(Recasts with share performance, CEO comments, details throughout)
By Carolina Mandl
SAO PAULO, May 10 (Reuters) - Shares in Banco do Brasil SA were down 3.3 percent in midday trading Thursday, although the state-controlled bank beat profit estimates and announced a higher payout ratio.
In a note to clients, Itaú BBA analysts said Banco do Brasil posted "weak results" in terms of loan gains, amid Brazil's gradual economic recovery and record low interest rates.
"Margins and fees were weak, but good cost control offset partially the weak revenues performance," the note said.
The Brasília-based bank posted net interest income of 11.962 billion reais ($3.36 billion) in the first quarter, down 11.5 percent from one year earlier.
In a press conference on Thursday, Chief Executive Officer Paulo Caffarelli said the bank is keeping its profit targets for 2018, although an improvement in results would depend on the Brazilian economy's recovery.
Banco do Brasil earned net income of 3 billion reais ($842 million) excluding one-time items, up 20.3 percent from a year earlier on lower loan-loss provisions and good cost control. That was just above analysts' consensus estimate of 2.9 billion reais compiled by Thomson Reuters.
Overall, Banco do Brasil's loan book shrank 0.3 percent to 625 billion reais, mainly due to a decline in corporate loans. That puts it firmly below the bank's target for loan book growth between 1 percent and 4 percent in 2018, excluding acquisitions of credit portfolios from other financial institutions.
BTG Pactual analysts said in a client note the quarter was weaker than expected as more profitable loan books, such as credit to mid-sized companies, shrank.
Loan-loss provisions came in at 4.2 billion reais, 28 percent below estimates, as delinquency rates declined on corporate loans. Banco do Brasil recorded a 90-day default ratio of 3.65 percent, slightly below the previous quarter.
The state-controlled bank's recurring return on equity, a commonly used gauge of profitability, was 13.2 percent, slightly below a 13.28 percent consensus.
Caffarelli said the bank would raise its payout ratio from 25 percent to 40 percent in 2018 due to its higher capital ratio that allows the bank to pay larger dividends.
$1 = 3.5572 reais Reporting by Carolina Mandl; Additional reporting by Paula Laier; Editing by Mark Potter and Bernadette Baum