Summary of the Results 1Q11

Transcription

1 Summary of Results Income BB's income attains R$ 2.9 billion in the quarter Banco do Brasill recorded net income of R$ 2,932 million in the first quarter of 2011, up 24.7% over the amount verified in the same period of This result corresponds to an annualized return on average shareholders' equity of 24.9%. The only item treated as extraordinary for the quarter was the amount regarding Economic Plans, that added R$ 10 million to the result, net of taxes. Disregarding this effect, recurring income reached R$ million in the quarter, representing growth of 42.2% over the first quarter of The Return on Equity (ROE) was 24.8%. The decrease shown as compared to the previous quarter (fourth quarter of 2010) is the result of revaluation of assets and liabilities of Plan 1 of Previ, occurring semi-annually ,704 4,002 2,056 2,351 2,923 2,932 Figure 1. Income (R$ million) e ROAE (%) 1Q10 4Q10 Recurring Net Income Net Income ROAE - % Recurring ROAE - % Recurring income is driven by the improvement in credit risk and control over expenses The growth verified in recurring income for the quarter in relation to the same period of previous year is chiefly due to the 21.2% increase in credit (loan portfolio, private securities, and provided guarantees), combined with the 13.1% drop in the allowance for loan losses expenses, reflecting the improvement observed in the loan portfolio risk. The control of administrative expenses, combined with synergy gains from the acquisition of BNC, allowed a growth of 7.4% in the comparison of the first quarter of 2011 to the first quarter of 2010, below the guidance proposed for BB's strategy to focus on non-banking business can already by perceived in the income figures for this quarter. Fee income grew 10.9% in the comparison with the first quarter of The result from insurance, pension and saving bonds also increased 16.3% on the same comparison basis. The ratio between commercial income (Net Interest Income, fee income and income from insurance operations) and average customer base generated R$ , growth of 8.7% over the first quarter of 2011, confirming the adoption of conect right strategies regarding the transformation of retail segment at Banco do Brasil. 1 - Banco do Brasil Summary of the Results 1 st Quarter/2011

2 The following table, extracted from the statement of income with reallocations, presents the main highlights of the period. The breakdown of reallocations is in Section of the Management and Discussion Analysis report (MD&A). Table 1. Statement of Income with Reallocations Main lines R$ million 1Q10 4Q10 On 1Q10 On 4Q10 Financial Intermediation Income 18,562 21,736 22, Loan operations + Leasing 12,721 14,526 15, Securities 5,644 6,137 6, (0.1) Financial Intermediation Expenses (9,205) (11,568) (12,355) Net Interest Income 9,357 10,169 10, Allowance for Loan Losses (3,026) (2,139) (2,629) (13.1) 23.0 Net Financial Margin 6,331 8,030 7, (2.3) Fee income 3,703 4,306 4, (4.6) Income f/ Insur., Pension Plans and Sav. Bonds Contribution Margin 9,636 11,858 11, (3.1) Administrative expenses (5,300) (6,068) (5,692) 7.4 (6.2) Personnel Expenses (2,851) (3,270) (3,145) 10.3 (3.8) Other Administrative Expenses (2,449) (2,798) (2,547) 4.0 (9.0) Commercial Income 4,310 5,772 5, (0.3) Legal Claims (238) 35 (98) (58.8) - Labor Lawsuits (212) 92 (79) (62.6) - OtherOperating Income (448) 289 (760) Income Before Taxes 3,415 6,186 4, (21.8) Income and Social Contribution Taxes (1,053) (1,923) (1,474) 40.0 (23.4) Corporate Profit Sharing (307) (559) (442) 44.1 (20.9) Recurring Net Income 2,056 3,704 2, (21.1) Previ Quarterly Flow Chg. % In the first quarter of 2011, R$ 624 million were recorded regarding recognition of actuarial gains of Previ's defined benefit plan (plan 1). This amount is determined by the expected restatement of plan's assets and liabilities and is calculated based on the use of the discount rate of actuarial assets on assets and liabilities (proportional to the BB's share of 50%), net of current service cost. The periodic revaluation of assets and liabilities of Previ occurs at the end of each semester, generating additional recording of R$ 1,369 million in the fourth quarter of Further explanations can be obtained in the Note regarding Benefits for employees and in chapter 6 of the MD&A. Table 2. Previ Recognized Acturarial in half-yearly Reassessment R$ million 1H10 2H10 Fair Value of the Plan's Assets (a) 130, ,566 Present Value of Actuarial Liabilities (b) 83,005 90,805 Surplus / (Deficit) BB (c) = 50% of [(a) + (b)] 23,579 25,380 Corridor BB (d)* = 50% of max value of 10% of Assets or Liabilities (the highest) 6,508 7,078 Surplus / (Deficit) BB after Corridor 17,071 18,302 Recognized Actuarial Gains/(Losses) before the half-yearly Reassessment 14,120 8,526 Unrecognized Actuarial Gains/(Losses) 2,950 9,777 Average Remaining Work Period (half-yearly) Amortization of Actuarial Gains/(Losses) 389 1,369 Net Actuarial (Liabilities)/ Assets 14,510 9, Banco do Brasil Summary of the Results 1 st Quarter/2011

3 One-off Items The following table shows the one-off items, that added R$ 10 million to BB's net income in this quarter. These impacts are already net of taxes and statutory profit sharing. Table 3. One-off Items R$ million 1Q10 4Q10 Recurring Net Income 2,056 3,704 2,923 (+) Extraordinary Effects of the Period Sale of Interest in VISA Internacional Economic Plans (85) (231) 17 Tax Efficiency Reversal of Labor Liabilities Tax Impacts and PLR on Extraordinary Items (313) 70 (8) PREVI Actuarial Assets - Adjustments (88) - - Net Income 2,351 4,002 2,932 Table 4. Main Indicators of Income/Expenses Indicators - % 1Q10 4Q10 Net Interest Margin (NIM)¹ Expenses with Allowance for Loan Losses over Portfolio² Efficiency Ratio³ Recurring Return on Equity¹ Effective Rate of Tax (1) Annualized indicators. (2) Accumulated Allowance for Loan Losses expenses for the 12-month period divided by the average loan portfolio in the same period. (3) The extraordinary effects of the period were segregated in the calculation. Shareholders Return Net income per share of R$ 1.03 in the first quarter of 2011 In this quarter, the net income per share attained R$ 1.03, an amount 12.0% higher than that recorded in the same period of Q10 4Q10 Figure 2. Net Income per Share 3 - Banco do Brasil Summary of the Results 1 st Quarter/2011

4 40% net income distributed to the shareholders Summary of the Results Banco do Brasil maintained the policy of paying out 40% of its net income to its shareholders (payout). In the quarter, BB allocated R$ 724 million as interest on own capital and R$ 449 million as dividends Q10 4Q10 Interest on Own Capital (R$ million) Dividends (R$ million) Figure 3. Dividends and Interest on Own Capital Net Interest Income and Spread The Net Interest Income (NII) reached R$ 10,476 million in the first quarter of 2011, which represents an increase of 12.0% in 12 months and of 3.0% in the quarter. It is expected that, throughout 2011, the gradual incorporation of the effects of credit product repricing and the growth of earning assets influence the NII positively, in line with the guidance forecasted interval. The table below presents the breakdown of Net Interest Income. Special emphasis is placed on the contribution of the loan portfolio in its main business lines and the amounts corresponding to revenues with recovery of loans written off as loss and relating to remunerated compulsory deposits are segregated. The item Other Income, comprised mainly of income from treasury, resulting from transactions with securities, derivatives and foreign exchange, completes the formation of the Financial Margin. Table 5. NII by Line of Business Quarterly Flow Chg. % R$ million 1Q10 4Q10 On 1Q10 On 4Q10 Net Interest Income 9,357 10,169 10, Loan Operations 6,924 6,934 7, Individuals 3,926 3,964 4, Businesses 2,052 1,902 2, Agribusiness 946 1, (6.9) Other 2,432 3,235 3, Remunerated Compulsory 274 1,276 1, Recovery of Write-offs (1.0) Other 1,528 1, (46.0) (24.7) Regarding compulsory deposits, changes made by the Central Bank of Brazil (Bacen) in 2Q10 and fourth quarter of 2010 explain the performance observed. These changes had two major impacts on the financial statements of BB. On one hand there was reduction of resources available for more profitable investments as result of the rise in rates. On the other hand there was a change in the form of payment, which implied migration of resources from the securities portfolio to compulsory deposits. 4 - Banco do Brasil Summary of the Results 1 st Quarter/2011

5 The Net Interest Margin (NIM) of loan operations was 8.8% in the first quarter of 2011, an increase of 10 basis points over the previous quarter and a decrease of 110 basis points over the first quarter of In twelve months, the behavior of the spread is mainly associated with changes in the mix of the portfolios, with an increase in the share of lower risk operations, and, therefore, a lower spread; in the business portfolio, the transactions with medium and large companies are those that most significantly increased. In the quarter, the spread recovery was due to operations with businesses, which returned to the level observed up to the third quarter of On the other hand, performance of the agribusiness line results from the growth of the portfolio focusing agroindustrial credit, that presents lower spreads. Please note that the new loan operations are contracted at higher rates, reflecting the macroprudential measures adopted by Central Bank. However, the impact of such repricing does not occur immediately. The perception that the fluctuation of the spread in a 12-month comparison results from changes in the mix of the portfolios, with greater statistical significance of operations of lower risk, is corroborated by the "Risk-Adjusted NIM ", indicator, determined with a basis on the ratio between the net interest margin and earning assets. Besides the net interest income, the risk-adjusted spread also takes into consideration expenses with allowance for possible loan losses. The indicator ended the first quarter of 2011 at 4.6%, 20 base points higher than that recorded in the first quarter of Table 6. Annualized NIM % 1Q10 4Q10 Loan Operations Individuals Businesses Agribusiness Other Net Interest Margin (NIM) Risk Adjusted NIM Assets BB's assets attain R$ 867 billion Banco do Brasil attained R$ 866,636 million in total assets, an increase of 19.6% compared to March 2010 and 6.8% in the quarter. In the quarter, growth was influenced by the performance of short-term interbank investments. Table 7. Main Equity Items R$ million Mar/10 Dec/10 Mar/11 On Mar/10 On Dec/10 Total Assets 724, , , Loan Portfolio¹ 328, , , Securities 119, , , Short-term Interbank Operations 152, , ,458 (4.0) 36.1 Deposits 342, , , Demand Deposits 54,973 63,503 59, (6.2) Savings Deposits 78,719 89,288 90, Interbank Deposits 10,749 18,998 12, (36.5) Time Deposits 197, , , Money Market Borrowing 157, , , Shareholder s Equity 37,646 50,441 52, (1) Includes provided guarantees and private securities. Chg. % 5 - Banco do Brasil Summary of the Results 1 st Quarter/2011

6 Loan Portfolio Loan portfolio surpasses R$ 397 billion The loan portfolio that includes provided guarantees and private securities in the portfolio, attained R$ 397,516 million, growth of 2.4% in the quarter and 21.2% in the year. Banco do Brasil s share in the domestic loan portfolio was 19.5% in March 2011, maintaining the leadership in the Brazilian Banking Industry. Table 8. Extended Loan Portfolio¹ Balance Chg. % R$ million Mar/10 Share % Dec/10 Share % Mar/11 Share % On Mar/10 On Dec/10 Brazil 309, , , Individuals 95, , , Business 148, , , Agribusiness 65, , , Foreign 18, , , Total¹ 328, , , (1) Includes provided guarantees and private securities Consumer credit leads the expansion of the portfolio Loans to individual clients continued to grow, influenced by vehicle financing and Consumer Loan backed by that grew 36.0% and 23.6%, respectively, in 12 months. In line with the Bank strategy of increasing portfolio interest with mortgage, a growth of 16.1% was observed in the quarter, attaining R$ 3,427 million. We noted amounts disbursed of R$ 1,140 million, a volume 252% higher than the one recorded in the same period of When the balance of mortgage for businesses is added (R$ 734 million), the real estate portfolio of BB reaches R$ 4,161 million, 22% higher than that verified in the fourth quarter of 2010 and 99% higher in the 12-month comparison. In this quarter, part of the demand for credit by companies was complied with via subscription of private fixed income securities. Banco do Brasil recorded growth of R$ 3,767 million in private securities, a fact that influenced business portfolio's performance. In analyzing the loan portfolio, in amplified concept that includes provided guarantees and private securities, there was a growth of 1.7% in the quarter for the business segment. Moreover, there was a robust growth in agroindustrial credit for companies involved in the agribusiness chain. The agribusiness loan portfolio grew 3.4% in the quarter and 19.3% in 12 months, as a result of the agroindustrial credit. 6 - Banco do Brasil Summary of the Results 1 st Quarter/2011

7 Table 9. Loan Porfolio Summary of the Results Balance Chg. % R$ million Mar/10 Share % Dec/10 Share % Mar/11 Share %On Mar/10On Dec/10 Loan Portfolio (a) 305, , , Brazil 288, , , Individuals 95, , , Payroll Loan 38, , , Consumer Loan Backed by Direct Depos 11, , , Auto Loans 21, , , Mortgage 1, , , Credit Card 8, , , (5.8) Overdraft Accounts 2, , , Other 10, , , (3.8) (1.0) Businesses 128, , , (0.8) SME 45, , , (1.0) Middle and Large 82, , , (0.7) Agribusiness 64, , , Individuals 47, , , Businesses 17, , , Abroad 17, , , Bonds Securities (b) 22,542 29,858 32, Amplified Loan Portfolio (a + b) 328, , , Individuals 95, , , Businesses 148, , , Agribusiness 65, , , Abroad 18, , , Quality of the portfolio results in lower expenses with allowance for loan losses The average loan portfolio risk decreased 10 base points in the quarter, corroborating the improvement in the quality of BB's loan portfolio and continues above the Banking Industry indicator, that recorded average risk of 5.5%. Loan operations classified as AA to C risk represented 93.8% at the end of March 2011, as opposed to 93.7% in December 2010 and 91.9% in March In relation to the indicator that measures operations overdue for more than 90 days, BB's result is below the indicator observed in the Brazilian Banking Industry in March 2010, 2.1% at BB as opposed to 3.2% in the BI. Table 10. Loan Portfolio Quality Indicadors % Mar/10 Dec/10 Mar/11 Past due loans + 15 days/total Portfolio (%) Past due loans + 60 days/total Portfolio (%) Past due loans + 90 days/total Portfolio (%) AA - C Loans / Total Portfolio (%) Allowance/Loan Portfolio Allowance/Past Due Loans + 60 days Allowance/Past Due Loans + 90 days Average Risk BB Average Risk Banking Industry Transactions overdue + 90 days/total Portfolio BI Expenses with allowance for loan losses showed a decrease of 13.1% in 12 months, in line with the improvement in the quality of the loan portfolio. In the quarter, the increase in such expenses is mainly due to the following factors: Result of the mobilization to recover agribusiness operations written-off as loss, that can be verified by the increase in operations rated at level H (provision of 100%) in a normal situation, as defined by CMN Resolution 2682/ Banco do Brasil Summary of the Results 1 st Quarter/2011

8 Larger volume of reversal of provisions related to loan operations assigned by Banco Votorantim in the fourth quarter of 2010, which led to a decrease in expenses with provisions in that quarter. The index that measures the ratio between expenses with allowance for loan losses accumulated in twelve months and the average loan portfolio of the same period ended the first quarter of 2011 in 3.0%, improvement of 30 base points compared to the immediately prior quarter. Table 11. Exepenses with Allowance for Loan Losses over Loan Portfolio R$ million 1Q10 4Q10 (A) Allowance for Loan Losses - Quarterly (3,026) (2,139) (2,629) (B) Allowance for Loan Losses - 12 Months (12,164) (10,675) (10,278) (C) Loan Portfolio 305, , ,659 (E) Average Portfolio 3 Months 304, , ,964 (E) Average Portfolio 12 Months 269, , ,575 Expenses over Portfolio (A/D) - % Expenses over Portfolio (B/E) - % Notwithstanding the improvement in the quality of the portfolio, Banco do Brasil continues to be cautious in relation to the balance of credit risk provisions and the percentage of coverage of the portfolio. The balance of allowance for loan losses ended the quarter at R$ 17,016 million, which provides coverage of 221.8% of operations overdue for more than 90 days. Basel BIS ratio strengthened by the increase in capital Banco do Brasil capital ratio (K) ended March 2011 at 14.1%, the same level observed in the fourth quarter of 2010 and growing 40 base points in relation to that recorded in March The BIS Ratio presented indicates an excess of Referential Shareholders Equity of R$ 15.1 billion, which enables an expansion of up to R$ billion in credit assets, considering a weighting of 100%. The evolution of the ratio during the year is explained by the capital increase made by BB in June Under that transaction, BB raised R$ 7 billion through a public offering. In addition to strengthening the Bank's Tier I capital, the offering expands the limit for BB to reinforce its Tier 2 capital basis Mar/10 Dec/10 Mar/11 Tier II Tier I Figure 4. BIS Ratio 8 - Banco do Brasil Summary of the Results 1 st Quarter/2011

9 Fee Income Fee Income and Result from Insurance Operations Fee income totaled R$ 4,108 million in the first quarter of 2011, 10.9% higher than that verified in the same period of 2010, and lower than 4.6% in the quarter. Quarterly performance is chiefly due to the year-end seasonal effect, in which the demand for banking services increases significantly. The highlights for the period are revenues related to business with cards, that recorded growth of 23.1% in 12 months. Operations with agribusiness cards led to this result. With a 6.3% growth in the quarter and 16.0% over the first quarter of 2010, investment fund management fees reached R$ 622 million. It is emphasized that at the end of March 2011, BB reached R$ billion in Assets Management, with a market share of 22.0%. Considering the 50% share regarding the partnership with Banco Votorantim (BV), market share would reach 22.7%. The result of BB's strategy of increasing participation of its result with insurance operations can be observed in Income from insurance operations in the table below. The corporate restructuring of this segment initiated in 2010 influenced performance for the quarter, growth of 4.4%, and of 16.3% in 12 months. Table 12. Fee Income and Result from Insurance Operations Quarterly Flow Chg. % R$ million 1Q10 4Q10 On 1Q10 On 4Q10 Fee Income 3,703 4,306 4, (4.6) Account Fees 875 1, (0.6) (16.0) Credit / Debit Cards (1.8) Investment Fund Management Fees Loan Fees (9.8) Collections (4.1) Insurance, Pension Plans and Savings Bonds Billings Interbank (0.0) Capital Market Fees (11.3) (16.4) Other (11.8) 0.2 Insurance, Pension Plans and Savings Bonds Incom Administrative Expenses Control of expenditures influences the good behavior of administrative expenses Administrative expenses, which include personnel and other administrative expenses, totaled R$ 5,692 million in the first quarter of 2011, growth of 7.4% in 12 months, and decrease of 6.2% over the previous quarter. The growth of personnel expenses in 12 months is chiefly due to the average salary adjustment of 7.5% and hiring of employees. In relation to other administrative expenses, synergy gains due to the takeover of BNC, together with control of expenditures promoted by BB, explain the good result of this account. 9 - Banco do Brasil Summary of the Results 1 st Quarter/2011

10 Table 13. Administrative Expenses Summary of the Results Quarterly Flow Chg. % R$ million 1Q10 4Q10 On 1Q10 On 4Q10 Administrative Expenses (5,300) (6,068) (5,692) 7.4 (6.2) Personnel Expenses (2,851) (3,270) (3,145) 10.3 (3.8) Other Administrative Expenses (2,449) (2,798) (2,547) 4.0 (9.0) Efficiency Growth of operating income, combined with strict control of administrative expenses, contributed to improve the efficiency ratio that went from 44.3% in the first quarter of 2010 to 40.9% in this quarter. The decrease of 190 base points in relation to the fourth quarter of 2010 is influenced by the item "Other operating income", where the revenues derived from PREVI surplus are recorded, owing to the actuarial revaluation of the Benefit Plan 1 of Previ be performed semi-annually, in the 2 nd and 4 th quarters. This performance can also be observed in the efficiency ratio accumulated in 12 months, that presented an improvement of 210 base points in the comparison of the first quarter of 2011 with the first quarter of 2010 and of 80 base points over the fourth quarter of The indicator based in 12 months allows an efficiency analysis with less volatility, especially in comparison with 2 nd and 4 th quarters Q10 4Q10 1Q10 4Q10 Cost Income Ratio (last 12 months) Cost Income Ratio Figure 5. Efficiency Ratios Without Extraordinay Items - % 10 - Banco do Brasil Summary of the Results 1 st Quarter/2011

11 Insurance Income from Insurance Insurance result reached a balance of R$ 369 million at the end of the quarter, 23.9% higher than the first quarter of In the quarterly comparison, the performance observed is due to the fact that in the fourth quarter of 2010 there was an extraordinary result regarding the reversal of PIS/COFINS provisions by the companies Aliança do Brasil and Brasilveículos. Table 14. Consolidated Insurance Ratio Quarterly Flow Chg. % R$ million 1Q10 4Q10 On 1Q10 On 4Q10 Insurance Result (10.1) Brokerage Net Income Service Fee Net Income Equity in the Earnings (20.7) BB Recurring Income 2,056 3,704 2, (21.1) Insurance Ratio Guidance The justifications for deviations between the guidance and the result observed in the first quarter of 2011 are listed below. It is worth highlighting that the guidance is prepared for the year and quarterly monitoring can be impaired by seasonal or specific events of the period in question. Table 15. Guidance 2011 Items Performance Guidance - BB Consolidated Recurring Return on Equity 24.8% 21% - 24% Net Interest Income* 12.0% 16% - 20% Total Deposits 11.3% 14% - 18% Domestic Loan Portfolio 18.9% 17% - 20% Individuals 22.5% 19% - 23% Businesses 16.1% 17% - 20% Agribusiness 19.3% 5% - 8% Allowance for Loan Losses 3.0% 3,3% - 3,7% Fee Income 10.9% 12% - 17% Administrative Expenses 7.4% 10% - 13% Tax Rate 33.5% 31% - 34% (*) Net Interest Margin indicador has been replaced by the growth of Net Interest Income Net Interest Income in spite of the performance below the estimates, the net interest income is expected to grow 16% to 20% based on the assumption of expansion of earning assets over 2011, and gradual incorporation of the effects of credit product repricing considering the macroeconomic scenario; Total deposits in spite of the result below the guidance, total deposits are expected to reach a growth of 14% to 18% throughout 2011; 11 - Banco do Brasil Summary of the Results 1 st Quarter/2011

12 Business Loan Portfolio in the quarter, part of the demand for credit by large companies was met via subscription of private fixed income securities; Agribusiness Loan Portfolio the expansion of agroindustrial credit was the main factor to the growth above the guidance; Allowance for loan losses although the first quarter of 2011 did not show a deterioration in the risk profile of BB s loan portfolio, we kept the guidance to reflect a more conservative approach considering the current macroeconomic scenario; Fee Income in spite of the result below the guidance, fee income is expected to reach a growth of 12% to 17% throughout 2011; Administrative expenses - performance resulting from the higher efficiency in the control of administrative expenses combined with synergy gains arising from acquisitions, highlighting the integration process of Banco Nossa Caixa. A higher concentration of expenses is expected in the second quarter of 2011 due to the opening of new branches and hiring of personnel over the year. The estimated for 2011 were prepared with the consideration of the following assumptions: Assumptions influenced by management: Increase in profitability of the client portfolio as a way to leverage revenues; Alignment of the cost structure to business volume growth; Contractual adjustments and collective bargaining agreement, aligned with market practice; Sales force growth adequate to the strategy of increasing customer base profitability; Maintenance of the current business model, without considering new acquisitions and/or partnerships that might be entered into to exploit specific segments; Recognition of actuarial gains and losses in the Previ s Benefit Plan I, as established by the CVM Resolution 600/2009. Assumptions that are not under management control: Continued global economic growth in 2011; Greater resistance, but not immunity, of the Brazilian economy to foreign shocks; A political environment without institutional rupture; Maintenance of the current domestic macroeconomic policy structure: floating exchange rate, inflation targets (nominal anchor) and fiscal discipline, entailing a gradual and consistent reduction of the relationship between Public Sector Net Debt (PSND) and the Gross Domestic Product (GDP); An advancement of the regulatory mark / microeconomic agenda with stimulus to public and private investment; A gradual increase in the Brazilian economy's potential for growth (potential GDP); Maintenance of the investment grade status awarded to Brazil; 2011/2012 Crop Plan; Regulatory stability, also in what concerns the rates of taxes levied on the Bank's activities, labor legislation, and social security legislation; Evolution of interest rates, inflation rate and GDP according to the market s consensus Banco do Brasil Summary of the Results 1 st Quarter/2011