Banco BMG S.A. (BMGB4.SA) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to Bmg Bank's Earnings Conference Call for Q3 of 2025. I'm Danilo Herculano, and I'm responsible for IR, M&A, and Institutional Distributions area. Joining us today are Felix Cardamone, CEO as well as VP, Flavio Neto, and João Consiglio. Please note that this video conference is being recorded and will be made available on our Investor Relations website. [Operator Instructions] The earnings material in both Portuguese and English are already available for download on our website in the Results Center section. Before we continue, I would like to point out that any forward-looking statements made during the video conference related to the bank's business outlook should be treated as projections. Investors and analysts should understand that general conditions, industry conditions, and other operational factors may affect the bank's future results and may lead to results that differ from those expressed in such forward-looking statements. I would like to turn it over now to Felix that will begin the presentation. Please, Felix, you may begin.

Well, good morning to everyone. I think all of you that are following our presentation, if we could go to our first slide, please. I would like to start. Well, I would like to initiate strengthening the consistency of our result deliveries. The ROAE was 16.6% during Q3. This is a very significant figure, but I would like to underscore the accumulated ROAE that was around 14%. This demonstrates an interesting consistency. See if we compare it to the end of the year of 2024, where we ended with 10.7%. Now we're around 14% and 16.6% demonstrates the capacity that the bank has. And now we are working in order to achieve this figure. In a recurrent fashion, our profit compared to the same period last year grew 27%. And all of this reflects our execution discipline, the concern of creating a sound portfolio to build a technological platform in the bank that will allow us to grow significantly with flexibility, digitalization that is something that we have been conducting, and we will show this in the future. But mainly our team, our team that has strongly dedicated itself in order to build this bank and put our bank in a different level. So this result is a result of an effort of 2,000 employees that we have. Therefore, in the beginning, I would like to thank my marvelous team for everything that they're doing. Now going to our next slide. And when we see things in details, here, I would like to underscore the improvement of our asset quality. We were able to improve 0.8 percentage points in our Over90. Now the good balance between assets and liabilities. Therefore, we are working in a very conservative fashion when it comes to managing our liquidity. And as we committed ourselves in the beginning of the year. We are taking great strides to reduce the non-strategic assets like the purchase of the payroll portfolio of the United States, and this has dropped as we communicated to the market. And last but not least, our capital strengthening. We are ending at 13.1% are Basel, and there was an increase of capital of almost BRL 50 million, and this is practically a result of our shareholders' commitment in order to strengthen the bank's capital. And we want this strategic item that is stronger because we want a sustainable growth. Now when we go to our next slide, Slide #4. Well, here, you can see a number of very important indicators that we follow regarding the cycle of life of our customers. The bank has focused more on the customer centrality so that we can become a service reference and a reference for our target as a safe bank, as a welcoming bank. And here, there are a number of points that are worthwhile highlighting. One would be the reduction of the core product origination. This is a result of the macro scenario that we have been facing in the payroll market. The second point that is very important that would be to optimize our customer relationship. We increased 21% in the origination via self-contracting be through app through digital channels, or card. Our customer self-service themselves, getting loans purchasing because this shows greater engagement from our customer and a lower cost to serve. And last, the evolution of the net revenue per client that went from BRL 47.9 last year to BRL 50. This is a combination of a sounder mix of channels, more engaged customers, and the operational efficiency that we have been implementing the bank through a technological platform, which is more robust and more flexible. Now we go to our next slide, Slide #5. These are -- here, we have very relevant points for us. And it's important to highlight. This shows our diversification and once again, multichannel customer focus. First, we started in a very conservative fashion, as we mentioned during last quarter in the origination of the private payroll customer, we believe that this is a relevant portfolio with excellent potential, but we also know that this presents risk, and there is a learning curve, be it in pricing, credit modeling, industry options. So we have been growing during the last quarter, we will accelerate even more, but we have been growing in a conservative fashion, and we have been learning a lot through these customers. So this is one of our best for the future. Now the other business where we're growing a lot, it's the public payroll loan. Here, we have a market quota, which is below our quota. So we have space. This is a public that we know, that we master. So through new agreements, new approaches, new commercial approaches, the influence of our digital channel, we have been seeing good results with a growth of 43%, and we believe that these two portfolios are strategic portfolios that present more margins. And this way, we will be able to grow increasing our revenue. As I mentioned during our past slide, our origination in digital channels increased 54% and our network or help stores that at the end of the quarter, they had -- we had increased by 82 stores in actual numbers, we have 99 stores. So I believe that by the end of the year, we will have around 100 stores and the interactions between the digital channels and our brick-and-mortar channels certainly will provide a much better experience to our customers, greater principality, and more business generation. So strategically, this is a very important pillar, and we have to focus on this pillar. Now speaking about efficiency, we continue with a high level of success in our civil lawsuits, which are at 74% of success. This is a matter that affects Bmg Bank, but it also affects the entire market by and large. But we are finding pathways in order to minimize this subject or the effects of this subject, which is something that concerns us. But I believe we're reaping good fruits. And one of the things that we have been doing is using AI to help us not only in matters regarding better management of share portfolio, but other initiatives that I will show them in details in the upcoming slides. The AI initiatives are always focused in improving the operational efficiency of the bank and our safety so that we can work in a preventive fashion. And another point going back to customers, Here, we have the cross-sell indicator product per customer. And here, we increased 13%. We went from 2.01% to 2.3%. So all of this because we have been reviewing the profile of products. And with this, our customers meet their needs in the bank, and they buy more products so we can better service them. When we go to Slide #6, something that I would like to underscore is that we are ending a very important effort that took around 2 years in order to have a technological platform focused on micro service, which is more stable through the efficiency using cloud. Therefore, we have been investing over BRL 250 million a year in our platform so that it is stable, it is flexible, it's scalable. And so that -- so within digitalization of operation, stability and systemic flexibility, we need important pillars like the digital transformation and database decisions, we are focusing because we want one only registry organizing the entire database of the bank so that we can use in the most efficient way the AI solutions so that we -- so we know how to launch new products. We know how to optimize sales process, so they become more efficient. And when -- and regarding a number of initiatives regarding GenAI, we have a copilot on WhatsApp with our customers, initiatives with insurance or ombudsman is improving the service. As I mentioned, in our legal size, 70% time reduction in defense production and also in technology within our development area, we have been capturing good results. So the combination of focus on the client, a technological platform that is modern, good data organization, the application of good solutions and everything together with a highly prepared, trained and engaged team is allowing us to obtain these excellent results. But in addition to this, what is even more important for the sustainability of the business is to increase our client satisfaction. And during the next slide, you will see important data regarding this point, which would be precisely this, our position consumidor.gov, procon, reclame aqui, customer satisfaction survey - ombudsman, macro panel that all banks follow and that we monitor. We monitor complaints, statements for our customers, and we use the day all these data to feedback our processes to improve our products, our services, our controls, always focused on our customer satisfaction. Our ambition is to be the best bank that services a public above 50. And we are pursuing this in an accurate way. And according to these indicators, everything shows us that we're on the right pathway. And now I will give the floor to Flavio so he can continue with the presentation.

So thank you, Felix. Good morning to everyone. So can we go to Slide #9, please. Now Slide #9, we're going to talk about our credit portfolio, and we have evolved according to what we expected. This means that we have been able to grow the most strategic and more interesting products as we diminish the products that present less revenue. So here, if we see our payroll products, we have been maintaining a constant growth of our payroll credit cards and payroll loan on the other side, we -- although origination during the last quarter, we sold -- we went to BRL 4.3 billion to BRL 3.7 billion. Now when we also see personal credit, which is an extremely interesting strategic portfolio with attractive revenue, we grew almost BRL 100 million. Now FGTS Advance, I believe that many of you followed this. This product went through a number of changes because of the product legislation, and this made the product a bit less attractive. The demand for the product dropped. And due to regulatory changes, this is -- there was a slowdown, but we started working with private payroll loans, but this is a product that we started operating with it during the past quarter, and this will gain more relevance between -- amongst our balance. Now regarding our -- here -- the most relevant here, we have the U.S. payroll. We're reducing this portfolio. This portfolio in the beginning of the year was above BRL 4 billion. And now it's around BRL 1.8 billion during the last quarter because of the runoff of the portfolio. So basically, this was a reduction because of the portfolio's runoff. Now our next slide, Slide 10. So here, we go Slide 10. Here, you see the quality of our credit portfolio, as you can see, these indicators are relatively stable. Our NPL Over90 is at 3.9%. I believe it's at one of the best levels during the past times. Also, coverage ratio is at a highly satisfactory level around 200% with a slight drop. And our Stage portfolio 3 had a slight high. It's at 6.4% Stage 3 according to the new resolution 466, and this is BRL 1.5 billion of provisions expenses net of recovery is at a low level around 4%. And this is mainly due to lower origination during the quarter because with 496, we create a more robust provision when we created the portfolio. Now our next slide, Slide #11. Here, you can see our retail insurance. Here, we are focused on providing protection with a public that is set aside by most of the insurance companies. And in terms of premiums sold or premiums issued by our insurance company in both, we presented a slight drop. Nonetheless, the main highlight is in the net income of the operation. We achieved the highest level in our history, together with Bmg Corretora and Insurance, the result was BRL 45 million. Here, we have shares of our partners. Now if we see Bmg shares in the result, nonetheless, we can see that we added BRL 38 million, and there is a punctual effect here. During this quarter, we approved the purchase of Bmg Insurance. We had a partner that had a relevant share. So we bought the share of our partner. Now we have 100% as this operation was closed during Q2. Nonetheless, it was only approved during Q3. Well, we captured during Q3 of the share of gain of all this period once the price was already prefixed. So this also demonstrates how relevant the insurance business is and reminding you that we are trying to offer products where the customers receive benefits in life like Bmg Med that offers medical appointments, online medical appointments and medications. And so with this, I will give the floor to João so he can continue with the presentation.

Thank you, Flavio. Good morning to everyone. Now speaking about our payroll products, INSS, mainly we have a ceiling rate, which is not adequate. We had to select the different publics, the ones that present less risks. Unfortunately, we cannot service all the publics that we would love to service with this product that would be payroll credit card or payroll products. This is a product that provides us profit when we believe that it is the entry of customers. Here, we've originated the same thing as during Q2, we had -- during the third quarter, we recovered the volumes that we did not make before. And we are working on operational efficiency that -- for customers that are needed, the credit portfolio presented a drop and it is within the levels that we imagine. Now for public payroll, we've increasing origination in its addressable market, and we will work more intensively with them. Now if we go to Page 13, please. We will talk about payroll credit card and benefit payroll card. Our participation in the market is relevant. We're one of the main players. This portfolio provides us excellent revenues, and we have been changing in an intense fashion the way we originate. This portfolio, almost more than 2/3 of our origination is done directly through our customer by self-hiring using the card. And with this, this approaches us more to our customer more efficiency with the product and more profitability in terms of operation. We have been encouraging more and more the use of this product as a means of payment to our customers. And with this, we've seen excellent results. In our payroll credit card, we have an excellent share. The benefit payroll card, we still had a lower share. I believe we're growing in an accelerated fashion with a growth of almost 19% a year in the benefit payroll card. And the credit portfolio of payroll credit cards and benefit payroll cards, this has been growing consistently. And I believe this is the main portfolio of the bank. Well, we still -- within payroll cards, there is an important share of public agreements, and we are reorganizing and reactivating a number of them because this is part of the new addressable market. Now if we go to Page #14. Well, here, our retail or individuals that are products that are not connected to INSS or public agreements, and we have grown with personal credit. This is a very profitable portfolio. And here, we have used the proximity with the customers and the interaction of our stores with digital origination in order to service our customers in their personal loan needs. Here, you can verify that the FGTS address is a portfolio that was commented by Flavio, and he said that we changed this product throughout this year. The profit of this product, it was stopped being as interesting as it was. And there was a major assignment during Q2 and a new assignment during Q3. And I believe that this portfolio will remain stable at lower levels and mainly will be replaced by the private payroll where we started operating very conservatively during Q3. And here, we saw a bit of origination during Q3. But if we see the future in October, our origination is higher than all the portfolio of Q3. Private payroll is a product that we believe a lot in. This is opening the way to an addressable market with registered labor customers that will have more products and needs met by the bank. And here, we do believe that this portfolio will increase in a significant way during the upcoming quarters. Now if we go to Page 15, Here, we're talking -- here, you can see our wholesale. Our wholesale accounts for 10% of our credit exposure. This is more or less the size that the credit exposure should have within the bank for these customers. Now nonetheless, we are very fortunate when it comes to the use of this exposure and the relationship that we have with these customers in order to produce non-credit revenues, be it derivatives, derivative structured operations, and operations carried out together with Araújo Fontes, our investee. This is a portfolio that is a lever for the non-credit revenues, and it's a highly profitable segment where we have been gaining highlight without increasing our exposure, our credit exposure. Here, during the last 9 months up till Q3, we participated in BRL 800 million offers in the capital market with 32 offers as a coordinator, advisory on 7 M&A operations, and 28 as leaders. This is an operation that we're growing, and I believe that this non-credit revenue will be very profitable for us. Now I would like to give it over -- hand it over to Danilo.

Thank you, João. Well, if we could go to Slide 17, please. Now we will talk about our financial margin during the quarter that was impacted by the spread compression, the limitation of the consigned ceiling and interest rates were the main factors. As Flavio mentioned, due to the reduction of credit portfolio that has changed this mix and to prioritize more sounder products. The sounder products, I would like to highlight on the right-hand side, it would be NIM after the cost of credit provision expenses and commissions. This margin increased 8% year-on-year, driven mainly by the improvement of the provision expenses and commission. This went from BRL 891 million, it went from BRL 881 million or 10.7% to 10.6%. The mix of portfolio has been very sound for the sustainable generation of results. And now on Slide 18. Now the bank continues working efficiently in terms of cost. This is deeply rooted within our management culture. So I wanted to present the cost to serve that encompasses all the personnel, administrative, operational costs and operations, although legally within the 9 months here, in addition, to cleaning our customer base, something that we do in a recurrent fashion. So during the quarter, and João presented, we had -- here, we had the assignment of the FGTS. Portfolio, the efficiency index was impacted by the drop of the payroll portfolio of the United States. We do not capture the provision expenses an asset, but we would lose it in provision expenses. And then this impacts the efficiency index. As you can see here, we have personnel, administrative and operational expenses were stable. And when we talk about net operating provision expenses, here, we have followed a challenging environment of the INSS. And despite of this, we continue with 74% of our success rate. Nonetheless, the provision expenses were impacted by a higher volume of these actions. Now when we go to Slide 19, it's interesting to see what the bank has done throughout the past 3 years. Since 2023, we had a new administration that has been implementing the growth of financial margin after the cost of credit and maintaining expenses at lower levels. So with this, we have a gain of scale sometimes from one quarter to another, you lose this -- you don't notice the evolution, but the bank is stronger and more profitable. Now on Slide 20, I would like to talk about liquidity. Here, we have the short-term we have net stable funding and the NSFR, which is a mid to long term above the regulatory requirement. Here, this is the accounting LM. When I see a payroll operation, it goes to the end of the deadline. And then we go to refinancing. And when we see our maturity flow, it's adequate for our management, for the generation. Another point that I would like to highlight here is broadening and proximity with institutional investors. We grew 40% when we compare this year-on-year, and this represents 38% of our total funding. This is according to the reduction of -- the reduction in the share of time deposits and the reduction in reference value subject to the FGC. And this has been dropping since 2023. Here, you can see the figures. The growth of the institutional investor, the reduction of the exposure to the reference value of the FGC shows us how the investor is assuming risks at the bank. Now when we go to Slide #21, I would like to point out capital points. Felix mentioned the improvement with the Basel index. We reached 13.1%. Our indicator went at 9.1%. The figures of Q3 don't see the capital increase that was homologated that was approved here. We've increased -- we achieved 100% of Level 1. That was 0.17 that is from October. Our main levers, internal capital generation, consumption of tax credit that precisely comes from the internal generation of capital, credit assignment, and interest on shareholders and equity recapitalization. And to end the presentation, I would like to go to Slide 22. Here, you can see for the first time during the video conference call, the evolution of BMGB quatro (sic) [ BMGB4 ] action. It is above the small cap index, the financial index, but it doesn't reflect the turnaround moment of the bank. The ROE is growing and high throughout the 9 months, it's around 13.6%. Here, we also give a dividend above the average of the banks. These are the medium-sized listed banks. And you have -- here we have 0.6% (sic) [ 0.6x ] compared to 1.5 and 1.8x the BV. So here, after the end of this presentation, we can start a Q&A session.