Banco Del Bajio Shs Of Bk

Good morning and welcome to Banco del Bajio's third quarter 2025 results conference call. My name is Leonor and I will be your coordinator today. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. Before we begin the call today, I would like to remind you that forward-looking statements made during today's conference call do not account for future economic circumstances, industry conditions, company performance, and financial results. These statements are subject to a number of risks and uncertainties. Please note that this video conference is being recorded. Joining us today from Bambajio are Mr. Carlos de la Cerda, Executive Vice Chairman of the Board of Directors. Mr. Edgardo del Rincón, Chief Executive Officer. Mr. Joaquin Dominguez, Chief Financial Officer. And Mr. Rodrigo Marimon, Investor Relations Officer. They will be available to answer your questions during the Q&A session. For opening remarks and introductions, I would now like to turn the call over to Mr. Rodrigo Marimon. Mr. Marimon, you may now begin.

Good morning, everyone, and welcome to Banco del Bajio's conference call to discuss our third quarter 2025 results. Today, we will review our quarterly performance and discuss the strategic evolution of our key financial trends. The industry information cited throughout this presentation is based on CNBP's data as of August, representing the most recent publicly available information. Without any further ado, let's start with the presentation. Let's start on slide three with a brief look at our key financial highlights for the quarter. Our total loan portfolio expanded 5.4% year over year, fueled by the 7.7% growth in our company loan portfolio. This growth was supported by total deposits, which grew 13.7% year over year, showing a sequential growth of 4.3% in the quarter. Regarding asset quality, our non-performing loan ratio stood at 1.97%, with our coverage ratio at 1.16 times. Our cost of risk stood at 109 basis points. Turning to profitability, we reported a quarterly net income of 2.3 billion pesos, to an ROE of 19.7%. our net interest margin was 5.9% and the efficiency ratio stood at 39.5%. Looking at the nine-month period in 2035, the ROE was 19.9%, the net interest margin was 6.1%, and the efficiency ratio at 38.6%. Our capital position remains strong. the preliminary capitalization ratio reached 15.9%, an increase of 136 basis points from the second quarter 2025. This increase was partially the result of our decision to no longer apply our internal methodologies for portfolio reserves and capital requirements for the SME and company portfolio. This decision increased our capital ratio by 82 basis points. Moving to slide 4, we highlight the success of our digital transformation strategy, and the evolution of the number of transactions processed through BambaGeo's channels. The charts on this slide illustrate the structural shift we have executed in client transactions. Today, digital channels are by far our most important transactional channel, leading to a decrease in absolute brand transactions compared to five years ago, when they were still dominant. The chart below shows a similar evolution for the transacted amounts at these channels. We have achieved a compound growth rate of 24% in transacted amounts over the last five years. Within that period, volumes processed through Bajionet have increased by a multiple of 3.7 times, while branch volumes grew only 1.5 times. Transacted amounts through BajioNet now accounts for 82% of all transacted amounts, up significantly from 64% in the third quarter of 2020. The increasing volume and transacted value processed through our digital channels demonstrate an effective strategy that has led to higher client engagement in BanBajio. This is evident when you consider that transaction volume growth has outpaced the 6% CAGR in our active clients over the last five years. This evolution is a supportive driver of our sustained growth in our deposit base and the structural growth of our non-interest income. Our digital channels related income grew at a sound 18.2% CAGR over the past five years. Moving to slide 5, we continue to observe good growth trends for our company and consumer loan portfolios. Company loans grew 7.7% and consumer loans 13.1% year-over-year. Overall, the total loan portfolio reached 268 billion pesos, a 5.4% increase compared to the third quarter of 2024. Our total loan growth was achieved despite the contractions observed in government, financial institutions, and mortgage portfolio. It is worth mentioning that during this quarter, we have successfully continued our strategic relocation of our portfolio, supporting higher yielding low classes with better margins. Simultaneously, our total deposits reached 274 billion pesos, which represents a 13.7% increase year-over-year. We will detail these growth trends in our Funding Structure section on slide 8. On slide 6, we detail the evolution of our consumer portfolio, excluding auto loans. This portfolio reached 7.2 billion pesos, with growth rising to 13.6% year-over-year compared to the third quarter of 2024. As we have emphasized in previous quarters, we view this segment of consumer loans as a strategic high-yield asset that is critical to our efforts to diversify our income generation and our overall business. We have managed to achieve this expansion with asset quality that outperforms the industry standards. As shown in the charts, this is reflected in our NPLs ratio across the board. with payroll loans at 2.26%, credit cards at 2.98%, and personal loans at 2.31%. Turning now to slide 7, we will examine our asset quality trends. Our headline NPL stands at 1.97%, while the NPL adjusted ratio stood at 2.51%. Most importantly, both ratios continue to compare favorably against the industry average. As shown in the bottom right chart, our cost of risk was 109 basis points for the quarter. We expect the cost of risk will converge to more normalized levels over the next two to three quarters. Our coverage ratio remains strong at 1.16 times. Furthermore, we will continue to hold $681 million in additional reserves on our balance sheet, mostly created during the pandemic. In line with our decision to cease applying our internal methodology for additional reserves and to fully transition to the standard regulatory methodology, we plan to absorb these reserves over the next nine months. Moving on to slide 8, our total funding reached 324 billion pesos, reporting a 10.6% increase year-over-year. Within the funding mix, our demand deposit base reported an increase of 20.5% year-over-year, and our overall client deposit base remains stable relative to the institutional funding. Within our funding structure, we have observed a trend over the last two years, with clients that are gradually migrating to interest-bearing demand deposits away from zero-cost accounts, a shift that has gained relevance in the mix. The funding mix now comprises zero-cost demand deposits at 17%, interest-bearing demand deposits at 26%, time deposits at 41%, and institutional funding at 14%. On slide 9, we observed the evolution of interest margins. The net interest margin for the third quarter was 5.9%, a year-over-year decrease of 110 basis points. This reduction was primarily due to the sensitivity to rates, which accounted for 62 basis points of the reduction, while 48 basis points were driven by the negative impact on the asset liability mix. Our current exempted sensibility to rates, considering the current mix of assets and liabilities, stands at around 20.4 basis points of net interest margin per every 100 basis point change in the benchmark rate. We estimate this would represent a full year impact of around 730 million pesos on revenues and 460 million on net income. You will see the performance of Banbajillo's revenues on slide 10. Please note that we are excluding non-strategic asset sales from the third quarter and the nine-month period of 2024 to provide a clear pro forma comparison. Total adjusted revenues decreased by 2.8% compared to the third quarter of 2024, which reflects an aforementioned impact of the reduction in interest rates. Consequently, our financial margin contracted 9.0%. However, our strategy is paying off in non-interest income, which grew strongly by 50% pro forma year over year. Our adjusted net fees plus commission and trading income grew a robust 22.7% in the third quarter. We continue to make important progress in key fee-generating businesses. Bank assurance grew 36.9%. Inter-exchange fees grew 5.9%. POS fees grew 13.4%, while BajioNet-related fees grew 37.3%. The reported total non-interest income growth was boosted by 156 million sale of a written-off portfolio in the quarter. We can see the evolution of our efficiency ratio on slide 11. It came in at 39.5% for the third quarter of 2025. Banbajio's efficiency ratio stands strong against the industry levels. In this third quarter, expenses grew 9.6% year-over-year, consistent with a 9.1% year-over-year growth in September year-to-date, and in line with our guidance. We continue to prioritize our efforts to bring down expense growth, and it is one of our priorities for this year. However, the Bank continues to invest strategically in key initiatives, such as branch openings and some upgrades to our infrastructure. Slide 12 presents the evolution of the profitability metrics of Ban Bajio. As shown in the charts, the quarterly ROE was 19.7% and the quarterly ROA stood at 2.4%. On per share basis, the third quarter earnings per share stood at 1.91 pesos, which represents an annualized earnings yield of 17.1%, computed with the average stock price for the third quarter. Moving to slide 13, the preliminary capitalization ratio as of September 2025 was 15.89%. entirely composed of core equity Tier 1 capital. Around 60% of the 136 basis points increased in our capitalization ratio from the previous quarter was attributed to the aforementioned methodological adjustments applied to our portfolios, and the remaining 40% was a result of our sound earnings generation capacity. Finally, on slide 14, we are pleased to announce that the Board of Directors has approved a proposal to the Ordinary General Shareholders Meeting for an extraordinary cash dividend payment equal to 10% of 2024 net income, which is equivalent to 0.9 pesos per share. This distribution, combined with the previous payouts throughout the year, would result in a total payout ratio for 2025 of 60% of last year's net income, with the proposed payment date set for December 3rd, 2025. The total of the three dividend payments will represent 5.39 pesos per share, equivalent to a dividend yield of approximately 12.2% calculated using the most recent share price. We'll continue to closely monitor the evolution of the drivers for the fourth quarter, and we feel comfortable in our ability to deliver on the guidance that we have provided to the market. With this, I conclude my presentation, and we can open the call to the Q&A session.

We will now conduct the Q&A session. If you would like to ask a question, please press the Raise Your Hand button located at the bottom of your screen. If you are connected via telephone, please dial star 9. We remind you that all lines have been placed on mute. When it is your turn to ask a question, you will be given permission to speak. You will then be able to unmute yourself and ask your question. Our first question comes from the line of Ernesto Gabilondo. Please state your company name and ask your question.