Grupo Cibest S.A.

Good morning, ladies and gentlemen, and welcome to Bancolombia's first quarter 2021 earnings conference call. My name is Claudia and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Following the prepared remarks, there will be a question and answer session. During the question and answer session, if you have a question, please press star then one on your touchtone phone. Please note that this conference is being recorded. Please note that this conference call will include forward-looking statements, including statements related to our future performance, capital position, credit-related expenses and credit losses. All forward-looking statements, whether made in this conference call, in future filings, in press releases or verbally, address matters that involve risk and uncertainty. Consequently, there are factors that could cause actual results to differ materially from those indicated in such statements, including changes in general economic and business conditions, changes in currency exchange rates and interest rates, introduction of competing products by other companies, lack of acceptance of new products or services by our targeted clients, changes in business strategy, and various other factors that we describe in our reports filed with the SEC. With us today is Mr. Juan Carlos Mora, Chief Executive Officer, Mr. Mauricio Rosillo, Chief Corporate Officer, Mr. Jose Humberto Acosta, Chief Financial Officer, Mr. Rodrigo Prieto, Chief Risk Officer, Mr. Carlos Rad, Investor Relations Director, and Mr. Juan Pablo Espinoza, Chief Economist. I will now turn the call over to Mr. Juan Carlos Mora, Chief Executive Officer. Mr. Juan Carlos, you may begin.

Good morning and welcome to our conference call for the first quarter 2021. I hope all of you and your families are safe and healthy. After a slow start of the year due to the second wave of the pandemic in Colombia, economic activity rebound in February and March. Data shows that economic activity is almost reaching pre-pandemic levels. Unfortunately, we continue under high levels of uncertainty. Currently, Colombia is going through a third wave of the pandemic. so the mayor cities in the country are dealing with a new round of restrictions. The pace of the economic recovery depends on the COVID-19 infection rate, the speed of the vaccination plan, and the discussion of the fiscal reform. Before getting to the details of the results, I want to highlight some key topics. The loan book grew 3% compared with the previous quarter. Deposits grew 2% during the quarter, and we continue lowering the funding cost. Core Equity Tier 1 under Full Basel III was 11.2%, and the net income was 543 billion pesos. Provision charges for the quarter were 1.3 trillion pesos, mainly driven by COVID-19 impact in our clients. This provisioning level takes the bank to a coverage ratio of 222%, and allowances for loan losses represents 8.1% of total loans. Our business areas supported by more than 20 million clients continue to evolve. The marketplaces of our ecosystem strategy with only a few months in the market have become relevant for our customers. The mobility marketplace has had 1.5 million online visits and the housing marketplace 1.7 million. These interactions led us to pre-approve and disbursed credits for 20 billion pesos. At this point, I want to turn the presentation to Juan Pablo Espinoza, who will further elaborate on the performance of the Colombian economy. Juan Pablo. During the first quarter of 2021, the Colombian economy displayed two contrasting trends. In January, the adoption of sanitary restrictions due to the second wave of the pandemic led to a downturn in economic activity and employment. Nevertheless, once these measures were lifted in early February, the economy recovered fast, thus erasing most of the initial negative response. As a result, we estimate that GDP, in terms of year-on-year variation in the first quarter, was around minus 0.4%, which is higher than our initial forecast of minus 3%. This revision, as well as the base effect and the expansionary stance of both monetary and fiscal policies, will translate into a full year 2021 growth expectation of 5.5%. It is worth mentioning that this forecast incorporates the recent acceleration of COVID-19 cases and fatalities and a low probability of reaching herd immunity this year. In terms of prices, the last 12 months inflation print was 1.5%, almost half of the central bank's target. However, there is evidence of some upward pressures emerging from CPI components such as food, housing costs, and regulated items. This confirms our perspective that inflation will accelerate in the next months as we close 2021 around 2.5%. Against this backdrop, we predict that the central bank will start a hiking cycle in the second half of the year, although at a more moderate pace than the current market's expectation. We anticipate that reference rate will be at 2% at the end of this year and 3.25% by December 2022. At the same time, the sovereign yield curve has steepened due to movements in US treasury market as well as idiosyncratic factors. We expect this pressure as well as special weakness to continue in the short term, given the discussion about the reform to public finances. Finally, as we mentioned in our previous conference call, the approval of a fiscal reform will be key to rating agencies' decisions about Colombia this year. Recently, the government submitted to Congress a proposal which intended not only to tackle some of the fiscal challenges that arose from the pandemic, but also to strengthen the subsidies that the most vulnerable households receive. Although this first draft was just withdrawn by the government, it is reasonable to expect that a watered-down version of the reform will be ultimately approved. which would in turn reduce the odds of a sovereign downgrade. Now, I want to turn the presentation back to Juan Carlos. Juan? Thank you, Juan Pablo. Moving to slide four, I want to continue this presentation by explaining our business evolution. The bank keeps moving forward. As an example of this, is the change we recently launched of our corporate image. The evolution of our image is a symbol of the commitment to deliver our best efforts to more than 20 million clients. This evolution is a declaration of principles to reflect the purpose of Bancolombia in each action. It was not a simple change of image. This change implies new ways of working, new ways of relating to our customers, a new way of doing business. In this slide, you can observe how our main segments continue growing despite the situation. Based in new risk criteria, picking the best credit profiles, we have pre-approved 57 trillion pesos for almost 2 million retail clients. During this quarter, we were the bank with the highest amount disbursed in loans for low-income housing with government subsidies, and we were the first bank with a 100% housing transfer deed. One out of every two SMEs in the country is our client. We want to provide financial and non-financial services that ensure that the economic reactivation occurs in all sectors in an accelerated and sustainable way. We have pre-approved 13.5 trillion pesos for 400,000 SMEs to accompany their recovery. In the corporate business, we are structuring credit lines tied to sustainable performance. Recently, we announced the first loan granted to Grupo Argos for 392 billion pesos, which may obtain a reduction in rate by reporting its annual progress based on a fulfillment of previously defined goals in terms of gender equality and climate change. Moving to slide five, I'm going to elaborate in our digital platforms evolution. During the quarter, NECI and Bancolombia-Lavano continue to grow and maintain the positive trend experienced during the last year. Between the both, they reached 11 million clients, almost three times the amount reported at the beginning of 2020. But in addition to the number of clients, we want to highlight the high level of activity and the increase in transactions and deposits. The activity indicator for Neki is 59% and 40% for Bancolombia a la mano. With Bancolombia's QR code, more than 1 trillion pesos have already been digitalized in more than 700,000 merchants. And deposits between the two platforms reach almost 1 trillion pesos. We are adding clients at a fast pace. They are using our platforms and not only for transactional purposes, but also for saving. All these elements are giving us accurate information that will permit us to know them better and introduce them to the credit business. Moving to slide six, you can see some relevant figures of NECI and Bancolombia a la mano. These two platforms complement each other by targeting diverse niche markets. NECI targets young people and Bancolombia La Mano, the base of the population. While NECI is stronger in payments and recharges, Bancolombia La Mano is stronger in payrolls and subsidies. Both are showing a positive trend in their fee income and in the number of processed transactions. Neki cards are growing fast. We have tripled the number reported 12 months ago. For Bancolombia La Mano, we estimate that for every peso we invest in the platform, we have a social impact of eight pesos. In slide seven, we present our ESG framework. For 2021, we plan to allocate $30 trillion through financial services to strengthen the country's economy. The construction of sustainable cities and financial inclusion. And for 2030, we have the goal to increase this amount to $500 trillion. We also plan to avoid 9.3 million tons of carbon dioxide. and run our direct operations with 100% renewable energy. Finally, I want to highlight that this year we have disbursed 2.2 trillion pesos in special credit lines for women and 1.9 trillion in special lines for the agricultural sector. Now, I want to turn the presentation to Jose Humberto Acosta. Jose?

Thank you, Juan Carlos. Now turning to slide seven, I want to walk you through the evolution of the relief program. Credit reliefs continue to decrease during the first quarter of the year, reaching 10% of the consolidated loan book. It is important to highlight that this 10% includes structural solutions that we are giving to our clients in Colombia, Panama, and El Salvador. In Colombia, 5.6% of total loans are still under relief. Almost all of these reliefs are under PATH program. Considering the geographies where the bank operates, our focus is Panama. The relief program will apply at least until June. In Banismo, we kept 35% of the total loan book under relief. You can notice a better trend when compared with the last year figures. because despite the reliefs were extended, these are not mandatory as they were last year. Besides that, clients need to prove that they were affected by the pandemic in order to apply for them. In slide eight, we present the breakdown of provisions during the quarter. Provision charges for the first quarter were 1.3 trillion pesos. As we did in previous quarters, to explain the breakdown. Provisions associated to the update of macro scenarios on COVID-19 account for 66% of the quarter charges. We want to highlight that in this quarter, there is an important difference with the previous ones. As the expectations for macro variables are better for this year, the main drivers of these provisions are the structural solutions in Colombia and El Salvador reliefs in Panama, and the deterioration of the loan book quality related to the impact of COVID-19. Recently, better risk-rated clients have started to request more reliefs, which implies higher provision expenses. Moving to slide nine, we give you a snapshot of the composition by the stages and their coverage. During the quarter, there was an important increase in stage two while Stage 3 remained relatively stable. The increase in Stage 2 was explained by a change in the profile of clients applying to reliefs and structural solutions. As the pandemic has continued, better-rated clients have asked for support and were moved to Stage 2. At the right side of the slide, you can observe the total balance in Stage 2 and 3. and the percentage covered by the allowances. This shows that depending on how the pandemic and the economic recovery evolves, there is still space for provision charges in upcoming quarters. In slide 10, we present provision charges and allowances. Cost of risk for the quarter was 2.6% and for the last four months was 3.7%. Cost of risk without COVID-19 effect was 0.9 for the quarter and 1.7% for the last 12 months. As a result of our provisioning models, the level of allowances have remained high as the proportion of total loan portfolio. This is a sign of the strength of our balance sheet, protecting it in an environment that is still uncertain. For the first quarter of 2021, allowances for loan losses represented 8.1% of total loans, coming from 5.7% one year ago. Although the performance of provision charges for the quarter showed the lowest level since the pandemic began, it is still too early to confirm that that will, the trend, continue throughout the year. Levels of uncertainty are still high. The recovery will depend on the evolution of the COVID-19 and the vaccination plan. And the real impact in our clients is not visible while they are under relief. We are expecting to close this year with a cost of risk within the 3% area. Slide 11 shows the past due loan formation coverage. New past due loans during the quarter decreased. because of higher charge-offs. The increase in charge-offs is explained by the retail clients that became 90 days past due in the second half of last year, and during this quarter were written off, and also were impacted by a corporate client. This increase in charge-offs impacted non-performing loans, describing the reduction when compared with the previous quarter. Non-performing loans will continue rising in line with the end of the credit reliefs We expect these metrics to reach their highest during the second half of 2021. The consumer segment represents the highest deterioration. Remember that when a client requests a relief, an increase in the provision takes place, but the client is still performing. That's why we expect non-performing loans to increase as reliefs end. but not necessarily the same effect for provision charges as we have already incurred in the expenses. The coverage ratio increased to 222%, but should start decreasing as credit reliefs end. Moving to slide 12, we want to present you the assets and loans breakdown. The year started with a slow dynamic in the loan book. It grew 3% when compared with the fourth quarter of 2020, mainly explained by the depreciation of Colombian pesos versus U.S. dollars. We are expecting the loan growth to grow faster in the second half of the year. You can see in the bottom left of the slide that the main driver of the loan growth behavior over the last year is the FX volatility. I want to highlight that the loans represent 77% of total assets. And that is in this quarter, the duration of the loan portfolio has increased. This is a good sign that reflects that despite the slow pace of growth, our clients are starting to have a better perspective of the near future. On slide 13, we present the consolidated and standalone capital adequacy. Consolidated total solvency ratio stands at 14.8%, while CET1 at 11.2% level. under full VASA 3 for the first quarter, well above the minimum regulatory requirements. These levels place the bank in the high range of our assurances target. As you can observe, the standalone operation also present levels above the minimum requirements of each geography. On slide 14, we present the liquidity position of the bank. In a consolidated basis, we are expecting liquidity levels to maintain at least for the first half of this year and a stable interest rate at least until the third quarter of this year. We continue reducing the funding cost, basically because clients have shifted their balance in time deposits to savings accounts due to the low rates. On slide 15, we present a snapshot of our standalone operations. In general terms, the trend throughout the different geographies operated by Pancolombia was similar. Margins under pressure, fees recovering as economies started to reactivate, slightly growth of the loan book, positive evolution of proficiency, and a solid position in terms of capital and liquidity. I want to give you a quick overview of each of the Central American countries which we operate. Let's start with BAM in Guatemala. This quarter, the pace of the disbursement in corporate segment was positive. The forecast of macro variables has improved, and this combined with the fact that Guatemala was of the least impacted countries in the region during the pandemic has a positive impact in approbation charges for the GEO. Banco Agricole in El Salvador, it's one of our most profitable operations. It had a good performance over the first quarter with positive operational metrics. We are expecting a better performance of margins as we continue reducing the funding cost and control levels of cost of risk due to a better performance of our clients. Finally, vanismo. Panama is one of the most impacted countries in the region by the pandemic. Although we still have 35% of the loan on the relief, The recovery is material when compared with the fourth quarter of 2020. Since February, the business performance has been showing a better trend. It is important to highlight that Banismo deposits and loan books are growing more than the system, gaining market share. On slide 16, we see the evolution of margins and net interest income. After closing 2020 under pressure, Net interest margin returned to the 5% area that we are expecting. As we mentioned, margins will continue under pressure this year because of the low interest rates, impacts of the relief programs, and increase of bucket-three clients with the end of credit reliefs. Net interest income shows a better performance as we continue reducing funding costs and increasing the duration of the loan portfolios. Slide 17 shows the evolution of expenses and efficiency. We continue with our focus in cost control. During the first quarter of the year, the bank showed a contraction in operating expenses of 8% when compared with the first quarter of 2020. Personal expenses were down 11% and administrative expenses down 5% when compared with the same quarter of last year. Even though these are positive results, We expect a real growth of expense for this year. The two main drivers of this growth will be investments in digital transformation to keep the bank competitive and to support our 20 million clients. And also in 2021, we are expected to have better results, which will mean the return of our employees' compensation plan. Slide 17 shows the evolution of fees. Net fees continue to be one of the most resilient lines of the P&L. In the first half of the quarter, fees were impacted by the lockdown measures, but quickly recovered once the restrictions finished. The high correlation between the think and the transaction levels continues, which is reflecting the volume of fees from debit and credit card transactions. We expect fees to grow at around 5% for this year. Finally, slide number 18 shows the profitability metrics. Net income for the quarter was 543 billion pesos, up 62% when compared with the first quarter of 2020. This is mainly explained by lower provision charges and lower operational expenses. As we have mentioned over the conference, uncertainty is still high, and it is too early to affirm that this trend is going to be maintained in the upcoming quarters. Now, I want to turn the presentation to Juan Carlos for the closing remarks.