Banco BMG S.A. (BMGB4) Q4 FY2025 Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Banco BMG's Fourth Quarter of 2025 Earnings Conference Call. My name is Danilo Herculano, I'm responsible for IR, M&A and Institutional Distribution. Joining us today are Felix Cardamone, CEO; and our Vice Presidents, Flavio Neto and Joao Consiglio. Please note that this video conference is being recorded and will be made available on our Investor Relations website. [Operator Instructions] We remind you that the presentation materials in Portuguese and English are already available for download on our website under the Results Center section. Before proceeding, I would like to clarify that any statements made during this video conference call regarding the bank's business outlook should be treated as forward-looking statements. Investors and analysts should understand that general economic 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 now like to turn the floor over to Felix, so he begins the presentation. Felix, you do have the floor.

Well, good morning to everyone. Good morning. Thank you for participating in an additional video conference call, and I would like to start conveying our strategy on Page #2, our internal model is to have a more digital, close and profitable BMG. This is what drives the bank and drives our teams. And what we do want is to be closer to our customers. Our customers are the driving force from our bank. So here, I have some important points. It would be close attention to customer needs. We're strongly investing in database organizations so that we have data that can be properly captured and developing analysis tools. We also are training our team so that more and more we can meet the needs of our customers. And as a consequence, we will be able to offer products and services according to their needs. Now proven expertise, we would like to leverage our brand that is almost a centennial brand, an extremely traditional brand in the consignment market and the C and D class customers, so we can offer insurance investment credit products to our audience and this through our omnichannel model with over 900 Help stores that we have through an app that constantly is honed according to the needs and the profile of our public. We talk through what's happened. This is something that our customers prefer and totally integrated structure so that our customer is able to be serviced wherever they want, how they want and when they want. So this is a reality, and this is why public is so loyal. And with everything that we're doing, I believe that we have been able to broaden our addressable market that was restricted to 40 million, 50 million people, and now we have almost 100 million people. So this would be half of the Brazilian population. And all of this is possible through our tech platform that was developed in a scalable way, in a flexible way, also very stable and allows us to offer agility and also a low cost and low -- in terms of scale when we think about a retail bank. Now I would like to go to our next slide, and it would be Slide #3. Well, here, I will show you the evidence which shows the results that we're reaping from our strategy, we have almost 90% of satisfaction and service, which is an excellent evolution. We have been restless not only to analyze but to analyze and to tackle all the complaints regardless of the channels and the reasons. And we dropped by 32% our Bacen complaint rate, and we've received relevant awards throughout this period like the Consumidor Moderno Award for medium-sized banks and the Reclame Aqui Award in large operations. And this clearly demonstrates that we are in the right path, and there is a constant evolution so that we're not only closer to our customers, but we want to have more satisfied customers. And this reflects on our cross-sell index. So our products have evolved properly and the expansion of our help! stores, which helps us to be closer to our customers with the empathy with that eye-to-eye service, which many of the pensioners, retirees and our older customers value so much. But in addition to this, this also values and demonstrate the trust that our franchise network has on the Bmg Bank. So the partnership that we have with our franchisees is extremely valuable within our strategy. Now when we go to Slide #4. Well, we do believe that technology is the right path to improve the experience of our customers, and we need also operational efficiency. Our retail bank is a scale -- is a bank of scale. So we're always paying attention to everything that we're able to bring in terms of great scale and operational efficiency. And this has been demonstrated through our figures. But here, for instance, in our app, well, we've been investing strongly. We are amongst the top 5, top 4 with a grade of 5.7%, 5.7%, which is great. We launched the credit shopping. This is -- it's in-branch experience, and this has been extremely successful. I do believe that another point to highlight is the private consigned products. As we showed this, we started very conservative to understand the profile of the product. We want to hone the process so that it is perfect, and we accelerated a lot. So this product now is extremely important in our strategy. Another extremely relevant point would be self-contracting our customers using their cards, their apps, their ATM to self-service to obtain loans. And today, this accounts to 40% of share of origination. So there are 2 advantages. This provides comfort to a customer of self-service and the customer feels that they're doing something safe. They're inputting their own data, and they can totally control the entire process in a safe fashion. And this comes together with an extremely relevant investment in AI. We believe that our AI is extremely important. This will be able to help the bank a lot. And currently, our focus is on efficiency, safety and when it comes to monitoring our operations and highlight is the creation of Bmg Lab so that our employees can develop themselves so that they can test these tools. And this way, we will be able to provide solutions to all the areas of the bank, so we can use AI in the best way possible everywhere, and processes that are digitized. With this, we have more safety, better control and lower cost. So now we have 80% of our processes duly digitized. And as a consequence, on Slide #5, I am very proud in presenting that we ended the year with BRL 561 million in net profit and a return of 14.4%. So ROAE, this is emblematic because this has shown the bank's capacity, the team's capacity, how assertive we've been in our strategy because we've been consistent. And we are absolutely sure that we are building a bank that is perennial that will provide sustainable results. And here, we can see that this is an extremely positive trend. And to our shareholders, we are delivering a very significant result. And I'm absolutely sure that we will continue investing, and we are properly prepared to continue throughout this evolution. Now on my last slide, my last slide. Everything is possible if you have an engaged team, an encouraged team and incentivated teams and the incentives are aligned with the incentives of our shareholders. What is important? Now this was important to 2025, we created and we launched the partners program. Now we have 19 people that received this partners program. We extended this to 102 beneficiaries eligible for the Executive Board, senior leaderships and elected executive positions. Here, you have long-term incentives and bonus matching. So we'll incentivate our executives to put part of their short-term bonus and Bmg Bank will match this with shares. And this will be transformed in shares for the same amount. So with this, you can align the interests of the bank with the interest of our employees in addition to creating a program that can significantly retain our employees that make a difference and are elevating the bank to another level. We've improved our investment in training almost 60% because we are absolutely sure that our team has to be properly trained to service our customer to develop new products to be able to control things. The bank is made up of people. So we received a number of relevant awards. We ranked among the Top 3 best financial institutions to work for in second place and small-sized insurance company. These are awards that the bank had never received in the past. And with this, with life quality, in a good environment where everybody is -- where there's camaraderie, we're the only institution in Brazil that received the mental health seal. We believe that you cannot service properly your clients if your employees are not happy where they work. So we do value these indicators. And once again, I would like to thank all our employees because this figure is extremely interesting. And now I give the floor to Joao Consiglio.

Thank you, Felix. Now when we think about our customers, it is extremely important to highlight that the care and the service that we provide to our customers is important. The foundation of our strategy is care, transparency to our customers in what we offer them in order to meet their needs. In order to guarantee quality, in when we sell a product and to guarantee customer satisfaction, we have the formalization with video call for all INSS retirees and pensioners. And we've broadened the financial education program, and we are strengthening data protection policies even with our partners that work with us. And these actions have resulted in a significant improvement in the safety and the service of the customer. 2025 was a very challenging market, especially in the INSS market. There were important changes in the journey and the formalization. The market went through an extremely complicated moment with extremely tight margins. And in a certain way, the origination of consignation was impacted in the market by and large. Now regardless of this, we didn't only improve our share in a more difficult market, but we increased private payroll in other products with a more profitable mix with better revenue per customer. So here, we can see that the mix is changing and per product, and you will be able to see how this has worked out. So let's go to Page #9 now. Now the payroll products will basically payroll loan and INSS and Public. The focus on the quality of origination and the return on allocated capital allows us to pursue to originate something that we can -- we have carried out assignment strategy with multiple partners. This shows the quality of our origination, the quality of the brand and what our brand means to our customers. In addition to this, we have focused on the growth of our share in the public payroll loan where we have a lower share than our potential. So within this product, we have a stable portfolio where we regulate according to assignments and originations that take place throughout time. Now if we go to Page #10. Now the payroll credit cards and the benefit payroll card. These are products where we're leaders. And as leaders, we have incentivated the use -- the cards as a means of payment. And this strategy has been working in an interesting fashion. Our customers are using more and more our cards. The recurrence and the use in purchases has increased and the origination portfolio in purchases through our customers account for 71% of our total origination through cards. And with this, we have been growing soundly our portfolio, which is organic, recurrent and our card is a means of payment, and they participate in the day by day in the memory of our customers and the profile throughout of our customer, and it's part of their daily needs. Now in terms of individuals and retail, we increased in diversification and origination of portfolio. Now private payroll loan was done in a conservative fashion in a very careful way. So as we felt safer of the processes that were implemented by DATAPREV throughout the time. In the beginning, we observed in a conservative fashion; during Q3, we started operating; during the end of the quarter, origination in Q4 was stronger. And we can say that in January, our origination was higher than what we saw during the last quarter of 2025. So mainly, we have been working in a digital fashion, but we have performed in a broad way in all of our channels and in an extremely coordinated fashion. Now the result is that our portfolio is diversified, and we are pursuing a mix that is more profitable and gives more return to our capital. Now on Page 12. I will talk about insurance. Here, insurance and brokerage allows us to provide right products to our customers and giving protection that those that don't have protection, and these are the customers that come to Bmg. Now Bmg Med is a highlight that expanded access to health care and discounts and medication, strengthening the customer protection proposition. This is through telemedicine. I'm on Page 13. Now when we talk about the companies. Well, we've made a consistent progression in the credit portfolio and the diversification of revenue. The guarantee mix is extremely robust and diversified, dropping the risk and increasing the resilience of the portfolio that has provided good results. In addition to this, we are focusing a lot on the capital market, be it via Bmg or Araujo Fontes, our investee, strengthening the value proposition of our corporate customers. During Q4, we had a lower face value that is lower for wholesale products. But in 2025, we had over BRL 1 billion offers, and we participated in 44 offers as coordinators, 38 as leaders and adviser on 18 M&A operations. So now I hand it over to Flavio that will talk about assets and liabilities.

So thank you, Joao. Good morning to everyone. We will talk about the assets and liabilities of the bank, starting on Slide 15. And here, you can see the evolution of our assets throughout 2025, and we properly executed our strategy throughout the year. We spoke about the -- yes, we talked about the reduction of the payroll portfolio in the United States. As you can see, it is very insignificant within our portfolio now. And here, you can see the FGTS market shrunk. So with our actions, it's shrunk. On the other hand, we are growing in more profitable assets, especially with credit payroll loan. We also had -- here, we have the wholesale private payroll, and we have a better mix adjusted to the risk. Now on Slide 16, here, you can see with quality indicators that we have a sound portfolio. When we see the provisions expenses net of recovery, there was a slight growth throughout the last quarter, basically here explained by 3 factors. This is the growth of 2 portfolios here, the private payroll and personal credit at a lower level, but they have higher risk. So we need higher provisioning, but the main point fact -- the main factor is connected to the payroll credit card because of the assignment of benefits that impacted our default or NPL when we see a macro trend seen throughout '23, '24 and 2025, you can see that our expenses have been dropping. When we see other indicators, the coverage ratio is around 200%. This is due to the resolution 4,966, and we work with expected losses model. So any origination has an immediate provisioning. When we analyze an NPL over 90 and here, we are NPL Stage 3, we are at comfortable levels. And this is one of the lowest levels. And now it's going to 6%, and this is the lowest figure that we've seen throughout our series that is below BRL 1.4 billion. Now on Slide 17, here, you can see our funding base and our indicators are according to the minimum regulatory demands, our liquidity coverage ratio is at a high level of 627%, which is the LCR. The NSFR, the net stable funding ratio is at 127%, and we continue executing the same strategy that has been announced for some time. We constantly access the institutional market, which accounts for 38% of our funding base, and we have been a recurrent issuer. In the past years, we performed 15 public operations, be it these are financial bonds or securitization of our bank or a payroll card that is a highly accepted product, and this has been done recurrently being able to reduce the risk premium. And another point here would be the indicator called RGCR, which basically is an indicator of the FGC to limit funding of the banks. And before this, our strategy was to reduce the dependency on this type of funding. In 2022, this indicator was about 80%. And now this has dropped. Now it's at 48.2%. And we do believe that this is a sound level, a good level, and we will maintain ourselves at this level throughout 2026. And now on Slide 18. Well, here, you can see a portrayal of our capital indicators. We are also at very comfortable level of Basel Ratio, 13.2%. Now here, you can see a trend of growth. We have a capitalization program that is an open that will be achieved in March. Capital increase plan, we went up to BRL 214 million. Out of the BRL 214 million, around BRL 156 million that are committed that will be anchored by the controlling shareholders. And this capital increase will be important to mitigate the impact of the Resolution 4,966 that took place in January with an impact of BRL 174 million on the reference capital. With this capital base, we will only be able to sustain operational growth of our portfolio in 2026. We do understand that this operation provides more liquidity and this greater attractiveness of BMGB4. Now I'll hand it over to Danilo Herculano to continue the presentation.

Thank you, Flavio. Now when we go to Slide 20, I believe this has been mentioned when we talked about the change of the portfolio risks, eliminating risks. We would like to highlight that this process, well, this has impacted our revenues, and we've seen oscillation in the margin as we saw in the past quarters. But when you zoom out and we analyze this as a dynamic. The financial margin increased [ 8.8% ] throughout the year, BRL 3.4 billion. This shows that this comes from a more profitable mix and with better quality of assets. And when we go to Slide 21, the bank is maintaining discipline and cost management. The cost to serve marginally grows driven by the number of customers that went from 10.5 million to 10 million and total expenses increased only 1.3% and before a challenging situation of INSS, this caused more civil lawsuits. We saw the result in net operating provision expenses. This is what happened between 1 year and another. But these net operating provision expenses, well, they were stable, and this was extremely important because of the high rate of success of these lawsuits. Now when we go to Slide 22, here precisely, you can see a number of factors that show why we have this profitability, the gain of scale that allows us to increase margin more than expenses is strengthening the structural operational efficiency of the bank. And when we see Slide 23, here, you have the profit of the profitability. Here, we have recurring profit quarter-on-quarter with a consistent growth of ROAE that achieved 19% in Q4, the result of Q4 is benefited by the JCP benefit. It is benefited by fixed benefit due to the payment of the JCP of the last quarter. Now the yearly growth of ROAE that was 19% at the end of 2025 presents a trend of yearly growth. We have a strategy focused on our customers, quality of assets and financial discipline. And when we go to Slide 24, it is obvious that Bmg shares have been valued above Small Cap and Financial Index, but it doesn't reflect the turnaround moment with the bank. With the growth of ROE of 2025, we are close to the levels of medium-sized banks listed. Nonetheless, with a dividend yield above other banks and our price book to value is still lagging behind. And to end the presentation, I will hand it back to Felix for the key takeaways.

Thank you, Danilo. Now to our next page. And I would like to strengthen our strategy. Something that has been executed for the past years. Number one, the client at the center of our strategy. We believe that the bank is -- has to focus on customer satisfaction, and this is where we will be able to attain sustainable results. Number two, now growth with quality, the quality of our mix, the quality of our origination. So we are sound in what we do. We generally say in the bank and the market there are no shortcuts here. So we want to increase our portfolio. We want to have more customers, but within a sustainable structure. Here, we do have levers of growth that are extremely clear and this provides us a great opportunity. And as Joao mentioned, we started everything being very cautious, learning how to deal with this portfolio, also honing our models. Here, we can see that we have a major growth opportunity as well as public payroll that presents a great opportunity. So we have a lower share, lower than what we should have. But public payroll loan is very complex when it comes to implementing. So this is why we're working in a selective fashion in a conservative way. But clearly, if we put this as a lever, these are 2 products that will impact our bank and our mix positively without wavering the credit quality. Now the investment on our technology platform in 2025 was extremely important. We had relevant portfolios. Also systemic stability was high. We grew a lot. And this thanks to the rewriting of our code. We also changed most of our systems to the cloud and the use of AI now so that the bank is able to grow safely with efficiency. We always have people and the culture to serve our customers, the strategic pillar. And I believe according to all the awards that I've shown you, you can see all the investment that we performed and also an investment approved by a Board regarding to the incentives that we provide to our key personnel. And also we want a return on equity in a consistent fashion. So yes, we have been going through an evolution process. If we see our return over equity. It was 5-something; in 2024, we went to 10.7%; and now we're delivering 14.4% and this is for 2025. But clearly, we are preparing the bank to raise the bar even more. I would like to strengthen that I believe that an important point to highlight. The strategy is clear for all our employees. We invested in internal communication, transparency, and we're very diligent in execution. It is of utmost importance to bear in mind a clear strategy. Sometimes you have to choose, and we work with discipline so that we provide an impeccable discipline. Of course, there's a lot to do in the bank still. We are within a journey to deliver a bank in 2030 in the best way possible that this is when the bank will celebrate its centennial. But here, you can see that the evolution is clear. And to end, I would like to thank everyone that is following us here. But I would also like to thank the support that we received from our employees that are the ones that are responsible for delivering these results, our team, our franchisees from our help! stores, our banking correspondents, our almost 2,000 internal employees. And I would like to thank the Board for all the support that they've provided to the bank so that we continue successful throughout this trajectory. So I thank you all, and we are at your disposal to answer questions.

Thank you, Felix. So now we will initiate our Q&A session. [Operator Instructions] Here, we have Rafael Reis from Banco do Brasil. My question is regarding the operational results, significantly lower quarter-on-quarter and year-over-year. The expenses weren't so high. So can I assume that the new mix is less profitable because the credit cost affected the results. How do you see this from here on. Flavio, can you help us with the answer here?

Yes, absolutely. Sure. Thank you, Rafael, for your question. I would say no, although we can see throughout this quarter, something that affected us was the civil lawsuit provisions. What hurt us were 3 factors here. The main one was a review of payroll benefits. These reviews take place every now and then. And the other factors that affected was the growth of the private payroll loan and public payroll loan. So now we -- every time you increase this portfolio, well, this can impact the balance and especially the private payroll loan will grow. Part of this will repeat itself, but I believe that most of the impact that we saw in provisions, well, it's not a trend, it's just a -- it's a one-off.

Thank you, Flavio. And I was -- there's a question from Pedro Avila from Varos regarding the PDV. But I believe that you answered this question now because otherwise, we can deep dive on this matter. [indiscernible] Fernandez from Warren. Congratulations for your results. I have 3 questions. I am going to ask one by one. One, the conclusion of the purchase of the 40% remaining of Bmg Seguradora in 2025 strengthens the bancassurance that affects 20% of your customer base with the current cross-sell of 22.5 products per customer. What are the same levers to expand bancassurance in 2026? Do you believe that insurance will represent what percentage of the operational revenue of the bank?

Thank you for your question. Well, we do understand that the insurance is strategic for a retail bank. And as we eliminated some assets in the past years, well, we -- fortunately, we were able to conclude the assignment of the rest of the insurance company. Yes, it is a strategic asset for Bmg to have 100% of it, it makes sense not only because of insurance but also consolidation. Now our strategy for insurance is that are public from Class C and D and retirees, the insurance penetration is very low here. This is a reality. These customers are generally not protected. So what we've done with Bmg Med that we launched a couple of years ago. So they -- our customers have access to video Med. Sometimes these customers have to wait months before being attended by the public systems and through -- with BRL 50, they can receive a prescription and carry out a video call with the doctor, and they can -- this is for the diagnosis for them. And there's also drug store discounts, but there are also other opportunities. It could be life insurance, personal accident insurance, residential insurance. We have car insurance. We're talking about older cars. So what we're doing right now is we are re-outlining this mix so that we resegment the bank so we can understand where these customers are, what are their needs like. So where is it stronger? What is the size of the wallet that the customer is willing to pay to buy this insurance because we're not talking about high income here. But we present an advantage because we have an insurance, we have a brokerage house, our customers and our stores. So the cost to access the customer is low when we compare it to the market. This becomes a competitive advantage and the demand exists. So this is certain. We are certain that insurance will be extremely relevant within our results. But unfortunately, I wouldn't be able to quantify this for you. And in addition to this, when you work with insurance, this doesn't allocate capital. So this is a major investment in this sense. And throughout time, we will increase its relevance within our results.

Thank you, Felix. The second question here would be from Fernandes. Now with the other funding of financial letters, I would like to understand your strategy for 2026, '27. Do you want to buy back the emissions? What are your plans to reduce financial expenses? Our financial bonds mature in 2 years. So what we will start seeing by the end of 2026 is the maturity of subordinated financial bonds that presented a high premium risk, and we will go back to lower levels. So this is something that we're seeing not only in financial bonds in our liabilities, our securitization has lowered its risks. There are 8 securitizations of payroll card and also improving -- the financial bill is [ improving ], the risk -- premium risk is dropping, the quality of assets are improving, the profitability improving, and this will allow us to reduce this risk premium or the premium risk. And the last question from [ Dro ], we've seen an accelerated drop of the payroll card in the United States throughout the U.S. that went to over $300 million to $203 million. Was there an active selling of this portfolio?

To be accurate, we sold a bit more than $100 million during this quarter. This is why we see a significant drop. What remains is slightly above $200 million. The drop of this $200 million will be slower. We have no new scheduled sales. This portfolio will drop through time. I believe that in -- we have 2 years, so we will see a slower drop than what we've seen until today. And we will see this throughout 2026 and 2027.

Thank you, Flavio. The next question from Pedro Calixto from Calixto Capital. Congratulations for your results. What is -- what level of representativeness can we expect from the private payroll loan? Can you talk about the private payroll loan?

Here, we're excited with this new opportunity of private payroll loan. We started in a conservative fashion last year with good results. We already have seen a significant growth during the quarter in January. And we do believe that this origination will be around 30%, 35% when we think about origination, and this will be built throughout time. It will not be the main portfolio in 2026, but this is a customer that has a bigger wallet. And of course, we will carry out new operations only for our payroll customers.

Matheus Nascimento from Oby Capital. And there was another one from Pedro Calixto. In addition to this, what is the ROE level that you expect for 2026, although we don't have an official guidance, can you...

Well, we've seen an ROE evolution. We're reaching the cost of capital, which is extremely important in the fourth quarter. Danilo mentioned 19%. This was atypical to work -- it's atypical to work with this expectation. This also demonstrates the bank's potential. So what we're doing? Well, we want to evolve every year in return on equity until we reach levels that are the superior average level of the market. So we have been working in a disciplined fashion, but our ambition here is to be -- we want to highlight our actions with consistency. And of course, we will do everything to improve year after year.

The next question from Leomor Fontoura, individual investor. What is the strategy behind the increase of capital? Flavio, you mentioned a bit about this.

Yes. Thank you for your question. Well, it's the following. Since the Resolution 4,699 was enacted, we carried out an adjustment in 4 stages. One was January 2025, the second was '26, third and fourth in 2027 and 2028. Now this impact, each stage of this impact is of BRL 176 million on the bank, although we have an ever-growing result. We always -- we want a strategy to pay the most of interest on our own capital. We are also good payers in terms of dividends. So what we're doing actually, we guarantee a robust capital in the bank, which is sufficient to maintain the payment of dividends to neutralize the impact of 4,966 resolution and to bear the growth that we expect throughout the years with these products, but the private payroll loan will be the main driver of 2026.

And yes, Oby Capital, Matheus Nascimento, I would like to better understand the income tax and social contribution of this quarter that was important for the net revenue.

This was the JCP. Basically -- now here would be the rate is positive, and it is strange. But here, there are 2 factors that impact us. The first factor would be interest on our own capital during this quarter in addition to recurring interest over our own capital, there was an additional value to be able to maximize. So we didn't want to pay anything additional. So this reverted the rate, and we have the law of good. We used this, and this drives this effect. It would be these 2 things.

Thank you, Flavio. And we bring to our end now our Q&A session. We would like to thank all of you for your participation and our IR team is at your disposal, and we wish everyone an excellent day.