Banco do Estado do Rio Grande do Sul S.A. (BRSR6) Earnings Call Transcript

Good afternoon, ladies and gentlemen. Welcome to Banrisul's video conference to discuss the results for the second quarter of 2026 and first half of the year 2026. This video conference is being recorded, and the replay can be accessed on our Investor Relations website a few hours after this event. Furthermore, we have simultaneous translation into English for this broadcast. [Operator Instructions] This event will be divided into 3 parts. In the first part, our President, Mr. Lemos, will talk about some highlights and make some comments. Then CFO, Mr. Gonzaga, will discuss the highlights and figures for this quarter. And finally, last but not least, we will finish with our traditional Q&A session with our market analysts. This presentation will be -- is already available for download in our RI website and also will be made available in this chat. Without further, we would like to call Mr. Lemos, our President, to start our event.

Good afternoon. Welcome all. Thank you, Nathan. Let's talk a little bit about results and what we have discussed and traced in Banrisul. When we got here, the bank had the big problems regarding labor disputes. And then we started working to check which path we could follow. And last year, we managed to reduce the 8 hours to 6 hours for this collective labor lawsuits, which had -- there was damage to the bank. So we managed to sign a deal, an agreement last year regarding this collective labor lawsuits. So there is an increase in payroll. But in the long run, this will be -- this agreement will be positive. And we have also made effective, very expressive labor agreements, almost 600 employees cleaning this past labor disputes, which puts us in a comfortable position for the future. So we'll still need to work on this. And in the next quarter, we will work on another part of these agreements because the root cause of the problem, which was the 8-hour workday, this issue has been resolved. And now our situation will be regularized. So the main -- the big drama of this period were the so-called 7th and 8th hours, which generated a big negative impact, and that we managed to offset and overcome. So the major first restructure of the bank, was done was completed. And from now on, we'll be in a better and safer position. And the management was too tight without counting on the best professionals to allocate them in the best positions. And this problem was also solved, which is also good for the bank. In this quarter, we had a net income of BRL 547 million. So the positive effect was in the second quarter. In the first quarter, was not so satisfactory to us, although this seasonality is common [indiscernible] for the first quarter because of the summer months in January and February, which also will increase costs for Banrisul because of paid vacation. And our clients too, they go on vacation and the business of the decreases. However, the second quarter is much better with an expressive growth of 46%. And with the ROE of this quarter of 11.4%, our loan portfolio is stabilized. It's a slight increase, what we are directing our work for in the corporate session with a higher spread. Individuals portfolio is stabilized, a little decreased even due to payroll loans, which is stabilized already. In May -- now, it will be unlocked from for the next few months. And also in the rural area, we could reduce the rural loans so we could remain within better parameters considering the size of the institution. Our funding, as you know, is very positive, always positive. In the past 12 months, we grew over 12%, which is a proof of the confidence our clients have -- they put in us. So we had a total funding of BRL 116.8 billion. It was a challenging period, but we managed to control everything that seemed to be a threat to the bank regarding interest rates, which continue to be high, the delinquency rate is high, household debt. The companies also have some difficulties due to the long time of a very -- of a high interest rate. So all of these things need to be taken into account. But we could equalize our portfolios, and I believe we have reached a reasonable result, almost positive result. It's following an upward trend, let's say. And we'll keep on doing that. And all the restructuring processes we have implemented will allow us to work more -- in a safer and faster way. We have been working with robotization, AI, so a lot of technology. This will take 1 year, 1.5 years, so we can really feel the effective results of this, regaining productivity and decreasing costs and services too. However, we can also feel -- we can also see an increase in the bank's productivity much better, and easier relationship with our clients. We didn't have a digital account. Today we have 100% app account. And also for corporate accounts, we are opening the possibility of online accounts and apps, and we are decreasing the costs for our clients. So we will be able to do what it takes so the bank finds the best pathway among the largest players in the country. Now I give over the floor to Mr. Gonzaga, our CFO.

Hi. Good afternoon, everyone. Continuing after our President's analysis, let's talk about the figures for the first semester and second quarter. So the net income in this semester was [ BRL 47 million ], but the first quarter was a little weaker because of what I will explain to you, there was a delinquency rate that was a little bit higher than expected. We have regained the results in this in this semester, in this quarter. In the second quarter, if we consider the first quarter, in the second quarter, there was a 48% increase in results. And in the 12 past months, the second quarter of '25 versus the second quarter of '26, there was a decrease of almost 14%, 13.9%. For the first semester, there was a decrease of 11.7%, if you compare the first half of '25 with the first half of '26. The first quarter of '26 was the cause of this decrease. In terms of our ROAE, in the first quarter of '26, there was 7.9% due to the results we had. And now the second quarter of '26, we have a result of 11.4%. I mean 3.5 percentage points of increase. If we measure December of '25, there was a 2.9% -- second, and in this slide, you can see a decrease of 2.9%, and regarding the second Q of '25 versus the second Q of '26. And regarding the semester, there was a decrease of 2.2 percentage points. In the first half of '26, we reached 9.6%, according -- the average results if you consider past semesters. In terms of our net interest income, the first quarter of '26 was a little lower with a 6.6% decrease. And the annualized result, if you compare Q2 '25 with Q2 '26, there was a decrease of just 1.1%. And if you compare the first half of '25 with first half of '26, there was an increase of 5.5%. So we have positive expectation for the future. And the risk-adjusted net interest income, we have 1.357 in the second quarter '26. And in the first quarter of '26 1.193. In the second quarter of '25, 1.456. So there was a difference here. And the first half of '25 versus the first half of '26 shows a decrease of 4.3%. And now, considering our loan portfolio, if you look at the chart, there's an important change according to our new pathways. In -- let's talk about individual portfolio. There was a decrease of 3.9% year-on-year and 0.3% in the quarter. However, for companies, we had a growth year-on-year of 13.9% and, in the quarter, 3.9%, a good -- in credit. And if you look at the portfolios, this changes the results. In individuals, there was a reduction of 46% to 44%. But in the companies, we've had 15% moving to 17%. So there was an increase that is marked in these figures, reflecting the 13.9%. In rural portfolio and rural credit, we had 20%. In real estate also, there was a decrease. And in other portfolios, that include [ FINEP ], for example, also shows the lines regarding to BNDS, we've been working with clients that take a long time, first-tier companies, we had the change to. We have -- we moved from a participation of 2% to 5% participation. In foreign exchange in this portfolio, in the past 1 year, from June '25 versus June '26, we had 37.8% in the growth. So these are the operations we have, strategically working on, especially in the area of companies so we can have a better share -- not small share. We want to increase our share for medium-sized and small-sized companies in the state of [indiscernible]. That's our aim. In terms of asset quality, if we consider May 2025, you can see the old rule of 26-82. And with the evolution, we had credits with over 360 days, which accounts for 1.5% of this portfolio with the new ordinance. And now we have a participation of 2.2% to 3.2% in terms of delinquency rate. That will be a peak, as far as we understand, a peak in volume. And then written off will be accounted for. In 2025, we had decreased written offs. They can be up to 24 months. So we lower them as they are completed after 90 days. So we had BRL 90 million in the first quarter of '25. The third quarter of '25, BRL 133 million, and BRL 542 million in the first quarter of '26. So this year alone, we have over BRL 700 million. In the first quarter of -- it was BRL 300 million. It was that portfolio that entered in January, February, March that started in 29 -- in 4966 and now are being written off. These numbers will be accounted for. We have a good provision regarding a position of over 90 days. And we will later check the percentage. And then we'll have a flat line, let's say, from December this year. Moving on, there will be this equalization of Ordinance 4966. So what entered in 1 month will be written off in 24 months. I hope this line is a downward -- follows a downward trajectory. We expect less written of credits, considering inputs and outputs in the accounting area. In terms of cost of credit, we have an increase of 2.1%. In the first quarter of '26, was not good. We didn't like that. So we had some collection activities. And then we moved on with collection and equalization and delinquency rates in the second quarter of 2026. But the first quarter was not very good. So that what led -- we have in coverage ratio almost 150%. So we believe this is a line of protection. So now, we have now the portfolio. 91% of the portfolio is on the average, Tier 1, 92.5% and 91.2% in companies. accounts. We have 1.7% and 1% -- 1.9% of the portfolio in Tier 2. And in Tier 3, we have 6.9% -- 6.5% and 7% in individuals and companies accounts. And now credits are being written off. The important thing about this portfolio is that we have problematic loans with 25.2%. These are being paid. They were expanded. They are being paid. Clients have paid these loans. So they are on update. This mass of portfolio are not in delinquency. So our coverage ratio was 1.5% of the loan in Tier 1 and 18% of the loan in Tier 2 and Tier 3, 66% of coverage ratio. These are all protected, which composes the 149.5% in coverage ratio as a whole. So as our President said, we adjusted our payroll in human resources. We need to do a lot of restructuring in the next few months. This will help us in -- if we consider the next collective labor agreements or disputes, this will have a positive impact. And in administrative expenses, we are about 6%, closer to the [ INPC ] of our inflation rates. We had some extraordinary expenses, which will be adjusted in the next few months, with the reduction in our expenses. We do not foresee any increase regarding this administrative expenses, which have been controlled by the Board. Next, revenues from fees and services. There's not a lot of money on here. We haven't lost too much, especially considering credit card fees. Digital banks are now in the market and they removed almost all credit card fees. So for this portfolio is slight, is not very marked. And we have to let go of some revenues to maintain our clients, especially credit card clients and other revenues, such as bank transfer revenues. These revenues coming from bank transfers, they are almost nonexistent now because of fix. And we are still working on residual collection. So these masses of fees, revenues, they are not doing so well, in the acquiring of these fees. Even in the acquiring, there's a lot of competition. Even if you gain market share, you -- there's not a very high turnover regarding fees and services revenue, considering what the markets have done with the -- regarding the culture of the clients, because they do not charge fees for credit card use and for other services. So we have to keep up with the market offers. So they are not growing so much. They are growing below the inflation rate. We cannot scale up in terms of fees and services. This is an age of the past. We used to make a lot of money with fees and services, but this is not the case anymore. We have to make money with the clients' participation. Well, in terms of funding, we've been working strongly. Our first cost of funding, we come from 88.3% in CDB, costs versus [ Select ], our benchmark interest rate. And we have also savings and other costs, which account for the final number. The second quarter had an increase of 5.5%, in a year of 12%. And time deposits grew BRL 3 billion in the quarter. In bank notes, BRL 1.4 billion in the quarter. And interbank deposits, also BRL 1 billion in the quarter. And in terms of rates prefixed funding in TTR, which is the saving. We have 11B in savings and indexed operation, which provides the banks with a very good safety. Even if there is an increase, the [indiscernible] interest rate will be protected considering our assets and liabilities in the operations of funding. So this is the main service considering the services we provide to our clients. We have 13% of assets under management. We have our administrative resources. They are managed by the bank. They are very good. A good profitability, a good mass of clients, high-profit clients that prefer to work with our funds and also LCI and interbank deposits and bank notes, especially for high-income clients. But not only. Our -- because our portfolio is pulverized. So we will also work with other types of clients. In terms of capital, our level is 12.4% up until June of '26. In the second quarter of '25, we captured BRL 1.85 billion in financial notes that were subordinated, found in the national market, not in the international, for 5-year bank notes, we protected the portfolio because we had the state payroll, which was to be negotiated. We have negotiated these. It was a 5-year operation, good for the bank, but -- a payroll. But we have 300,000 taxpayers in this payroll. So we have the state payroll that reached BRL 1.2 billion paid in June '26, with an impact on Tier 1 capital of 1.7%. But this is in line with the market. If you check the other players, they are in the area of 15%, 16% concerning the basal ratio of other banks or competitors that we have. In terms of our guidance, there was a small adjustment in our guidance. Our total loan portfolio was moved from 3% to 8% to the [indiscernible] which is 2% to 7%. Our net interest income is now from 5% to 10%, and cost of risk is also in line with what we see that will be maintained moving on, 1.1%, and maybe moving to 2.5%. Our expectation is that this is lower than the ceiling. And in terms of the administrative expenses, we maintain the same, it's unchanged, 5% to 9%. And we intend to maintain this curve by the -- till the end of the year. So these are our figures. We are available for Q&A. Thank you very much for your attention.

Thank you, Mr. Gonzaga; and President, Mr. Lemos. And now let's start our Q&A session.

[Operator Instructions] Now let's start our Q&A session. The first comes from [ Gustavo Araujo ] from UBS Bank.

Congratulations on the results. Thank you for allowing me to ask 2 questions. First, you review the cost of risk guidance for 1.5% to 2.5%. This is a broad range. I would like to understand how I could consider this range for the second half of the year. So does it make sense to consider this figure? And could you give some color on the impact of the renegotiation for the cost of risk for the quarter? And another question is around the bank. 60% of your -- is for treasury. Treasury -- LTR, 70B. LTR has a spread that is sixfold below your portfolio -- credit portfolio. So moving forward, credit portfolio should gain more share in the bank, so we could expect an increase in the margin.

Thank you, Gustavo.

Also, first question on cost of credit moving forward this year regarding the 1 % to 2% guidance.

Well, in our guidance, we always want to make them available to the market, aiming to the center of it. As we have now written off credits and [ PDD ], I mean, the voluntary dismissal programs will lower these numbers, these figures. We are talking about percentage and figures. So we have less incoming operations that are provisioned. If we have a control over delinquency, that number of 2.1%, logically, it can be reduced. It's centered in 2.5% with this figure that I showed, 1.5% to 2.5%. But I'm not -- I cannot tell you exactly now, but I would move up to 2.5% tops. Second question is, what about loan portfolio? Should it get more share in our profitable results, bringing an adjusted spread that is better for this year? Regarding the treasury, just I would like to tell you that in treasury, we have a fantastic relationship with the market of investors in the state of [indiscernible]. There is money here in funding. We have competitive products. It's not that -- I mean, we have 88% in CDB in our cost of funding. But we have an excellent result. We have relationship with high-income clients, proximity with investors in the -- not only in the capital city, but also in other cities of the state, and all the GDP of the state because we have bank branches in 98% of the cities of the state. So there is money and it comes into treasury. Maybe Mr. Ivanor can talk more about our credit or loan appetite, but we cannot tell clients to go away we are a bank. So all resources that come in, they are welcome. And if we are to measure the treasury assets of Banrisul with a total of assets, total financial assets, this will be an elevated percentage, even if we compare this with other players, we are one of the banks with higher level of liquidity in the country. So it would be great if we had all of our treasury with -- I mean, BRL 20 billion or BRL 30 billion in credits in loans. But let me pass the word to Mr. Ivanor.

Regarding our credit -- our loan appetite, we have restructured in terms of business strategy. In commercial loans, we've been working to segregate our business per segment. So we have a small retail segment, medium-sized retail segment, individual client segments. And companies segments have also have divided these segments in micro companies, small, medium-sized companies and bigger companies. So by dividing them, we can tailor better offers to these companies. In terms of the credits or the loans they take, with FGO, our receivables -- and remember the bank has stopped working with guarantees provided by FGO. But we are back to this FGOD, which is the operations guarantee fund. And the idea is to continue in the second semester being focused on these loans for companies, with good companies, which are -- with which we can increase the share of [ Vero ] with receivables. And Vero will also bring revenue alongside with loans, along with MDR and the sales in the retail market. So we have an internal consulting project that is helping us accelerate credit or loan distribution, trying to reduce the distribution cost by using platforms -- or digital platforms in the case of small companies. In other cases, we segregate the business in the bank branches by opening branches that are specialized in companies or corporate accounts, employing managers, bank managers who are trained and focused to dealing with small and medium-sized companies. So the idea is to grow the guidance to the middle of this curve -- in the upward curve. With that, we aim at improving our level of revenues and our NII.

Let me just add. I think the answer was really broad. So since the beginning of this management, there was the -- in terms of the foreign exchange portfolio, that we have identified a good position. It moved from 2% to 5%. So we have good chances, good opportunities because the risk is lower in this portfolio.

Well, in terms of cost of granted quarter-after-quarter, we have shares -- I mean, we have worked to regain loans and credits by some collection services to recover these assets, and this will contribute to the overall assets -- bank assets.