Good morning, and thank you for standing by. Welcome everyone to the audio conference of State Bank of Rio Grande do Sul, Banrisul, to discuss results relative to first quarter 2022. Today with us we have Mr. Claudio Coutinho Mendes, CEO. Mr. Irany Sant'Anna Junior, Risk Officer. Marcus Vinicius Feijó Staffen, CFO and IRO. Mr. Osvaldo Lobo Pires, Credit Officer. Mr. Nathan Meneguzzi, Executive Superintendent of Investor Relations, and Werner Koehler, Accounting Executive Superintendent. We'd like to inform you that this event is being recorded and has simultaneous translation into English. All participants will be connected in listen only mode during the company's remarks. After that, we'll start a Q&A session exclusively for analysts and investors. Then further instructions will be provided.
Before moving on, we'd like to say that forward-looking statements made during this conference call concerning the company's business outlook, as well as financial and operating targets and projections, are based on assumptions and beliefs of the company's management, and also on information currently available. Forward-looking statements are no guarantee of performance. They involve risks, uncertainties and assumptions as they refer to future events, and therefore depend on circumstances that may or may not materialize. Investors should have in mind that general economic conditions, industry conditions, and other operating factors might affect the future performance of Banrisul and thus lead to results that will differ considerably from those expressed in these forward-looking statement. I'd like now to turn the floor over to Mr. Claudio Coutinho Mendes, CEO of Banrisul, who will start the presentation. Please, Mr. Coutinho, you may carry on. Thank you. Good morning, everyone.
Also, good morning to my colleagues, executives, superintendents. We will start the presentation then. I think you all have the presentation with you. I'd like to start on slide number three, if I may, where we address the context of the state of Rio Grande do Sul. As you know, Banrisul is a bank which has a very large local coverage, in the south of Brazil. We cover about all cities in the states and also in the states of Santa Catarina. We do have branches in São Paulo and Brazil, but we are mainly concentrated in Rio Grande do Sul. The economic environment of the state of Rio Grande do Sul has a direct impact on our activity.
As can be seen on slide number three, economic activity in Rio Grande for the past year and even now has been very favorable, has been positively performing when compared to the country. The state's GDP grew more than twice as much as the national average. We grew 10% in our GDP when the country's GDP grew by 4.6%. That's based on growth of the agribusiness. The GDP grew 6-7%. But even the industry GDP grew significantly, close to 10%. In services, we grew in line with the national average. Combined with that, we have an environment in the state in which the state government made an important realignment of its public accounts, public budget. Now we have a fiscal surplus.
We were able to address expenses with administrative reforms, welfare reform, different tax reforms. We, of course, paid, the state paid off creditors and also is in line with civil servants' salaries. Everything is being paid, so there was no need for funding to pay civil servants in the state. That's, of course important because it creates a favorable environment in the state, and of course the bank benefits from that. There's also an important element, which is the credit stock. In the state, the amount of credit when compared to the country, we see a favorable gap which also creates opportunities for growth for our credit portfolio. Another highlight is, of course, the agribusiness, the growth in exports coming out of Rio Grande. A growth of 50%, which is quite impressive.
Also, Rio Grande has a GDP per capita which is 25% higher than the national average. Now, moving on to slide number four, if I may, and we talk about our loan portfolio. I'd like to put the first quarter in perspective here. Just as a reminder, the Omicron virus was first identified in December last year and had a spike in cases in Brazil. And in the south, of course, of Brazil in January this year. In January this year, January 2022, the beginning of the first quarter, we had been impacted by the Omicron variant of the virus, COVID virus, of course, that hindered our performance in the month of January. We had to close down some of our branches, about 100, until the health protocols done internally here in the bank could be changed.
We had new protocols in place and with that, we were able to simply send employees who had been contaminated home and the branch could still operate. Of course, the closer colleagues were also sent home. To summarize, the branches were no longer shut down. Of course, seasonally, the first two months we see a decrease in economic activity because people go on vacation, they go to the beach. It is a seasonally weaker period for the bank. Of course, the local economic activity along the coast increases. Despite all of that, we had the best first quarter in terms of credit for the past 10 years. We saw an important growth in the credit portfolio in the first quarter.
Despite all those problems I mentioned, we grew 3.3%, our loan portfolio quarter-on-quarter. Credit granting, on the right-hand side of the slide, grew by something close to 22%. 30% in agriculture, commercial 32%, real estate 100%. Impressive number. The portfolio reached a level of BRL 42 billion, a growth of 15% in the year. We are quite confident that we're gonna meet our guidance. The first quarter is proof of that continuity of our robust growth on the credit front. Now, moving on to slide number five, if I may.
In terms of still talking about credit, we continue to pursue our strategy, which we always come back to during our earnings call to say that our credit is quite fragmented across very robust lines in terms of guarantees and risks. We are concentrated on consigned loans, real estate credits with fiduciary assurances, also corporate loans based on guarantor funds and different, lines of credit to guarantee those, loans. Our strategy is to operate always, on the safe side. We are growing steady, but maintaining the same credit standards that we have put together throughout time based on robustness and on diversity. We do not operate in corporate, in large corporate alone, right? As you can see on the right-hand side of the slide, we have a breakdown of our portfolio.
The 50 largest debtors hold only 7% of the portfolio. In the market, that number averages around 15%. The 10 largest debtors account for 2% of the portfolio, whereas the average in the market is something close to 6%. In other words, our portfolio is quite diversified with quality credit. If we look throughout the last 12 months, our level moved from 89 to 91.6. Our default levels, delinquency levels is now at a very low level. Of course, this is due to our work on trying to find quality credit. Our 90-day line is now at 1.95% default level, a low historical level. We have a very comfortable coverage index, way better than the industry at 315, 150% of coverage and provisions, 315%.
Now, moving on to slide number six, if I may. Here once again, we see that our provision expenses coming from our portfolio are very conservative. That number has been coming down 2.13%, very close to what we had last quarter. A very comfortable level. Just as our provisioning ratio is at 6.2%, trending down, but still maintaining the excellent quality of our credit portfolio. Our provision expenses stayed above last quarter's, but a relevant amount of that is on recoverable credits written off as losses with no impact on the final numbers. Those were recoveries for which we had new provisions. The provisions were also impacted by the growth in the portfolio. Once the portfolio grows or expands in nominal terms, you also need to provision for that growth.
That of course leads to an increase in our provisions. Now moving on to slide number seven. On the 8th actually, our financial performance. Our adjusted net income, sorry, came out at BRL 164 million. Adjusted net income for the first quarter on the left-hand side of the slide, a drop of 40% when compared to last year. Our loan portfolio shows the 12-month snapshot, which was quite robust. As I mentioned, the largest growth in 10 years, 15% growth in 12 months. Payroll loans also growing by 11%. Rural agricultural credit with impressive 44% increase also, on a 12-month base. Banking fees grew by 3%, and default ratio, a low historical level. The coverage ratio also very comfortable.
Have maintained our personnel expenses flat, a growth of 0.4%, despite collective bargaining agreements, which happened in September, with a growth of something close to 11%. Despite that, we were able to preserve our annual expenses with personnel almost flat or unchanged. Now on the next slide, profitability. When compared to last year, we saw an important drop in income. We believe that in terms of adjustments, especially in what relates to margins coming from an increase in the Selic rate, that's fast, right? We have a much more concentrated operation now on individuals with pre-fixed rates than the average in the market. We do not have an important large corporate operations. Our main clients are individuals. We're talking about the payroll credit, as I said.
That adjustment in margin comes from that fast growth in the Selic rate of more than 10% in a year. We're now reaching some sort of stability around our margin. We believe that this quarter was the worst moment of that adjustment. We also know that that payroll portfolio, even though it's a long-term portfolio, it does come from a need from those clients to revisit the operation to receive cash from time to time. We have a lower average term for that portfolio, that's in the best interest of the clients. Because of that, the rate has to be adjusted at a faster pace. I think we're reaching the end of the cycle or at the very least, we're close to the end of that cycle, and we will reprice that portfolio.
Credit provision also had an impact of the growth of the portfolio. That's why we see an impact on the income when compared year-on-year. That does not mean that our portfolio has worsened in quality terms. It's quite the opposite. The portfolio has improved in quality as we move forward quarter-on-quarter. We are, as I said, at a historical low in terms of default. On the next slide number 10. We see. We talk about the NII, the managerial NII margins that we see now in numbers what I mentioned before, the stabilization of our financial margins.
Even though we had an increase of 250 points in the period of the Selic rate I'm talking, we already see a stabilization of our managerial margins that mostly coming from the repricing effect of the portfolio because of that quicker turnover that I mentioned previously. We are now confident that we will, going forward, to continue to reprice that, but on better basis when compared to previous quarters. Now let's move on to slide number 11 now. Our capital. We have a great rate of funding, 78% of Selic rate. On average, for CDB, the cost is 87% of the Selic rate, so our cost is very, very low and very fragmented. We are very reassured that our credit portfolio is tied to a funding which is cheap and fragmented and spread across the market.
In February this year, we settled the debt, which was issued in 2012. We had already issued a year ago a subordinated debt of $300 million to replace that previous one, which had no impact on our capital index. It was just settled at BRL 3 billion. From the point of view of results, that's neutral because it was hedged for BRL, so the whole operation was undone in February 2022. That in a way leads the percentage of our CDB to move from 66% to 71% because of those BRL 3 billion in subordinated debt. We still count on those $300 million which were issued last year to level two capital needs. We also have a very fragmented funding.
As you can see here, the funding concentration, the top 100 clients, they only hold 12% of the total funding. It's quite fragmented, quite diversified. That's a very good asset for us, our funding arm. Now the next slide, capital. We're also in Basel ratio, quite comfortable. We have strong basis to continue to grow our credit portfolio. The participation of the subordinated debt in our capital is influenced by the U.S. Dollar because that's a U.S. dollar-pegged debt. What does count is the subordinated debt per se. The U.S. dollar had a drop between December 31, 2021, and the close of the quarter, and that led that portion of the debt, which is subordinated, to slightly drop. Now, the U.S. dollar is picking up again, so that effect is being offset.
We have a very comfortable capital position, and we are ready to continue growing our credit portfolio. On the next slide 13, SG&A expenses and banking fees. We have a collective bargaining agreement with bank workers for an 11% increase to be paid as of September last year. Despite that, as we can see here on the slide, our expenses across 12 months for employees remained flat, grew only 4.4%. Our headcount has been optimized. As you can see, our workforce as of March 2020 until now, we saw a decrease in headcount of 1,351. We now have a total of 8,800 and some employees. So that is under control. Employee expenses, I mean.
When we look at the combined numbers, when we talk about administrative expenses as a whole has grown 4.3%, which is below the inflation level in the period. Even administrative expenses saw a growth of 8.7% in 12 months, which is also below the period's inflation index. We have been making great efforts to control expenses, and we have been successful overall, given that, administrative expenses grew 4% vis-a'-vis an inflation rate of over 10% in the period. As for banking fees, we saw, some reaction, a growth of 3% on annual basis and, with positive recent numbers. We continue to have a coverage index for our personnel expenses. Very, very reasonable. In other words, we continue to cover with banking fees all our payroll expenses. Basically that's what I had.
Thank you all for your attention, and we can now start our Q&A session to address comments and doubts you may have. Thank you. Thank you. We'll now start the Q&A session. To ask a question, please press star nine. If your answer was accepted after you are announced, you will hear a prompt to press star six to open up your mic. That click should be done only once. Questions in English will be received exclusively in writing. Please wait as we poll for questions. Once again, to ask a question, please press star nine. Please wait as we poll for questions. Our first question comes from Mr. Flavio Yoshida from Bank of America. Please, Mr. Yoshida, you may carry on. Hello. Good morning. Can you hear me? Yes. Yes. Good morning.
Thank you for taking my questions. I have a question about the guidance, especially for portfolio, which you have announced, and also about margins vis-à-vis the performance posted in first quarter. When we look at the guidance for portfolio for the year, which sees a growth of between 24% and 29% in first quarter, that growth is way below that level. We're looking across segments, both for individual and corporate. Individuals and corporate growth levels were well below those numbers. What do you expect to see happening throughout the year to reach that guidance? Are you going to increase your appetite for risk, for example? And if that appetite for risk will lead to larger spread lines to help in the financial margin guidance, which is also low.
At the end of the day, as we see low default and high coverage, I understand that you could have more appetite for risk, if I may, without hurting liquidity and the balance sheet. I think you do have room to be a little more aggressive. Or if you think that your appetite for higher risk is still low, and then the growth in margins will happen through a lower cost funding, given that Selic rate is reaching a more balanced level. Thank you. Hi, Flavio. Number one, we believe that the performance in first quarter is within our expectations in terms of the growth for the credit portfolio. We'll maintain the guidance for the year. Just as a reminder, our planning expected a drop in payroll credit from 25 to 30, which happened in last year. That would be reversed.
That was our expectation when we put together the guidance back then. Given general economic conditions, that number would be reversed. It took some time to revert into as per what we expected. In addition to the factors I mentioned in my presentation, but at the end of the day, it took longer to be reverted, but it came out more positive in terms that the payroll margins went up to 40%, even for operations that didn't have to do with credit cards. We remain optimistic that we will meet the guidance. We had a first quarter as the best first quarter in 10 years in growth of portfolio. We do believe we are on track to meet our guidance.
In terms of margins, we do not anticipate changes in our structure, in our philosophy or credit granting. We're not gonna go towards higher risk lines. No. We'll continue to maintain the same lines, the same philosophy, the same procedures in terms of credits, payroll, loans, as I said, guaranteed by robust funds for real estate as well, with fiduciary assurances, agricultural loans based on guarantees. We'll continue to follow along the same lines, growing along those lines. We do know that our margins suffered last year and in the first quarter because of the nature of our operation. When we compare to other large retail banks, we have a higher proportion of individuals. The other banks, they have important portfolios for corporations, mid corporate and large corporate portfolios, where they have floating interest rates.
They are less impacted at the end of the day when the Selic rate goes up when compared to us, because we do have a higher proportion in pre-fixed operations. As I mentioned, that has been happening since last year and in this first quarter as well. We believe that we have reached a balance point in terms of margins. Our financial margins is no longer dropping. We already see a slight increase, actually. We expect the Selic rate growth is coming close to its up-trending cycle. They'll maintain the rate at a high level instead of making it drop quickly. It'll stabilize at a high level, of course, but it will allow us to reprice our portfolio, and then we'll resume our best margin levels. The answer is, we'll keep our portfolio guaranteed.
We believe that margins will react as we reprice it. We also preserve, maintain our credit guidance. As we see it, we are on track to meet that guidance. Okay. Thank you. Marcus has a comment about that as well. I think, Flavio, just as an additional comment, especially when we look at the projected growth in credit and also at specific conditions around first quarter, some credit lines traditionally, and also because of seasonal effects, they do not perform so well early on in the year. Agricultural credit, for example, grows by 1%, and when we work around annualized lines, we're talking about 40%. We'll have a more accelerated pace throughout the year. Other lines are settled in the first quarter, such as foreign trade lines, so those will naturally react faster. It has been growing at a faster pace.
It grew. It doubled its size in 2021, and we should maintain the same pace now given the competitive conditions we have now. As for margins, we have been talking about this for the past quarters. The turning point would be in the second quarter of the year in terms of growth. We continue to be confident on that. It was important to stabilize that, and we see numbers stabilizing in first quarter. We have actually exceeded somewhat our expectations. When we look at the second half of 2022, we should have a very positive performance in terms of financial margins when compared when we look back. If you look at the slide on page 11, both in funding and in Selic show a very strong performance for the bank. This will be very favorable for the bank.
Our next question comes from Mr. Eric Ito from Bradesco BBI. Please, Mr. Eric, you have the floor. Good morning. Thank you for taking my call. I'd like to talk about the provision for revenues. I'd like to understand the dynamics around important impacts coming in the next quarters in terms of revenues. What can I expect for the year? Can I expect stronger quarters going forward? Can you please repeat your question? Your sound was terrible. We couldn't hear a thing what you said. I was asking about the provision dynamics for the remainder of the year. How do you think about that going forward? Yeah, well, we couldn't really understand. In terms of provision for revenues, when we exclude the write-offs, the provision sits at around BRL 198, which is slightly higher when we compare that with the previous quarter.
That's a very interesting comparison. When we work with the average of the past four quarters, for example, you see an increase of BRL 40 million, which can be explained by an increase in portfolio. All the other indexes, when we look credit origination, the portfolio has been showing a very positive development, double A above 90%. Our credit cost is within our guidance from 2%-3% at the lower end of that range, and we do not expect any change in the provision dynamics. I think the guidance can be met, and I do not expect any surprises going forward in terms of meeting the guidance for revenue. Our next question comes from the webcast. Yuri Fernandes from JP Morgan. Can you please comment on labor provision expenses? Should we have the same level of provision or should we see improvements in the coming quarters?
Growth guidance. Can we meet the growth guidance for portfolios or is it possible to meet that guidance? About the labor provision, our expectation is that for the coming quarter we should see some provision to be made on, collective labor suits. We are pricing that with our consultants. Our expectation is that after those provisions for this next quarter, or rather, we do not expect to see other provisions or provisions different from those expected in the banking industry in the next quarters. We still expect some effects, some impacts in this coming quarter from labor, but we do not think it's something very relevant, especially going forward for the other quarters. As of the second half of the year, we expect to resume to standard numbers, the standard for the industry.
As for the credit guidance, we are confident that we had a very strong first quarter considering non-recurring effects and seasonality effects, and we'll be able to meet the guidance. We're confident about that. Our next question also comes from the webcast from Eduardo Nishio from Genial Investimentos. Thank you for the presentation. Can you talk a little bit about the repricing the portfolio, please, especially relative to payroll. In a way, payroll does not go up as fast as the Selic rate and does have a longer duration. Okay, Nishio, thank you for your question. The growth in payroll should not keep up with the increase in interest rates, not the same way, because the increase was a one-off thing in a very short period.
If we look back recently, when we saw drops didn't follow the same pace either. When we look at this year's portfolio, and we look at the ups and downs, we can already anticipate something between 25 and 30 points in increase in granting rates, which is above this year's Selic rate. Last year we had an adjustment, which was not minor. As for the duration, that's an important point to raise, and we did mention that in our previous earnings calls. Even though we have a final duration for the portfolio, six, seven, even 10 years for a payroll portfolio, that duration does not go beyond three years. Working on an average duration for the three main lines of credit here in states and federal, it stays at something above 27 months, to be precise.
27 months on average across those three lines. It's a shorter curve, actually. As we regroup the margins, this will be a natural process. A few more months and the portfolio will regroup and an increase in the INSS margin will be helpful then. Of course, we'll have payroll lines resuming most of its contribution to our margins at very comfortable levels given the very low risk level of that product in particular. We now close the Q&A session. I'd like now to turn the floor back over to Mr. Claudio Coutinho Mendes for his final remarks. Please, Mr. Claudio Coutinho Mendes, you have the floor. Well, I can say to all our shareholders and all stakeholders of the bank that we'll continue on our purpose to meet the guidance or our guidances. We are confident that we will be able to do that.
We are working hard to do that. We maintain our philosophy, as I said. We are dedicated to maintaining a healthy portfolio, and the portfolio has proven to be very resilient even throughout the pandemic, through turbulent times. We're confident that our strategy is the right way to go, and this will bring excellent returns to our shareholders. Once again, thank you for participating in our earnings call, and we remain available with our IR team. Thank you very much. The Banco do Estado do Rio Grande do Sul earnings call is now over. We'd like to thank you all for participating, and have a nice day.