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 2Q21 earnings call. We would like to inform you that the 2Q21 press release is available to download at the Investor Relations website of Banco Macro, www.macro.com.ar slash relaciones-investores. Also, this event is being recorded and all participants will be in 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 Manrique, Chief Executive Officer Mr. Jorge Skirinski, Chief Financial Officer, and Mr. Nicholas Torres, IR. Now I will turn the conference over to Mr. Nicholas Torres. You may begin your conference.

Thank you, Sarah. Good morning, and welcome to Banco Macro's Q21 conference call. Any comment we may make today may include forwarded statements which are subject to various conditions, and these are outlined in our 20F, which was filed to the SEC, and it is available at our website, Second quarter 2021 press release was distributed yesterday and it's also available at our website. All figures were 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 started 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 stated applying IAS 29 to reflect the accumulated effect of the inflation adjustment for each period through June 30, 2021. I will now briefly comment on the bank's second quarter 2021 financial results. Banco Macro's net income for the quarter was 4.6 billion pesos, 90% higher than the first quarter of 2021 and 50% lower than the result posted a year ago. The bank's second quarter 2021 accumulated ROE and ROA 7.8% and 1.7% respectively remained healthy and showed the bank's earnings potential. Net operating income before general and administrative and personal expenses for the second quarter of 2021 was 39.4 billion pesos, decreasing 5% or 1.9 billion pesos quarter-on-quarter due to relatively small loan loss provisions and higher income from financial instruments at fair value to profit or loss. On a yearly basis, net operating income decreased 1% or 355 million pesos due to lower net interest income and lower net fee income. Operating income after general administrative expenses and personal expenses was 19.4 billion pesos, 7% or 1.6 billion pesos lower than in the first quarter of 2021 and 1% lower than in the second quarter of 2020. In the quarter, net interest income total 25.5 billion pesos, 4% or 957 million pesos lower than the result posted in the first quarter of 2021, and 50% or 4.6 billion 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 second quarter of 2021, interest income total 44.3 billion pesos, 12% or 5.8 billion pesos lower than the first quarter of 2021, and 215 million pesos lower than the previous year. Within interest income, interest on loans decreased 7% or 1.7 billion pesos quarter on quarter, and interest income decreased 15% or 4 billion pesos year on year. In the second quarter of 2021, interest on loans represented 52% of total interest income. Net income from government and private securities decreased 14% of 3.2 billion pesos per quarter due to lower credit volume and lower income from government securities. Compared to the second quarter of 2020, net income from government and private securities increased 30% of 4.6 billion pesos. In the second quarter of 2021, FX gains, including investment in derivative financing, totaled a 640 million pesos gain. 53% or 709 million pesos lower than in the first quarter of 2021. The gain is due to the 4% Argentine peso depreciation against the US dollars and the bank's long spot dollar position. On a yearly basis, FX gains decreased 47% or 569 million pesos. In the second quarter of 2021, interest expenses totaled 18.8 billion pesos, 20% or 4.8 billion, lower compared to the first quarter of 2021, and 31% of 4.4 billion pesos higher on a yearly basis. Within interest expenses, interest on deposits decreased 20% of 4.5 billion pesos quarter on quarter, mainly driven by a 16% decrease in the average volume of time deposits, and by a 129 basis points decrease in the average interest rate paid on deposits. On a yearly basis, interest on deposits increased 37% of 4.8 billion pesos. In the second quarter of 2021, interest and deposits represented 95% of the bank's financial expenses. In the second quarter of 2021, the bank's net interest margin, including FX, was 18.8%, higher than the 17.4% posted in the first quarter of 2021 and lower than the 19.8% registered one year ago. In the second quarter of 2021, net fee income totaled 6.8 billion pesos, 3% or 186 million pesos higher than in the first quarter of 2021. On a yearly basis, net fee income decreased 3% or 218 million pesos. In the second quarter of 2021, net income from financial assets and liabilities at fair value to profit or loss totaled a 5.3 billion pesos gain, 4% or 221 million pesos higher than in the previous quarter. This gain is mostly related to higher income from government and private securities. In the quarter, other operating income totaled 1.4 billion pesos, decreasing 23% or 421 million pesos compared to the first quarter of 2021. On a yearly basis, other operating income decreased 4% or 189 million pesos. In the second quarter of 2021, Banco Macro's personal administrative expenses totaled 12.3 billion pesos, 4% or 441 million pesos higher than in the previous quarter. due to higher employee benefits and higher administrative expenses. On a yearly basis, personal administrative expenses decreased 5% or 693 million pesos, showing the strict cost control policies adopted by the bank's senior management. In the second quarter of 2021, the efficiency ratio reached 38.4%, deteriorating from the 35.7% posted in the first quarter of 2021. In the quarter, expenses increased 3% of 446 million pesos, while net interest income plus net fee income plus other operating income decreased 1.3 billion pesos. In the second quarter of 2021, the result from the net monetary position totaled a 13.6 billion pesos loss, 15% or 2.5 billion pesos lower than the loss posted in the first quarter of 2021 due to lower inflation observed in the quarter, 200 basis points below the first quarter of 2021, down to 10.95% from 12.95% posted in the first quarter of 2021. On a yearly basis, the loss related to the monetary position increased 119% or 7.4 billion pesos. This is the second quarter in which the result from the net monetary position is shown for communication A7211 of the Central Bank of Argentina, in which the inflation adjustment and other government securities is included. which was previously shown in net income from financial income at fair value to profit or loss. In the second quarter of 2021, Bancomat's expected tax rate was 21.8, lower than the 51.4 registered during the first quarter of 2021 and the 29.9 registered a year ago. In terms of loan growth, the bank's financing to the private sector totaled 267.8 billion pesos, decreasing 7% or 20 billion pesos quarter-on-quarter, and 19% or 61.7 billion pesos lower year-on-year as a consequence of the economic recession that affected Argentina during 2020 and weak loan demand. Commercial loans decreased 13% or 13.4 billion pesos, among which others stand out, as loans extended to SMEs as part of the relief package given the COVID-19 pandemic started to come due. Consumer lending decreased 5% or 7.3 billion pesos, personal loans decreased 6%, while credit card loans decreased 4%. Within private sector financing, PESA financing decreased 5%, or $4.4 billion, while U.S. dollar financing decreased 31%, or $19 million. It is important to mention that Banco Macro's market share over private sector loans as of June 2021 reached 7%. On the funding side, total deposits totaled $492.3 billion, and decreased 3% of 15.1 billion pesos quarter-on-quarter and decreased 19% or 117.5 billion pesos year-on-year. Private sector deposits decreased 1% quarter-on-quarter, while public sector deposits decreased 16% quarter-on-quarter. The decrease in private sector deposits was led by TAN deposits, which decreased 7% or 15.7 billion pesos quarter-on-quarter, while Lehman deposits increased 4% or 8.6 billion pesos. Within private sector deposits, peso deposits decreased 3% or 11.1 billion pesos, while U.S. dollar deposits decreased 8% or $81 million. As of June 2021, Banco Macro's transactional accounts represented approximately 51% of total deposits. Banco Macro's market share over private sector deposits as of June 2021 totaled 5.1%. In terms of asset quality, Banco Macro's non-performing total financial ratio reached 1.1%. The coverage ratio measured as total allowances under expected credit losses over non-performing loans under central bank rules total 212.91%. Consumer portfolio non-performing loans deteriorated 89 basis points up to 1.88% from 0.89% in the previous quarter. While commercial portfolio non-performing loans deteriorated 11 basis points in the second quarter of 2021 up to 1.1%. percent from 1 percent in the previous quarter. During 2020, asset quality was positively affected by measures developed by the Central Bank of Argentina in the current pandemic context, particularly the 60-day grace period that was added to debtor classification before a loan was considered non-performing. In March 2021, the Central Bank established a gradual transition, which was completed by June 1, 2021, and financial entities must classify their debtors according to the general debtor classification. In terms of capitalization, Banco Macro accounted in excess capital of 167 billion pesos, which represented a total regulatory capital ratio of 38.3% and a tier one ratio of 30.9%. It should be noticed that percent communication 7312 issued by the central bank of Argentina, the distribution of profits by financial entities is suspended until December 31st, 2021. The bank's aim is to make the best use of this excess capital. The bank's liquidity remained more than appropriate, liquid assets turned deposit ratio reached 93%. 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 efficiency standards, and we keep a well-atomized deposit base. At this time, we would like to take the questions that you may have.

At this time, we're going to open it up for question and answers. If you would like to ask a question, please press the star 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Again, if you'd like to ask a question, please press star, then one. There are no questions at this time. This concludes the question and answer session. I will now turn over to Mr. Nicholas Torres for final considerations.

Thank you all for your interest in Banco Macro. We appreciate your time and look forward to speaking with you again. Good day.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.