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 2023 earnings conference call. We would like to inform you that the second quarter 2023 press release is available to download at the Investor Relations website of Banco Macro at www.macro.com.ar slash relations slash investors. 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 participants need assistance during this call, please press star then 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. George Scarancy, Chief Financial Officer, and Mr. Nicholas Torres of Investor Relations. Now I will turn the conference over to Mr. Nicholas Torres. You may begin your conference.

Thank you, Andrea. Good morning, and welcome to Bank of Macros' second quarter 2023 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 2023 press release was distributed on Wednesday, and it's available at the 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 year 2020, the bank began reporting results, applying high-profile financial 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 IES 29 to reflect the accumulated effect of the inflation adjustment for each period through June 30, 2023. I will now briefly comment on the bank's second quarter 2023 financial results. Bank of America's net income for the quarter was 44.2 million pesos, 265% higher than the first quarter of 2023, and 394% higher than the result posted a year ago. the banks accumulated ROE and ROA of 15.5% and 3.9% respectively, remained healthy, and showed the bank's earnings potential. Net operating income before general, administrative, and personal expenses for the second quarter of 2003 was 2,264.1 billion pesos, increasing 27% of 56.4 billion pesos per quarter due to higher income from financial instruments at fair value to profit or loss and higher FX gains. On a yearly basis, net operating income before general administrative and personal expenses increased 50 percent or 88.5 billion pesos. In the second quarter of 2023, provision for loan losses totaled 5.5 billion pesos, 28 percent or 1.2 billion pesos higher than in the previous quarter. On a yearly basis, provision for loan losses increased 232 percent or 3.9 billion pesos. Operating income after general administrative and personal expenses was 173.1 billion pesos, 35% or 44.4 billion pesos higher than the first quarter of 2023, and 81% or 77.2 billion pesos higher than the second quarter of 2022. In the quarter, net interest income totaled 107.9 billion pesos, 11% or 12.9 billion pesos lower than the result posted in the first quarter of 2023, and 7% or 7.9 billion pesos lower than the result posted a year ago. In the second quarter of 2023, interest income totaled 307.1 billion pesos, 9% or 24.1 billion pesos higher than the first quarter of 2023, and 48% or 100 billion pesos higher than the previous year. Within interest income, interest and loans increased 12% or 13.1 billion pesos quarter-on-quarter due to a 760 basis points increase in the average lending rate, while the average volume of private sector loans decreased 3%. On a yearly basis, income from interest on loans was 34 percent or 30 billion higher. In the second quarter of 2023, interest on loans represented 34 percent of total interest income. Net income from government and private securities decreased 1 percent or 1.9 billion pesos for an quarter due to lower income from government securities. Compared to the second quarter of 2022, net income from government and private securities increased 43 percent or 49.7 billion pesos. In the second quarter of 2023, FX gains, including investments in the realty financing, totaled a 3.3 billion pesos gain due to the 23% Argentine peso depreciation against the U.S. dollar at the bank's longest dollar position. In the second quarter of 2023, interest expense totaled 199.2 billion pesos, a 23% or 37.1 billion pesos increase compared to the first quarter of 2023, and 119 or 108 billion pesos higher on a yearly basis. Within interest expenses, interest on deposits increased 23% or 36 billion pesos, quarter on quarter, mainly driven by a 3% increase in the average volume of private sector deposits, while the average interest rates paid on deposits increased 940 basis points. On a yearly basis, interest on deposits increased 120% or 106 billion pesos. In the second quarter of 2023, interest on deposits represented 97% of the bank's financial expenses. In the second quarter of 2023, the bank's net interest margin, including effects, was 38.3%, higher than the 33.6% posted in the first quarter of 2023, and higher than the 24.7% posted in the second quarter of 2022. In the second quarter of 2023, net fee income totaled 26.3 billion pesos, 3% or 932 million pesos lower than the first quarter of 2023. On a yearly basis, net fee income was 2% higher. In the second quarter of 2023, net income from financial assets and liabilities at fair value to profit or loss totaled a 51.9 billion pesos gain, mainly due to the marked market of DUA bonds. On a yearly basis, net income from financial assets and liabilities at fair value to profit or loss increased 226% of $36 million. In the quarter, other operating income totaled $7 billion, increasing 8% compared to the first quarter of 2023. On a yearly basis, other operating income decreased 7% of $578 million. In the second quarter of 2023, Bank of Macro's personal and administrative expenses totaled $47.9 billion, 10% or $4.4 billion higher than the previous quarter. due to higher administrative expenses and higher employee benefits. On a yearly basis, personal and administrative expenses increased 1% to 507 million pesos. In the second quarter of 2023, the efficiency ratio reached 21.7%, improving from the 25.5% posted in the first quarter of 2023. In the second quarter of 2023, expenses increased 9%, while net interest income plus net fee income plus other operating income increased 28%. In the second quarter of 2023, the result from the net monetary position totaled 109.4 billion pesos loss, slightly higher than the loss posted in the first quarter of 2023, as a consequence of higher inflation observed in the quarter, which was 200 basis points higher than in the first quarter of 2023. Inflation in the quarter was 23.78% compared to 21.73% in the first quarter of 2023. In the second quarter of 2023, Bancomat's respective tax rate was 30.2%. 4%, and further information is provided in Note 22 to our financial statements. In terms of loan growth, the bank's financing to the private sector totaled $872.5 billion, increasing 1% or $13 billion quarter-on-quarter, and increasing 9% or $88 billion year-on-year. Within commercial loans, overdraft documents and others stand out, with a 32% of $21.5 billion increase and an 11% or 13.7 billion pesos, and 6% of 7 billion pesos increased, respectively. It is important to mention that Banco Macro's market share of private sector loans as of June 2023 reached 7.8%. On the funding side, total deposits increased 5% or 90.2 billion pesos quarter-on-quarter, totaling 1.9 trillion pesos, and increased 3% or 52.8 billion pesos year-on-year. Private sector deposits increased 6% on 94.7 billion pesos quarter-on-quarter, while private sector deposits decreased 4% quarter-on-quarter. The increase in private sector deposits was led by demand deposits, which increased 9% or 64.6 billion pesos quarter-on-quarter, while time deposits increased 2% or 20.5 billion pesos. Within private sector deposits, personal deposits increased 7%, while U.S. dollar deposits decreased 24% or 288 million. As of June 2023, Bank of America's transactional accounts represented approximately 39% of total deposits, and Bank of America's market share over private sector deposits as of June 2023 totaled 6.5%. In terms of asset quality, Bank of America's non-performing to total financial ratio reached 1.37%. The coverage ratio measured as total allowance under expected credit losses over non-performing loans under central bank rules. remained stable at 146.05%. Consumer portfolio non-performing loans deteriorated nine basis points and were up to 1.43% from 134 in the previous quarter, while commercial portfolio non-performing loans improved 55 basis points in the second quarter of 2023. In terms of capitalization, Banco Macro accounted an excess capital of 570.7 billion pesos, which represented a total capital ratio of 35.3%. 9% and a tier one ratio of 33%. The bank's aim is to make the best use of this excess capital. The bank's liquidity remained more than appropriate. Liquid assets total deposit ratio reached 95%. Overall, we have accounted for another positive quarter. We continue showing a solid financial position. Asset quality remained under control and closing monitor. We keep on working to improve more our efficiency standards and we keep a well optimized deposit base. Lastly, before taking your calls, we wanted to announce that Banco Macro entered a purchase agreement to acquire 400% of the shares and votes of Banco Itaú Argentina and its subsidiaries, basically Itaú Asset Management and Itaú Valores. This agreement is subject to the completion of certain conditions, substantially the approval of the transaction by the Central Bank of Argentina. The price of the agreement was set at $50 million, which will be paid on the closing date of the transaction and an additional amount resulted from the potential adjustment that would be eventually set based on the results obtained by Banco Itaú Argentina and its subsidiaries between April 1st, 2023 and the closing date. At this time, we would like to take the questions you may have.

We will now begin the question and answer session. If you would like to ask a question, please press star, then 1 on your touchtone phone. To withdraw your question, please press store then two. One moment please for the first question. And our first question comes from Brian Flores of Citibank. Please go ahead.