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 second quarter 2022 earnings conference call. We would like to inform you that the 2Q22 press release is available to download at the Investor Relations website of Banco Macro, www.macro.com.ar slash Relaciones-Inversores. 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 Manriquez, Chief Executive Officer, Mr. Jorge Scarenzi, Chief Financial Officer, and Mr. Nicolas Torres, IR. Now, I will turn the conference over to Mr. Nicolas Torres. You may begin your conference. Thank you.

Good morning, and welcome to Banco Macro's second quarter 2022 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. Second quarter 2022 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 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 June 30, 2022. I will now briefly comment on the bank's second quarter 2022 financial results. Bank of America's net income for the quarter was 4 billion pesos, 41% lower than the first quarter of 2022, and 45% lower than the result posted a year ago. Second quarter 2022, annualized ROE and ROE of 5.1% and 1.3% respectively remained healthy and showed the bank's earnings potential. Net operating income before general and personal expenses for the second quarter of 2022 was 81.3 billion pesos. Six billion pesos higher quarter on quarter due to higher net interest income and higher FX gains. On a yearly basis, net operating income increased 26% or 16.6 billion pesos due to higher net interest income and higher net fee income. Operating income after general administrative and personal expenses was 44.5 billion pesos, 4% or 1.6 billion pesos higher than the first quarter of 2022, and 39% or 12.6 billion pesos higher than in the same quarter of last year. In the quarter, Net interest income totaled 53.1 billion pesos, 8% or 4 billion pesos higher than the result posted in the first quarter of 2022, and 27% or 11.3 billion pesos higher than the result posted one year ago. In the second quarter of 2022, interest income totaled 96.1 billion pesos, 19% or 15.3 billion pesos higher than in the first quarter of 2022, and 32% or 23.5 billion pesos higher than the previous year. Within interest income, interest on loans totaled 41.7 billion pesos and increased 5% or 2 billion pesos quarter on quarter, mainly due to a 350 basis points increase in the average lending rate. Interest income increased 10% or 3.7 billion pesos year on year. In the second quarter of 2022, interest on loans represented 43% of total interest income. Net income from government and private securities increased 32% or 13.1 billion pesos quarter on quarter due to higher income from government securities. Compared to the second quarter of 2021, net income from government and private securities increased 66% or 21.3 billion pesos. In the second quarter of 2022, income from RIPOs totaled 699 million pesos, 38% or 192 million pesos higher than in the previous quarter and 69% or 1.5 billion pesos lower than the result posted a year ago. In the second quarter of 2022, FX gains including investment and derivative financing totaled a 5.4 billion pesos gain, which was 49% or 1.8 billion pesos higher than the first quarter of 2022, and 4.3 billion pesos higher than the previous year, due to the bank's long dollar position and the peso depreciation during that quarter. In the second quarter of 2022, interest expenses total 42.9 billion pesos, 36% or 11.3 billion pesos higher compared to the first quarter of 2022, and 39% or 12.2 billion pesos higher on a yearly basis. Within interest expenses, interest on deposits increased 35% of 10.7 billion pesos quarter-on-quarter, mainly driven by a 650 basis points increase in the average interest rate paid on deposits, while the average volume of private sector deposits increased 5%. On a yearly basis, interest on deposits decreased 4.7% or 11.7 billion pesos. In the second quarter of 2022, interest on deposits represented 95% of the bank's financial expenses. In the second quarter of 2022, the bank's net interest margin, including effects, was 24.5%, higher than the 22.8% posted in the first quarter of 2022, and the 18.8% registered in the second quarter of 2021. In the second quarter of 2022, net fee income totaled 11.9 billion pesos, 49 million pesos lower than the first quarter of 2022. On a yearly basis, net fee income increased 8% or 842 million pesos. In the second quarter of 2022, net income from financial assets and liabilities at fair value to profit net loss total 7.7 billion pesos gain, 2% or 180 million pesos higher than the previous quarter. This increase is mostly related to higher income from government securities, which increased 26% or 1.3 billion pesos. On a yearly basis, net income from financial assets and liabilities for value to profit and loss decreased 11% or 917 million pesos. In the quarter, other operating income, total 3.9 billion pesos, 1% of 54 million pesos higher compared to the first quarter of 2022. On a yearly basis, other operating income increased 68% or 1.6 billion pesos. In the second quarter of 2022, Banco Macro's personal and administrative expenses totaled 22 billion pesos, 22% or 4 billion pesos higher than the previous quarter, as personal expenses increased 32% as a consequence of salary increases agreed with the union. administrative expenses increased 6%, and on a yearly basis, personal and administrative expenses increased 10% or 1.4 billion pesos. As of the second quarter of 2022, the efficiency ratio reached 31.3%, deteriorating from the 29.6% posted in the first quarter of 2022. In the second quarter of 2022, expenses increased 20% net interest income plus net fee income plus other operating income increased 7% compared to the first quarter of 2022. In the second quarter of 2022, the result from the net monetary position totaled a 38.2 billion pesos loss, which was 13% or 4.3 billion pesos higher than the loss posted in the first quarter of 2022 due to higher inflation observed in the quarter, which was 123 basis points above the first quarter of 2022. Inflation was 17.3% in the second quarter of 2022 compared to 16.1% in the first quarter of 2022. In the second quarter of 2022, Banco Macro's expected tax rate was 33%. More information is provided in our financial statements. In terms of loan growth, the bank's financing to the private sector totaled 446 billion pesos, increasing 2% on 9.9 billion pesos quarter-on-quarter, and 2% or 6.9 billion pesos higher year-on-year. Within commercial lending, overdraft documents and others stand out with a 29, 10, and 16% increase respectively. Meanwhile, within consumer lending, credit card loans increased 5%, while personal loans decreased 6%. Within private sector financing, basic financing increased 1% or 4.1 billion pesos, while U.S. dollar financing increased 12% or 21 million dollars. It is important to mention that Banco Mago's market share with private sector loans as of June 2022 reached 7.2%. On the funding side, total deposits totaled 858.2 billion pesos and increased 8% or 63.4 billion pesos quarter-on-quarter and 6% or 50.9 billion pesos higher year-on-year. Private sector deposits increased 10% quarter-on-quarter, while public sector deposits decreased 9% quarter-on-quarter. The increase in private sector deposits was led by time deposits, which increased 15% or 49.8 billion pesos quarter on quarter, while demand deposits increased 6% or 20.7 billion pesos. Within private sector deposits, special deposits increased 9% or 62.5 billion pesos, while U.S. dollar deposits decreased 11% or 150 million. As of June 2022, Banco Macro's transactional accounts represented approximately 48% of total deposits, Bank of America's market share of private sector deposits as of June 2022 totaled 5.9%. In terms of asset quality, Bank of America's non-performing to total financing ratio reached 125%. The coverage ratio measured as total allowances under expected credit losses over non-performing loans under central bank rules totaled 159.71%. Consumer portfolio non-performing loans improved 11 basis points down to 1.24% from 135 in the previous quarter, while commercial portfolio non-performing loans improved 149 basis points in the second quarter of 2022, down to 128% from 276 in the previous quarter, mainly due to a reversal of an SME client, which shows signs of credit deterioration in the previous quarter. In terms of capitalization, Banco Macros accounted an excess capital of 284.3 billion pesos, which represented a total regulatory capital ratio of 40.5% and a Tier 1 ratio of 35.9%. It should be noted that on May 12th, the Superintendencia de Entidades Financieras y Cambiales of the Central Bank of Argentina informed us that it authorized Banco Macro to distribute profits in cash around in kind for an aggregate amount of 19.7 billion pesos. And the distribution should be carried out in 12 monthly equal and consecutive installments. As of this date, the bank has paid, on June 7, a cash dividend in the amount of 9.9 billion pesos, which corresponds to installments one through six. On July 6, a cash dividend in the amount of 1.6 billion pesos, which was installment seven. And on August 2, a cash dividend in the amount of 1.6 billion pesos, which is installment eight. The bank's aim is to make the best use of this excess capital. The bank's liquidity remains more than appropriate Liquid assets to total deposit ratio reached 90%. 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 you may have.

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 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. One moment please for the first question. The first question is from Ernesto Gabilondo with Bank of America. Please go ahead.