Banco do Estado do Rio Grande do Sul S.A. (BRSR5.SA) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to the video conference of Banrisul to discuss the results of the second quarter 2025. To start off, we would like to apologize for what happened on Friday. The call was about to be held at 2:30 on Friday and due to a contingency situation where the event is held at the headquarters. For safety reasons, we had to reschedule the call for today. So we would like to thank everyone for attending the call at this time. Let's start. The video conference is being recorded, and the replay can be accessed at the IR website as the event is completed. And the broadcast has simultaneous translation into English should this be your preferred language. You can click at the bottom of the screen. Let's go over the event. We are going to divide it into 4 parts, an initial phase where we are going to broadcast a video on technology update and the bank will share this information about its evolution and then our CEO will address the highlights for the half of the year. And then the Financial Director will discuss our financial performance. And then we are going to have an interaction with APIMEC. We are holding a public meeting with the members, and we will close with the Q&A session. So let's see our video on technology evolution of Banrisul. [Presentation]

Very well. I'll turn the call to you, President. The line is yours. The floor is yours.

Good afternoon, everyone. It's an honor to see you again. Nathan has already apologized for what happened on Friday. It's an honor to be here with you today to discuss the results of the bank on 18th. I came back after 2 years. After some years, I was away. I don't know if everybody was expecting my return, but here we are. The first contact that we had we informed the way we would follow, looking for a better mix of the portfolios focused on companies. We understood that we were a bit away from this dimension. And also with a focus on results, as I always say, I'd like to look at the bank from the viewpoint of results. So we are very happy with the figures we're going to present. We can see that net income amounted to BRL 619 million, 42% higher than that of last year and 56% quarter-on-quarter. Our ROAE surpassed 2 digits. And this is something that we had not reported in the past few years. Our loan portfolio reached BRL 64 billion. Our funding for the first time in our track history surpassed BRL 100 billion. That shows the confidence that our clients have placed on us, individuals, millions of individuals who are our clients as well as companies and major investors of our companies that started to have a more appropriate relationship with Banrisul. Our net interest income is also increasing. As we can see in the result, BRL 1.6 billion, a growth of 9.8% year-on-year and 6.4% quarter-on-quarter. Cost of risk is also controlled and administrative expenses are also well controlled below the inflation. So we are on the right track. The bank will continue along this pathway. This is our purpose with the control of delinquency rate, we made some important changes in renegotiation as a result of the resolution 4966 that changed the way we carry our provisioning. So our credit appetite will continue to be focused on companies with all the caution necessary considering the Selic rate as high as it is, but this is our credit appetite. And we are confident we are going to reach the end of the year with positive results. Thank you, Nathan.

Thank you, president. Let's turn the call to Gonzaga to discuss the lines of results and the lines of the results of the quarter.

Good afternoon, everyone. We are once again reporting to the market rendering accounts on the results of our bank. Our profitability of net income stood at 56.4% in the quarter, an increase when we compare the first quarter of 2025 and the second quarter of '25 and 52.7% if we compare the second quarter of 2024 and the second quarter of 2025. If we compare the half of the year results, we report an increase of 42.44% higher when compared to the first half of 2024. So we also had an increase quarter-on-quarter. Our ROAE, we had a growth of 5 percentage points, 9.9%, 9.3% in the first quarter of 2025 and the second quarter of 2025, closing at 14.3%. And when compared the year-on-year basis, the second quarter of 2024 when compared to the second quarter of 2025, we had an increase of 4.4 percentage points. And the half of year results, we reported a 3 percentage points growth. All these numbers are familiar to all of you. We are just reporting the highlights of the results. Net interest income, the second quarter of 2025 had a growth of 9.8%. And when we compare to the first quarter of 2025 and the second quarter of 2025, we had an increase of 6.4%, and we ended the first half of 2025 at BRL 3 billion when compared to BRL 2.9 billion in the first half of 2025, a 9.5% growth. Our loan portfolio reported a growth in the past 12 months of 17%, BRL 54 billion in June 2025 versus June 2025, amounting to BRL 64 million (sic) [ BRL 64 billion ] and a small growth quarter-on-quarter. If we break down by the portfolios, we can see that payroll loans had a growth. And there was a drop of 2% because there were some credits, which were renegotiated. And this is going to be located in other areas. So we had a growth in cards and also personal loans. And there was a growth with those portfolios, which are very profitable. As for companies that has already been mentioned by the president, we had a growth of 5.6% in the quarter. So we can see the credits, auto loans and other parts that are also included in this line. Conta Única is also performing well. In short, we reached 5.6%. If you look at March '25 and June '25, we can see that there was an increase of 0.9%, but there's also real estate loan and also agro loan. But we have to understand that in that portfolio that is related to companies, we had a good performance in the period and an exceptional performance along the year. So these are the main portfolios that have provided and upgraded in our results. So this also includes small and medium-sized companies. Asset quality. If we look at default ratio, we reached 2.2%, as we can see here. We can see that the one for companies is lower and for individuals, it's higher, reaching 2.4%. So 2.2% at the global level and 1.4% for companies in terms of default ratio. Portfolio by stage, the first one reached 93.5%. Our target is 95%. We have been seeking this target. And for Stage 2, 1.2%, and Stage 3, we stand at 5.3%. So these are our targets for those stages in the future. Cover ratio by stage, 1.7% in Stage 1, 21% Stage 2, 64.5% in Stage 3 with a total of 5.3%. In relation to net provision expenses and cost of risk, so it's working like a clock, 1.4% in the second quarter of 2024, 1.5% in the first quarter of 2025 and in the second quarter of 2025, 1.4%. So we ended in BRL 184.4 million in the second quarter of '25, and we had a little increase in -- between periods. And then we make the adjustments of the portfolios based on the 4966. And then we made a very strong work in the retail with our collection team, and we came to those results. Administrative expenses, we reported at 5.2% when compared the quarters of the previous year and 3.5% quarter-on-quarter, everything under control. And for the year, for the first half of '24 in comparison to the first half of '25, 4.6%, a little below IPCA. And then we have the breakdown of our expenses, all the details. And there are many lines of which we have been streamlining the costs, branches leases. We have been merging branches into a single one. So we've been doing work to streamline the costs and we have been cutting expenses with advertising including. So we had a drop of 2%, showing that the company has been controlling its expenses from all sites. So expense is something that we have to control. So we have been working hard on the growth of expenses, and we are being very cautious in reducing the expenses. There are some expenses that we cannot produce, such as the personnel and also collective bargaining. But whenever it's possible -- whenever possible, we will cut expenses. In relation to services, and their fees, we would like to share better expense, but there were some cuts defined by the Central Bank and the digital cam banks have also impacted on our results. So we have to play by year according to the market. We are -- we have been doing what is possible, but we cannot define a price if the market will not pay for those prices. So we've been growing at a moderate level in those revenues. And now there is an annual adjustment in August. So there will be an adjustment, and we are going to pass through the IPCA, but there's not much to be expected in terms of growth. So we have been reporting revenues below those who are indexed by Selic. And we have to negotiate how much we're going to charge for the services provided to the client. So this is the moderate growth that we reported in the first half of '24 in comparison to the first half of '25. Our funding time deposits with the cost at the global level versus a Selic -- of course, there's Selic, there's also demand deposit, but time deposit is our flagship. And we also have the LCI, LCA and these are included in these costs, in the global funding, BRL 93 billion, BRL 104 billion, we have a 5.7% growth in the -- as a growth in the half of the year. But if we observe we -- this includes time deposit and demand, and we can see that the growth is above the average Selic of the period. Our indexes have been making headway, and we have been balancing the assets and liabilities, as we are very aligned in this line. And we have been capturing a very healthy performance in the prefixed funding in order to secure the portfolio so as to avoid any market swaps and any other operations in order to protect our portfolios. So we have been doing this in a very friendly and organic way. Assets under management, we have reached BRL 19.8 million in comparison to the previous year of BRL 17.8 million. So we have some funds established with the city halls and this has been a very strong line in the region of Rio Grande do Sul. Our capital, we dropped a little in terms of Basel ratio. And in terms of the Tier 1, we reached 13.3%. We had a capture in subordinated LF. We have a settlement in operation that is going to be held in the beginning of next year and the material effect has already been disclosed and the capture will be about BRL 300 million, which is likely to be announced in the market in line with the public capture that ended in August. So these are the numbers, as mentioned in the highlights by the president, and we are available if you have any questions. Okay. Thank you.

Mr. Gonzaga, our CFO. I would now like to bring to our event Sandra Peres, Director of Relations with Companies and Events of APIMEC. Good afternoon, Sandra.

Hello. Good afternoon, everyone. First of all, I would like to congratulate you all on the positive results. In addition to the positive results, we have a long-term partnership with Banrisul and APIMEC Brazil. I would quickly like to discuss what APIMEC is. I would like to talk about APIMEC. I'm not going to take much of your time because we would like to be available for the questions. And we can see that most of the directors are there. So I would also like to congratulate Banrisul because that's an evidence that the bank is saying that it wants to provide more transparency to the numbers. Let me talk about APIMEC Brazil that was formed by analysts and investment professionals in the capital market in Brazil. It's a bit younger than Banrisul. APIMEC was created in [indiscernible] in Rio de Janeiro. It started as APIMEC, and it became one of the oldest entities of the country. And this year, in 2025, it celebrates 55 years. APIMEC Brazil, the company is responsible for CNPI, which is the certified of investment professionals, and it's also responsible for the regulation of the profession. So that ensures that the technical and ethical standards will strengthen and generate more credibility to the market. APIMEC puts together 7,000 members, and it has more than 1,200 accredited analysts. This is a role of APIMEC. It's fundamental to ensure a good quality analysis, good recommendation and also a better quality and clarity to the market. And this is the reason why we make partnerships with banks and companies, and we have interactive meetings to provide more clarity to the market. And I'm here today to show that this APIMEC partnership with Banrisul generated good results. And I would also like to congratulate and grant Banrisul with a seal that is a proof of this long-term partnership. So this seal of attendance, platinum seal is a proof that the bank has been holding constant meetings as a way to get closer to analysts and market professionals. And this is a sign that it's been operating aligned with this corporation and all the people at the table show this confidence that we can provide to all investors. So I would like to congratulate Fernando Lemos, the CFO, Luiz Gonzaga Mota, and all the IR team, Nathan and all the team on behalf of APIMEC. Once again, congratulations on the results and congratulations, and I hope we can continue with the long-term partnership that we have established with Banrisul.

Sandra, thank you very much. Thank you very much for your words. We feel the same on the side of the company. So we are very proud of this partnership that we've been having with APIMEC for those 18 years and always improving the capital market to provide improvements to our analysts and investors. Thank you very much for your participation. And now we are going to open the Q&A session, and this is a moment where we are going to be available for the market so that they can ask questions about our figures and numbers and our management.

[Operator Instructions] Let's start with the first question. Our first question comes from Ricardo Buchpiguel with BTG Pactual.

I have 2 questions on my side. First, could you help me understand which were the factors that played a role in this half of the year? Was there a change in the mix? Was there an additional gain coming from RM, which will not repeat in the future? I would like to understand how we can look at the next quarters. And in relation to the agribusiness, Banrisul grew a lot in the segment of agribusiness, especially in the past 5 years. So there were some highs and lows, some failures in the crops, some variations in the prices of the commodities. And on Friday, a bank made a comment about a more challenging scenario in the agribusiness. Do you see any challenge in the agribusiness portfolio that would increase the risk cost? How do you see this point in relation to the risk presented by agro today?

The first question you asked was about the performance of the bank in the result of this first -- the second quarter and along the first half of the year. So this is a strategy that we have been implementing since we started in 2023. And our purpose was to make a change in the mix of the portfolios with a firm strategy and well-defined strategy of having more action in the physical and the individuals. We have a very good portfolio for individuals. There's still room for improvement. So we made actions to increase the volume of those individual portfolio. We would like to use this space with credit card, overdraft. We have a flagship product, which is Banricompras. So we made an action in this direction, encouraging the database for predated and installments. So it's a direct competition with Visa and Master cards. But we have the weapon to make changes in the pricing. So in fact, it is a predated electronic check installment, the client would purchase at the store or he can make installments for 12 months. And the client can -- will pay 30 days later. So there is a mismatch with the salary sometimes. And margin of this Banricompras is always in the overdraft. And then the client would receive the salary, the payment or lease or any income that the client might have, and that would reflect in the overdraft account. And we can see that there was a growth in this product and for companies, on the other hand, which is the corporate account, the debit account, since this is an overdraft for the small-sized and medium-sized companies. So the client would purchase and can pay in 30 or 60 days. So there is a benefit. And this is also a line where we grew. If we look at the company account, we can see that we grew by 70%. And there's also Conta Única, which is also a well-accepted product by all the segments, small, medium-sized companies. And that is a product that offers good margin. And we also have a Conta Única for the agribusiness that offers a good margin. So all those products put together in addition to the digital discount that we didn't use to have, and we have now a large -- quite large company. So we grew by 21% in the company area. So the set of all those portfolios offers a financial margin that is more favorable as a result of all this work. And so we can see a positive result. And this is likely to continue bringing good results. So this is part of our strategy. We are going to continue doing what is proven to provide results, and we're going to seek our objective. So it's a group of strategy and hard work. In relation to the agribusiness, would you like to discuss this?

Yes, this is -- there's a concern in relation to agribusiness. There was a note provided by the Central Bank. But in Rio Grande do Sul, we have a different characteristic. Even though we had some failures in the crops, we have small farmers and medium-sized farmers, and we work with the small producers that do not have scale for this type of business. So we did what the federal government allowed us. And the state government also provides subsidies to some of the portfolios when the federal government cannot provide the subsidy. So the portfolio is under control, and we are likely to continue like that. We are not likely to have any surprises in this regard.

And not to mention that, as I mentioned in the beginning, our agri business was one of the elements that affected our growth because we do not have a lot of appetite in the portfolio. We have been choosing very carefully the clients. We have been very cautious, and we are extending the periods according to the standards and the regulations. So there were BRL 650 million that came from the government, and those portfolios are going to be extended. We are not in a comfortable situation, but everything is under control. The default rate is likely to reach 0.5%, and this is a result of what we have been working on in order to have a portfolio under control. And this is the situation of agribusiness. I don't know if I answered all your questions because your questions were very complex.

Yes, the answers were very clear. Could I ask a follow-up question? What's the sensibility that the bank has in the -- the sensibility that the company has? And what would be the benefits considering the moment of interest rates that we have?

Okay. I would need the crystal ball in order to answer your question. So we have to understand the behavior of Selic interest rate behavior. In 2026, we are going to observe the behavior of the interest rate. So the government might intervene depending on the behavior of the interest rate. And services has been growing, even though inflation rate has been dropping, but services increased, it stood at 2.5% on an annual rate, and that makes a lot of difference in the accounts, and that would impact the inflation rate. I do not see inflation rate coming down. But for every 100 bps, we're going to a point where we are going to be at the top of the pyramid, and there's not much room to grow. And we have them to grow volume. We have to grow volume with good products. So 4966 is implemented. It's going to help us. It has some defaults, but it has some -- the virtues because expenses are going to be there every month. You do not have to wait all that long in order to lower your loss. So this resolution is going to help us in terms of prices. It will help us in the margin.

Only to complement, Gonzaga. The bank did a very good work to reduce the structural mismatch. So the variation of the Selic will not have a lot of influence in our balance rate. The level of uncertainty is very high. We cannot imagine what can happen on one side or the other, but we are looking for a minimization of the mismatch.

I don't know if we answered your question.

No, that's great. That's very clear. Thank you.

Okay. Thank you, Ricardo. Let's move on now. I would like to give the floor to Olavo with UBS. Olavo, can you hear us?

Yes, I can hear you. I have 2 questions on my side. The first one is to address a point that attracted your attention, which was the credit recovery. We saw that the performance was very good when compared not only with the first quarter, but also to previous quarters. So in this topic, this is my question. Could you provide more color on what was done in the execution so that we can understand which were the decisions made, what was the effect of this in practice? My second question along this line is to understand the level of sustainability in terms -- is this going to repeat? Are you expecting this to be repeated in the third and fourth quarters? Are we going to level off this credit level so that we can understand the guidance? Whether you going to deliver in terms of cost of risk? And there's another question about another topic. Considering what has been disclosed by the local press and you also published a material fact on the negotiations of failure of the civil servants of Rio Grande do Sul and the payroll. Could you provide an update about this in terms of what have you been talking about internally in terms of the payroll valuation so that you're going to use it for negotiation with the public entities? Did you come to any conclusions? Anything for us to understand its impact? And my last question on this topic is, do you expect to have any installments of the payments? Or are we going to consider a down payment, a single payment that was done like what was done 10 years ago?