Banco ABC Brasil S.A. ($ABCB4)

Good morning, everyone. Welcome to the earnings conference call of the first quarter of 2026 of Banco ABC. I'm Ricardo Moura, the M&A Proprietary and Investor Relationship Director. We are going to have the highlights and the analysis made by our CEO, Sergio Lulia, and then our Q&A session. So all the content is available at our website. Sergio, good morning, please.

Thank you, Moura. Good morning, everyone. So let's start the earnings conference call of our first quarter. We will start with our highlights. The net profit of BRL 230 million, an increase of 2% in relation to the same period in 2025. The ROAE of 13.5%. Here, we always have the first quarter that is a little bit smoother, but also impacted by credit provisions that are a little bit higher than is the -- what we had. Our net interest income was BRL 648 million. It increases 14% in relation to the first quarter of the previous year, with growth in all components as we are going to see. And the NIM of 4.1%, that is once again is above 4%, always a reduction in relation to the last quarter of the previous year due to seasonality, but an increase in relation to the same period in the previous year. The credit quality has high numbers, 447% of total expected credit loss with overdue of more than 90 days and the total expected credit loss Stage 3, around 82%. The credit portfolio grew 6.3% in 12 months. And if we remove the exchange variation, this would be 7.7%. It's within our guidance that is from 6% to 10%. And I highlight the middle segment, 24.5% of growth in the year base. The middle was growing in the last quarters. But this is a sign of the trust we have of growing in a stronger way in this segment, increasing its importance and the representativeness in our results in a close future. When we talk to the segments I've mentioned [indiscernible] the total portfolio grew the expanded credit portfolio, large corporate, 9 corporates, the most traditional segment and the most relevant one also, grew a little bit less, and this is due to the situation that is not a trend, this growth will return in the next quarter. And the middle, as I've mentioned, grew 24.5% of the yearly growth. It's a very important portfolio and spread across all the portfolio. Here in the quarter, there was a reduction of 0.6%. That can be due to the exchange rate because it is a portfolio FX linked with a growth of 6.3%. The revenue with clients reached BRL 462 million, a reduction in relation to the previous quarter because it was -- it's always the strongest one. But when compared to the 443% of the first quarter of 2025, we have growth. Another important highlight that we always bring to you is the participation of revenues that have little or no use of capital. It's increasing. And in this quarter, specifically, for the first time, it reached 50%. And the net interest income, there is an increase of 14.3% in relation to the first quarter of the previous year and a reduction of 9.2% in relation to the last quarter. And this is pretty common. If we compare annually, there is a growth in all lines. So financial margin with clients from BRL 341 million to BRL 374 million. The financial margin with the client, 83 and it reaches 104, and the shareholders' equity remunerated by CTI rate it reaches 140. [indiscernible] I've mentioned, there is an uptake, a recovery. And we have the seasonality here, but you can see that it is above the NIM in the same period on the previous year. The service revenue here organized in all 3 major components we have on the bottom guarantees issued. This is the most stable component. And it varies little quarter-to-quarter, and it brings stability to the results. The insurance brokage fee and commercial banking is intermediate, good quarter if we compare to last year, of course, lower than the last quarter. And we have good perspectives here. And there was an activity that was a little bit lower in relation to the investment banking. Well, that's not the correct definition. There was a good activity of the investment banking in relation to the number of transactions, the volume of transactions, but if we get not only with ABC, but the entire market, we have 2 moments January and February, the market had a low historical ratio accrued appetite of investors and March specifically, there was a repricing of the market and a reduction in the appetite of investors and some operations that we coordinate with AAA clients, they have prices readjusted with a market-to-market effect that reduced this revenue, this profitability in the quarter. We don't see that as something structural, but it's a specific moment of this quarter. Credit quality, the level of provisions in relation to the expanded portfolio was 0.8%, a little bit below from last quarter. And you can see BRL 130 million, a little bit below the last quarter, but in comparison to the first quarter of 2025, you can see it was 0.5% and now 0.9%, 0.8%. We have a forward-looking methodology in which we see the perspective and the impact in portfolio. And of course, Brazil is leaving a macroeconomic scenario with high interest rates, and we always consider that it's important to protect our credit portfolio. And maybe the expectations of 0.8% will continue in the next quarters. In relation to the expected credit loss, it varies 2.3, 2.1, 2.4. All segments really well provisioned and with little variation from one quarter to the other. Overdue for more than 90 days, they have a good behavior 0.5 of our portfolio is overdue for more than 90 years -- 90 days, sorry. If we compare, it was 1%. And once again, the behavior is pretty proper of all business segments. The Stage 2 and Stage 4 operations. Here, once again, we have the bank methodology that take us to have a more careful poster moments in which we see a macroeconomic scenario, it is a little bit harder. There is a growth in Stage 3 operations, there are a little bit more discrete, 2.6 to 2.8 and a higher growth of the number of clients that we consider Stage 3. The portfolio went from 3.4 to 4.1. And the portfolio has a good coverage ratio for 147%, the provisions over overdue for more than 90 days, we have 82%, a little bit below than the previous quarter, and that relates to clients coming and going with the collaterals and characteristics that are different in our portfolio. Our expenses and efficiency level. expenses, they grew 9.8%. And in this quarter, a reduction of 3.6%, this yearly growth relates to profit sharing. And you know that part of our compensation is based on shares, so whenever she has had a variation, this line is impacted. But if we consider structural expenses, personnel and administrative expenses, they are below 4% per year. Revenues, they grew 10.3%, compared to the year and in the quarter, a reduction of 12%. And that takes us to an efficiency ratio of 41.9%, a little bit above the guidance established by the bank, that doesn't concern us. We are going to comply with the guidance for the next quarters. In relation to funding evolution, this is a strength of the bank. Funding is very important pretty spread across the portfolio. It has good deadlines. The distribution of investor profile is quite proper to the activities we perform. Here, we have the historical evolution, and it reaches at the end of the first quarter of 2026. [indiscernible] this could be even higher if the case may be. Now we are talking about the capital level it's pretty comfortable. We finished the quarter with a Basel ratio of 15.9% compared to 16.3% that we had in the fourth quarter of 2025. And here, this 15.9% does not include the funding over our own interest that was approved by the Central Bank last April and that may cause an increase in 0.57%. Here, we see the history. So we saw [indiscernible] and then we are in the level of 11.4%, and that brings us a good capital buffer to grow faster whenever we consider it's the moment to do so. And here, the recurring net income compared year to year. So we went from BRL 20 million, BRL 25 million in the first quarter of last year and positive contribution, as we can see with margin with clients, margin with markets, and we had the CDI rate we had also the provisions, BRL 44 million above the first quarter of the previous year. BRL 4 less in the service lines as we saw an impact in the Investment Bank impact and the rest small variations reaching BRL 230 million. Well, that's what we had to share with you now. And now I would like to invite you all for our Q&A session. Thank you very much.

Thank you, Sergio, for your presentation. And I would like to thank you all who are following the broadcast. And now we have Sergio Borejo our CFO, Welcome Sergio.

Thank you, Ricardo. Good morning.

Good morning, Sergio. Welcome, everyone who's online and watching us. It's a great pleasure to be here in this earnings conference call. So thank you, Borejo. [Operator Instructions] your hand. You can click on your Zoom bar, And we are available to answer questions, please. First question, we have Eric Ito from Bradesco. Eric, please.

And I would like to double-click the margin, thinking about the spread of clients. There is a small contraction in the 6-month period seasonality. So how do you see the dynamic at the end? And which are the perspectives for the year? Your expectation is a stronger growth in the middle. So it was 3.6%. So will that be the lowest level of the year, do see a recovery along the quarter. And then thinking about provision, you've mentioned that, that is 4.8% in the next quarter. And you said that there is an impact of clients coming and going. So could we expect this coverage of 82% of stage 3 will return for [indiscernible]. I just want to understand the pride with clients, the adjusted spread. So thank you.

Well, Eric, thank you for your questions. And I will start answering and then Ricardo and Borgo can help me in the answer. So in relation to spreads, it was your first question. Let's say, the summary is that we have pretty stable spreads, but with differences among segments. So you have the middle that we see growing faster as you've seen. And we have health spreads, and we have a growth in portfolio that is more consistent and the middle growth will along the year have an impact. But the average spread of the bank portfolio will bring a higher participation. and the segments of larger companies considering recent cases, that the market has seen of overdue of larger groups we see that movement that we've seen before. So the banks are concentrated in clients that have good financial status, mainly in CIB, large corporate, a margin compression trend. So we see segment by segment, large corporate a small compression in corporate and middle spreads that are stable with a perspective not only spread but also growth with a growth that is a little bit higher in the middle market segment. In relation to coverage and provisions, you can see that we have, as I've mentioned, us and the market, let's learn how to work and compare ourselves in these resolution of [ 4966 ] resolution. We have Stage 3 pretty collateral with a small level of overdue for more than 90 years. But according to the methodology of the bank, the bank, we put the client in Stage 2 Stage 3. So the provision is pretty proper. But in relation to the coverage percentage, do you have the numbers for that? Well, here, Eric, First point, you have to understand the coverage percentage with the provision that is not allocated. So we have provisions that are allocated to specific clients, and we have an additional provision, BRL 190 million that by the time you do the math, it's interesting to take that into account, because we are not using this provision for Stage 1. We are going to use for Stage 3 and made Stage 2. But looking ahead, we saw an increase compared to the fourth quarter. But if there was an increase, now it would be smaller, but it depends on the macroeconomic status. We don't see lack of control in this coverage, but depending interest rate that is higher for longer, you may have a pressure. And what is important to mention, as Sergio mentioned, in Stage 3, we have cases that are well collateralized, that would make us to have a higher number than the historical margin. We can see this with some pressure, but with collaterals that are strong and an additional capital buffer with nonallocated provisions. I don't know if I've answered you.

Yes, you did. But in relation to the spread we may think that it can grow more along the year due to the middle growth, right? And the corporate and middle spread will be more favorable, right?

Yes, that's what [indiscernible] at this moment.

Now our next question is from Brian Flores from Citi.

Hello. Good morning for the opportunity. I would like to have a follow-up on Eric's question. A little bit in relation to the strategy. We see a tone that is more careful in relation to the peers that have reported this week. And I've seen that you restated the guidance and also the growth in the first quarter, especially in the middle market, it's pretty healthy. So what is making you feel comfortable with the guidance in general as well as in this segment in particular? And if you put, Lulea, you've mentioned that you are pretty happy because the trend is to improve. So besides the revenue that will be recovered because we have some lines that are more volatile like IB. So if you could share details which are the leverages that will -- that makes you comfortable with the improvement of efficiency from now on.

Well, Brian, So we try to have a strategy that, of course, as I've mentioned, it adapts to the macroeconomic moment. But we also understand that the market and us companies, we change opinion quickly. So if we get this year, for instance, the first 2 months of the year, we almost had this excitement with the capital -- external capital flow. The markets performing pretty well, interest rate cut that was going to be a little bit more accelerated than was expectations. Some of the analysts the reality would be even faster reductions than the ones we had. But then we had some issues, wars, and then the expectations to step back. Some groups have credit problems. Yes, they were pretty well monitored. But at the moment, outstanding amounts are a reality because impact. So we are more careful now. And we are not on one side, neither the other. We shouldn't be as excited as we were in January and February, but we shouldn't be pessimistic now. So we see a credit market that is still healthy. And the names, at least the major names that cost problems to the market, the capital market, they were pretty identified. So there was no company that had problems that were unexpected and that were not being followed by players. And we see the rest of the year aligned to what we were expecting when we established the guidance in last -- at the end of the year. Having said that, of course, we will navigate respecting the markets. In the middle market, as I've mentioned in Eric's answer, we see a condition of pricing deadline and guarantees be well established, and they are proper for an accelerated growth that we may have in the future. In other segments, we see how is this risk return ratio as long as returns are the ones we expect. So it's a year that is performing well in relation to treasury. After 2025, that was a little bit below what we have as a historical average. And in relation to the investment bank, we are leaving this moment of pessimism or high excitement. Well, from March to hear the market repriced negotiations, mainly high-grade ones with a high grade of companies. And so far, it's a little bit slower in the second half but it may reopen and we will be prepared. We'll be prepared to take advantage of that.

Now we are going for our next questions. Ricardo Buchpiguel from BTG Pactual.

have 2 questions here. You've mentioned that we are -- we have a macro certainty, but could you comment on the risk of more generalized credit problem in which the Selic rate is stable along the year. That's what we have seen in the curve. We have a group of companies that are facing some difficulties and that may accelerate some process for recovery. But we also have companies that are not so leveraged, but with this high Selic ratio, they will go up strongly, mainly if we don't have help from the market to fund. And my second question, as you've mentioned, we had a challenging scenario from March on with corporate cases and the spread was opening, and we see some recovers in some funds. And then we have elections a strong -- a difficult moment. So does it make sense to expect for a year that after a set of strong years will have a relevant cooling down along the year of 2026.

Thank you, Ricardo. Well, this matter of companies is probably a little bit of what we try to see when we have the growth as a percentage of our portfolio of Stage 2, Stage 3, this prospective vision. You see that our loss overdue for more than 90 days is 0.5%, inferior to what we had the previous year that was 1%. And we have in our analysis, considering this scenario of interest rates that are higher for longer. We, as a prevention, reclassified and increased the level of provisions, something that we have been doing for a couple of quarters. But that's a natural trend of the cycle. It's not something out of what we've shown in our financial reports. Probably that's in the same level. So we see our provisions in 0.5% to 1% of the expanded credit portfolio and seen this scenario, that's our expectation, at least in a shorter scenario. In relation well, no -- in relation to the capital market, by point of view is that this market has used the interest rate in the historical minimum levels. So you saw companies issuing in a level of 0.8%, 0.9%, 1%. What seems to be exaggeration due to fiscal benefit because they are exempt for individuals, but now we corrected that. So whenever there is a correction, that freezes the market until the players, the issuers and the investors realize where this will become stable. And the prices where they are stabilized is quite reasonable. It's not a price of crisis and the flows, well, they will continue. At the moment, you have the market to market as we saw affected us and affected the fundings. It shows a negative numbers, and we had some recover -- some recovers, and I can't show you the end of the year because we are always caught by surprise. But we need to be close to clients following who are the companies who have conditions to follow the market conditions. And whenever they become better, we will structure the operations to our clients.

Now we are going to our next question, Pedro Leduc from Itau Bank.

And when we have these expenditures in the previous years, you were quite fast in using this leverage to compensate in the top line that was below a certain portfolio, but it's a good reason to be careful. So I would like to start with this question. Do we have room for that this year to put that leverage? And the second question growth. You've mentioned the guarantees and everything, but the relevant portfolio. And we see some movement. So I would like to explore a little bit more about that.

Thank you, Pedro. In relation to expenses, the leverages are still there. It's a characteristic of our organization. If you get the growth of expenses with personnel and other operations, it's around 3.8, 3.9, it's below the PCA and a bank like ours in which we have a high cost with personnel, and we have all the readjustments required by the union and all the other expenses. In this quarter, we had an increase due to the increase in the share price. And then there is a market marking because part of the compensation is paid with sharing. And this variable also follows the performance of the institution, on the good side and on the bad side also, and that brings a great flexibility to all of us when managing the bank costs. In relation to agri business, well, Agri business is a broad name. So we have 23% of our portfolio. And out of those 23%, it includes the entire agri business, the industry of agribusiness as well as rural farmers. And then you have the industry of machinery, fertilizers, seeds you have sugar and alcohol the entire supply chain of animal protein. You have all the comparatives, mainly those in the south of the country. There are strong companies. They are important clients of the bank, and they have been for many years. And in agriculture, you have grain manufacturers, and they are going through a difficult time now. And also sugarcane, cotton farmers. So that's some markets that we believe Brazil is structurally competitive. So we have better cycles, worse cycles, but along the cycles, this is a segment that we want to be present, and we are going to grow because that's a segment that we believe Brazil has a high competitiveness. And on the short term, for [indiscernible] manufacturers in the center west, they have to be careful, careful and they have to have a profile with less leverage. They have to have 2 guarantees, and that's what we do. Of course, we have some outstanding amounts there as in any other segment, but we have a good perspective to grow with good margins and good guarantees.

Now our next question, Antonio Ruette from Bank of America.

I would like to focus on SMIs, so you always mention how much the interest rate is harmful to asset quality, mentioning the water level as an analogy for this type of company debt. So a high interest rate. My question has 2 sides. How do you evaluate the risk of asset quality for this segment in particular? And how do you follow the growth mainly considering the government line. So once again, we had a [indiscernible] for the segment, probably we have more funding? And how do you see these lines?

Thank you, Antonio. It's how you've mentioned it's a segment in which companies are more exposed to interest rate. The interest rate is high, you have to be careful. And as possible, you have to fund the operational flow of the company. So if you have guarantees of receivables, it can be receivables from credit cards. You ask well, it can be real state that it's a good guarantee that is more and more common nowadays. And you need to understand on the other side, companies that are exposed to interest rates, but the entrepreneurs, they know it's their reality. So at the end of the day, there is a natural selection happening. And only those who are able to navigate in such scenario are the ones who survive. Our participation in this segment is very small. Even with this growth of 24% that we had from 1 year to the other, We still have more than BRL 5 million, close to BRL 5 million. And when you look to the market, it's little and we still have this condition of having good choices. Avoiding -- increasing the presence in good clients. And different from other cycles, this is a cycle we grew our portfolio in middle market without increasing the number of clients because there was a certain turnover of clients. And we reduced the exposure or we [indiscernible] clients that we saw they had some adverse status, and we became more important and more present in clients, we realize that they are navigating well in such scenario. And that's a continuous perspective. We are going to continue to do that along the years and the government lines, they are a good support for such companies. mainly the deadlines they offer, it's a good condition more appropriated to such company than the market lines. Did we answer you, Antonio? I think you are on mute.

Yes. Perfect. Thank you very much.

Now to our next question, Carlos Gomez-Lopez from HSBC.

I would like to ask about the investment banking revenue that is quite small in this quarter. What are the perspectives in general? So the service revenue. And the second part of the credits, I -- could you identify the sector, please?

I didn't understand the second question.

Stage 3 credit, if you could talk a little bit about that.

So the investment banking revenue -- it depends on the market behavior as a whole. So if we separate in 2 worlds, the high-grade and the high-yield world, what we see is a moment in which the high-grade went back due to the reasons I've mentioned a while ago, there was a repricing of the market that came from the minimum -- the historical minimum rates that something that became more reasonable. And once the market finds this balance of pricing, the issues will come back. In relation to the investment bank for high yield, it is a market that is quite active. In the last years, the Brazilian market has developed itself became more sophisticated. And today, you have in instrument diversity. So you have security instruments, funding, FDIC or all the receivables of things that are quite diverse. We have the project finance market. Those are markets that were way too small in Brazil. And today, exists. And even in more harder moments, they are still active, and that's the case now. So it's difficult to bring a perspective for the year. But it's a market I believe that will be present and will continue to help Brazilian companies. In relation to Stage 3, there's no sectorial concentration it's named by name that we work, companies that we see perspective, that is a little bit more complicated, more fragile. We can increase the level of collaterals, but I don't see any sectorial concentration.

Well, we finish our Q&A session. Thank you very much, everyone, for your participation. And we are reaching the end of our earning conference call broadcast for the first quarter of 2026. [indiscernible] any final considerations.

Well, thank you for the opportunity and we will see each other soon.

Thank you, everyone, for your presence, and see you in our next earnings conference call for the second quarter. So we close our conference call for the first quarter of 2026. It's been a pleasure, and the presentation is available at our website of Investors relationship, and the video will be on our YouTube and we'll also have the audio version in spot 5. Any questions, we are available to serve you. Thank you very much, and see you soon.