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

Good afternoon, everyone. Ladies and gentlemen, welcome to Banrisul's video conference to discuss the results for the third quarter of 2025. This video conference is being recorded, and the replay will be available directly at the IR website after our event. Please note that this presentation has simultaneous translation into English. If you wish to listen to the interpretation, please click on the button. This event will be divided into 3 parts. We'll start with the first section of Mr. Fernando Lemos, our CEO, will address the initial context of our bank and results, and then Director Gonzaga will detail our performance for the first 9 months of '25 and the third quarter of '25. As usual, we will close this event with our traditional Q&A session. This presentation will be available in the Zoom chat. It's already in our IR website available for download. So Mr. President, our CEO, please, the floor is yours.

Thank you, Nathan. Good afternoon, everyone, our directors, all the participants in this chat. It's an honor to be here with you today to talk about Banrisul's results of this quarter and the first 9 months of this year. Certainly, we have reached 2 years. I have reached 3 years as a CEO at this bank. So we have worked for the past 2 years, and we are very satisfied with the results achieved in this past 9-month period, which shows the potency of power of Banrisul, almost BRL 1 billion, and it shows the strong work and the positive effect of this work, the teamwork by the treasury, the loans portfolio, administrative control, recovery, all the range of new products developed by the bank, all the services, 215,000 new accounts opened by -- at our digital app, almost 300,000 by the end of November, which showed the strength of this digital front to renew our bases of customers. We have been digitalizing everything we can -- I'm sorry. And it also shows how strong the economy of Rio Grande do Sul. 2 years ago, as you may know, there was a flood in Rio Grande do Sul, but the state has recovered very fast, very strongly, and it shows the entrepreneurship spirit of the state. And our bank keeps up with that. We still have faced -- we still face some setbacks, of course, but we are effectively very pleased with everything we have done for -- to gain productivity and profitability of our bank and the improvement of our performance among customers. We have over 80 robots working in the bank using AI with very high standards of productivity. So for those repetitive jobs or repetitive activities, we have replaced them with digital services. And it also shows an expansion of our main networks of services, the Vero network. We have brought it definitely into the bank business mix. It's not only -- it's not isolated anymore. Today, it's a formally integrated product to our bank, which allows us to advance the bank in the opening and acquiring new clients in the world, especially in the level of retail in Rio Grande do Sul. Today, the presence of Vero is in the main stores, in the main points of sales in Rio Grande do Sul. And also, we see the bank working very strongly on this side. We have the expectation to continue to do that. In exchange, in foreign exchange, we have evolved Rio Grande do Sul exports a lot. And as we have said to our people, to our team, we have been saying that we are a complex bank, several lines of products, and we have everything in the digital services. We are aligned with any other fintechs. We are not below the competitors. So it has become a leverage for our customers, our individual accounts. And also to work with payrolls, systematically getting to work with new companies, other companies' payrolls. So all of this work is the result of a focused strategy on the mix of our portfolio. We are not dependent on only one product on one service. We want to multiply that. And we have advanced in a corporate loan. We have now aligned with specializing -- have been specializing in our managers to work with corporate clients, and this has helped us leverage our results. It's a pleasure to welcome you here 2 years after I started working as the CEO. So these numbers show that we are on the positive side. Our ROAE has reached 2 digits, and we hope to keep up doing that, facing default, facing other setbacks that are normal, but we are very cautious regarding all of these fluctuations, and we are very rigorous in terms of the management of our portfolios. The first thing operators do today is to look at portfolios at the beginning of the day to check them and work profitably with them. So the floor is yours now, Mr. Gonzaga. Thank you all.

Hello. Good afternoon. So let's talk about our main highlights. In the 9-month period, we have had a result of BRL 948 million, 50% above the same period of '24 with 66% in the third quarter -- in comparison to the third quarter of '24, 66.7% increase in net profit and net income. Our ROAE has stood out, especially in the year-over-year compared to '24 with 4.4 percentage points. And in the past quarter of '25, BRL 377 million against the BRL 328 million that we produced in the past quarter. Till the end of September, we had a small decrease of 2.1 percentage points. And our net interest income in the third quarter of BRL 1.6 billion with 11% increase in the past 12 months. And regarding last year, '24, and in the third quarter, the increase was BRL 377 million and now BRL 328 million. So we have a decrease of 2.1% in the net interest income. In our loan portfolio, we had 11.1% increase in the 12 past month. And in the past quarter, it was stagnated in line with the figures disclosed in the third quarter. Cost of risk is in line with the past 12 months, 1.4%. It's under control in terms of cost of risk. And in the third quarter is the same of 1.4% in cost of risk in total. Our funding has always been a strong suit of the bank. We have a very good performance, 14.6% in the 12 past months. BRL 107.2 billion in funding in all the services in all the main products in funding. And our administrative expenses, they have been contained rigorously, especially those expenses which we can better control. Headcount has grown regarding the agreement. And according to the management work, we have contained these expenses, especially considering the collective wage agreement. So it's BRL 1.2 billion -- sorry. In terms of profitability, we have 66.7% versus the second quarter of '25, moving on to 12.9% getting to the Q3 '25 in the second quarter of '25 versus the third quarter of '25. And in the year, in the 9 months, as I told you before, we reached 50% of growth in the result, BRL 948 million versus BRL 632 million in the 9-month period versus the 9-month period of '25. Very good results. Substantial result according to the work we have done in terms of containing expenses and increasing with the revenues from tariffs. This is the trajectory that formed this result. Our ROAE, 4.4 percentage points in the past year -- we had in the Q3 '24, 7.8% in the second quarter of '25, 14.3%. And now in the third quarter, it's 12.2%. So it's a 2-digit ROAE. In the past quarter, there was this small decrease of 2.1% and which leads to an increase of 3.4 percentage points if you compare the 9-month period of '24 to the 9-month period of '25. In terms of net interest income, we had 11% third quarter of '24 versus the third quarter of '25 and 2.1% decrease regarding the second quarter of '25 in comparison to the third quarter. In the 9-month period of '24 versus the 9-month period of '25, there was an increase of the net interest income of 10%, notably the best balance and pace in terms of revenue growth. In terms of loan portfolio, 64.1% versus 57.7% in September '24. So it's a very stable figure in the loan portfolio. There was a slight decrease in annualized portfolios, and we've had commercial loans in corporate portfolio, increased -- 9.2% increase in physical or individuals and corporate accounts has grown more. And we have worked on this area in the margin established by the market of Rio Grande do Sul. So we have penetrated more in this market, notably small and medium-sized companies. For individuals, we have collateralized individuals portfolio of 70.1% as of September '25. And according to our idea, we have foreign exchange initiative with an increase of 45.8% as of September '25, BRL 2,379.8 million. Our state exports in a great deal, and we have worked very strongly to make this foreign exchange initiative great -- grow. And we have worked to decrease our default ratio to make it get to 0. Our -- in terms of our asset quality, 2.6%, 2.8% depending on the individual versus corporate accounts. Per stage, we have 95 -- I mean 92% in the past quarter. 30th of September, 92.9% in Tier 1 and 5.9% Tier 3. According to Tier 2 portfolio, 27% has to do with Tier 3, but it's a healthy portfolio, no default. And we have actively worked to recover these assets, which is part of our strategy. In terms of cost of credit and collective wage agreement, it's around -- it's in the order of 5.68%, BRL 191 million of collective wage agreement in this past period which contributed to the final performance of the bank. And we have these quarters and 9-month period in comparison. In service fee, we had an increase of 1.3% in the past 9 months, 5.8%, which is the collective wage agreement in the total is 3.4% growth. But if you separate the expenses with headcount, human resources and administrative expenses, 3.4%. But administrative expenses outside of human resource was 1% against the IPCA of over 5%. So we have managed to contain costs, and we have worked to do that, [ precifying ] rents and removing all the costs that we can cut. As our CEO says, we want to do that. We want to follow this strategy to cost -- to cut costs, and we have focused on that. This is one of the axes that contributes to the bank performance. And we have personnel expenses, 5.7% and other administrative expenses in the order of 0.6%. And we all have -- we have the lines of expenses that account for 3.4% and BRL 3.4 billion in the 9-month period of '24 and we have BRL 3.5 billion in the 9 months '25. Some expenses are necessary like marketing and expenses with sales of products to market our new products when we launch new products, of marketing and media are part of the business. In terms of service fee, we grew 1.3% in the past 9-month period. If we compare this 9-month period of '24 and 9 months '25, we grew 0.4% comparing Q3 '24 to Q2 '25 and 1.3% comparing the Q2 '25 to Q3 '25. The Central Bank controls the expenses with some of our products. So we have to work with the products that provide us more freedom to do that. Specifically, Vero, we have mobility of price, but the competition is high and strong. So we have to work with a feasible price for the market and also have exchange services. We have some degree of freedom, but we have to control this to retain your clients. So end users have to find this appeal or have to find this useful in foreign exchange. In funding, in spite of the good growth in funding, we have maintained the cost of funding. CDB 83 -- 82 -- I mean, 83.3% versus Selic with 85% of cost of credit. So our funding is very good. In terms of cost, we have managed to maintain a good cost. We had a performance of 3%, but there was an operation of BRL 1 billion of financial letters that we have captured, which is within this balance of BRL 107.2 billion with a growth of 14.6% annualized result in the first 9 months of '24 versus the first 9 months of '25, 14.6%. We have worked for the LM of the bank. This -- the rate risk is nearly 0. Our prefixed funding is constant to give funding to our prefixed assets. Savings has remained stable. It doesn't grow. I mean this portfolio doesn't grow so much. It has been stable. So if you don't make it grow, we will lose capacity to provide loans, but that's the market. And in terms of savings market, we've had a good performance. In our administrative portfolios, BRL 25 billion against BRL 18 billion in the first third quarter of '24 -- I mean, in the third quarter of '24 versus this quarter. With the prefixed portfolio, we have CDB, our account. The residual accounts, we also have specific lines with prefixed CDB paying market price and financial letters, financial bills, which are also prefixed. We have managed to make this offset this balance without investing in derivatives for the capture or to manage liabilities in our assets. So we have worked in these accounts. Today, we will reach -- the end of the year, we will have an offset between liabilities and assets in terms of indexation of interest rates. And we want to maintain the cost of risk at this level that we have managed to do. In terms of capital, Basel ratio of 17.9%, there was a change here due to financial letters emission of BRL 1 billion. They are subordinated financial letters. This is what leads to the results. So we have this LFSN in the order of BRL 1 billion with a 10-year maturity date, maturity term according to the Brazilian market. We prefer to do this operation instead of an operation in dollars. We wanted to work with a local market, good price. It's -- we have good price of funding, acceptable interest rate so for a better and more comfortable position. And LFSN has this indexation that is good for us. So in June '25, this ratio achieved 13.3%. And in September '25, 13.6% as of now. So these are the main macro figures of our bank. And now we will after -- go to our Q&A session.

Thank you very much, our Director, Gonzaga and our CEO for your presentation. So before opening the floor for Q&A, just let me give you some announcements. [Operator Instructions]. So let's start with our Q&A session. The first question comes from Antonio Ruette from Bank of America. Antonio can you hear us?

Can you hear me?

Yes, we can hear you.

I cannot listen -- sorry, technical problem.

I'm sorry. I'm sorry, Antonio, there's something with your microphone. We could not -- we cannot hear you properly.

Is it better now?

Yes, it looks like it's much better.

Well, can you help me? I have two questions. First, -- in terms of risk appetite, cost of risk, we are approaching a year of election. We have some incumbents discussing that we cannot think about credit portfolio acceleration. How do you see that the macroeconomic outlook or scenario? I would like to know about your coverage in terms of capital, you are doing well? And how do you face these perspectives? And considering the agro business, maybe it will improve next year? And my second question has to do with assets and liabilities. Mr. Gonzaga was talking about that today, it's much more about the indexing figures of these liabilities and assets, they are much closer, which is the potential benefit of interest rate drop.

Thank you very much, Antonio. In terms of credit appetite or credit increase.

Microphone is off. Microphone is off. I believe your microphone is off. I'm sorry. Let's change the mic.

Okay. Can you hear me?