of 2020, net income from government and private securities decreased 31% or 4.9 billion pesos. In the first quarter of 2021, FX gains, including investment in direct financing, totaled a 1.2 billion pesos gain. 15% or 221 million pesos lower than in the fourth quarter of 2020. The gain in the quarter is due to the 10% Argentine peso depreciation against the U.S. dollar and advanced long spot dollar position. On a yearly basis, FX gains increased 60% or 456 million pesos. In the first quarter of 2021, interest expenses totaled 21.3 billion pesos, 5% or 1.1 billion pesos lower compared to the fourth quarter of 2020, and 55% or 7.6 billion pesos higher on a yearly basis. Within interest expenses, interest on deposits decreased 5% or 1 billion pesos quarter on quarter, mainly driven by a 7% decrease in the average volume of planned deposits, which was partially offset by a 64 basis points increase in the average interest rate paid on deposits. On a yearly basis, interest on deposits increased 61% or 7.7 billion pesos. In the first quarter of 2021, interest on deposits represented 95% of the bank's financial expenses. The first quarter of 2021, the bank's net interest margin, including effects, was 17.4%, higher than the 16.3% posted in the fourth quarter of 2020, and lower than the 25.2% registered one year ago. In the first quarter of 2021, net fee income totaled 5.9 billion pesos, 7% or 466 million pesos lower than the fourth quarter of 2020. On a yearly basis, net fee income decreased 6% or 393 million pesos. In the first quarter of 2021, net income from financial assets and liabilities at fair value for profit or loss totaled a 4.6 billion pesos gain, 23% or 854 million pesos higher than in the previous quarter. This gain is mostly related to higher income from government securities and investment in equity instruments, mainly the mark-to-market of our 4.5% Christmas stake. In the quarter, other operating income totaled 1.6 million pesos, increasing 5% compared to the fourth quarter of 2020. And on a yearly basis, other operating income increased 5% or 81 million pesos. In the first quarter of 2021, Banco Macro's personal and administrative expenses total 10.7 billion pesos, 12% or 1.5 billion pesos lower than the previous quarter, due to lower administrative expenses and lower employee benefits. On a yearly basis, personal and administrative expenses decreased 1% or 116 million pesos, showing the strict cost control policies adopted by the bank's senior management. In the first quarter of 2021, the efficiency ratio reached 35.7%, improving from the 38.8% percent posted in the fourth quarter of 2020. In the quarter, expenses decreased 11 percent, while net interest income plus net fee income plus other operating income decreased 3 percent. In the first quarter of 2021, the results from the next monetary position totaled a 14.4 billion pesos loss, 20 percent or 2.4 billion pesos higher than the loss posted in the fourth quarter of 2020. Due to higher inflation observed in the quarter, which was 163 basis points higher than in the fourth quarter, going up from 11.33% to 12.95%. On a yearly basis, the loss related to the monetary position increased 75% or 6.2 billion pesos. This is the first quarter in which the result from the net monetary position is shown per communication A7211 of the Central Bank of Argentina in which the inflation adjustment on early leaks and other government securities is included, which was previously shown in net income from financial instruments at fair value through profit or loss. In the first quarter of 2021, Bank of America's expected tax rate was 51.4%, higher than the 16.3% registered during the fourth quarter of 2020, and 36.9% registered one year ago. In terms of loan growth, The bank's financing to the private sector totaled 259.4 billion pesos, decreasing 9% or 25.8 billion pesos quarter-on-quarter, and 17% or 54.1 billion pesos lower year-on-year as a consequence of the economic recession that affected Argentina during 2020 and with loan demand. Commercial loans decreased 13% or 17.9 billion pesos, among which others count out as loans extended to SMEs as part of the relief package given the COVID-19 pandemic started to come in. Consumer lending decreased 5% or 7.6 million pesos. Credit card loans decreased 9%. Within private sector financing, peso financing decreased 9% or 23.9 billion pesos, while U.S. dollar financing decreased 15% or $47 million. It is important to mention that Banco Macro's market share over private sector loans of March 2021, reached 7.3%. On the funding side, total deposits decreased 17%, or 94.8 billion pesos quarter-on-quarter, and increased 3%, or 13.2 billion pesos year-on-year. Private sector deposits decreased 14% quarter-on-quarter, while private sector deposits decreased 33% quarter-on-quarter. The decrease in private sector deposits was led by demand deposits, which decreased 16% or 37.9 billion pesos quarter-on-quarter, while time deposits decreased 13% or 29.7 billion pesos. Within private sector deposits, peso deposits decreased 19% or 90.6 billion pesos, while U.S. dollar deposits decreased 13% or 134 million dollars. As of March 2021, Banco Macro's transactional accounts represented approximately 49% of total deposits. Banco Macro's market share over private deposits as of March 2021 totaled 5.6%. In terms of asset quality, Banco Macro's non-performing total financial ratio reached 0.92%, and the coverage ratio measured as total allowances under expected credit losses over non-performing loans under central bank rules total 387.82%. Consumer portfolio non-performing loans deteriorated 16 basis points up to 0.89% from 0.73% in the previous quarter, while commercial portfolio non-performing loans deteriorated 10 basis points in the first quarter of 2021. Asset quality continues to be positively affected by recent measures adopted by the Central Bank of Argentina in the current pandemic context, particularly the 60-day grace period that was added to debt or classification before a loan is considered as non-performing. In terms of capitalization, Banco Magro counted an excess capital of 157.4 billion pesos, which represented a total regulatory capital ratio of 37.7% and a tier one ratio of 30.3%. It should be noted that on April 30th, 2021, the shareholders' meeting approved a dividend of up to 10 billion pesos in cash or dividend in kind. The 10 billion pesos from the dividend will be deducted from shareholders' equity in the second quarter of 2021. Defective distribution of the dividends as approved by the shareholders' meeting is subject to Central Bank's authorization. Percent of communication A7181 from the Central Bank of Argentina, the distribution of profits by financial entities is suspended until June 30th The bank's aim is to make the best use of the excess capital. The bank's liquidity remains more than appropriate. Liquid assets' total deposit ratio reached 94%. Overall, we have accounted for another positive quarter. We continue showing a solid financial position. Asset quality remains under control and closely monitored. We keep on working to improve more our agency standards, and we keep a well-atomized deposit base. At this time, we would like to take the questions that you may have.

Thank you. At this time, we're going to open it up for questions and answers. If you would like to ask a question, please press star then 1 on your touchtone phone. Please unmute your phone and record your name clearly when prompted. One moment, please, for the first question. And the first question will come from Pedro Nobrega with Citigroup. Please go ahead.