Itau Unibanco (ITUB) Q2 Earnings Rise Y/Y On Higher Revenues
Zacks Investment Research | Jul 30, 2019 08:19AM ET
Itau Unibanco Holding S.A. (NYSE:ITUB) reported second-quarter 2019 recurring net income of R$7 billion ($1.79 billion), up 10.2% year over year.
Results display higher revenues, managerial financial margin and a solid balance sheet position. However, elevated expenses and provisions were headwinds.
Revenues Jump, Provisions Rise, Costs Up
Operating revenues came in at R$29.5 billion ($7.5 billion) in the reported quarter, up 5.2% on a year-over-year basis.
Managerial financial margin advanced 6.7% to R$18.5 billion ($4.7 billion). Further, commissions and fees were up 3.9% year over year to R$9.1 billion ($2.3 billion).
Non-interest expenses totaled R$12.7 billion ($3.2 billion), up 3.3%. In addition, expenses for provision for loan and lease losses increased 3.2% year over year to R$4.4 billion ($1.1 billion).
In the second quarter, the efficiency ratio was 46.2%, indicating contraction of 90 basis points (bps) from the year-earlier quarter. A decrease in this ratio indicates increased profitability.
The non-performing loan ratio (loan transactions more than 90 days overdue) came in at 2.9% during the June-ended quarter, expanding 10 bps year over year. Itau Unibanco’s credit portfolio, including endorsement, private securities and sureties, reached R$659.7 billion ($168.3 billion) as of Jun 30, 2019, up 5.9%.
As of Jun 30, 2019, Itau Unibanco’s total assets amounted to R$1.68 trillion ($0.4 trillion), up 1.6% from the end of the previous quarter. Assets under administration were R$1.2 trillion ($0.3 trillion), up 14.3% year over year.
Annualized recurring return on average equity climbed to 23.56% from 21.6% recorded in the year-earlier quarter. As of Jun 30, 2019, estimated Common Equity Tier I - BIS III ratio came was 13.6% compared with 13.2% in the prior-year quarter.
Outlook
For 2019, the company expects costs of credit in the R$14.5-R$17.5 billion band. Also, non-interest expenses are expected to escalate in 3-6%.
In addition, the total credit portfolio is projected to be 8-11%, while commissions and fees are likely to be up 2-5%. Managerial financial margin with clients is estimated between 9% and 12%. Financial marginal with the market is estimated to be R$4.6-R$5.6 billion. Effective tax rate is estimated in the 31-33% range.
Our Viewpoint
Results of Itau Unibanco highlight an encouraging quarter. Rising revenues along with financial margin bode well. Furthermore, the company’s prospects look encouraging as it remains focused on building strategies to expand inorganically.
Nevertheless, heightening competition, rise in expenses and stressed conditions in the Brazilian economy pose significant risks.
Itau Unibanco currently carries a Zacks Rank #4 (Sell).
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