Itau Unibanco (ITUB) Q3 Earnings Impress On Stellar Revenues
Zacks Investment Research | Nov 04, 2019 09:30PM ET
Itau Unibanco Holding S.A. (NYSE:ITUB) posted recurring earnings of R$7.2 billion ($1.82 billion) in third-quarter 2019, up 10.8% year over year. Including non-recurring items, net income came in at R$5.6 billion ($1.41 billion), down 9.7% year over year.
Results display higher revenues, managerial financial margin and a solid balance-sheet position. However, elevated expenses and provisions were headwinds.
Revenues Improve, Provisions Rise, Costs Up
Operating revenues came in at R$30.3 billion ($7.6 billion) in the reported quarter, up 8.5% on a year-over-year basis.
Managerial financial margin advanced 9.6% year over year to R$19.1 billion ($4.8 billion). Further, commissions and fees were up 7.3% year over year to R$9.3 billion ($2.3 billion).
Non-interest expenses came in at R$12.8 billion ($3.2 billion), flaring up 1.2% on a year-over-year basis. In addition, expenses for provision for loan and lease losses were up 26.1% year over year to R$4.9 billion ($1.2 billion).
In the third quarter, the efficiency ratio was 45.5%, indicating a contraction of 330 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 July-September quarter, in line with the prior-year quarter. Itau Unibanco’s credit portfolio, including endorsement, private securities and sureties, reached R$689 billion ($165.8 billion) as of Sep 30, 2019, up 8.3% year over year.
As of Sep 30, 2019, Itau Unibanco’s total assets amounted to R$1.74 trillion ($0.42 trillion), up 8.1% from the end of the year-ago quarter. Assets under administration were R$1.32 trillion ($0.32 trillion), up 21.1% year over year.
Annualized recurring return on average equity climbed to 23.5% in the reported quarter, from the 21.3% recorded in the year-earlier quarter. As of Sep 30, 2019, estimated BIS III ratio came in at 12.8% compared with the prior-year quarter’s 13.8%.
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 the 3-6% range.
In addition, the total credit portfolio is projected at 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 between R$4.6 and R$5.6 billion. Effective tax rate is estimated in the 31-33% range.
Our Viewpoint
Results of Itau Unibanco suggest an encouraging quarter. Furthermore, the company’s future prospects look encouraging as it remains focused on building strategies to expand inorganically. In addition to these, the merger with CorpBanca has fortified the bank’s footprint in Latin America, while acquiring Citibank’s operations fueled the company’s growth.
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Nevertheless, heightening competition, flaring up expenses and stressed conditions in the Brazilian economy pose significant risks.
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