Itaú Unibanco Holding S.A. (NYSE:ITUB) Q4 2023 Earnings Call Transcript

Itaú Unibanco Holding S.A. (NYSE:ITUB) Q4 2023 Earnings Call Transcript February 6, 2024

Itaú Unibanco Holding S.A. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Hello. Good morning, everyone. I am Renato Lulia, Group Head of Investor Relations and Market Intelligence at Itaú Unibanco. Thank you very much for joining our video conference to talk about our earnings for the fourth quarter of 2023, which we are broadcasting directly from our office at Avenida Faria Lima at Sao Paulo. This event will be divided into two parts. In the first part, Mr. Milton Maluhy will explain our performance and earnings for the fourth quarter of 2023 and present the 2024 guidance. Right after we will have a Q&A session. During which analysts and investors can interact directly with us. I’d like to give you some instructions to make the most out of today’s meeting. For those who are accessing this via our website, there are three options for audio on the screen, the entire content in Portuguese, the entire content in English or in the original audio.

The first two options will have simultaneous translation. To choose your option, all you have to do is click on the flag on the top left corner of your screen. Questions can also be forward via WhatsApp. To do so, just click on the button on the screen on the website or simply send a message to the number, +55-11-939-591877. The presentation we will make today is available for download on the website screen, and also as usual on our Investor Relations website. I’ll now give the floor to Mr. Maluhy who will begin the presentation on earnings. Then I’ll come back to you to moderate the Q&A session. Milton, go ahead.

Milton Filho: Good morning, welcome to our fourth quarter of 2023 earnings and the 2024 guidance presentation. I’ll go straight to the figures so that I can bring you some more information and then we’ll have enough time for the Q&A. Firstly, our earnings in the quarter totaled R$ 9.4 billion, a growth of 4% from the previous quarter. As a result, we delivered a consolidated ROE of 21.2%, with the 10 basis points growth in the quarter. In Brazil, ROE reached 22.2%. Moving on to revenue generation, our NII grew 3.3% in the quarter, reaching R$ 23.2 billion. Commissions in fees and results from insurance operations posted strong growth of 4.6%, reaching R$ 13.5 billion for the quarter. All this with sound credit quality indicators.

The consolidated NPL over 90 days posted a drop of 20 basis points. The NPL for individuals dropped 50 basis points. These are major results that show an evolution in the credit cycle. We’ve ended the quarter with a Tier 1 capital ratio of 15.2%, an increase of 60 basis points. The individuals portfolio grew 1.9% in the quarter and 4.1% in the same year. The SME’s portfolio grew 2.6% in the quarter and 3.5% in the year. The large corporate’s portfolio grew 8.7% in the year. Thus, the total growth of the loan portfolio in Brazil was 5.7% in the year. In Latin America, the results were affected by FX. As a result, the total portfolio grew 3.1% in the year and excluding FX variation, growth was 5.3%. It was a year in which we focused on derisking of the portfolio and we’ve been working more intensively on target clients and reducing the portfolio’s exposure to non-target clients.

We posted sound growth in the segments on which we focus. The Personalite and Uniclass loan book grew 16% in the year and 5% in the quarter. In Payroll Loans, we continue to grow in the private and public sectors, both quarter-over-quarter and year-on-year. There was a decrease in the public pension segment as a result of the caps that were put in place on interest rates. Therefore, we stopped serving a population that increasingly demands a social security-based payday due to these adjustments. Another piece of news worth sharing with you is that we had a nominal reduction of R$ 1.9 billion in the renegotiated portfolio, a drop of 4.6% quarter-over-quarter. This shows that our portfolio is good quality with sound credit indicators. It was a great quarter for clients NII, up 3.3%, or R$ 700 million in the fourth quarter of ‘23.

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Q&A Session

This growth was well-distributed across our product mix, volume, spreads and liabilities margin, and Latin America. We’ve isolated the effect of working capital, which starts the quarter at R$ 3 billion and ends at R$ 3.1 billion. The one month earnings of the operation in Argentina, which was recorded in the third quarter earnings, was also isolated. Thus, core growth was 3.3% quarter-over-quarter. Another piece of positive news was the expansion of the consolidated NIM from 8.9% in the third quarter to 9% in the fourth quarter. The risk-adjusted NIM also increased from 5.6% to 5.8% in this period. The risk-adjusted NIM of the Brazilian operation increased from 5.9% to 6.2% in the quarter, and the total NIM for Brazil reached 9.8%. I believe these are very positive messages for the financial margin with clients.

In the financial margin with the market, the fourth quarter was similar to the previous one with a sound result of R$ 800 million, with similar dynamics both in Brazil and in Latin America. The slight expansion in the quarter was due to the lower impact of cost for capital hedge. This shows that we’ve been delivering good risk management as shown by our solid financial margin with the market performances, despite the scenario of adversities and difficulties throughout the year. The financial margin with the market totaled R$ 3.3 billion in 2023 versus R$ 2.9 billion in 2022, which shows major growth in a year during which we face material challenges. It is worth mentioning that we met the 2023 guidance in all the disclosed lines, with the exception of the estimated growth of our loan portfolio, which was below the disclosed expected range.

This performance is explained by the difference between the projected FX rate for 2023 used in our budget and the actual FX rate for the period. Commissions, fees and results from insurance operations were also within guidance, up 5 3% year-over-year and 4.6% quarter-over-quarter. The highlight in the fourth quarter was the strong growth in credit cards due to seasonality. We’ve posted major progress in advisory services and brokerage fees. Net inflows increased 70% quarter-over-quarter and 7.4% year-over-year. This results from all the work of the last few years and shows that we are moving in the right direction. The latest acceleration is very positive. The transaction volume in the acquiring business grew 17.5% year-over-year, while revenue was up 20.4%.

This performance reflects an appropriate product mix, which has allowed us to increase revenue above the traded volume. In Insurance, earned premiums increased 11.2% in the year, with recurring income growing 19.6% in the period. It is worth emphasizing that we’ve seen a significant growth over the last three years in this operation. This performance shows that both the course and strategy designed for this operation are being well executed. In terms of credit quality, we draw attention to our short-term delinquency rate, which is absolutely under control, and shown by its stability both in Brazil and in Latin America. The long-term delinquency rate measured by NPL 90 days, decreased 20 basis points in Brazil, and in total. And in Latin America there was a slight increase of 10 basis points in the quarter.

This underscores that the short-term delinquency is under control. Short-term NPL in Brazil remained stable in the individuals portfolio, and had a slight growth of 10 basis points in the SMEs portfolio in the quarter. For the large corporates portfolio, this is not the most appropriate indicator to monitor, as I always say, but nonperforming loans are also well behaved. After four quarters of stability, the long-term delinquency rate of the individuals portfolio decreased by 50 basis points, and ended the period at 4.4%, which we consider a sustainable level. The NPL 90 for SMEs and large corporates remain stable. Generally speaking, we posted very strong credit indicators, with good developments and stabilization throughout the year, which is very good news for credit quality.

Cost of credit reached R$ 9.2 billion this quarter, a nominal amount below the prior quarter. The indicator that measures the cost of credit over the portfolio decreased in the quarter, from 3.2% to 3.1%. This was the second consecutive quarter in which there was a drop in the individuals portfolio NPL formation, which shows that the portfolio has reacted favorably. Cost of credit rose from R$ 32.3 billion in 2022 to R$ 36.9 billion in 2023, slightly above the best scenario in the guidance range, which was between R$ 36.5 billion and R$ 40.5 billion. There was a nominal drop in the renegotiated portfolio, which now accounts for 3.3% of the portfolio. This performance shows another good development and trend for the portfolio. There was no major highlight in the coverage indexes, which showed a slight increase in total coverage from 209% to 216%.

We have a very well-provisioned portfolio, with an adequate level of coverage and sound consistent results. OpEx, or noninterest expenses as we call them, are normally under greater pressure in the fourth quarter. In Brazil, this line grew 8.5% year-over-year, and in Latin America, excluding Brazil, it fell 4% in the period. On a consolidated basis, noninterest expenses increased 4.1% quarter-over-quarter, and 6.5% year-over-year. In the fourth quarter, we also recorded one-off investments, such as the remodeling of Itaú’s brand which put a little more pressure on this line in 2023. We’ve been keeping up with our financial discipline, which can be seen in the efficiency ratio trend, which has reached its best historical level. The efficiency ratio was 39.9% on a consolidated basis and 37.9% in Brazil, including all expenses.