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

Welcome in another earnings conference call of BMG Bank. My name is Danilo Herculano, and joining me is Felix Cardamone, João Consiglio, and Flavio Guimarães. And together, we are going to conduct the earnings conference call for the second quarter of 2026. [Operator Instructions] I would like to invite Felix to start the presentation.

Welcome. Thank you, Danilo. Good morning, everyone. Today, we are beginning a new format of giving this presentation. It's always challenging. But I hope that you will all enjoy it because at least I like the result. We reached 15.2% of ROAE, R-O-A-E, in this half of the year, showing the positive evolution in the past 3 years. And one of the pillars on which we've been working is that we have a group which is closer to our clients. We want to bring digitalization and technology ever closer to our clients to meet not only the demands of our clients, but also to bring more efficiency. And lastly, to be more profitable because I believe this number shows that we are on the right track. Now moving on with our presentation. This is what I would like to share with you. We created the 2030 plan. What is it? 2030 is the year of the centenarian of the bank. And we developed this plan because we want to leverage the strengths of the bank. We have a long-lasting tradition in the market with underserved population, with products and services that clients like and they also recognize. And we also have an addressable market of more than 100 million people that can work with them. And this is very significant. We have lots of raw material to work with. On the other hand, we also have an omnichannel, which is very powerful. More than 1,000 help! stores and many electronic channels. And this can only be possible when we have a high-performing team to coordinate all the structure and a technological platform, which is modern, scalable that can support our growth by bringing more efficiency and low cost. And in the 2030 plan, we have an ambition, which is to deliver financial solutions so that we can live our old age very well. And this is what the public is looking for. It's life quality and financial health so that they can live well day in, day out. We have lots of narrations from our clients. But this is what is important to say. Not only do we want the public to live well in the old age, but we want -- we work with a lot of transparency with all of those clients. These are needy clients. Oftentimes, they are illiterate. And we have to be very careful. We have to be very cautious in whatever we do with them. We have to have lots of responsibility. I'm going to show you a video that we implemented as of 2023, when all the operations are recorded. What do I mean by that? The client will go to a store. He does the transactions. He signs all the contracts. And then he receives a link. And then with an independent area, the recording will be made. And then there is an artificial intelligence that will check to see if the transactions have been well made. Let me show you the video so that you can understand what I mean. At BMG, we confirm the contracted credit by a video call. This is a simple procedure, and it's very safe and secure and provides more transparency to the client and to the bank. After the contracting operation, the client would receive a link in order to check the proposal and do all the confirmations. And then following the apps' instructions, they identify the identity and a very quick video call to confirm the transaction. So you made one agreement of this amount to be paid in certain installments. And the installments will be discounted from your credit. Do you confirm that you had this credit contracted with BMG. It's so good, isn't it? And we make it a point to maintain it to all the transactions that we make. And we also have been collecting some other evidence. We received 91% of satisfaction in our services. And we maintain for a long time the seal, RA1000, showing that we are on the right track, and we are going to continue evolving to meet the needs of our clients. Another important point is the diversity of channels. We try to be ever more integrated. So today, we have about 1,000 help! stores, and they are established across the country. Last week, me and some other directors had the chance to go to Belem, Manaus, Macapá, Parintins, and we could see the characteristic of each public, each audience. So our intention is to offer physical channel to our clients to bring an app, which is specialized in the underserved population. And ever more, we have been developing this along this path and also WhatsApp, which is where everybody goes. Just to give you an example, which I thought to be very interesting. I just learned as I went to the North to visit, everybody has Starlink in the Northeastern part of Brazil, but they do not have cellphone. If I do not have WhatsApp, I cannot talk to them. So these are learnings that we have collected, me and my team, and we have been working on this in addition to the surveys and data analytics so that we can offer more products, the right products, using the right channel to the right client. And this is how we imagine we are going to grow ever more, and we're going to bring relationships, long-term relationships with our bank. In addition to the channels, we also have to think about the financial education of our audience. Today, we have products, which have the lowest rate in the market, which are the payroll loan product. And we work intensively to promote financial education, not only to our employees, but also to our clients. If the client has a financial education, which is basic, he will have more satisfaction, less default rates, and the client will be able to organize their personal life, which is good for the client and for the bank. Another point I would like to point out is the inclusion also in the area of assistance and insurance. We have Bmg Med, which is a product that offers the client with assistance, medical assistance where they can have medical appointments by using telemedicine. But the client would also save a lot of time because he needs to schedule an appointment at the basic universal system in Brazil, it will take time and maybe he will not get a prescription. We are trying to find ways to shorten this path so the medical service can be decent, and the health will be -- the client's health will be even better. This is only possible, thanks to a technology platform, which is very modern and that we have developed in the past few years. And I'm very proud to share with you some of the initiatives that we had related to artificial intelligence. As for legal analysis, all the part of registration, interpretations and defenses, we managed to increase by 98% our assertiveness. Another important example is the contract analysis, we automated by using agents and we reduced by 91% the time we took for doing the analysis. That means less time and less amounts and more assertiveness. Another important point is that 100% of our services are analyzed by using artificial intelligence that makes us able to correct products, we can improve trainings, and we can also recognize any errors that we made during those services, and we can make adjustments as soon as possible. As for system development, we have already been able to reduce by 65% the time we take to do all those activities. But we received AWS award, which was the infrastructure agent. What does it mean when we mean agent? We developed some agents that would identify all the problems that we have in the systems. And we -- they do the diagnosis. And within 15 minutes, they already implement a correction. So this case is something that we are going to present at AWS in Las Vegas in the next month. That shows that human warmth from the bank to provide good service to the population, there is a concern that this client should be ever more served. And we have a technology platform that would provide not only more efficiency, but a complete group of services, interaction of services, showing the market differentiator. And to end my part, I would like to say that this is a result of everything that we have been doing so far. The result does not come by chance. The result is a result of everything that we've been doing. So this is the 5.2% (sic) [ 15.2% ] of ROAE that I showed in the beginning of the presentation and the evolution on the second quarter of 2026, when we reached BRL 157 million of income and 15.5% of ROAE. So we are on the right path. We have been working consistently without any shortcuts in the market, which is very tough, but we have a very engaged team, as I said, with the correct strategy, with the ambition, with a clear vision, as I have already mentioned, and we are getting there. Now I would like to turn the call to João Consiglio, our VP, so that he can continue the presentation.

Thank you, Felix. It's a pleasure to be here with you. Once again, it's good to have this new format. It's always complex for us to work in the financial market. It's difficult to speak live to you. But this is something important for us. As we had this attention to change the format, we have this innovation with our clients with sales confirmations by using the video calls. We were one of the first one who had this initiative, and this is something we are very proud of. There's a number of other initiatives that I'm going to share with you to show how we welcome our clients, how transparent we are and how we provide services to our clients. When we look at this chart, it's important to review the journey that we have made so far in all our processes. This makes the clients' lives easier, it makes them more easy to understand and everything gets simpler. We have a new sales platform to all our consultants in all -- for all of those who have interactions with our clients. This platform has brought more effectiveness, more productivity and a better sale in terms of quality. And this is something that we have been observing, including in the video calls that we have been making. With all this, we had the privilege to be operating in the market, which is bigger, the addressable market. The public is a bit different since the bank started working with a private payroll loan. And this addressable market starts to bring clients who are younger and also more digitalized. The result of this effort has been a growth, a significant growth in the self-contracting journey. And we saw that we reached 49% of our sales by the client themselves. So they use the self-contracting system, and they understood everything that was being offered to the client and how they should get in touch with the bank by means of the WhatsApp or by the app itself. And we place the bank at another level following our purpose of being more digitalized every day and bring all this to our clients. When we talk about origination, our mix has been growing in new products and in new public. As we can observe here, the private payroll loan has been responsible for a very relevant growth in 2026. And this has been bringing better profitability per client, reaching BRL 56 per month with an increase of 13% when compared to the previous year. Now going into detail, when we look at the payroll product, as for the payroll loan, which is the entry point for our clients, it's the cheapest product that this client has access to. And this is where we bring more clients to the bank. In 2026, we can see that the origination has been quite significant. Unfortunately, due to journeys, changes and regulatory changes made by the Ministry of Providence led to a lower origination. Anyhow, this is the main way of providing for the needs of our clients, the retirees, especially. Now talking about the payroll card, it becomes very clear when we look at this chart that this is a product that clients have been using ever more on their daily purchases. So if we go into detail, 84% of our origination is made by purchase using credit cards, considering that the clients understood that this is a means of payment product, payment solutions, so they make purchases at the supermarkets, at the retailers, at drugstores, and 25% comes from digital purchases. And the public has been having this need of making digital purchases. And this is often the only credit card, which is available to our clients. And there's something I'd like to share with you. With the change of the brand and the introduction of Elo banner, we have been bringing a number of new benefits to our clients who use our credit cards. We have been offering discounts when they purchase gas. We are bringing credits and top-ups of cellphones and as well as discounted drug stores, et cetera. This is all offered to our clients. It's also important to point out that regulatory changes that happened in the second quarter prevented us from issuing new cards in the end of the quarter. And this is something we have been reviewing. And at a certain moment in time, we are going to resume the growth of our base again. When we talk about personal credit, this is the emergency credit we're talking about. This credit is used when the client needs something for a specific purpose. At that moment, in an emergency, and we are always paying attention to how we are going to bring this client to the cheaper products and products that the client would be able to afford. Now looking at our new public, the new product, the private payroll loan has been the element that has been growing the fastest in 2026. It has reached an origination of nearly BRL 200 million per month. The private payroll loan had to -- we had to exclude some publics from this product, and we are making adjustments to the offer. We are making adjustments to the way we work and the physical entries that we made in the second quarter is likely to grow -- to bring an important growth because we have almost 1,000 stores working on this new product. In addition to the stores, we also have all our partners for the origination that bring in new operations, and we have been working so that we can have high quality in the process and also bring new clients to the bank. Of course, with the new banner, Elo cards, and with everything that we have been doing, we will have a cross-sell potential, which is very significant with the public that is just coming in, in this new product -- with this new product. Now speaking a little bit about insurance. Our purpose is basically to offer protection, protection for those who do not have protection. And we have an important share in this market of Class C, D and E. And now our focus is on the access to telemedicine, life insurance and also financial protection to the worker together with the private payroll loan. In this process, we believe that telemedicine that is offered by the Bmg Med will be essential to provide access to anyone who didn't have a quick access to a medical appointment. Now talking about our corporate business, wholesale. We had a growth in our operations. So wholesale has been showing relevant results and very healthy results as well. And we see here that we are able to have a noncredit revenues, which is constant in spite of the difficulties that working with structured operations impose. And I finish my part here. I would call Flavio to talk about assets and liabilities.

Thank you, João. Good morning, everyone. It's a pleasure to be here in another earnings conference call of BMG. And we're going to start today talking about our assets and liabilities. Talking about assets, what have we been doing? We have been looking at reducing our dependence on INSS loan. And how have we been doing this? We have an origination, which is more contained and also portfolio assignment. And we have been trying to increase the origination of more profitable products, namely personal credit and private payroll loan. These are the products that they have the highest margins. That would make us more diversified balance sheet and more robust, more resilient, allowing us to grow the business in a very safe and sustainable way. And when we look at the portfolios, this is what we see. We saw that the portfolio in the second quarter of 2026 at a stable level of BRL 24.1 billion. But I would like to draw your attention to the 2 projects that we said we've been growing with, which is the private payroll loan and the personal credit. The 2 of them together already account for about 13% of portfolio against 6% that we had some time ago. So that shows that we have been able to execute this strategy in a very effective way. On the other hand, what happens with our NPL. We understand that the market has been facing a very challenging moment in time when it comes to the indebtedness of families. So it's the highest level ever reached for a long time in Brazil. And even so in spite of this high level of indebtedness of the families and considering the fact that we have products with higher expenses, but with higher profitability, we managed to reduce our provision expense of net recovery. But other indicators such as the NPL Over90 had a slight hike. NPL Stage 3 also showed an increase. But this is a reflection of the change in the mix of the portfolio of the bank. The bank has been working with safe portfolios. And as the share of those portfolios are decreased. And when we replace with more profitable portfolios, it's expected to have this kind of misalignment. So let's talk about the liabilities. When we look at those 2 indicators, in fact, they make us very proud of what we have been doing. And which are those? The liquidity coverage ratio, LCR, short term, higher than 400%, and net stable funding, which is also higher than 124%. So working with this level makes us very comfortable knowing that the bank is very far from facing any liquidity issue. As an evidence of what I said, we have our fundings. We have the maturities of securities. We can see that our securities are much -- are different from our liabilities, and we feel very comfortable with working with those numbers on a daily basis. So where are the fundings coming from? About BRL 34 billion is the total funding that we have. Out of this total, we have 36% that come from institutional clients. So the funding is of a high quality. So we are talking about different entities, which are looking at our numbers every quarter. So they are placing their orders in our issuances. We became a recurring issuer, both of financial bills and securitizations. And this gained relevance, which is very essential in our funding. Another important indicator that I would like to mention is the RGCR, which is how much of your funding is exposed to the FGC. Our indicator is close to 50%. And we understand that this indicator, if it reaches 60%, we'll still be comfortable so that we can access the platform at any time and the limit is very large, which has not been used. In terms of liquidity management, this also contributes to our comfort. Let's talk about capital management. In this quarter, we have been presenting a Basel rate of 13.3%, and a Tier of 10.1%. These are the highest level we have reached in the last quarters. And more important than everything is the fact that we also have many cards to put on the table so that we can manage the capital. What are those? Without any doubt, we are talking about internal capital generation. We have been able to generate strong results quarter-over-quarter, allowing us to grow our basis. In addition to that, we have net portfolios where we can work with assignment of credit. This quarter, for example, we had an assignment of payroll loans. We have the tax credit consumption and we have this, this makes us use ever more profitable assets in our balance sheet. And what we can also do is to recapitalize the interest on shareholders' equity as we've done before, so that we can always have a robust capital structure. Thank you very much. And I'll invite Danilo to continue the presentation.

Thank you, Flavio. Well, it's a pleasure to be here once again with you to continue the presentation about the financial part of the bank. So we are going to talk about the financial margin. We reached BRL 1.512 billion this quarter, a percentage of 19%. This was driven of the remix of assets as we have seen with Flavio. This has been propelled to the profitability of the bank. And the maintenance of provision expenses made our financial margin and after the cost credit would grow 6.2%, reaching BRL 905 million with a percentage of 11.1%. It's important to mention, again, when we look at this, the structure -- cost structure of the bank, the look for automation and better processes is fundamental for the bank to grow with efficiency. When we observe here the cost structure of the bank, we can see that there has been an annual growth higher than inflation. So the bank is growing efficiency. And we can see this in the percentage in the level of efficiency that reached 52.4% in the last quarter. moving towards our 50% that is according to our expectation. There is something that I would like to leave with you as a message. When Felix mentioned the video call, there is an important part in this. It's very relevant to operation and for the transparency. But there is a very important point to it, measure of operating provisions is related to the lawsuits that are filed against us. And when we observe the lawsuits that we received, which has a formalization via video calls, we have high levels of success in those lawsuits. So video calls are important for the transparency during the sale, but it also mitigates the expenses that impact our balance sheet. So the more origination that we have in the future, and the more the portfolio has this validation via video calls, we expect to have expenses which are much lower than those that you can see here. And how can we translate all this in the share -- depreciation of our shares. So this is a history track since January '23. So our shares appreciated at levels which are much higher than the financial level, especially when we look at the dividends that were paid. This is something for us to reflect. Our average profitability is very close to the average profitability of the mid-sized banks and listed banks. Our dividend yield is much higher than those banks. In spite of all this, our P/BV is still lower. I'd like to turn the floor to Felix for his final remarks. Felix, you have the floor.

So we came to the end of our presentation, and I hope you have enjoyed our new format but especially on the results that we presented. I would like to make the final remarks by first mentioning the issues related to our profitability, the financial resilience and the risk management, which is very balanced considering the tough market we've been facing. And I'm sure that we are always going to be working with consistency, and we are going to always be conservative. Another point that I would like to point out is the relevant change that we have been doing and the mix of our portfolios, accelerating the private payroll loans, being conservative at all times, wholesale has been performing well. So I think it's something nice that we are reaching a balance. There is a lot of room to evolve in other portfolios, insurance. But everything has been going according to the plan 2030. Growth comes with quality. So it's no use accelerating the speed if we are not sure that we are working with good quality. We are still developing new products. We have already offered some products. They are on the shelf, but we know that we can fill up all our shelves with more products to be offered to the public, and we know we have this room to grow and focus on the client. We had clear evidence that we have been searching for a simple, transparent experience. Omnichannel is something that we have explored a lot. And we have also modernized our technology platform. We have been investing a lot in the past few years, and we have already reaping the benefits of all those efforts. And the client is always the center of our strategy. Client is our biggest asset. Through a happy client, our profitability will grow. Once again, I would like to thank everyone for having attended our conference call. And now we are going to open the Q&A session. [Presentation]

Take care of people is to be present at all moments. I've been a client of BMG for a while now. Every time I come here, I'm welcome. I have a very good relationship with BMG. I really recommend it without a doubt. Sometimes I just come here to visit everyone here. Everybody is prepared. They provide confidence whatever they say, and you start to trust them. So there's a lot of credibility involved. So BMG always try to simplify and they always try to help us in the most practical way. The team at the store is very well prepared, and they always satisfy the client. The service is quick. I always leave the floor very happy. I thank everyone who work at BMG Bank.

We are now going to start our Q&A session. To start with, we have the first question, Pedro Leduc with Itau BBA. Could you mention the perspective of the private payroll portfolio? João, could you help us with the answer?

Yes, a pleasure. This private payroll loan portfolio has been growing at a very accelerated pace. In the beginning, we had some questions about the operating procedures, if everything would work. But we can see that everything has been improving quite a bit. And we started using this product with a lot of confidence. Obviously, there are many changes going on in the operational dimension, every day in the modeling aspect, and we have been evolving a lot. And we are confident that we are going to place this product and this new public as an important part of our mix in the portfolio and public, where we'll be able to make other operations with the same public.

The other question comes from [ Jean Vicente ]. In spite of the increase of the income, operating result dropped in comparison to the half of last year. Flavio, could you help us with this answer?

Thank you, [ Jean Vicente ] for the question. Okay, here we go. When we look at the operating result and compared with 6 months ago, the main factor that dropped the result is the cost of credit, less profitable, and we have been looking at private payroll loan. And this has more profitability even after the expenses. So this is the dynamic that we have been using since last year. So there is an expected loss that we provision right at the start. So that impacts the operating result. On the other hand, when you look at the net income, the net income has a benefit in the line of taxes. If you look at the tax slide, it's a line, which has been very low. And this is likely to continue like this in the next quarters because of dynamics of 4,966. And today, we have the loss provision that's expected. And this is the deductible and you have all the inventory of tax credit and the bank has a relevant tax inventory. And this is deducted from time to time. And these combined factors make the net income to advance and the operating result should have a little drop.

I skipped a question by Leduc. I'll go back to his question. In relation to the benefits of the video calls we saw in the cost. But what's the horizon for the respective reductions? I think you can continue answering Flavio.