Banco DaycovalSA posted an 18.9% annual drop in first-quarter profit as thecompany bumped up its provision expenses by more than 40%.

The Brazilian bank showed first-quarter net income of 85.2 millionBrazilian reais, or 35 centavos per share, down from 105.1 million reais, or 43centavos per share, earned in the year-ago period.

The results came as the bank booked 164.0 million reais inloan loss provisions for the quarter, up 44.2% from 113.7 million reais a yearearlier. The bank noted that it booked an expense provision forcivil lawsuits amounting to 29.5 million reais in the quarter.

"Despite the fact that expenses involving the provisionfor doubtful accounts in 1Q16 continue at high levels, we believe that thepercentage of loans overdue by more than 90 days is at an appropriate level andbelow the market average," the bank said. "The increase in accruedindicates that these expenses will keep evolving."

Income from loans operations ticked 3.2% higher to 710.1million reais from 688.1 million reais. Adjusted gross income from financialintermediation slipped 0.2% to 364.9 million reais, from 365.6 million reais.The net interest margin was 11.9% in the quarter, which compared to 13.9% in theprior quarter and 11.5% a year ago.

Total personnel and administrate expenses at the banktotaled 123.5 million reais in the first quarter, 3.0% lower year over yearfrom 127.3 million reais.

Recurring return on average equity was 13.4% in the quarter,compared to 15.6% in the year-ago period. Recurring return on average assetswas 1.9%, compared to 2.1%.

Banco Daycoval's expanded credit portfolio held 13.13billion reais in the quarter, 1.9% lower from the 13.38 billion reais a yearearlier.

As of May 4, US$1 wasequivalent to 3.54 Brazilian reais.