Banco Macro S.A. ADR (representing Ten Class B Common Shares)

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 2025 earnings conference call. We would like to inform you that the second Q25 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 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. It is now my pleasure to introduce our speakers. Joining us from Argentina are Mr. Jorge Scarinci, 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 Macros' second quarter 2025 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 2025 press release was distributed yesterday, and it's 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 hyper-referential 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 upon IES 29 to reflect the accumulated effect of the inflation adjustment for each period through June 30, 2025. I will now briefly comment on the bank's second quarter 2025 financial results. In the second quarter of 2025, Banco Macro's net income totaled 149.5 billion pesos, which was 209% or 101.1 billion higher than in the previous quarter. This result was mainly due to higher net interest income, as well as higher net fee income, higher net income from financial assets and liabilities at fair value for profit or loss, and higher FX income, and the lower loss related to the result from the net monetary position, as lower inflation was registered in the quarter. which was partially offset by lower other operating income, higher loan loss provisions, and higher income tax. This result represented an annualized ROE and ROA of 12% and 3.5% respectively. Total comprehensive income for the quarter totaled 157.1 billion pesos, 241% or 111 billion pesos higher than the result posted in the previous quarter. Net operating income before general administrative and personal expenses was 906.2 billion pesos in the second quarter of 2025, 13% or 107 billion pesos higher compared to the first quarter of 2025, due to higher income from interest on loans and higher income from government securities. On a yearly basis, net operating income before general administrative and personal expenses increased 49% or 314.6 billion pesos. Provision for loan losses total 103 billion pesos, 47% or 33.1 billion pesos higher than the first quarter of 2025, given the loan growth experience in the quarter. On a yearly basis, provision for loan losses increased 349% or 80.1 billion pesos. In the quarter, net interest income totaled 696.9 billion pesos, 14% or 82.9 billion pesos higher than in the first quarter of 2025, and 163% or 432 billion pesos higher year on year. This result was due to a 169.2 billion pesos increase in interest income and an 86.3 billion pesos increase in interest expense. In the second quarter of 2025, interest income totaled 1.1 trillion pesos, 18% or 169.2 billion pesos higher than in the first quarter of 2025, and 26% or 221.3 billion pesos higher than in the second quarter of 2024. Income from interest on loans and other financing totaled 746.1 billion pesos, 19% or 118.2 billion pesos higher compared with the previous quarter. mainly due to a 17% increase in the average volume of private sector loans and by a 43 basis points increase in the average lending rate. On a yearly basis, income from interest on loans increased 30% or 171.3 billion pesos. In the second quarter of 2025, interest on loans represented 69% of total interest income. In the second quarter of 2025, income from government and private securities increased 18% or 50.8 billion pesos quarter on quarter, mainly due to the caps and inflation of transit bonds and bond sales. and increased 54% or 118.8 billion pesos compared with the same period of last year. This result is explained 94% by income from government and private securities at a more advertised cost, and the remaining 6% is explained by income from government securities valued at fair value to profit through other comprehensive income. In the second quarter of 2025, income from RIPOs totaled 1 billion pesos, 10% or 92 million pesos higher than the previous quarter, and 99% or 67 billion pesos lower than a year ago. It is worth noting that as of July 2024, the central bank decided to terminate Repos and replace them with Lefis, which were then terminated on July 10, 2025. In the second quarter of 2025, FX income totaled a 22.4 billion pesos gain, 229% or 15.6 billion pesos higher than the first quarter of 2025, mainly due to income from foreign currency exchange, which increased 12.5 billion pesos. On a yearly basis, FX income decreased 37% of 13.1 billion pesos. In the quarter, the Argentine peso depreciated 11.2% against the U.S. dollar after the central bank of Argentina replaced the 1% crawling peg, allowing the Argentine peso to grow freely between 1,000 and 1,400. In the second quarter of 2025, interest expense totaled 391.2 billion pesos, increasing 28% or 86.3 billion pesos compared to the previous quarter, and decreased 35% to 110.7 billion pesos compared to the second quarter of 2024. Within interest expenses, interest on deposits represented 96% of the bank's total interest expense, increasing 30% or 86.6 billion pesos quarter-on-quarter due to a 228 basis points increase in the average rate paid on deposits, while the average volume of private sector deposits increased 14%. On a yearly basis, interest on deposits decreased 35% or 205.1 billion pesos. In the second quarter of 2025, the bank's net interest margin, including FX, was 23.5%, higher than the 23.2% posted in the first quarter of 2025, and the 19.9% posted in the second quarter of 2024. In the second quarter of 2025, Banco Macro's net fee income totaled 108.4 billion pesos, 16% of 25.1 billion pesos higher than the first quarter of 2025. In the quarter, credit card fees stand out with a 90% or 28.6 billion pesos increase, followed by fees charged on deposit accounts and credit-related fees, which increased 4% or 2.9 billion pesos and 33% or 2.8 billion pesos respectively, which were partially offset by a 30% or 2.3 billion pesos decrease in mutual funds and securities fees. On a yearly basis, fee income increased 34% or 45.3 billion pesos. In the second quarter of 2025, net income from financial assets and liabilities deferred value to profit or loss totaled a $113.7 billion gain, increasing 61% of $43.3 billion compared to the first quarter of 2025. This result is mainly due to higher income from government securities. On a yearly basis, net income from financial assets and liabilities deferred value to profit or loss decreased 33% of $55.3 billion. In the quarter, other operating income totaled 45.8 billion pesos, 37% or 26.8 billion pesos lower than the first quarter of 2025 due to lower credit and debit card income. On a yearly basis, other operating income decreased 24% or 14.3 billion pesos. In the second quarter of 2025, Bank of Macro's administrative expenses plus employee benefits totaled 279.7 billion pesos, 3% or 7.3 billion pesos higher than the previous quarter, due to higher administrative expenses, which increased 8%. Meanwhile, employee benefits were practically unchanged. On a yearly basis, administrative expenses plus employee benefits decreased 1% or 2.6 billion pesos. In the second quarter of 2025, the efficiency ratio reached 33.9%, improving from the 38.2% posted in the first quarter of 2025 and from the 55.6% posted a year ago. In the second quarter of 2025, expenses, employee benefits plus general and administrative expenses, depreciation and impairment of assets increased 2% while income, net interest income, net fee income plus difference in quoted prices of golds and foreign currency plus other operating income and net income from financial assets for value to profit or loss increased 15% compared to the first quarter of 2025. In the second quarter of 2025, The result from the net monetary position totaled 203.9 billion pesos loss, 28% or 79.3 billion pesos lower than the loss posted at the first quarter of 2025, and 68% or 439.9 billion pesos lower than the loss posted one year ago. Lower inflation was observed during the quarter, 256 basis points below the first quarter of 2025, down to 601%, 8.97% in the first quarter of 2025. Next. In the second quarter of 2025, Banco Macro's effective income tax rate was 39%, lower than the one registered in the first quarter of 2025. Further information is provided in Note 21 to our financial statement. In terms of loan growth, the bank's total financing reached 9.24 trillion pesos, increasing 14% or 1.1 trillion pesos per quarter, and increasing 91% or 4.4 trillion pesos year-on-year. In the second quarter of 2025, private sector loans increased 13% of 1.1 trillion pesos. On a yearly basis, private sector loans increased 91% of 4.3 trillion pesos. Within commercial loans, overdrafts, documents, and others stand out with a 29 or 369.8 billion pesos increase at 19 or 243.5 billion pesos and a 14 or 206 billion pesos increase, respectively. Consumer lending, almost all product lines increased during the second quarter of 2025, except for credit card loans. Personal loans and mortgage loans stand out, with a 12% or 206.8 billion pesos and a 13 or 82.2 billion pesos increase, respectively. In the second quarter of 2025, peso financing increased 13% or 846.1 billion pesos, while U.S. dollar financing increased 4% or 65 billion dollars. It is important to mention that The bank marks market share over private sector loans as of June 2025, which 9.2%. On the funding side, total deposits increased 4% or 406.2 billion pesos quarter-on-quarter, total deposits increased 62 trillion pesos and increased 13% or 1.2 trillion pesos year-on-year. Private sector deposits increased 4% or 414 billion pesos quarter-on-quarter, while public sector deposits decreased 1% or 8.3 billion pesos quarter-on-quarter. The increase in private sector deposits was led by time deposits, which increased 12% of 514.6 billion pesos, while demand deposits increased 5% or 209.9 billion pesos quarter-on-quarter. While in private sector deposits, peso deposits increased 1% or 45.9 billion pesos, while U.S. dollar deposits increased 2% or 45 million dollars. As of June 2025, Bank of Macro's transactional accounts represented approximately 48% of total deposits. Bank of Macros market share over private sector deposits as of June 2025 totaled 7.3%. In terms of asset quality, Bank of Macros non-performing to total financial ratio reached 2.06%. The current ratio measured as total allowances under expected credit losses over non-performing loans reached 147%. Consumer portfolio non-performing loans deteriorated 100 basis points, up to 2.81% from 181% in the previous quarter, while commercial portfolio non-performing loans improved 14 basis points in the second quarter of 2025, down to 0.52% from 0.66% in the previous quarter. In terms of capitalization, Banco Macro created an excess capital of 3.13 trillion pesos, which represented a capitalization ratio of 30.5% and a tier 1 ratio of 9%. The Banco claims it is to make the best use of this excess capital. The bank's liquidity remains more than appropriate. Liquid assets to the deposit ratio reached 67%. Overall, we have accounted for another positive quarter. We continue to show the same financial position. We keep a well-atomized deposit base. Asset quality remains under control and close in monitor. And we keep on working to improve more artificial standards. At this time, we would like to take the questions you may have.

Thank you. At this time, we are going to open it up for questions and answers. If you would like to ask a question, please press the Q&A button at the bottom of the screen. Or, to ask questions on audio, click on Raise Hand. You will then receive a request to activate your microphone. One moment, please, for the first question. Our first question comes from Ernesto Gabilondo with Bank of America.

Thank you. Hi, good morning, Jorge and Nicolas, and thanks for taking my call. I have a couple of questions from my side. The first one will be on what could be the potential impact on NIMS and asset quality from the recent volatility on interest rates and debt auctions. Should we continue to expect volatility in the next weeks? Yesterday we saw the renewal of peso def maturities, but still at high rates. My understanding is that you are participating in the debt auctions, which are coming with a high cost of funding. But at the same time, you are lending personal loans with three-year maturity and high fixed rates. So just want to understand if this should help to compensate the temporary higher cost of funding. And on the other hand, my question is, if we have these high fixed rates, I don't know if at some point this could create asset quality deterioration on your client base. I know a lot of questions in this first one, but I will appreciate your thoughts. And my second question is on your ROE expectations. So look into the first half. It came at the low end of the guidance range of 8 to 10. We have seen other peers reducing guidance because of the temporary macro backdrop. So how are you thinking about your ROE in the second half and full year? Thank you.

Good morning, Arlecto. This is Jorge Scarinci. Thanks for your questions. The first one, Yes, we are in an environment with a higher volatility than the one that we experienced at least in the first quarter of this year. I would say that the government is trying to reach the midterm elections with some peace on FX expectations and also on inflation expectations. to have these two macro variables under control. I think that the work or the consequences of this is basically what the government is looking for because inflation is under control, below 2% on a monthly basis, and also the effects is also under control in the current spot market. Yes, of course. Also, we are seeing an increase in the funding costs, basically on time deposits. We are seeing interest rates going up. It is also true that in time deposits, we have a well-automized deposit base and with a big standing in the interior of the country. And in those deposits, we can relatively pay lower interest rates compared to our competitors that are more based in Buenos Aires area. But even though that's, we are seeing an increase in the funding cost. It is also true what you mentioned about the debt auctions. that we are going to these auctions in order to comply with the reserve requirements that have been increased a lot in the last 30 to 45 days. And it is also true what you mentioned, that we are extending loans on personal lending with high interest rate rates. I would say that even though if you have a look at the NIMS in the second quarter and also in the first half of 2025, we have been able to increase or to enlarge or to widen these net interest margins. What we are forecasting for the third quarter is when you put all the combination of the increasing funding costs and what we are doing on the asset side, with respect to some timid reduction in the NIMS in the third quarter, basically due to this volatility and to the increasing referral requirements and the options that we are complying with, with some fixed rates that are not that high as we have been expecting. So, bottom line, the third quarter NIMS should be typically below the second quarter 19 days margin. On your second question, sorry, you also asked about MPLs. Yes, we are seeing MPLs across the board. I mean, the system going up. Even though that Banco Macro has the best performance, asset quality standards among our peers. We are doing a great job there, but it's also true that with the current high real interest rate environment, we are foreseeing or we are showing an increase in NPLs. Consider that with a monthly inflation of 2% and now real interest rates, at least in these personal loans, are goes to 6% or 7% positive in real terms, it becomes a bit more difficult for maybe debtors to pay, even though we have to say also that the economic program of this government has been focused on trying to maintain the salaries of the people rolling below inflation. That is also affecting. And so, therefore, we are forecasting for the third and fourth quarter of this year some additional deterioration in asset quality going to levels maybe between 2.5% to 3% of MPLs as a percentage of total loans. And finally, on your second question in terms of ROE expectations, for the moment we are maintaining the range of between 8% to 10% ROE in 2025 in real terms. So, in that sense, we are keeping our expectations and our guidance there.

Now, excellent. Thank you so much. Just to follow up in terms of the asset quality, you mentioned your expectations for the MPL in the second half. How should we think about cost of risk?

I would assume, Ernesto, cost of risk similar than the one that we saw maybe in the first half of 2025. In the year of four, I would say four would be 4%, would be something reasonable to forecast for the second half.

Okay, perfect. Thank you very much, Jorge.

You're welcome, Ernesto.

Our next question comes from Brian Flores with CICI.

Hello, Nicolas. Thank you for taking my question. And I have only one question. What do you estimate for the year-to-year one ratio would be?

Good morning. In terms of the tier one ratio, considering the increasing loans and The installments that we are paying, our cash dividends announced in May of this year, we are forecasting to end 2025 with a Tier 1 ratio in the area of 28.75%.

Thank you very much. And I'm thinking on another question. What are your thoughts on the quality of the retail loan portfolio for the system?

Sorry, can you repeat that? Sorry.

What are your thoughts on the quality of the retail loan portfolio for the system?

Sorry. Yes. I mean, as I was commenting in the previous question, we are seeing some deterioration in asset quality. Basically, the increase in nominal and real interest rates is also impacting in the rhythm of the economy growth. What we are forecasting is that it should be maintained at least in the third quarter. We could see some relaxation of these interest rates in the fourth quarter, but in terms of delinquency rate, as I mentioned before, we are forecasting to have a continued deterioration. In our case, maybe to level up to 3% of total loans by the end of the year. And I would say that across the board it's going to be similar or might be a bit worse in other banks. Brian.

Okay. Thank you very much.

Next question from Yuri Fernandes with JP Morgan.

Thank you, Nicolas, and thank you, Jorge. I have one regarding the funding role, especially in Peso. I know all the COT debate, but we also have a volume debate, right? Like we are seeing your LDR. in local currency approach 100%. This is not only macro, this is in the industry, it's the lack of fees, we get it. But what is your strategy for the funding, Jorge? What should macro do, you know, or should we see low growth deceleration because like funding is getting too expensive and too difficult to find? So if you can comment a little bit on your funding strategy, maybe some guidance on deposits and also comment a little bit on your loan growth guidance. I would appreciate and then I can ask a second question. Thank you.

Okay, Yuri. Good morning. I mean, in terms of what we are doing in terms of funding is ideally we are trying to pay a higher cost, but as far as we can, a relatively lower higher cost compared to our peers. As I mentioned in the first question, basically because of the deposit base more focused on the interior of the country and more retail than other peers. But of course, The idea is to continue growing in both in pesos deposits and dollar deposits. To give you an idea, in dollar deposits, we have a very competitive interest rates among the markets, even though we have to say that we were able to issue a corporate bond in the second quarter that, of course, is also helping the funding in dollars. We raised $530 million. It was a great transaction. So in that sense, we feel really comfortable and pretty liquid. When you look at the liquidity standards in macro, you can see that we have the highest levels among our peers, both in pesos and in dollars. And going back into pesos, also remember that we have been mentioning this in previous calls, that in order to fuel the increase in loans, we not only look at increasing deposits, but also the portfolio of securities that we have that we can also change or transform into loans. But the idea is to keep on growing in both depositing pesos and and in dollars, and also in loans. To give you the guidance that we have, when you look at loans, for example, in the first half of 2025, we grew 36% in real terms our loans. The idea is to maintain the 60% loan growth guidance that we have been giving the previous quarter. So 60% is maintained as a guidance for 2025 for loans, deposits, In the first half of 2025, we grew our deposit base by 15%. So the idea is to keep the 30% guidance for 2025 for the moment.

Super clear, Jorge. Just to follow up here, do you think government may change reserve requirements post-elections? Is this a hope from the industry here to help on this?

I mean, Yuri, the government, at least what they have been saying is that at least in August, we are finishing August this weekend, so next Monday we are starting September. So at least in August, they didn't want to see spare liquidity in pesos that could be fueling an increase in inflation on the FX. So that was the main reason behind the increase in reserve requirements. Honestly, I don't know what will happen in September. I think that we have to focus on what could be going on in the Buenos Aires province election that is taking place on Sunday, the 7th of September. I would say that if the government can have a good performance in that election, I would say that all the the liquidity and effects and inflation, everything is going to be more relaxed after that. But honestly, It is very difficult for me to answer that question right now, Yuri.

No, thank you. I know it's a difficult one. Just a final one here, Jorge, on my side. Going back to Ernesto's question on the margin pressure for the third quarter, you mentioned a marginal pressure. Can you quantify or explain the moving parts? Where I struggle is the funding, right? When you go to the time deposits, like you go to the butler, the butler is, I don't know, running around 60%. And this is something that starts in July. And when you go to the asset side, I know you can reprice the loans, but we see an increase in rates for commercial papers, right? Adelantos and those other things. But when you go to the personal loans, we don't see a major repricing. And then when I think about your, I don't know, mortgage book that will not reprice as quickly, I struggle with like a marginal pressure. I would expect like a bigger pressure for the third quarter. So if you can help us understand a little bit. I know it's a quarterly thing, so it should not change our story. But just to understand a little bit the third quarter margin pressure here, how to quantify this. Thank you.

Well, Yuri, we are in the middle of, of the third quarter. So with this volatile scenario, it's not easy to forecast. For the moment, what we are doing is What you have been mentioning, the increase that we are seeing in the time deposits, of course, is translated in short-term lending. Also, we have been repricing a little bit our personal loans. Remember that interest rate that we have in personal loans were in the area of 73%. uh nominal we are or we have been moving those rates in it to low 80s but basically the big impact is on on the short-term liquidity that we are charging to uh big corporates in in short-term financing and also in maybe in some short-term and discount documents So if I have to say, I would say that the compression that we could be foreseeing the third quarter again should be in the area of 100 basis points for the moment. I mean, this could change, but for the moment, that is what we are seeing.

Late August, that's your best guess. Super clear, Jorge. And thank you and congrats on your asset quality. I know a congrats with worth is not good, but as I said, it will be a little bit better than most years. So good on that. Thank you.

Thank you very much, Yuri.

Next question from Matias Cataruzzi with AdCap Securities.

Hi Jorge, hi Nicolas, how are you? Yes, I have a question about the expected loan growth and deposit growth for 2025. The guidance was 60% on loans and as well 45% on deposits. We've seen 25% on the first quarter on loans and then 14%, so there's still room to grow in loans, and deposits only had a 5% and a 4% growth in prior quarters. How do you see this tendency, especially with the third quarter expected to be a little bit more illiquid than prior expectations.

Hi, Matias. Yes, what we are seeing is that in the third quarter, at least in terms of lending, there should be a number maybe not that high. But what we are forecasting is that in the fourth quarter, macroeconomic conditions should be more relaxed and there could be some pickup there in demand in order to get to the 60% guidance in loans. And also in terms of the guidance in deposits that I mentioned that is 30% for 2025, it's similar. I would say that some volatility in the third quarter and more normalized scenario in the fourth quarter.

And then another question on your strong capital position. Do you still consider M&A activity, acquiring a mid-sized peer, or given evaluations right now are more hurried than before, or what is your outlook on that field?

I mean, when you look at Banco Macro and our track record, we always are trying to find opportunities in the markets. So, of course, if there is an opportunity, we are going to analyze it. Of course, price is very important. physical presence of branches, type of businesses, overlapping of branches, we consider all that. So for the moment, there is nothing on the table, but we are open to analyze any potential target as always, as we have been doing the last 22 years.

Great. And then on loan growth opportunities going forward, which should be the mix going forward? We've seen some rising MPOs on consumer lending. Are you shifting to corporate and small and medium enterprises, or what's your outlook?

We maintain our policy of being a universal bank and tackling problems commercial and consumer lending with the same appetite. Of course, in this volatile scenario, we are a bit more conservative in some requirements for both type of loans, commercial and consumer. And of course, with the higher interest rates, but we are not stopping one in order to focus into the other. No.

Okay. Thank you so much.

You're welcome, Matias.

Our next question comes from Shamily Vanderporten. What is the inflation adjustment item in the P&L? Is it due to inflation accounting?

Yes, it's due to inflation accounting.

Next question from Jonty Fish. What real growth for loans can we expect for 2025 and 2026?

Well, in terms of loan growth for 2025, I have been commenting that 60%. And for 2026, for the moment, we are forecasting a 45% real loan growth.

There are no more questions at this time. This concludes the question and answer session. I will now turn over to Mr. Nicolás Torres for final considerations.

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

This concludes Banco Macro's conference. Thank you.