Banco Pan S.A. (BPAN4) Earnings Call Transcript

Welcome to Banco Pan's results conference call for discussing our results to the Second Quarter of 2025. This conference call in being broadcast in Portugese with simultaneous translation into English. To select your preferred language, click on interpretation on the application's menu. This conference's audio and slides are being broadcast simultaneously on the internet on our company's IR website, www.bancopan.com.br/ir and via Zoom. This event will also be available for download after its conclusion. We would like to inform everyone that this event is being recorded .[Operator Instructions] Before proceeding, we shall inform you that statements that may be made during this conference call related to Banco Pan's forward-looking perspectives, projections, financial and operational goals are based on the beliefs and assumptions of the bank's management and on information currently available to the company. Future-looking statements are no guarantee of future performance. This involves risks, uncertainties and assumptions because they relate to future events and therefore, depend on circumstances that may or may not occur. Investors and analysts should understand that general economic conditions, industry conditions and other operating factors could also affect the bank's future results and could cause these results to differ materially from those expressed in such forward-looking statements. With us here today, we have Mr. André Luiz Calabro, Banco Pan's CEO; and Mr. Inácio Caminha, Head of Investor Relations. We will now give the floor to Mr. André Luiz Calabro who will begin today's presentation. Please, Mr. Calabro, you may proceed.

Hello, good morning. Thank you again for being here with us in this conference call, and I will get started here with the first highlights on the first page. We have 4 main ones that are going to guide our call today. The first Item number one, credit portfolio. We see that there was an origination recovery and full rotation of performing portfolio. I think the main highlight today guiding our call is the option of not assigning on the portfolio. This was an option we made this quarter because this portfolio that was not assigned is going to give us more performance to the revenues related to the portfolio and also during time the bank becomes more simple with the core more aligned. And this decision is based also in the solid operational results that the bank shows. So it is important that, although credit assignment is a tool, it's an option today for Banco Pan. Delinquency, well, we have stability in our portfolios with a clean portfolios. They are flat. We are going to give more details about this item. The margins are in robust levels in relation to the balance sheet portfolio. And regarding expenses, we have a reduction of our personnel and admin expenses and costs. We've reduced in 20% of this type of expenses, and admin and personnel expenses was really around 7%. Next slide. Here, we have some indicators about the bank. The number of customers is 32 million. In the second quarter, credit portfolio reached BRL 57.8 billion, an increase of 18% in relation to the second quarter of '24, and 5% increase regarding the previous quarter. Net income, we had a reduction regarding the previous quarter, but basically because of our assignment, we are going to explain it later. ROE, 11.3%. And well, we did an exercise bringing the historic of results since 2021 to show some indicators. First, net income is very well aligned with the results of previous years. The good news here is that in the second quarter, here, we don't have the effect of the assignment. So this indicator here is really important. Our credit assignment -- our credit portfolio has been growing. So we are already in BRL 57.8 billion. And ROE, 11.3% is not comparable to the previous ones because of the assignment effect. But if we had done the assignment, the ROE would be even superior to the first quarter of '25. And lastly, we wanted to give you some details here about our efficiency strategy also using artificial intelligence. Bringing you here some front lines in which we are investing that are going to allow us to have more efficiency, performance gain speed. So B2C origination, we had an increase of 32% over the last 12 months, with the intensive use of data and Gen AI for lead generation and conversion improvement. Credit and collections. We also used AI in our models to determine the behavioral influence, to assess collaterals and the benefits amounted to a reduction of losses by 20%. All our interaction with customers where we have 75% of self-service. We are here really focusing on reducing the cost of serving. This is a very important indicator. Our use of bots, AI gives us a very high level of problem solving. And in the operations, we have more than 130 processes that are automated. This creates an excellence in operations, leverage and reductions in the expenses. Now Inácio is going to give you some indexes about our business with more detail. And after that, we are going to have the Q&A session.

Okay. Now on Slide 7, we are going to talk about engagement. Our total number of customers have decreased -- has decreased. And here, we see a relation with the review in the amount of clusters, some specific clusters we opted for closing the relationship. This is a daily issue. And especially at this moment in which we see the macro deteriorating and we also have to adjust our appetite, and our growth is speed accordingly. Then cross-sell index, we have 2.3 products per active clients, the clients with the PIX key also evolved. And the transaction volume is BRL 32.2 billion even, so it increased with -- even with the reduction of some clients. And now talking about our origination in the Slide #8, we have 7.4 billion vehicles recovered to 4.8 million and with a profitability that is good, personnel payroll loan have good volume relevant totalizing, BRL 1.1 billion and this number also, we expect it to be even stronger from third quarter on because we were at these initial phases of the product we had that regulamentation of 120 days, but since the end of June, the volume of origination increased. So we have good perspectives for this product, especially substituting the focus on the short term with the public and the INSS payroll loan that have very squeezed margins that are not that attractive on INSS specifically, we have the entry of the marketplace. Now at the end of August. This is a way for us to maybe expand a little bit on the B2C. But certainly, we will not have the same levels that we had in the best for this product. FGTS is flat and personnel loan also flat with BRL 300 million. Credit portfolio on Slide #9, amounted to -- so because, of course, is the highest portfolio payroll, the public and the private on cards and FGTS also had an increase, especially because of the personnel origination. And then another movement that was the reduction of the clean portfolio cards or personal loan that decreased 3% in the quarter. But we think this is an important growth, especially given the effect that we have seen of a retraction in the public payroll loan and INSS. On Slide 10, we talk about delinquency. Our portfolio mix is very similar to the previous one. Light decrease on payroll as a whole, vehicles increased 1 point, delinquency 50 to 90 as expected decrease, especially in vehicles and over 90. There was this high to 8.3%. In vehicles, we have a portfolio that is stable, and we are comfortable with the dynamics that those products has been showing they are live products, and we adapt according to the vintages in the quarters. On Slide 11, we have information regarding the cards. And here, again, we have a reduction in the issuance of cards that is aligned with everything that we've been talking about. Also, we had a mix of clients. This impacts, the TPV of this quarter. These are one-off adjustments that don't change the expectations for the increase of the clean portfolio that are important for our growth. Insurances, we rebounded. So we are growing again in premiums and revenues. So with this pickup of vehicles. And here, we have a breakdown to show you according to the type of premiums. So we can perceive here that life insurance and vehicle insurance have increased in the last year. They represent a little bit more and this shows a diversification of the product. Now let's talk about the financial highlights. Our interest margin has decreased from BRL 2.1 billion, and this is because of two effects. The first one is that we didn't sell on the portfolio. And also the fact that we have done again an NPL portfolio selling. We were understanding the effects of 4,966, so we didn't sell this portfolio last quarter. But this quarter, we begun doing it again, and every time we have this NPL sale on-balance NPL portfolio, you have this reversion of the provisions on this portfolio that creates a benefit on the group of the credit cost. So looking at the two other graphics here in parallel, we see that the decrease in one of them is associated to the increase of credit cost. I mean, the improvement of credit cost to 6.8%. If we hadn't done this sale, the credit cost would be flat at the end of the day. We always look to the NIM after credit cost that decreased to 7.4% because of not having an assignment, but also because of the slower speed on the clean portfolio. And now let's talk about the expenses. As Calabro mentioned, we have done an important effort to improve our efficiency. So here, we've put the fourth quarter. I mean, the fourth -- for previous quarters to show you how this presents. So we come from expenses that was BRL 632 million now in the second quarter of '25. This movement is positive. And then on contingencies, we had a small increase because of the increase of the lawsuits may be related to the media on the topics that we have happening in the last half. And then the expenses with origination also is stable. So we have benefits with the reduction of the payroll loan. Services, revenues improved. And when we look to the last line, we have BRL 191 million results with our ROE of 11.3%. As Calabro mentioned, this is a new way of -- our composition is different from the last quarters, and we are very comfortable with this dynamic. And to close, we have information regarding equity and capital. Base rate is managerial because it's the conglomerate BTG is very comfortable. The base rate, the equity is increasing. So we are very comfortable to continue with our strategies. And with that, we conclude our presentation and open for the Q&A session.

[Operator Instructions] Our first question comes from Pedro Leduc, Itau.

Congratulations for the private payroll loan. I would like to understand from you, how do you think you are gaining traction? It is another portal. Is it on origination? Is there any other channel? What is giving you this bigger appetites than other banks. And also, if you can give us color what is PDD on portfolio that you are working with?

Hello, Pedro, thank you for your question. Well, I'm going to take some time to answer your question because I think it's worth it. Why do we have distraction in the private payroll loans? Since the beginning of the designing of the product, we've studied our product, regarding the policy, the credit. So we don't look only at the risk per client, but also in our modeling, we assess the risk of the company, so the corporate risk. With that, we have a modeling that is much more sound and more guaranteed to escalate the product. The second point that I would like to mention, well, when you talk about origination, today, 50% of our origination comes from our own channels. Since May, we are escalating these aligned to our strategy. Today, the client originates not only at the CTPS, but half of this origination is through our apps and channels. And regarding provision of expenses and when we look at the indicators of writings and repassing, we had an indicator that was spread out in the media that was a little bit lower. I can guarantee you that our indicators are above this 84% or 86% that was [indiscernible] because on the credit assignment, we have a much more adjusted process regarding the new credits. And also, we had 2 very good surprises. The good index of reemployment. So those clients that didn't have, they are repass, realized, we now have a very good process of reemployment. So when the client changes jobs, we adjust this and in the process of recovering clients that may be are unemployed and lost their jobs. We have this process to not only alert them because we know that sometimes there is just a mismatch of communication between the corporate entity that didn't repass to us the money. But this is going very well, okay? So because of this, as we commented in our release, we are already in the amount of BRL 1.5 billion, and we are going to continue growing because of this all that I have explained, but because of all the operations that we are going to begin in the future.

Next question comes from Olavo Arthuzo, UBS.

I have two. The first one is about the credit assignments. We saw that this quarter, it went for -- to 0. So it improves the quality of the result, but it also pressures the net income in the short term. So I would like to understand the construction of the earnings along the second quarter. Can we understand that the bank is going to seize assignments in the next quarter? Or should we work with something near 0 as we saw in the first quarter? Just for us to understand what to expect in the second half of the year to understand, okay, the profit in 2025. And the second question is, well, we saw that Stage 3, Layer 3 expanded in a very relevant way. The portfolio is above what we've expected and projected. So can you elaborate, please, where did this deterioration come from? I understand that you commented that the clean portfolios were responsible for this effect. But I would like to understand this vehicles portfolio in this regard. Was there a contribution in this Stage 3? Or was it only because of the clean portfolio? And also, could you please give us some color on the evolution of the vintages, both vehicles portfolio and motorcycles portfolio?

Thank you, Olavo, for your question, okay. So about credit assignments. As I've mentioned and with my arrival at the bank, we did a very good evaluation about the operational result of the bank. So we are comfortable in not doing credit assignment. As I said, it is an option to us. And it is a managerial tool, of course. So the trend is that we don't do any more assignments. But again, this is an option. And why? Because we are looking at the results in the medium and long-term. So we are looking at the bank with this -- at the bank with the long-term vision. So in terms of portfolio, we are going to have the benefit of accruing the revenues of these portfolios that are not assigned. And second, we -- long time, the bank becomes simpler, more focused on its core. Today, we have processes systems that are focused on the management of these portfolios that are assigned and also in line with our long-term strategy, we want to have each time more a closer relationship with our clients. So because of these items, we took this decision. So we are very calm about this decision. We think this is going to be best for the bank. And to avoid any misunderstandings, the portfolio assignment is an option, is a tool. This quarter, we opted for not doing it, and the trend is not to do it in the next quarters as well. Regarding the second question about Stage 3. Well, Stage 3 is indeed impacted by the clean portfolio. So if you look to our strategies, we have been working on the portfolios to have more collaterals. And why did we reduce origination of clean portfolios? Because we have been observing delinquency in the market, we have been observing the macro scenario. So to avoid worsening a long time, we decided by the reduction of the clean portfolio, our review in the limits to have stability in this portfolio. On the other hand, and now I'm going to mention the vehicles portfolio that you've mentioned. We have had good indicators by the strategy of recovery of credit assignment. So -- and over 90, we have stability, the trend is positive. And 15 to 90. Now I'm going to answer also your question about the vintages. In the last ones, 2 to 3 previous ones, they have had a better quality because of the improvements and reviews that we have done, review of our policy inclusive. And the good job that we are doing in the credit modeling and also because of our sense that we are studying and redoing a long time. I hope to have answered your 3 questions. If you have anything else, please feel free to ask. And thank you again.

It was very clear. But if you allow me a follow-up on this last topic to understand the evolution of the macro with the collaterals, could we think about the collaterals today, but looking from -- to 2024 up to now, was there any effect. I want to understand if this is going to impact the quality of this vehicle's portfolio.

Well, according to our strategy, this type of portfolios have a low index of recovery. We work with the concept and the strategy of a friendly delivery. But we have begun with a new framework of collaterals. And I assure you, the impact is almost 0, because let's say, the process is not yet 100% adjusted in the market. And on the other hand, the impact regarding our recovery management in the legal area, let's say, so it's reduced, but we are studying, okay, to understand if there is any benefit in escalating this managing to a long time.

Now we have Brian Flores with Citi.

I have a question about the margins and growth dynamics. You said that you are more cautious about the clean credit. I think this is reasonable because of the macro scenario. But should we think about tighter and a smaller margin as you advance in the private payroll loan. So my question is, if the trend of this margin should continue under pressure? I think this would help us to understand things better.

Brian, thank you for your question. Okay. I'm going to begin and then Inácio is going to give you more color. Well, we are more cautious in the clean portfolios. This is good. This is prudent at this moment in time. Of course, they help us with robust margins, but we've preferred to do this realignment of strategy because as I mentioned, almost all my answers, we look to the bank not only today, but we want to have a consistent result in the medium and long-term. Regarding the margins, excluding the assignments, we are going to keep in the same level. There's not going to -- we are not going to have a drop fall. And on the other hand, we are increasing the more resilient portfolios, the light, the motorcycles, the private, the payroll loans and FGTS and trying to pick up in the public and the INSS payroll loan with the entrance of the marketplace, there might be a surprise. Everything is so new. We don't really know what is going to happen, but we are paying attention. We're going to be in the marketplace on the launching day. So I think that there's no pressure regarding margins even with the reduction of the clean portfolio. But Inácio, I don't know if you would like to add something.