Banco ABC Brasil S.A. (ABCB4) Earnings Call Transcript & Summary

[Interpreted] Good morning, everyone. Welcome to conference call for results for the second quarter of 2026 for Banco ABC Brasil. I'm Ricardo Moura, Director of Investors Relationship, Proprietary M&A, and we are broadcasting from our new headquarters. This change reflects the growth of the bank and our ambition to keep on growing with our clients. Today, we have the highlights of results and the analysis made by Sergio Lulia. Right after that, our traditional Q&A session. All content we will present is available at our website for Investor Relationship. Sergio, welcome.

[Interpreted] Thank you, Moura. Let's start with the highlights of the second quarter of 2026. The net profit was BRL 257 million, representing an ROAE of 14.3%. The financial margin was BRL 659 million, representing a growth of 9.1% in 12 months. The other highlight is the credit portfolio. The total growth of the portfolio was 8.3% in 12 months and in the middle segment, specifically, a growth of 28.7%, a very solid growth based on collateral investments and the capital base, the last highlight, the Basel ratio of 16.2% with a Tier 1 capital of 13.7%. Those 2 numbers are impacted with the approved increase of capital approved by the Central Bank, and we have a second one that will add 0.3% in the second half as soon as the process is concluded. The expanded credit portfolio was a major highlight, 8.3% of growth in 12 months and the segments that performed the best, corporate and middle. Corporate grew at 11.1%, above 2 digits and Middle, as I've mentioned, grew 28.7% and reaching for the first time, BRL 5 billion. Middle represents 9% of our portfolio, corporate 63%; and large corporate, 27%, almost 28% Here, we bring the graph that we have shown before that shows the revenue with clients with high consumption of capital and low consumption of capital. The idea here is to show that we have consolidated the level of at least half coming from high capital and half coming from products that use little capital. And this is very important for the bank. This is how we show that the bank is becoming more and more important in the life of customers. Here is a set of products that vary from one semester to the other, one quarter to the other, depending on the seasonality of the bank, depending on the customer appetite. So we have those 50%, and this is a very healthy level. Now the net interest margin, reaching BRL 659 million in the second quarter, a growth of 9.1% compared to 1 year ago and the growth of 1.8% compared to the previous quarter. Here, a good performance of both business line of the bank. There are margin with clients. And also we see the comparison quarter-by-quarter. Margin with clients from BRL 713 million to BRL 761 million and margin with market, BRL 154 million to BRL 213. The CDI-based returns grew a little bit less because there is a reduction performed by the Central Bank. NIM finishes the quarter in 4.1%, the same level we had for the first quarter of the year. When compared to the previous year, there is a growth of 20 basis points. So it goes from 3.9% to 4.1%. Keeping in mind that here, there is a seasonality. So if you compare the levels presented in the third and fourth quarter of the previous year, those are higher levels, and we expect this to happen along this year. So we have a recovery during the second half of 2026. So revenue with services, this was a warm half year. So the investment bank, we have a recovery in relation to the first quarter. However, in a level below the potential and our expectation. The market was weaker as a whole for investment banking. And we see a second half with a better optimistic in relation to the elections, and we believe that all conditions will allow us to recover this number in the second half. The insurance brokerage fee and commercial banking, we had this increase, BRL 33.6 million. And here, it will increase with the bank portfolio and a higher penetration in our client base. And the revenue from guarantees issued pretty constant, a small variation. When we compare semester by semester, we have a picture similar to that. So the revenue from -- revenues from guarantees issued, the revenue from insurance brokerage fees and commercial banking, pretty constant and a reduction in investment banking, as I've explained, we will try to recover that in the second half of 2026. As a whole, service revenues represent more than 21% of the total revenue with clients. Here, we talk about credit quality. We start with the revenue from provisions. The expenditures from provisions, it reduced from 0.8% to 0.6%, and it relates to the credit recoveries we had that was above the historical average. If it wasn't for that, the 0.8% would have been capped in relation to the previous quarter. In relation to the balance from provisions, we have this continues a growth of -- from 6.6% to 6.9%. The bank as a whole in a similar level, 2.3% to 2.2% in corporate also a small increase from 1.6% to 1.7%. And the CIB segment, there is a reduction of 1.2% to 0.6% as a consequence of some cases of credits that were 100% provisioned, we performed the write-off in the second quarter. So they leave the clients leave from the base, and that's why we have this number here. In the operations with overdue for more than 90 years. They represent 0.6% and this varies just a little in relation to previous quarters. There is a growth in the middle and an increase in provisions that we saw in the previous slide and other segments, a very similar and constant level. A little bit in relation to the quality of the credit portfolio. Here, we classify by Stage 1, 2 and 3 in this quarter, specifically, the greatest change is a sensitive drop of those classified with Stage 0.5 percentage points from 4.1% to 3.6%. On the other hand, we have an increase of 0.1% in the Stage 3 operations that go from 2.8% to 2.9%. Stage 2 plus Stage 2 and 3 added, they reduced their participation in the bank portfolio. They were 6.9% and now 6.5%. In relation to the coverage ratio, the coverage ratio had a reduction in relation to the previous quarter, but in a very comfortable level from 377%. When we see here the provisions over Stage 3, there is a reduction from 82% to 76%, explained by a similar reason from the previous slide, in which the write-off of some clients and they were 100% provisioned is replaced by the entrance of new clients in a lower provision ratio less than 100%, and they have a collateralization level that is somehow high. We are very comfortable with this coverage. We are very comfortable with the quality of the credit portfolio of the bank, we have been always well provisioned. And we see the second half of 2026 with a certain stability, even some optimism. The expenses here in this quarter, there was an increase that is quite specific. If we look the expenses of the second quarter of 2026 in relation to the second quarter of 2025, they grew 13.9% if we consider from the first half of 2026 and the first half of 2026 11.8%. Specific reasons here. For the variable compensation, there was a difference is the effect of valuing the bank shares compared to a year ago. And as most compensation is based on shares, when the share prices go up, it impacts here mainly in the first quarter, the second, not much. In relation to administrative expenses, we have 2 things that won't repeat. The first one, as Moura mentioned in our opening, we have a new headquarter and during the second quarter, we had to live with the cost of keeping 2 headquarters and then moving from the -- to our new headquarters and some technology changes that we sped up and brought that to the first half of the year that will be compensated in the second half of 2026. Despite the fact that the expenditures are growing in 11.8%, we will follow the guidance that was presented to the investors in the beginning of the year, 4% to 8% in the consolidated year. revenues grew 8.2%. It is a proper growth for revenues comparing semester by semester. And we expect that in the second half, we will have a positive seasonality and they will behave well as we expect. The consequence of those 2 numbers, expenditures growing 11.8% and revenues, 8.2% is that the efficiency level is around 42% above our expectation, above our guidance, but we restate the guidance and with this expectation of having expenditures more constant in the second half and the revenues always increasing, this efficiency level will go according to the guidance that was provided. In relation to funding, it has always been a strong point here. It reaches almost BRL 60 billion and with a healthy distribution. 33% of funding come from institutional investors. We have individuals, 18.2%, a very good level even as a wholesale bank, we have a good entrance of high clients. And here, wholesale represents 11.4% and the BNDES on lending, 8.6% the equity of the bank, 12%; trade finance around 5%; and multilateral agencies, 11%. So it was very comfortable, very adequate with good terms, competitive prices, and that brings a lot of security to us to continue with our activities as we have been doing. Showing here the capital level, the Basel ratio goes from 15.9% and reaches 16.2%. Here, besides the normal impact of capital consumption due to the IO and others, we have the capitalization of dividends that was approved by the Central Bank last April, and it added 0.5 percentage points. And it's a new process of capitalization that is underway. And when finished, it's going to add 0.3 percentage points. Basel ratio, pretty comfortable 16.2%, 13.7% from middle level Tier 1 and 2.4% Tier 2 and our total Basel rate, 16.2% -- the net profit comes to BRL 257 million, an increase of 5.4% in relation to BRL 244 million from the previous year. The business lines are all fine. We have revenues with clients with BRL 14.6 million, revenues with the markets, 37.8% and later, small drops due to increase in provisions. The service revenues a little bit lower in the Investment Bank and BRL 21 million below extra for personnel expenditures as we have discussed previously. Those were the data we had to share. And keeping in mind that we are broadcasting our conference from our new headquarters that is bigger, more modern way more beautiful that will bring comfort to our collaborators and also perfect when we receive clients. And I invite you to come visit us. And just for you to see a glimpse of how it is, here's a video that we will show before Q&A. Thank you. [Presentation]

[Interpreted] Thank you, Sergio, for the presentation. Now our Q&A session and to follow, we count with the presence of our CFO, Sergio Borejo. Welcome, Borejo.

[Interpreted] Thank you Ricardo. Good morning Sergio. Good morning everyone. It's a great pleasure to be here in our call of results.

[Interpreted] [Operator Instructions] Well, feel comfortable to ask questions. And we are available to answer questions that may come about our session. Let's start with Ricardo Buchpiguel from BTG.

[Interpreted] I have 2 on my side. Today, we are talking about asset quality and investors are comparing with 2015, 2016, mainly because of the macro scenario. But the financial system has changed. The capital market has a more important role in funding major companies, and it depends less from public banks. So I would like to understand -- how you see this comparison to 2015 and today? And how do you see the risk of the capital markets to close in case we see a stronger deterioration in the macro system due to the overview and the relevance in the market? Second question, usually in the third quarter, there is a positive seasonality when increasing spread with clients, and we have observed that. But when we compare to previous years, it's a little bit more retracted. So have you felt any pressure from the spreads? And according to the macro uncertainties, how do you do that to maintain all the numbers in a harder cycle?

[Interpreted] To start with the first one about the credit cycle, quality of the credit portfolio. I believe this is a different moment from the one we had in 2015 because at that time, besides a macroeconomic moment that was more difficult, there was Lava Jato that affected in a way or another companies that were major companies. And if it wasn't due to that corruption scandal, they would be healthy today. And then I believe there was a cascade effect. Those were relevant companies in many sectors and the fact that they overwent problems due to Lava Jato, there was a spillover to other sectors. Currently, we see a situation that from the macroeconomic scenario requires some attention. So we see the level of debt, not only in the public sector, but also families. Economy that is slowing down despite all the fiscal actions done by the government. So probably, if we remove those, the economy would be flat. We have some challenges just like in grain farmers. And we require care, but in my opinion, way smaller or way less care than we had in 2015. In our specific case, we have a healthy portfolio. Of course, we have some middle companies that are undergoing some legal problems and you follow them, you follow the evolution. Those -- they suffered with the interest, they didn't perform well, and that's why they underwent legal reorganization. The capital markets is still helping us. It brings liquidity to companies and the capital markets today has a diversity that helps a lot. So we don't have a capital market just for high-grade companies. We have today assets that are specialized in all types of risks from good names, high volumes, long terms and even smaller with larger restructuring, collateralization level. And this is very welcome to help banks to fund the needs of Brazilian companies. In the second quarter, at the end of the second and beginning of -- we had an interruption of issuance, not due to lack of appetite from investors, but a disagreement in relation to the prices between the issuers and the investors. So the prices were very low, historically speaking. We considered low with low yield, and we converted that from March, April on. And then the issuers at first, they refuse to change the prices. And now I believe this is becoming normal. But in the correct price, we have appetite and we have the market for good names. We start the second half of 2026 with a type of operations that is quite reasonable. It's not very strong, but quite reasonable, pretty similar to what we saw in the second half of 2025. There will be elections. Of course, we have external uncertainties as always. But if we wait, as I say, to have a very calm moment in Brazil, well, we'll have to wait for a long time probably. And today, the expectation is a second half with higher activity, just like we've seen in previous years.

[Interpreted] Second question related to the spread and the growth?

Yes. The spreads, they reacted a little bit, but not much. And in my interpretation, for a bank like ours that has a market share that is niched, I think it's a matter of being more selective with clients, things that other banks are also doing. So in a profile of clients with a better credit quality, spreads grew marginally. If we get the corporate sector, then the spreads went up, but we have companies that are in a more delicate credit situation. In our case, we are starting with 8% in 12 months. The guidance we gave was 6% to 10%. So it's according to the guidance. The second half is usually stronger, a good dynamic in the middle. And we equipped ourselves along the years, and we have said that to investors in relation to operations with receivables. So checking receivables, monitoring executing when necessary in a way that the middle growth has been based on this type of transaction. So there is an expectation for the second half for growth opportunities similar to what we have been showing and also a certain maintenance of spread, at least that's our best expectations for today. Ricardo, did we answer your question?

[Interpreted] Yes.

[Interpreted] Now our next question, Eric Ito from Bradesco.

[Interpreted] It shows the growth of the bank. Two questions. First, thinking about a follow-up from Ricardo's question. Lulia, you've mentioned that in the second half, you expect NIM to recover following what we had last year. And I want to understand the size. If we could divide your NIM, maybe the PL -- CDI, but you also have the mix that helps us with the spread and the fees or revenue with low capital consumption. Could you explain what you see for the second half with the NIM recovery? And what about the provision? My second question. Considering that it was a little bit lower in the first quarter due to credit recovery and you're probably going to a low level as before? Or are we going to keep the BRL 40 million of the first half and your cost of risk what can we think about the dynamics? You have a mix that will grow more in the middle, as Ricardo mentioned, a little bit more challenging, but you have guarantee from your portfolio. Just to understand what we can think about cost of risk for the future and the NIM dynamics to summarize both questions.

[Interpreted] I will start. Ricardo and Borejo will help me later. NIM usually has a positive seasonality. One of the factors that may happen is that the growth was stronger in May and June. So you start with an accrual of revenues that are a little bit stronger besides what will be higher than the second half of 2026. And that's a 6-month period that is historically prone to operations that include derivatives, fees and so on. This year, due to the external volatility and the elections, maybe it's going to be more active. In relation to credit risk, I believe that the scenario is quite stable. The recoveries in the second quarter were higher than usually, and they were concentrated in 2 names, 3 names, and that's how business work. We have recoveries that come from middle companies, and they are more constant, BRL 2 million, BRL 3 million, BRL 5 million and so on. We have some that are corporate or large corporate, and they present a higher concentration in the second quarter, 2 cases. And it's reasonable to look at the dynamic for provisioning as well as recovery in a longer period because then we can dilute that a little bit. And if we check a longer period, our provisions fluctuated free from recovery 0.6%, up to 0.8%, 0.9%. And I think it won't go different from that. If you have that bad or fluctuating around those numbers, it's okay, and we expect that to happen in the next quarters.

[Interpreted] Yes, that's it, Sergio, about the provision, what you've mentioned in those levels in light of what we've seen today. The only thing I would like to add here in relation to margin, the contribution of margin is that more and more payment products, they are contributing to the revenue. So it's an important part that has been growing slowly, but it's growing month by month. And that probably contribute to the margin in the second half.

[Interpreted] Now our next question, Gustavo [indiscernible].

I have 2 questions. First, about the core. Sergio mentioned. But if I look at the Tier 3 Stage 3 coverage, it has been following with certain consistency. There was a small drop in this quarter. And how should I consider that ahead? Will it be similar to what we have today? And what is the coverage level that you consider comfortable to operate? Second, quick follow-up with the restructured [ balance ]. And we saw a large corporate. So I would like to understand in relation to there was any expected restructuring?

[Interpreted] Well, Gustavo, I will start. Ricardo will add. We are very comfortable with our expected credit. And this provisioning, we know how provision works. The coverage ratio is a consequence name by name made by the bank. In the last 2 quarters, specifically, what happened, and this is connected to your second question, okay? We had some exposures from the past from the large corporate segment, and they were 100% provisioned. And there is a moment in which you write off. So every time you perform a write-off and you remove an operation that is 100% provisioned, of course, you remove the same amount from the account. And if these new operations come and those that come as a Tier 3, they have a number below 100%. And usually, that's the case because out of the operations of Tier 3, some of them that has a level of collateralization that is a little bit high. And the new operations, they are very well considered. So Borejo, you may correct me, but our Stage 3, we have some operations that are overdue for more than 90 days. That is 20%. So this coverage ratio will go down. And it doesn't mean that the portfolio is less protected. It's just accounting aspects. Operations, 100% provision. So the risk was calculated, and there was a credit left and with a lower recovery probability, and we have new operations with the characteristics.

[Interpreted] And also with structured operations, right?