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Itau Unibanco (ITUB) Q3 Earnings Rise Y/Y on Higher Revenues

Itau Unibanco's (ITUB) Q3 earnings improve year over year on higher operating revenues and an expanded managerial financial margin. Although expenses rise, the balance-sheet position stays robust.

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Itau Unibanco Holding S.A. ITUB recorded recurring earnings of R$6.8 billion ($1.3 billion) in third-quarter 2021, which jumped 34.7% year over year. Including non-recurring items, net income came in at R$5.8 billion ($1.11 billion), up substantially.

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Results benefited from higher revenues, rise in the credit portfolio and a fall in the cost of credit. However, increase in non-interest expenses and non-performing loan ratio acted as headwinds.

Revenues & Costs Rise

Operating revenues came in at R$31.5 billion ($6 billion), up 11% on a year-over-year basis.

Managerial financial margin rose 15.3% to R$19.5 billion ($3.7 billion). Commissions and fees were up 6.4% to R$10 billion ($1.9 billion).

Non-interest expenses were R$12.8 billion ($2.5 billion), up 1.1% from the prior-year quarter’s level.

Efficiency ratio was 44%, down from 48% in the year-earlier quarter. A fall in this ratio indicates an improved profitability.

Credit Quality Improves

Cost of credit dropped 17.2% on a year-over-year basis to R$5.2 billion ($0.99 billion).

The non-performing loan ratio (loan transactions more than 90 days overdue) came in at 2.6% during the September quarter, up from 2.2% in the prior-year quarter.

Strong Balance-Sheet Position

As of Sep 30, 2021, Itau Unibanco’s total assets amounted to R$2.15 trillion ($0.4 trillion), up 4.4%, sequentially. Deposits were R$818.7 billion ($150.8 billion), up 3.2%.

Itau Unibanco’s credit portfolio including financial guarantees provided and corporate securities reached R$962.3 billion ($177.2 billion) as of Sep 30, 2021, up 15.7%.

Capital & Profitability Ratios Up

As of Sep 30, 2021, Common Equity Tier 1 ratio was 11.3%, up from 10.7% on Sep 30, 2020.

Annualized recurring return on average equity was 19.7% at the end of third quarter, up from 15.7% in the year-earlier quarter.

Unchanged 2021 Guidance

Its 2021 guidance remains is unchanged.

The company expects costs of credit to be R$19-R$22 billion.

Non-interest expenses are expected to either slide 2% or rise 2%.

Total credit portfolio is now projected to grow 8.5-11.5%.

Commissions and fees from insurance operations are likely to be up 2.5-6.5%.

Managerial financial margin with clients is estimated to increase 2.5-6.5%.

Financial marginal with the market is now projected in the range of R$6.5-R$8 billion.

Effective tax rate is estimated to be 34.5-36.5%.

Our View

Results of Itau Unibanco highlight a solid performance. The company’s prospects look encouraging as it is focused on building strategies to expand inorganically. In addition to these, business restructuring efforts will support financials.

However, inflated expenses are a concern. Heightening competition and stressed conditions in Brazil’s economy pose significant risks.

Itau Unibanco currently carries a Zacks Rank #4 (Sell).

Itau Unibanco Holding S.A. Price, Consensus and EPS Surprise

Itau Unibanco Holding S.A. Price, Consensus and EPS Surprise

Itau Unibanco Holding S.A. price-consensus-eps-surprise-chart | Itau Unibanco Holding S.A. Quote

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Foreign Banks

Barclays BCS reported third-quarter 2021 net income, attributable to ordinary equity holders, of £1.45 billion ($2 billion), up significantly from the prior-year quarter’s level.

Deutsche Bank’s DB third-quarter 2021 net income of €329 million ($387.9 million) increased 6% from the year-ago quarter’s €309 million. Also, the German lender reported a profit before taxes of €554 million ($653million) compared with the year-ago quarter’s €482 million.

UBS Group AG UBS reported third-quarter 2021 net profit, attributable to shareholders, of $2.3 billion, up 9% from the prior-year quarter’s level.

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