Banco Pan SA

BOVESPA:BPAN4

Earnings Call Transcript 2020-Q3

[Operator]

Good afternoon, ladies and gentlemen, and welcome to Banco PAN's conference call to discuss the third quarter of 2020 results. This event is also being broadcasted simultaneously on the Internet, both audio and slide show, which can be accessed on the company's IR website, www.bancopan.com.br/ir, and MVIQ platform with the respective presentation. [Operator Instructions]

Forward-looking statements are subject to known and unknown risks and uncertainties that could cause the company's actual results to differ from those in the forward-looking statements. Such statements speak only as of the date they are made, and the company is under no obligation to update them in light of future developments.

With us here today, we have Mr. Mauro Dutra, Banco PAN's CFO and IRO; and Mr. Inácio Caminha, Head of Investor Relations and Funding.

Now I will turn the conference over to Mr. Mauro Dutra, who will begin the presentation. Mr. Mauro, please, you may proceed.

[Mauro Mediano Dias, executive]

Okay. Good morning. Thank you all for being here with us in the name of Banco PAN to talk about our results of the third quarter of 2020 and our presentation.

We are, in a general way, very satisfied with the overall performance of the bank during this quarter as we managed the bank conservatively, we advanced on our digital strategy, and we also delivered very consistent results in our view.

I will start on Slide 2, where you can see the highlights of the third Q. Starting with the average monthly origination, we originated BRL 2.3 billion per month in this quarter, which represents 30% growth when compared to the same quarter of '19.

Our credit portfolio reached BRL 25.3 billion, with a very good performance that we will give you some details during the presentation.

Our earnings before taxes reached in the quarter, BRL 259 million. And in the first 9 months of the year, BRL 677 million, which represents 40% more than we had at the same period of last year.

With these earnings before taxes, we reached a net income of BRL 170 million in the quarter and BRL 485 million in the year, in the 9 months of the year, which also represents almost 40% growth when compared to 2019.

With such net income, we reached 21.5% adjusted ROE in the quarter and in line 21.6% per year ROE in the first 9 months. And the accounting ROE was 13.2% in the quarter, 12.7% in the first 9 months compared to 10.4% in the 9 months of 2019, which is an important improvement in such metric.

Our equity reached BRL 5.2 billion in September compared to BRL 4.8 million in September 19, and our Basel ratio reached 16.5%, which is fully comprised of our core Tier 1 capital in this indicator.

So moving to slide -- moving on to Slide 3, we will then talk about the quality of our portfolio, the performance of our credit portfolio. Starting with the default ratios, the over 90 ratio decreased from 7% in June, in the end of the second Q to 6.7% in September, in the end of the third Q. And the early indicator, the over 15 to 90 days ratio also improved from 8.9% to 7.3%.

For this early indicator, you have some details at the bottom of the slide, where you can see this improvement has been consistent on a monthly basis since the peak in April '20.

Also important to mention that we kept our very conservative approach in terms of credit deferment. We only postponed 2 installments of 13,500 clients, which represents almost 1% of our portfolio. And the subsequent overdue installments -- 92% of the subsequent overdue installments have already been paid showing the quality of the credit we postponed.

Our credit policy remains conservative in terms of credit metrics, and we are comfortable with such policy to face the crisis and the economy looking forward.

When you look to Slide 4, you can see that the delinquency ratios are bringing lower provisions on our results. So we had the provision expenses compared to the portfolio of 4.8% in the third Q compared to 5.9% in the second Q. It happened because not only the provision expenses, they themselves decreased, but also the credit recovery was also better in the quarter, indicating that our portfolio is performing pretty well.

Worth to mention also that our portfolio was kept at 94% in payroll loans and collateralized loans which is mainly represented in our vehicles financing business.

Talking about our digital strategy on the next slide, Slide 5. We have our 3 pillars here. The first one is the digital formalization in which we reached almost 70% of the payroll loans transaction formalized using digital tools. And for the vehicles business, we reached 96% in the quarter. We can say that 82% of all the transactions we made in these 2 businesses in the month of September were formalized digitally.

The second pillar of the digital strategy is our digital bank, which is already a very complete experience for the client, and we are launching new features on a quarterly basis that we are talking with you, investors.

For this quarter, we launched the Poupa Pan, which is a time deposit with daily liquidity, pretty much in line with our clients' needs, and we are very satisfied with that. And we also started the registration of the instant payment, PIX, which in our view, will bring very much better user experience for our clients, which will allow us to engage more clients in our digital bank.

Talking about our partnerships. We also would like to mention our diversification in terms of channels -- products and channels, and in the diversification of channels, we are increasing the number of total partnerships we have here in the digital bank, reaching 46 in September, in the end of the third Q.

So we are very happy with our digital bank and our digital strategy. We are advancing as we expected, and we are seeing the clients and partners more engaged with the bank and with our tools.

I'll now let Inácio go through our detailed figures, and then we can then talk about any questions you may have.

[Inácio Caminha, executive]

Great. So moving on to Slide 6. We have the quarterly results. So the main numbers and indicators. In the upper left corner, we see the chart showing the net interest margin, which totaled BRL 1.4 billion, 20.5%, advancing due to the increase in the core portfolio, also associated with strong spread levels.

In this quarter, we assigned lower volumes than we did in the second Q. We already talked about credit provisions that decreased in the quarter. The other expenses totaled BRL 715 million in this quarter, increasing mainly due to origination expenses related either to greater volume, also different mix, but including as well the effects of the digital bank. In personnel expenses, collective agreement also had an impact.

So we got to an earnings before tax of EUR 259 million, BRL 170 million net income. And finally, the 21.5% adjusted ROE. Very robust level.

The next slide brings the accumulated figures for the 9 months. So net interest margin got to BRL 3.8 billion, increasing 28%. Credit provisions increased 19%, totaling BRL 1.1 billion. Other expenses also increased BRL 19 billion -- 19%, totaling BRL 2 billion. And these levels of expenses, in the end, they reflect the bank that changed in these 12 months. So not only about growing origination, but also more investments in technology and obviously, the digital bank, which had no effect in the 9 months of 2019, for instance.

Even so, we saw an important evolution in the earnings before tax, reaching BRL 677 million, 41% above the same period of 2019. And we keep seeking more efficiency gains.

Net income was BRL 485 million, and the adjusted ROE, 21.6%.

Speaking about the adjusted ROE, on Slide 8, we have the composition based on the accounting ROE. So this metric has basically 2 adjustments in the net income and also in the equity. The adjusted results, the adjusted net income is calculated by excluding the excess of financial expenses from the legacy deposits so that we would have, instead of the EUR 170 million, BRL 223 million in the quarter and BRL 647 million in the 9 months.

It's very important to mention that in this fourth Q '20, approximately 1/3 of these deposits mature. So they will have the accounting results.

In the second adjustment, we exclude the excess of DTA from the legacy tax losses, which does not allow us to leverage our balance. So we compare that adjusted profit with BRL 3.9 billion of adjusted equity. Therefore, we come from the 13.2% accounting ROE to the 21.5% adjusted ROE in the third Q, for example. These are 2 simple adjustments, simple to understand and to isolate and better translate the bank's returning the margin.

About origination on the next page, we show the evolution. We see a record of BRL 2.3 billion in the third quarter, advancing 29% in 12 months, totaling almost BRL 7 billion in new credits in this quarter.

In payroll loans, we originated BRL 1.2 billion per month, keeping the same level as we saw in the last quarter, which was already a strong quarter.

In vehicle, we generated BRL 672 million (sic) [BRL 572 million] per month in the quarter, increasing 61% over the second Q with a very conservative origination, maintaining a better performance than observed by the market.

In credit cards, we also advanced significantly, reaching BRL 511 billion per month, reflecting here not only the partnerships, but also the first signs of the digital bank.

So with that origination, we got to the credit portfolio on the next slide, which increased 7% in 12 months, totaling BRL 25.3 billion. Structurally, the distribution of products remained similar, with payroll representing 52%, BRL 13.3 billion. Vehicles portfolio ended the quarter at BRL 9.8 billion or 39% of the total. Credit cards reached EUR 1.4 billion, also advancing, representing 6% of the total. And then we have the runoff portfolios that we treated significantly.

So if we look at the core portfolio, which excludes these runoffs, we had a greater increase. So 4.4% in the quarter and 11% in 12 months. It is also worth mentioning that the relevance of payroll loans and collateralized loans account for 94% of the portfolio, and renegotiated loans are very small, only 0.6% of the portfolio.

We also see here the originated portfolio, which includes the portfolio assigned to controlling shareholders, which ended the quarter at BRL 32.6 billion.

Talking about payroll on Slide 11. We continue as a very relevant player with focus on federal holds. In this quarter, we originated BRL 1.2 billion, BRL 3.7 billion in total. Out of those, 94% regarding loans and 6% on credit cards.

We maintained a very strong level of production in line with second Q, when we had the influence of regulatory changes that allowed us -- allowed a greater volume back then. And then we also saw 69% of total origination made through our digital platform, which has been a very strong differentiator in the market, bringing more efficiency. Also, it will allow us to scale the B2C business.

The origination remains concentrated in federal agreements, representing 95%, out of those being 84% of the social security program.

We saw an increase in both portfolios, not only in the loans, but also in credit cards, totaling BRL 13.3 billion. And we have seen recent other regulatory changes that will likely generate more opportunities in the short-term as we have already seen.

Moving on to vehicles on Slide 12. The portfolio increased 20% in 12 months, reaching BRL 9.8 billion with a very adequate level of loan-to-value and also term in these loans. The table show an interesting increase, reaching BRL 572 million per month, a record in origination. If we compare to the market, the performance in light vehicles remained above, even with the recovery made by the market recently. But in motorcycles, the difference is very strong. So we see a relevant growth, gaining market share and maintaining absolute leadership for several months.

It is also worth mentioning that our main objective here in this business is to originate with quality and profitability, so market share is only a consequence.

And as mentioned before, the digital formalization platform also advanced significantly in financing. We got to 96% of everything originated without paper. And this has been benefiting a lot of the operation when providing a better experience, not only for the partners, but also for the clients.

Moving on to credit cards on Slide 13. The transactions increased very significantly, 64% in 12 months, reaching BRL 1.5 billion in total. And here, we see the impacts of greater issuance of cards sold through multiple channels, and we also see the first signs of the digital bank. We are very satisfied and see a lot of opportunities ahead.

Another very interesting aspect is that our customers are increasingly digital. So whether in hiring the credit card or servicing or even receiving the invoices, which brings more efficiency and better experience for everyone.

On Page 14, we see the evolution of insurance premiums. We originated BRL 35 million in premiums per month in the quarter, recovering significantly following the performance of vehicle origination, but also with the beginning of new types of insurance, for example, mechanical assistance that has been advancing.

To promote more opportunities in insurance sale, we have started to offer payroll loan insurance with great potential for growth. And we also see the digital bank as an important tool to average the sale of other types of insurance.

On Slide 15, we see the evolution of funding, which closed the quarter at BRL 25.5 billion, increasing 10% in 12 months. Deposits as a whole increased participation, contributing to the spread of our funding, diversificating through direct customers, also independent distribution platforms, including as well institutional investors.

And on Slide 16, to conclude, we have the capital. We ended the quarter at 16.5%, entirely comprised by CET1. We're showing a very strong level of capital that will allow us to move forward with our growth plans.

Our strategy remains the same, be a complete banking solution platform focused on credit for low-income population, intense digitalization and diversification of products and channels. In addition to everything that we already do, the PIX and open banking will contribute to our growth and assertiveness in customer relations.

So with that, we conclude the presentation and open the line for questions.

[Operator]

Ladies and gentlemen, we will now begin the Q&A session. [Operator Instructions]

Since there seems to be no further questions, I would like to turn the floor over to Mr. Mauro Dutra for his final remarks. Sir, you may proceed now.

[Mauro Mediano Dias, executive]

Okay. Thank you, everyone, on the line for being here with us. Just reinforcing, we are pretty confident with our strategy and very excited with the opportunities we see ahead. And see you next quarter to talk about the results of the fourth Q. Thank you.

[Operator]

Okay. This concludes Banco PAN's conference call. You may now disconnect, and have a good day.