Banco Do Brasil Sa S/Adr

Good morning, everyone, and thank you for joining us in another live streaming session on the results of Banco do Brasil. Our event will be in Portuguese with simultaneous translation into English. You can choose three audio options, original English or Portuguese. And to talk about the members of this second quarter, we have here with us our CEO, Tarciana Medeiros, our CFO, Giovanni Tobias, and our CRO, Felipe Prince. Now, to start the presentation, I would like to turn the floor to our CEO, Tarciana.

Good morning.

Good morning, everyone. Good morning to everyone who is joining us today for this live streaming on Brazil's results. This is the 10th one that we have together, but this one is quite special. It will be a bit different than all the previous ones because I think this moment requires a more straightforward conversation. So my presentation will be an executive presentation and shorter so that we have more time to talk and we can allow more time for the Q&A session. I would like to thank very much to all of the market analysts that are joining us today. Thank our shareholders, our clients, and all of our colleagues from the bank who built the results, and also our clients. And also, I would like to thank the members of the press for joining us today as well. So today, we will try to be very transparent as it has been a hallmark of our administration. We will talk about the results and what to expect for the rest of 2025 and the years ahead. I think you are very eager for this conversation. So with no further ado, let's look at the numbers. This first quarter, we had an adjusted net income of 11.2 million BRLs, a variation in the second quarter of 3.8 billion or minus 48% vis-à-vis the first quarter. Our cost of credit was up by 56% vis-à-vis the first quarter, and this increase was very much based on agro-divinquency in micro and SMEs, but very much pressured by this divinquency. NII. was up 4.9%, meaning that our capacity to generate results is still in line. We talk about that in the first quarter. This is a contribution margin that, in our view, was going to grow in the second quarter, but in that materialized, we also understand that this growth will be consolidated going forward. And when we talk about fee income, it was up by 4.7% vis-à-vis the first quarter. bringing a fee income of 8.8 billion when compared to 8.4 in Q1. That means that we have several different revenue sources, very much supported by the companies from our conglomerate. So that means fees in addition to the banking fees. When we look at admin expenses, here we post 9.7 of... 9.7 already realized of admin expenses in the second quarter, 1.9 in addition to what we posted in Q1, and expenses were very much in line with what we anticipated, both in terms of investments and expenses. I like to say that when we talk about admin expenses, this also contemplates our investment. provisions or forecasts, but expenses are very much in line with what we anticipated. Expended loan portfolio was 1,294 BRLs. This is growing strongly in very secure lines. We will talk about the growth of this portfolio for individuals. and also loans rented to workers. We will give you more details about that. And then when we look at CET1, our CET1 was 10.97 in the second quarter, very much the same as in Q1. That means that our balance sheet is strong, very robust, and at an adequate capital level. Now, Now, taking a deeper dive and speaking about the subject that I'm sure you're eager to hear about, here we have an agro portfolio and the perspective of the different cycles. But to talk about agro, the agro business, it's important that we tell you a story. You cannot look at a single snapshot and understand what is happening with the agribusiness portfolio. It's important that you have, you know, an analysis of what happened in the past five years. So when we look at our portfolio in December of 2020, the portfolio was 1.91 billion barrels. delinquency I mean 90-day NPL was 1% and at the time Salik was at 2% so we just took one of the commodities being soybeans just to give you an idea of what happened over time so in 2020 December of 2020 soybean was priced at at 90 193 per back and Salik was 2% then what happens after you know december 2021 going forward to 22 etc so there was a growth of that portfolio especially in terms of free resources that very much supported by the optimist from the market the market was very optimistic about you know the harvest season and so in 2021 and 22 Soybean bags reached a peak of 192 with a SILIC of 927, and then at the end of 22, SILIC was was higher, so what we see is that the portfolio grew, especially in terms of free resources. What is interesting to note is that this growth was not only, you know, a growth coming from Banco do Brasil, but it was across the market. We have 50% of the agro market, so not only Banco do Brasil, but the market as a whole grew in terms of the agribusiness. And in this optimistic environment, clients were not only taking loans from Banco do Brasil, they were also very leveraged in the capital markets and with partners. Therefore, in 2023, we noticed an interesting growth of this portfolio, going from 309 from 2022 to 355 in 2023, with delinquency at 0.96. In this period, going from the end of 2021 until December of 2023, that's when there was the start of the Ukraine war. And the market faced many challenges because of the cost of fertilizers. In 2023, right at the end of the period, there was a drought and a flood in Rio Grande do Sul. The crop season 23-24 did not perform as expected or in line with previous years, and that's when the challenge became more aggravated. So look at the SELIC rate. SELIC was 11.75, but the price of commodities were down by around 1.46%. And then when we look, December 24 and June 25, the portfolio grows in line with what we expected, but the scenario was deteriorated vis-à-vis the forecast so delinquency by the end of 24 was 2.4 45 this delinquency was above the plan this delinquency was already detached from the plan we were expecting by december 24 delinquency ranging around 1.90 we'll talk to you about that and then we look at what happened when the slick rate spiked so silly at the end of 24 was 12-25, reaching 15 in June of 25. But when you look at the production of that rate, the production anticipated a much lower CLE in that period, which was the forecast for the harvest plan when the plan was envisioned and was launched in the first half of the previous year. So the crop year goes from June of one year until June of the following year. So what is important here? It's important that You know that we know what clients are delinquent, and we know them, and we know that part of this portfolio is delinquent. But we want to be very transparent and give you details about it. So today, June 2025, the portfolio is 12.2%. billion of delinquency, you know, NPL 90, and so December 2024, delinquency was totally out of our expectations. But again, the portfolio was 8.97 with no expectation of growth of this delinquency. This is important that I highlight. We have never seen such high delinquency in agribusiness in our whole history. We've never face delinquency at this level in the history of the bank and why am i saying this because not even in our most pessimistic predictions in most stress scenarios we would project delinquency at the levels we see today in in the agro portfolio so It's important that we make a distinction about things that happen in this portfolio. This portfolio has more than 600,000 clients. Out of the 600,000, 20,000 clients are delinquent today. And then we make a specific set of this delinquency. We have 20,000 delinquent clients, of which 74% until December 2023 had never been delinquent. meaning that these were clients of an excellent history with the bank, an excellent track record. But when you look at delinquency, 62% of it is mostly concentrated in the Midwest region and the South region of the country. And also, 50% of them are already leveraged in three very specific crops. soybean, corn, and, you know, beef. And when we look at the curve of commodity prices, like we put the example of soybean, we can clearly understand what happened to the profitability of growers during this period. So we start with high yields and productivities with also good gains and high gains in December 2022 to a drop. in profitability and a much lower payment, paying capacity. So out of the total delinquency, we notice that here we have 2.27 billion of this delinquency stemming from import reorganization. Now, it comes from reorganization. Today, we have 808 customers in a reorganization process, so now we notice stability in terms of the number of new reorganizations. But these 808 customers account for 5.4 billion BRLs. Therefore, it's very important that we have a very deep understanding knowledge and understanding of these agribusiness scenarios so we understand what happens this quarter and throughout the year of 2025, because 2025 is a year of adjustments for us. So that will help us understand what comes next, what will happen going forward. Therefore, this agro-delinquency is putting pressure on our results. It is increasing, you know, the need for further provisions. Whenever we talk about resolution 4966, and I got many questions about that, when we talk about resolution 4966, I would like to emphasize that this resolution brought to the financial market more predictability in terms of revenues and results of banks. In the case of agribusiness, what happens is that we had a provision model for incurred losses, meaning that once the loss occurs, we would then make the provision according to the risk of the operation. Today, 4966, makes it mandatory to set provisions according to expected losses so we look at the time period of the delinquency therefore provisions have to accompany that and i i keep telling you that i would never sell the risk models from bank of the brazil and i'll say that again we will never sell bank of brazil's risk models because we have models that can predict exactly all of the expected losses and because of that we had to increase provisions and then we will continue to post necessary provisions as we become more aware and we run an evaluation of what happened so in 2025 in the third quarter you will still see a more stress scenario in the third quarter because July August and September are months where we still have of all of the operations in our portfolio that are yet to mature, and we have clients that are still in the NPL 90 days. Therefore, in the third quarter, you should expect still a stress scenario, and we expect an improvement starting in the fourth quarter, already supported by the growth of NII. Now, here I bring the landscape for micro and SMEs. I think it's important that we also explain to you these two factors that are detractors, the delinquency from agribusiness and delinquency from micro and SMEs. When we talk about, you know, PSMEs, this leak cycle really affects the capacity, of these companies to honor their payments. So when we look at MSMEs in December of 2024, and again, we look at the Selic cycle, our Selic forecast for December was nine, not 25, but the actual number was 12.25, and the future prediction was 10.9, but it is now 15. So what did it mean to us? we we we should put these micro smes in our customer base and then we made a move to to help this company and that led to this in holla program out of this total if you look at june 2025 14.9 billion of this portfolio refers to renegotiated that. So when we look at the liquidity from MSMEs, just, you know, to put your mind at peace, I mean, if you look at renegotiated portfolio that is 10.5%, it looks like it is growing and it looks like it is the tractor of our result because we have to make provisions for it. But what it is, what it's important for us to show you that for this new core heart of If we exclude the renegotiated portfolio, that number would be around, you know, 10.6. So out of this portfolio, 25% of it It is guaranteed with collateral funds, and we have 18% of them with guarantees that are secured, secured by real estate and also receivables. But for 2025, I mean, I'll talk about the review of that further on. But it's important that you understand how this delinquency is, you know, It is also important that you know that we know exactly the profile of these delinquent clients and who is delinquent and what part of that portfolio we know that will pay and is at risk. So I always say that Banco do Brasil will post results of the magnitude of the bank. Now, I learned one thing. It's only Banco do Brasil, of the magnitude of Banco do Brasil, can really support this level of delinquency, both from agro and both from MSME. And this is what we notice in 2025. But I would like to conclude this first part of the presentation by bringing you the review of our guidance for 2025. We made a very difficult decision in the first quarter, and I will repeat, because we always strive at being very transparent. I mean, the fact that we reviewed the guidance, I mean, that was a bold decision that we had to make, but it was also a responsible decision and a decision in line with the need to review the guidance that we had given the reality we faced. So here I have the review guidance in terms of our loan portfolio. You know, the interval used to be 5.5 and 9.5, so this review now reflects our actions and our... appetite to grow the loan portfolio for business and agribusiness for 2025 for a corporate. Their review was from 0 to 3 and the past was from 4 to 8. When we look at individuals, the review was 7 in 10, and here we understand that this is an avenue of growth. We will continue to grow with interesting spreads in this segment, and when we look at agribusiness, we had posted growth from 5 to 9, and now the reviewed interval is between 3 and 6. Okay, NII, that was under review. The review interval is 102 and 105. That means that we believe that NII will continue to grow. Therefore, we have the capacity to continue generating results. Now, cost of credit, one of the detractors of our results, and I already explained to you, is very much in line with what comes in terms of need for provisions from agro and smes when we look at fee income we maintain the guidance interval very much in line with with what we mentioned before that combines a very oh i'm sorry i'm already referring to admin expenses but seeing them we maintain the guidance because we know that we will continue to grow this is growing in line with what we expected and we are working to deliver that guidance Admin expenses, it was maintained very much in keeping with what we said before when we referred to a very responsible control of our expenses, and it is worth mentioning that Banco do Brasil is the bank that has the best cost-to-income ratio in the Brazilian system, and we cannot let go of structural investments which are crucial to the growth of the bank in the future. And adjusted net income, with an interval between 21 and 25 billion in 2025 so this is the guidance contemplating the best expectations for the year 2025 as i said before 25 is a year of adjustment is a year where we review many processes this situation of 2025 made us you know led to the anticipation of some measures but I must tell you something a result between 21 and 25 million means that we will deliver the fourth or fifth best result of Banco do Brasil this result is below our expectation and below the market expectation. We are aware of that, but this is a responsible result. This is a result that maintains our balance sheet robust and maintains the company in a very sustainable level so that from now on we will resume our profitability levels like we had in previous years.