Itaú Unibanco Holding S.A. (NYSE:ITUB) Q3 2024 Earnings Call Transcript

Itaú Unibanco Holding S.A. (NYSE:ITUB) Q3 2024 Earnings Call Transcript November 5, 2024

Itaú Unibanco Holding S.A. beats earnings expectations. Reported EPS is $0.2, expectations were $0.19.

Renato Lulia: Hello. Good morning, everyone, and thank you very much for taking part in another quarterly earnings conference, this time to talk about the third quarter of 2024, which we are broadcasting, as always, from our office in Avenida Faria Lima, in Sao Paulo. The event will be divided into two parts. In the first part, Milton will take you through our performance and earnings for the third quarter of 2024 and then we will have a Q&A session, during which analysts and investors will be able to interact with us directly. I would like to provide some guidance to help you make the most of our meeting today. For those viewing this through our website, there are three audio options on the screen. You can choose to listen to the entire content in Portuguese, the entire content in English, or just the original audio.

For the first two options, we will have simultaneous translation. To choose your preferred option, just click on the flag at the top of your screen. Questions can also be sent via WhatsApp. For those viewing through the website, just click on the button on the screen, or simply send a message directly to the number +55-11-96176-8561. Today’s presentation will be available for download on the website screen and, as always, on our Investor Relations website. That’s it for now. I will now hand over the floor to Milton, who will begin the earnings presentation, and then I will come back to you at the end to moderate the Q&A session. Milton, the floor is yours.

Milton Maluhy: Good morning, everyone. Welcome to another earnings presentation to talk about the third quarter earnings. I will try to keep my presentation brief, so that we have more time for our Q&A chat. I will talk about earnings, ESG, digital, technology, transformation, and at the end a little more about our guidance. Starting with the earnings for the third quarter of 2024, we saw quarterly managerial recurring results of BRL10.7 billion, which is a very strong result, growing 6% quarter over quarter and almost 20% year over year on a comparable basis. This result leads us to a consolidated return on equity of 22.7% and a return on equity in Brazil of 23.8%. These are very important results. That being said, it is always important to pay attention to capital.

In this quarter, we delivered a Common Equity Tier I ratio of 13.7% with a growth of 60 basis points in the period, and we are substantially above our capital approved by the Board within the risk appetite, which is a Common Equity Tier I ratio of 11.5%. If we were to simulate what the ROE would be adjusted by the minimum capital ratio approved by the Board of Directors, we would be running at 24.6% in the consolidated ROE and, in Brazil, at 26.4%. So, this shows you the level of profitability that is most comparable in relation to the numbers that have been released. An ROE of 26.4% in Brazil is truly a very strong profitability, with significant growth. In the loan portfolio, we grew 1.9% quarter over quarter, with a growth of almost 10% in the year.

Later on, I will give more details about the portfolio and present the delinquency levels, which are within acceptable thresholds, with drops in both short- and long-term indicators. We also have very positive news concerning the Financial Margin with Clients, which has grown 4.5% quarter over quarter and 8.2% year over year on a comparable basis. So, this is the summary that I always bring to you, and the numbers speak for themselves. I think we are succeeding in delivering a very solid performance, with good profitability and the capacity to generate capital, while at the same time investing in the bank’s growth. We added an additional column to the loan portfolio presentation this quarter, which I think is important for us to conduct the presentation in the best possible way.

Q&A Session

The individual loans segment grew 2.5% quarter over quarter, which is a very important growth. This happened throughout the quarter, which shows that the average balance for individuals is reasonably well in line with the growth in the quarter, which is what matters for the NII and NIM, showing the bank’s full revenue generation capacity. The SME portfolio posted a quarter-over-quarter growth of 4.1%. This is slightly lower in the average balance, which shows that much of the growth occurred towards the end of the quarter. But the most important thing for this picture is to look at what happens with the portfolios of Large Corporates and Latin America. In Large Corporates, despite a growth of only 0.7% in the period, we must remember that an asset that left the balance sheet in this quarter had a significant effect.

We saw the recovery of a credit case at the end of the period, which we mentioned a lot in the last presentations, which shows that the average balance grew 5.9% in the quarter. And it is this growth that affects the bank’s NIM and NII. In the Latin America portfolio, this effect is even stronger. The portfolio grew 1.2% quarter over quarter. Excluding the effect I mentioned, it grew 8.2% in the average balance. So, we could say that when we talk about gross NIM, that is without the risk adjustment, the main effect of this 10 basis points drop was due to the average portfolio of Latin America having grown more than the average portfolio of Large Corporates and more than the average portfolio of individuals and SMEs. So, this is the mathematical effect of the mix on the average balance of the portfolios.

When we remove the cost of credit, we see an expansion in the risk-adjusted NIM, going from 5.7% to 6.0% in the consolidated. When we look at Brazil’s risk-adjusted NIM, which naturally does not include the Latin America effect and can be explained by the mix between Large Corporate, SMEs, and Individuals, we see a 30 basis points expansion, going from 6.2% to 6.5%. During this presentation, I will go into a little more detail about the dynamics of the cost of credit. I would also like to present another number that is also relevant to you. The Financial Margin with Clients grew by BRL1.2 billion quarter over quarter, which represents 4.5% growth. Considering the Financial Margin with Clients ex-Argentina, which was present during seven months of 2023, we had a comparable growth of 8.2%, or BRL2.1 billion, which shows a very significant result in this line.

The financial margin with the market did not show any major highlights in the period, but we can say that we had a good result considering that we started from an exceptional second quarter, which shows that the bank was still able to grow its earnings, with a dynamic of greater financial margin with clients, better cost of credit, and lower financial margin with the market. So, I understand that this trend is positive for the mix. In Brazil, we are performing well, not the same as the previous quarter, but substantially better than in fourth quarter 2023 and first quarter 2024. Everything remains constant in the financial margin with the market, with no major changes, with the exception of the cost of capital index hedge, which has been slightly higher due to the interest rate differential.

I don’t have anything major to highlight when it comes to commissions, fees, and results from insurance, but I do want to pass on some important messages. We grew 7% year over year, which is very significant, and some lines attract more attention, such as asset management, where we had 5.2% growth in the quarter and 16.9% growth year over year. In advisory services and brokerage, despite observing a drop in the quarter, it is important to remember that the previous quarter was exceptional, especially in fixed income, which posted the best result in the bank’s history. So, although we had a good result in this period, it was lower than what we had in the last quarter. When we look year over year, we grew 11%, that is we continue to hold a leading [technical difficulty] that we have posted very consistent results in all lines of commissions and insurance operations, and that we continue with a very positive trend.

[technical difficulty] showed a positive evolution. So, when we look at the indicators for NPL 15-90 in Brazil, total, and Latin America, we can see that they are all improving. And we continue with the same dynamic in NPL 90, with an improvement of more than 10 basis points in the quarter in Brazil, which is the best indicator in the series, even considering the pre-pandemic period. We have very good news in NPL 15-90, both in Individuals and SMEs, with a drop of 20 basis points in both segments, which shows that we managed to grow and, what’s more, with quality, which is reflected in this improvement in credit indicators. NPL 90 also shows a significant drop of 20 basis points in Individuals, and 10 basis points in SMEs. So, this picture shows how we have managed to navigate more challenging cycles with great quality.

And we have managed not only to grow in terms of quality, but also to generate engagement and principality, with good results in the bank’s balance sheet and good profitability. This has ultimately created value and generated capital to finance the bank’s expansion. In cost of credit, we see that, nominally, we had a better quarter than the previous one, having gone from BRL8.8 billion to BRL8.2 billion. But I would like to draw your attention to one point. In December 2022, we had a subsequent event involving a credit case from a retail company that led us to make a significant provision on the bank’s balance sheet. At the time, I told you that we had made a provision of almost BRL3 billion. Part of this impacted that quarter’s result, and the other part was related to additional provisions that we had and that we allocated to this case, leaving it 100% provisioned.

Thus, most of it was achieved through the provisions that were made during that period. This quarter, we made an important recovery that shows our ability to reverse such provisions. We recovered BRL500 million in the result, which is part of a total recovery of around BRL900 million in the bank’s balance sheet. If you look at how much we reversed in relation to the mix of what was provisioned in the past, proportionally, we went through more in the result now than when we made the provision in December 2022. The cost of credit is BRL500 million and I think it’s important to make this visible to you. Naturally, this was a question that could have arisen if we hadn’t mentioned it. Excluding this effect, the cost of credit over the portfolio would have been 2.8% and not 2.6%, once again demonstrating the strength of the balance sheet and our ability to reverse the provision in the same way as we originally provisioned.

When we look at the renegotiated portfolio, we can see excellent progress, with a continuous drop in the renegotiation indicator over the total portfolio, both in percentage and nominal terms, which shows that we continue to manage this portfolio excellently. The coverage ratio fell in only one segment, related to the effect of this company, which had a significant balance of provisions on the bank’s balance sheet, but which was not in overdue. Naturally, when we remove the provision balance, the coverage ratio drops. So, the coverage ratio dropped in the Large Corporates portfolio. However, if it weren’t for this effect, the ratio would stand at 1,146% in Large Corporates and at 215% in the total portfolio, which shows that this drop of 10 percentage points is related to the specific case in which we had provision, but it was not overdue.

On this slide, you will see two topics that I think are important to provide transparency and visibility for you, as we always seek to anticipate the news. Much has been said about the new CMN resolution 4966, which is the implementation of IFRS 9 for banks, and MP 1261, which is the Provisional Presidential Decree related to DTAs. So, I think it’s important to highlight two very relevant messages. The first is that this change will not have any impact on us, neither on the capital ratio, nor on equity, nor on the bank’s cost of credit. We will make this transition as smooth as possible. First, because we have been working with the expected loss model since 2010. Second, because we have had this public consultation in 2018, so we have had enough time to work and adjust our processes since then.

Thirdly, because the bank’s management model has always included the model for making provisions for expected losses on securities and other financial assets. So, this is not something new in how we manage the bank’s balance sheet. The message to you is that this migration will not have any impact on the bank. It will not affect the cost of credit, the capital ratio, or the bank’s equity. That’s the first bit of good news. The second bit of good news concerns MP 1261, which is the provisional measure that allows the amortization of the allowance for loan losses to no longer take place in three years, as was the case with the original law, but rather in 7 or 10 years. Therefore, with the current deadlines, we will be able to absorb all of this tax credit expense over time, amortizing it without any impact on the capital ratio.

So, this news is also related to CMN Resolution 4966. Let’s talk about non-interest expenses. We saw an accumulated growth of 6.1% and a quarterly growth of 5.8%. The main effect here is the collective wage raise agreement. This is where the biggest impact on this line comes from. When we look at the accumulated efficiency ratio over nine months, we are running at 37.5% in Brazil and at 39.1% in the consolidated, with a very positive trend and very solid indicators. The most important thing here is something I always talk about. When we presented the 2024 guidance at the beginning of the year, I indicated that we would grow the bank’s core costs below inflation and that has been the case. The bank’s core costs have grown 4.0% in this period, compared to 12-month inflation, measured by the IPCA, of 4.4%.

It’s important to bear in mind that bank inflation is higher than the IPCA. However, we do not give up on making the necessary investments to expand the bank, strengthen our different segments, invest in technology, modernize our platforms, or improve our value proposition and the delivery of value to our clients. So, when we look at investments, the variation was BRL1.8 billion, with core costs growing BRL1.1 billion in the period. That is to say, the big offender of non-interest expenses are the investments we have been making, but it is precisely these investments that have allowed the bank to deliver this value and the profitability we have been achieving, increasing the top-line, improving our clients’ experience, and expanding the organization.

These are conscious decisions focused on the future and the bank’s next 100 years. Allow me to give you an example of what these investments are. We have just talked about investments in technology, platform modernization, and artificial intelligence, but let’s give an example of what value is being delivered by all that is already being done. We have some very relevant messages here. All the modernization we did on the platform has brought benefits. From 2018 to 2024, we reduced high-impact incidents by 99%. That is to say, it brought quality to the client’s experience. It also brought speed. Today, we can implement solutions 15 times faster than we could in 2018. This shows that we can not only solve clients demands much faster, but also generate value much more efficiently, with a much lower cost per transaction.

So, you can see that our cost on transactions have dropped by 55%. This is all combined with a powerful agenda of artificial intelligence, machine learning and models. We have over 430 data scientists, over 360 initiatives using generative AI, over 60 machine learning engineers, 450 skilled professionals working with generative AI, and over 1,000 AI models being used in the organization. This means that the bank is moving from the era of transformation and modernization that we have talked about so much, to the era of value delivery, hyper-personalization, value delivery at the client level, improved user experience, much greater speed, and a far greater capacity to react to clients’ demands and needs. I would like to give you an example of a project that we have talked about a lot here.

In all previous calls, we have been questioned about it, so we wanted to provide a clearer view of this initiative. We are transitioning from seven apps, which had completely different login methods, to two apps, the Super App and Ion, with a single login method. If we had tried to do this without having gone through all the modernization, with centralized data management and everything running in the cloud, it would not have been possible to deliver value at this speed. The most important thing here is that there will be 15 million clients who now have a single-product experience with Itaú Unibanco and who will have a full-banking experience going forward. That is, while they did not have a full-banking experience before, now they will. To bring some more concrete data, by the end of October we had already migrated 2 million clients, exceeding the original plan.

We expect to migrate 5 million clients by the end of the year. This is not a goal, it is an objective, because we will always put our clients’ experiences first. If there is any risk that the transition will not be done well or that the experience will not be good for the client, we will slow down the pace so that we can do it with high quality. But the fact is that we have been managing to achieve both things, speed and quality, based on everything I mentioned earlier. We expect to complete this migration next year and reach the transition for 15 million clients. In practice, this means that in addition to having a full-banking offer, we are able to improve all our clients’ journeys. The login journey time dropped by 54%, and the PIX journey improved the transaction time by 16%.

We are managing to do this with a unified, consolidated methodology and a unified design language within the bank so that the client experience, in terms of its look and feel, remains exactly the same for all of the organization’s businesses. In this way, we have managed to deliver 33 new products this year alone, developed with the speed I mentioned earlier. This is always part of a journey, always with a view to solving a client’s problem. This places us at another speed and another capacity to compete. Talking about capital, the news is super positive. We went from a Common Equity Tier 1 of 13.1%, and grew with results in 50 basis points, already adjusted for the dividends, reaching 13.7%. This is a very important accumulation of capital.

I have no doubt that the first question will be about dividends. We will talk about that in a moment, but this shows our ability to create value for shareholders. Naturally, I have talked a lot about our clients and the business, but in the end it all translates into the capital ratio of the organization. So, this is super positive news for capital too. For us, ESG has three pillars. We have the pillars of Sustainable Finance, Diversity and Development, and Climate Transition. Let’s focus here on Sustainable Finance. You may remember that at the end of 2019, we made a public commitment to reach BRL400 billion in structuring capital markets operations and individual loans in sectors with a positive impact on the economy and society. The good news is that we met that goal a year and a half early.

The goal was to end 2025 with BRL400 billion and we surpassed that in June this year. So, the message I wanted to bring is that, as a result of this, we have set ourselves a new goal that is in line with what we believe can actually generate an impact on society, the country, and the economy. We are now proposing not only to make the BRL400 billion already achieved, but to expand this goal to reach BRL1 trillion by the end of 2030. Therefore, in a decade, we aim to be able to structure and develop operations that will sum BRL1 trillion in total in the various sectors and result in activities with a positive impact on society and the economy. We are very excited about this new challenge and are already working hard to make it happen. Finally, I will talk about the consolidated guidance that was released at the beginning of the year, which also provides a view on a comparable basis, which excludes the effect of the sale of Itaú Argentina that impacted seven months of 2023.

When we look at the current guidance, we are maintaining all expectations, except for total credit portfolio growth. I would like to give you some more details about this change. You may recall that, after the guidance was released and after the first quarter results, there were many doubts as to whether we would be able to achieve the guidance for growth in the credit portfolio. Some analysts thought that we could fall below the guidance lower range and in that first quarter earnings presentation, I reinforced to you that we would indeed deliver that credit portfolio growth, as the biggest hurdle to that was the de-risking process of the high-risk portfolio that we were conducting. However, we expected to finish this process in the third quarter, as indeed it happened.

So, when we look at the current scenario, we can see growth in the credit portfolio with a guidance between 9.5% and 12.5%. I would like to make an additional comment on this. If we look at the original 2024 guidance and exclude these changes from the FX rate variations, we would probably reach the end of the year with a credit portfolio growth closer to the guidance upper range. That is what we were monitoring based on the growth rate that I mentioned to you just now. What is new is that the Brazilian Real is not weaking against the U.S. dollar alone, but also against several currencies such as the Chilean peso, the Colombian peso, and others. There are several other currencies that have an impact on the loan portfolio, both a positive and negative one.

So, when we only look at this implicit FX rate effect on the various currencies, we see the need to adjust the guidance to a range of between 9.5% and 12.5%, which means that what was previously the top of the range is now the bottom of the guidance. The positive news is that, very importantly, we have been able to secure a good-quality loan portfolio and generate value, at the right price, with adequate profitability, generating capital for the organization, with the correct mix, and at the same time expanding our capital base. Therefore, we made this adjustment to the guidance as a result of this specific FX rate volatility event. With that, I finish the earnings presentation with the message that we had a very strong, solid, positive quarter with many opportunities.

As usual, we have a lot of work ahead of us. Now I will join Renato so we can start our Q&A session to answer your questions. I would like to thank you once again for your time and attention. We will be back soon.

A – Renato Lulia: Thank you very much, Milton. It was a very interesting presentation. Besides the regulatory changes in technology, we are talking about ESG strategy. So now let’s start with a Q&A session. And to remind you, this is going to be in two languages. You can ask your questions in your native language, English or Portuguese. Should you need any support, you have the option of choosing to hear the entirety of the content in Portuguese or English. And you can submit your questions via WhatsApp. Remember that the number is +55-11-96176-8561. So let’s start the Q&A session. And for the first question, we have Eric Ito from Bradesco BBI. Welcome. The first question is yours.

Eric Ito: Thank you. Good morning, Milton, Renato. Congratulations on the results. Milton, I think that my first question is going to be about capital and dividends. The bank is running with a CET I of 3.7%, much higher than the minimum of 12 and a half of dividends. So the result is robust incremental for the fourth-quarter and there’s going to be an impact of 12, 6, 1 that should be impacting the index next year. So I wanted to understand from you an update actually, if we can expect that the extraordinary dividend is going to get your CET I to close to the internal level of 12.5 in the last quarter or do you see any other capital needs that will leave some buffer for the higher level?

Milton Maluhy: Well, thank you for the question. Thank you, Eric. Well, the term of capital and dividends, very important to discuss since we’re discussing capital. Over the last 12 months, we closed the sales of our participation at XP. So today we don’t have any shares. We’ve done the communication at the market saying that there was 1.54% in Class B shares. And in that time, we converted that to Class A shares and we sold them 100%. So it was an important information to level the playing field. So talking about capital, I think it’s important, it’s positive for the capital and the dividends. First, we have the capacity to roll the bank with quality, creating value and generating capital. That capital has been more than enough for the finance of the expansion of the portfolios, the credit of the bank and all the activities therein.

So what do we have today and what do we have 12 months ago when we did the extraordinary dividends? Well, last year we had a larger capital base this year in comparison to last year and we have less regulatory uncertainties than last year. What were the uncertainties? Basileia III operational risk. We are in a phase in now, which is 25 basis per year for four years. We have an increment in the part of Basileia Ponder for the credit risk. So there is a marginal increase close to 25 basis points. So both 49 basis points, 50 basis points of capital consumption [499] which was a theme for attention and the DTAs. No impact whatsoever in the index of capital. FRTB, the fundamental review of the trading book, also no impact should be generated on a capital deal on their public consultation, the sole basis that we understand that as a conglomerate we can go through smooth sailing without capital impact.

The shares that I just commented that could generate a swing in the assets patrimony of the bank are not in the assets of the bank anymore. So we have less uncertainties and a capital base that is larger. So following up on the policy that we just published, my expectation is that we’re going to have capital in capital index dividend and capital index distributed that is higher than the extraordinary dividend of last year. But where we’re going to calibrate the set one is to have the bank well capitalized. Remember that the appetite of the board is 11.5, but it’s a minimum of capital index. So it doesn’t determine the board what should be the capital index of the organization, but what is the minimum? Of course, when you’re working with a minimum, you want to have a buffer for uncertainties, volatility, decision-making process, capacity of growth, investing capital allocation.

So since we manage to allocate the capital adequately and throughout the cycles, we’re very comfortable with the capital level, but we understand that it’s not in our best interest to retain the capital more than necessary. The best information that I can provide to you is that the extraordinary dividends of this year is the same level of the capital index that we distributed 0.9 last year, that would be nominally dividend, the dividend would be nominally larger than last year. The expectation is that we can distribute more capital index and nominally more thereafter. So we should close that at the beginning of the year when we have more clarity on the projection scenario. And me on the next earnings call, I’m going to talk about the guidance, results of the fourth quarter and I’m going to announce the extraordinary dividend.

But you can expect a larger dividend than what was paid and declared last year.

Eric Ito: Thank you, Milton. If you allow me, there is a doubt from the market in regards to our call of the AT1. Is there going to be any impact in the decision of paying dividends?

Milton Maluhy: This is a great question. The answer is no. No impact in the policy of distribution of dividends of the bank. We’ve been working with an AT1 close to a one-and-half, given the set one level of the bank, we got to 13.7% in this quarter. This shows that the bank has a core equity that is very strong. It doesn’t mean that we can work with an AT1 level lower. We’re always going to look at economically at the cost of the debt. We’ve done a liability management that is very important of those debt. We have the call of the AT1, so that was published yesterday that AT1 of BRL1 billion [technical difficulty] BRL3.8 billion subordinate perpetual which are very competitive at competitive prices. So we’ve done that management, active management of the AT1.

But all the decision making on the payment of the dividend is going to be restricted to the base of CET I, which is much higher than the comfort that we have and the limits that are approved by the board. So even though the AT1 is going to be lower than 1.5, it’s going to be 140. It’s not going to impact distribution policy for the dividends.

Eric Ito: Thank you, Milton.

Renato Lulia: Next question, we have Daniel Vaz from Safra Bank. Welcome.

Daniel Vaz: Good morning, Renato, Milton, congratulations on the results. Thank you for the opportunity. I wanted to focus on the portfolio. You’ve displayed great growth. Having said that, the spread before the cost of the risk is a bit lower than year-on-year. But that spread adjusted to the risk is doing well. So if you can comment on the lines that the bank has focused the growth on? We’ve seen your competitor that is directing a lot of effort in the high income. I think that with collateral investment, FTPS, also talking about [indiscernible] the small businesses. So what are the lines that have the best return for the growth and the strong rhythm that the bank is going to focus its efforts?

Milton Maluhy: Thank you, Daniel. This is an important question and we have to clarify a few issues. Our management is based on NIN adjusted to the risk. That’s how it’s always been throughout the years. Generating higher NINs and growing in a relevant way in the short term generates a very gross NIN that is important. When you focus on a clean natural person fund with the long term, the cost of credit comes and then you have a line adjusted to the risk with lower thresholds. So if you look at our records, you’ve seen that we have consistently expanded our line adjusted to the risk which shows a growth of dynamics that is growing with quality in all the segments of the bank. And because we are in a universal bank with a big portfolio in all segments, it depends on where that quarter has been more important.

We’ve generated growth in all the segments that in the mix. If I’m growing more at wholesale in Latin America, it affects the NIN growth and you have to adjust it for risk as well. So if you look — it’s very important to have that. Well, it’s the overall income that generates the income and that impacts the NIN of the bank. And if you look at this quarter, even though the portfolio of the wholesale has grown just 0.7 at the end, the overall balance is above 5%. In the Latin American portfolio, we’ve seen a balance growing 8.2 for a portfolio that grew 1.2% in a quarter. So when you look at the portfolio of natural persons, which is a portfolio that grows 2.5% and the small SMEs that is growing close to 4.1, we had a balance of 3.3 on average, which shows that on the margin, the average balance is the one that is generating the impact on the NIN, the gross and adjusted to the risk.

If you look at Brazil, the NIN growth is stable. So it shows that we’ve been growing with quality. A few messages that are important here. First, all the de-risking that we’ve done all throughout the portfolio, throughout the years we’ve finished this process is never-ending. De-risking is part of the activity, but in a relevant way in the portfolio that we understood that is not resilient in cycles that are longer. The management of the portfolio, we could do this for this process in this quarter, in the third quarter. So what you’re seeing now is all the inertia of the ever-growing high income that we are growing two digits in the all segments. So the first message is we never stopped growing. We continue to grow with quality in resilient clients in longer cycles.

So all the portfolio is working in the retail and wholesale. We’ve grown SMEs with good profitability and good returns. In big companies, we have a portfolio that is more volatile. This quarter we had the effect of the retail that we dropped the credit at the end of the quarter. But we are growing, above two digits in big companies. And why? Because we saw an opportunity of doing assets with quality with adequate returns. Once again, looking at the long-term cycle and the capital markets that is very active. So the buffer for the big companies is the capital market. When you have capital markets that are very active, we are probably going to see credit portfolios that are lighter in big companies is, well, if you are efficient better for our clients to finance through the capital market and then we will direct and we have a relevant share of origination and distribution that higher than our fair share of credits in this segment.

So, it shows the importance of having this capacity of developing and structuring and distributing operations for the capital market. So looking up ahead, I can see that the portfolios are going to continue to grow. Some portfolios that just started to work out, well, we did the risk industry, stronger credit cards. We see — we should see expansion, personal credit expansion with quality. That’s what we’ve seen. SMEs, we continue to grow at an adequate growth, at an adequate rate. So there is no portfolio that is growing more or less. We see growth in all segments. But a relevant point here. The issue of the return of capital that is allocated is the mantra of the bank. So there is no hypothesis that we’re going to grow in a portfolio without having the right price and the adequate return.

So when we realize the scenario of competition where the price and return is not necessarily the main driver, then we are very careful when we choose our operations and taking the decisions of credit. Well, growing portfolio without doing adequate price and where the return on capital is always easier. We’re not going to forego growing with quality and good profitability. And I think the NIN shows how we’ve done that and the returns on capital as well. So this is the mantra and we will not let it go. We are going to do the growth with profitability and quality. It’s not positive spread. Its return on allocated capital that remunerates the cost of capital looking at the client vision — client centric vision. Very important point.

Renato Lulia: Well, next question. Autonomous, Renato Meloni. Floor is yours.

Renato Meloni: Good morning. Congratulations on the results. Thank you for the opportunity. I need to go back to the issue of guidance. You commented during the call on the exchange rate here. Was it just the exchange rate influence or is there a potential more appetite for risk looking up ahead? And then if you can reconcile that with the maintenance of the guidance of growth of financial margins? Once again, this is an issue of the exchange rate or this is an expectation of compression of NIN?

Milton Maluhy: Thank you, Renato. Thank you for the question. First of all, this question is important. If it wasn’t for the exchange rate, we would be very close to the high end of the guidance with the growth of the portfolio. When we did the guidance at the beginning of the year, first quarter, we still had the process that was very intense of the reduction of the risk in the natural person’s portfolio. So we saw a portfolio that didn’t grow. And the feeling was that mathematically we couldn’t fulfill even the lower threshold of the guidance of the beginning of the year. And I reinforced that we would because there was a portfolio that was very relevant, that was growing, but it was masked, so to speak, because of the reduction in the portfolio.

When we finish the third quarter, we can see clearly the natural persons are growing 2.5 in the quarter. SME is growing 4.1 in the quarter. So it’s not that we change the appetite. I think that we are working with the appetite, the appetite for risk. It’s important to highlight this is dynamic. It doesn’t change, it changes every day. We look at our models, the losses on the records, but more important than that is a prospective visions of the scenarios. These scenarios are volatile because of everything that we’ve seen happening throughout the world and here. So we are always paying attention to that. More important than the appetite is the competitiveness with which we take decorated decisions. Whether it is to concede, to change the policies, always taking care of the cycles, looking at the longer cycles.

So once again we never look at the growth, looking at growth in the short term that will generate margin because the margin comes at the beginning, because of the dynamic of the P&L. And we know that the cost of credit comes later. We can see what happens in the previous cycle. So the vision is growth with quality in a sustainable way. So growth that is resilient regardless of the adverse cycle. This is the first message. Now to answer, the representativeness at the exchange rate in all the lines of the guidance is more in the portfolio than in the margin. Since the portfolios on the foreign currency have a lower margin than the local currency, naturally, when I look portfolio with portfolio, the weight is the same. When I look at the margin, the weight of the exchange rate is lower.

In lines where I have results that are proportionally much higher. And the growth of the effect of the exchange is at the end of the cycle. It shows that since the guidance shows the average portfolio, you have the mechanical effect of the exchange rate of the devaluing of the rail. So, you are at the higher threshold of the guidance and with the devaluation of the rail, we had to — we needed to open a new range. If you look at the range, it’s the same size as the previous one, but we have last months. In the end, the reason for that is that the exchange rate is variable — is an important variable. When we run the same exchange rate for the same lines with our P&L plus devaluing generates a positive impact in the last line, it’s not material and relevant in the distribution of the lines.

So, we don’t have to change the ranges that are defined. The ranges that are there can absorb any effect of devaluing, but we’ve been working with most of them above the mid-range, which lets these lines being closer to the higher threshold than the medium point and those that are positive being higher than the medium.

Renato Meloni: Thank you, Milton.

Renato Lulia: Well, next question. Also with us, Yuri Fernandes, JPMorgan. The floor is yours.

Yuri Fernandes: Hello, everyone. IFRS very important. Congratulations on the slide. I wanted to understand, well, it’s very clear, but is that related to the system? Can you comment on how do you read that? And the point that I wanted to explore was competitive advantages of Itaú, because if it’s neutral for you and it’s not neutral for your peers, then you have capital conditions that are better. My doubt is for ’25, maybe the peers are going to have to focus on profitability and grow more with seasonality, and wouldn’t that be good for Itaú? So, more industry, it’s more about the industry than Itaú, but I wanted to get your true sense.

Milton Maluhy: Well, I’m going to be very careful here because, obviously, we always try to avoid to talk about the market and every bank has their model, their policies, and the banks have published their results and they’ve discussed that, the doubts on the Q&A, et cetera. So, every bank is going to do their own positioning all throughout time. I can see a few points. First, the expected loss is something that we’ve worked for many, many years, since 2010. There’s always a cost of working with the expected loss, specifically if the alternative is working with the incurred materialized losses. We thought that for sustainability of the risk and the decision-making process, the expected loss will give you more surety on the decision-making and having long-term and the recurrent loss.

This is our own decision for 10 years. We’ve, 14 years actually, communicated that there is a cost for the management, but we understand that this brings benefits for the capital allocation and profitability, and we think that the numbers speak for themselves. Second aspect, very relevant. In the corporate clients, we also work with the expected loss and we’ve been working for many years. We always try to have a level of provision that is adequate, regardless of the results. So, our management of provisions is not of the result for the provisions. From the provision to the result, we look at the case, we revisit all the credits every day. And the decision, first of all, is do the provision regardless of the result of the quarter. Why? Because this is an active, proactive management that shows to the market the best information that is available, and that we leave the balance without surprises.

So, what we try to do is to remove the surprise event and lack of predictability. So, predictability for us is something very important when we do the provisioning of the balance. So, the example of Americanas is a great example of that, and I talk about Americanas because the wholesale, everybody knows the credit, the public – information is public. So, when we did the provision, we published, and when we did the recovery, we reverted. We could have reinforced here and there, but why did we reverse the BRL500 million against the result? Because we had the balance provisioned correctly, regardless of other specific cases. If you work with a level of provision that is adequate, when you have a reversal, it’s natural that that reversal will go through the results and I think that the numbers are public.

Every bank has their own exposure and the level of recovery is relatively the same amongst all the banks. But again, it’s up to every bank to have their own models. How do you manage them? This is our way of managing about 4996. We thought that it was important to talk about it because you have a strong balance while provisioned, regardless of the level of capital. So, creation of value and allocation of capital is a mantra here. And I’ve always, whenever they ask me, what is the differential of the organization? This is the differential. We work with capital allocation and creation of value. It’s not a positive spread. In all the segments of the organization, there is no decision that we make of investment, credits given operations. So, we always take capital in consideration.

So, looking at management, looking at impact, whether if it’s the return on the capital that is allocated, in our opinion, if you don’t look at that, it’s not adequate for the risk management. And we’ve done that risk management. So, it depends on the level of capital. The return on capital has to be as relevant in management as if we are running with a capital index that is below the appetite. So, we are at 13.7, we do not forego making decisions to return on capital. When we have access of capital, it’s not that we’re going to destroy the value of operations. So, this is a relevant message. So, rationality is always good for everyone. And rationality, being rational, is looking at a system that grows in a ordained, in a correct return and correct organization.

The risk is when you do that is that you bring operations for developments that are not accretives for the ROI, they don’t create value for the shareholders, and for the organization, they do not allow you to expand your capital index. And therefore, they compromise your future capacity of growth. It’s simple as that. This is the mechanics and this is the way that we do the piloting in the bank. So, every bank will publish their own. Of course, being rational is the word, but we’ve always defended that to have a rational market, correct application of capital competition is healthy. There are various competitors, very competent, capable of developing their business models. But if we are rational from the standpoint of capital allocation, it’s going to be good for everyone.

A healthy system that grows with quality, generating value for the clients and shareholders.

Yuri Fernandes: Thank you, Milton.

Renato Lulia: Next question. Also with us, Thiago Batista, UBS. Thiago, the floor is yours.

Thiago Batista: Hi. Thank you, Milton. So, congratulations on the result and on the slide. I think that it’s going to be great, very explanatory. When we look at credit card, when we look at that business 6.5 quarter on quarter, so the losses on the quarters on COVID, that was very close to 2015. My question is, have you done the adjustment, the change of mix that you’re doing? Do you think that it went through the point or no? There is — it’s just a quick follow-up about the impact of the select rate. Well, before ’25, there is going to be a change in threshold.

Milton Maluhy: Okay. Thank you, Thiago. Good to see you. Thank you for the questions. Credit card was a portfolio that we’ve done the biggest adjustment of risk. And we’ve talked about that, the market where we’re capturing the open ocean clients where you have less records and then over-offering of credit cards generated a commitment of income for the families and the product of credit card. So, our decision was to do an important reduction. When we look at the financial system in Brazil, we see the delay of showing the worsening and we are improving six consecutive quarters, our delays over 90 days. So, we improved before the market and we continue to improve the market got worse. So, it shows that in practice, that all the risking that we’ve done was adequate in clients and operations that do not generate value.

The issue of value creation is a mantra here. The spread is positive, okay, but the ROI is below the cost of capital. In clients where the capacity of extracting value, the capacity of generating other businesses is reduced in those monoliner clients where you just have the credit card, the only product of relationship with the client. But here, there is a series of information that is relevant. First, we understand that the chances of the credit card is very important for the relationships, frequency, engagement of these clients. So, in all those segments where we have a relationship that transcends the product, we’ve managed to grow 20% invoicing year on year, much higher than the market has grown, which shows a value proposition that is adequate, which shows a high level of engagement and the clients that are growing at the base.

So, a growth of the base is always important. Second important information, which is relevant for your question, is about the appetite. I think that we are now going through the biggest migration of apps in the history of the bank, where we are migrating approximately 15 million clients that were primarily in apps of credit cards or in IT going to the super app. We delivered 2 million clients on the new platform. We should, at the end of the year, migrate 5 million and at the end of next year, complete the 15 million. This is very relevant. Why? Because we start to have a relationship with the client that goes beyond the product credit card. We see an offering for the client that is bank. We have the capacity of offering for the client many other products that are beyond the credit card.

And all of that is done within the super app in a very simple, adequate and with a hyper personalization that is very important. So, understanding the need of every client, if you are a client that is more transactor, how you’re going to experience the super app, if you take credit and you need other products, if you’re an investor. So we can, with the data of the market and with information here and available, we can understand and service our clients in a more holistic way. This is very relevant. Second, with our capacity of — well, we’ve discussed that slide that I just presented. We have the capacity of delivering new products and new solutions. So, the super app today is what we have the best in the monoliner app and the credit card. So, we start to have it in the super app and those that were in the mono app, they start to have access to all the other products.

This is a relevant change in the way that we deliver value for our clients. So when we talk about the PIX credit within the journey, all of those are done within the chassis of the credit card. They are a new transactional way for the clients. Our expectation is that once we finish those migrations is to increase the level of engagement and relationship with these clients, looking at being the main one. This is the name of the game and this is what we focus. Credit card will be taken into consideration less as a product as we look at as acquirance. We look at less as acquirance as a product, but it’s a part of a solution of a complete offering for the clients. We talk about the numbers of the credit card, but it’s important to look at the result of the segment where credit card is relevant, where we see the completeness of the relationships that go beyond the credit card.

We are comfortable, we’ve grown the base. We continue to believe that this is a portfolio that grows more probably next year than this year from what we expect, given that the adjust — relevant adjustment happened in 2014. It’s happened throughout the years, but we concluded in 2024. This is the first point. Second question, CELIC rate. I’m going to give you an overview. I discussed this. Interest rate high for the bank in the medium long term, not good. Lower interest rates, more economy growing, more businesses, more capital markets, less delinquency. But throughout this volatility, what are the lines that are more impacted by the CELIC rate? Working capital of the bank, so when we do the hedge of the working capital at longer deadlines, in the same way that the CELIC drops, we don’t capture the immediate value.

When CELIC goes up, it captures throughout time because we’re going to do the hedge in longer vertices. So, working capital effect, all the liability management of the organization, the strength of the bank investments and management of liabilities and higher interest rates have unnatural migration for products of treasury. Many clients leaving the multi-market in variable income and going to the fixed income. So, these are products that we distributed or we issue ourselves. So, it’s a positive ROI. So, these are the two impacts. And the negative impact of the interest rates going up is delinquency. We see for the companies, the companies are indexed to the CDI. That’s CDI plus or a little bit of a percentage of CDI depends on the client, the fixed rate.

So, it is the increase, the decrease of the spreads for the portfolios with rates of cap. So, this is for the real estate credit. It generates a negative effect. The INSS reconciled. There is a capital of interest rate. So, a reduction of cap — as the interest rate goes up, the interest rate goes up and there is no change in the cap. So, we do not produce credit for the INSS for the clients because we are capped by the interest rates. The work, well, with the rotative — you have to look at the credit, the working capital and the liabilities and delinquency specifically for the segment of clients, companies, higher interest rates, pressure in a relevant way, the delinquency. So, there is impact of all the natures. We have to look at the intensity of the effect and the duration of the cycle.

Thiago Batista: Thank you, Milton.

Renato Lulia: For the next question, we’re going to switch to English as we have with us Tito Labarta from Goldman Sachs. Hello, Tito. Great to have you with us today.

Tito Labarta: Hi, Renato. Hi, Milton. Thank you for the call and taking my question. I just wanted to get your thoughts on sort of the credit cycle, right? I mean, loan growth seems to be picking up overall asset quality. You showed further improvement, provisioning coming down a little bit. So, I mean, everything looks healthy. But when you think of the macro, inflation is still above the target, rates higher, concerns about the economy slowing, indebtedness is still relatively high. How comfortable are you with continuing to grow the loan book anywhere where you’re concerned about credit quality that could get worse? And then do you see room for NPLs to actually improve further from here?

Milton Maluhy: Yes. Well, thank you, Tito. Good to see you. Thank you for your question. Well, let me go through this topic. As I was saying previously, our risk appetite is dynamic. And we are always looking for the perspective on interest rate, unemployment, inflation, GDP, so on and so forth. We still have seen a positive cycle and the numbers we’ve been dealing with show how we’ve been able to deliver a good growth in our portfolio in a very healthy way with a lower and low cost of credit and low delinquency ratios and improving significantly even compared to the period before the pandemic. So this is one topic. The second, yes, we are looking forward and see that we might have more challenges. And this, it’s a live process.

So we’re always trying to make adjustments and making decisions looking for a prospective cycle, that says that we are right now planning the 2025. We don’t have yet all the numbers absolutely approved internally. We are discussing the details. So I believe the beginning of the year, we’ll be able to show you our guidance and talk better about our perspective in about growing the portfolio. But yes, we have some attentional signs. We have to keep an eye on that. We are not going to grow without taking into consideration the prospective scenario. So we might see more and less acceleration in certain portfolios depending on the prospective scenario. And this will naturally be released and informed to you by the beginning of next year. So how so far we feel comfortable with the pace?

We’re not estimating or expecting any downturn, a strong downturn. We still have a GDP growing. We still have a very solid unemployment rate, which is positive. We’ve been seeing the wages increasing. We see some leverage, yes, in some segments of the economy, in some companies. And those are the places where we’re going to be more cautious. In other segments, we see a lot of investments, improvement in infrastructure. And those are the segments we’re going to keep being very active. So the bank is very big and broad. That means that we should be looking always for long-term cycles and this is the way we’ll be managing the portfolio.

Renato Lulia: And Tito also asked if you see any room for further improvement on NPLs?

Milton Maluhy: Yes, I believe so. In the short term, we might see still room to improve our NPL ratios. The cost of credit related to portfolio is still decreasing or is getting there to the minimums. So I think it’s reasonable to expect. And the second topic is in a nominal basis. With the amount of the portfolio and the portfolios that we are growing, we might see some increase in the nominal numbers of cost of credit, but not in the relative numbers, which is much more important now. But we still see improvement on the NPL. And the only segment that it’s difficult to say that is on the big companies, large companies, because we are working with a very, very low indicator showing that there is no room to improve. But, of course, it depends on the scenario interest rate.

If there is any normalization in the credit cycle of companies in general, so that might have any effect if that happens. But the good news about that is that the provisions on the expected losses that we do are done before we have any delinquency in the NPL. So that’s why we have that cover ratio so big on the companies in general, large companies, is because we do provisions before the cycle. It doesn’t have a relation with the delinquency in the indicator.

Tito Labarta: Great. Thank you, Milton.

Renato Lulia: [Foreign Language] Now going back to Portuguese and our question now, Brian Flores from Citibank. Welcome. Floor is yours.

Brian Flores: Thank you, Renato. Thank you, Milton. A question about Latin America. It seems to improve, but I wanted to get your true sense on what is the driver behind this improvement? What should we expect? Can we dream an ROI of 15% maybe as last year? And if you can remind us the hedging policy. As you said, the exposure to exchange rate is very relevant for this operation. Thanks.

Milton Maluhy: Thank you. First, Latin America, we’ve managed to improve all of the operations with solid results. But it’s important to realize that in our business model, the way that we publish, we do the allocations, fiscal and capital allocations, looking at the consolidated overall. So the two biggest symmetries that we have in the operations abroad are the tax effect. So we have that logic of the universal taxing in Brazil. So all the tax that I pay locally, I recognize 34 and 35, depending on the vehicle, which brings a higher tax rate, much higher than the compared peers that operate in the same countries. And since we operate with a capital level that is very high, much higher than the set one that these operations have outside of Brazil, that excess of capital for the appetite, we allocate it in the operations as well.

So naturally, it pressures on the level of return. And the last information that is also relevant, when we do the hedging of the capital index, we also allocate the cost of the hedge in the shareholder vision for that operation that generated the effect. So the cost of opportunity of the hedge of the capital index, we allocated in the business model. So I think that running with this level of return, even though it’s below 14, which is what we published on the cost of capital calculated by our methodology, our operations that if you look at Chile, the cost of capital allocated, the COE, the cost of equity should be lower than 14. But since the investor today, the Italian bank doesn’t give a COE that is different because of the ponderation of our balances and the size of the portfolio in the different countries, we end up, therefore, by simplification, do the same thing where we look at the profitability because we always look at the shareholder vision.

I go back to the issue of management by the capital allocation and return on the allocated capital. This is the way that we measure. Having said that, there is a criteria for the results if we had to adjust the cost of equity in the countries that would be much closer to the cost of equity and possibly some countries would generate value, as the case of Chile. Clearly, Chile generates value if we see the cost of capital locally. If we do all the adjustment for the vision of the shareholder in Brazil, it generates side effects that I just mentioned. But it’s the correct vision. That’s why we measure it this way, and this is the reason why we do not do the expansion that is larger abroad because it doesn’t seem to be a good capital allocation beyond what we already have and we manage to improve relevantly and with profitability.

So, this is the overall view. It’s positive, but we will continue to follow up. On the second question, which is the cost of hedge of the index, what happens is we end up with a fine for each currency. We do that for every currency. So, we have the index to the currency and the RWA index to the currency. So, if there is a variation with the currency, the patrimony walks along with the same proportion. So, we do the hedge of the cost of index of the capital. But the cost of opportunity is to bring this capital back and invest it with a higher interest rate in reals. So, the cost of hedge of index is the difference between the pre rate in Brazil where I could apply that capital with a rate free in the currencies of the other countries. So, that goes through P&L, this effect, and we see a growing effect for the cost of hedge.

So, if you ask me, for 2025, the cost of hedge of the index is going to be higher? Yes, it’s going to be higher than 2024 because the differential of the interest rate is going to increase. The other side of the same coin is that we have an effect in the patrimony that, in this case, because of the devaluing, is positive. When we look at what happens through the result, it’s a hedge, it’s an insurance so that we have less volatility in the capital index so we can have a policy of dividends that is much clearer and that we can do the distribution that is higher so we don’t have to be provisioning capital for volatility in the index in the future. So, this brings a great capacity of management as a cost, but we see that this is an insurance that is important for the capital management of the operation.

Renato Lulia: Next question, Mario Pierry, Bank of America. Welcome.

Mario Pierry: Good morning everyone. Congratulations on the results. Very predictable, high profitability. Milton, focusing on profitability of the retail business, the ROI, you improved it 19% to 24% now from last year, but a great deal of the improvement is the reduction of the cost of credit. When we look at the index of efficiency, you see this number and it worsened from 45% to 47%. Could you tell us about structural changes that you need to do to improve this index? I imagine that this is an index that you’re not satisfied. And with all these changes that you’ve discussed of the One App, [Bonita U], the benefits are going to come in cost or just benefits in revenue. Thank you.

Milton Maluhy: Look, Mario, excellent question. Thank you for the initial words. Great to see you. First, we managed to consistently expand the ROI of retail. This ROI is materializing in two ways at the operation of retail in the companies and retails and the natural persons. So, we got at a low of 16.4%, which is when you asked me if I was satisfied with this profitability level. My answer was no. But in fact, because of the cycle of credit, it was more difficult. Given the relevance specifically of the portfolio credit cards and the balance of the bank, specifically on what we call the open ocean and the monoliner channels, we felt the cost of credit much stronger, which affected the profitability of the business as a whole.

So, we are little by little expanding. If you look at the profitability of retail, it’s aligned with the ROI of the bank. So, it’s not diluted further and it starts to be neutral and contributing and generating value when we look at the cost of capital of the bank. So, we look at results that are very healthy, the operation performing and evolving in a very important way, and all of them generating value in the aforementioned months in a very important way. This is the big news that we don’t have a profitability that is just concentrated in a portfolio and below the cost of capital and the other ones. Everyone is generating value in different magnitudes, but all are generating value, the first information. The efficiency index, you are correct.

We did the derisking. There is an important work of sanitization of this portfolio. It was positive for the growth in profitability because regulatory changes, more competition, less fees. So, how do we see the evolution of this operation? First, caps that were placed specifically in the overdraft fees, they removed profitability points. The cross-sell that was done and the way that the products were priced, there was a relevant change with the change in the market. So, today you have less dependency of fees, the fees that are known, the tariffs and so on. And you end up having a higher dependency of credit, the relationship with the client, which leads this operation to have a lower ROI level than what you had historically. The name of the game is efficiency, scalability.

And, of course, for you to do this, you need to have capacity in generating engagement, value proposition so that the client will engage with you in a model that is more efficient than the model that is traditional. We’ve managed to work with the digital model. We are adjusting our footprint throughout these years, always doing this in a very careful and coordinated way because just doing the process for the reduction of costs, et cetera, is a process that if you’re going to do it in an intelligent way and careful way, in the end what you’re doing is you’re telling your customers to go away and this is not what we want to do. We want to do the transition and having a value proposition in the business model for every profile of clients. So, high income, we see profitabilities that are positive and a capacity of growing that is important.

All the businesses being reviewed, all of them working with repositioning, nobody is resting under laurels, everybody is running and working diligently. But the cost of service in some of these businesses change thresholds, an example. We in the past worked in the high income segments with a vision that the management was the only point of relationship with the client. With the open platforms, the autonomous agents, we saw that it was important to specialize more and have consultants in these operations. These are the ION consultants for investment. So, to serve as the same client, to defend the profitability, but with a cost of service that is higher because now I have besides the manager in the relationship, I have the consultant of insurance, investment, so you start to have a cost of service that is higher, which affects obviously your efficiency level, efficiency index.

What is our logic in management? First of all, if we don’t have the digital platforms that are state-of-the-art with a value offering that is state-of-the-art, to imagine that we’re going to work with an efficiency level that is better, it’s going to be in the brute force. And we know that in brute force, you only get short-term results. You improve the cost, you adjust the structure, but you reduce substantially the lifetime value of your clients in the organization. So, our focus all throughout these years was in modernization of the platform, migration for the cloud, the evolution of generative AI, and we increased even the headcount in technology to accelerate even more this process of digitalization of the bank. The 33 new products that I just mentioned are for that.

And what we are working diligently is to understand what is the model of business, what is the efficiency level for me to work with different publics. Structurally, there is relevant work to be done, and we hope to get the results at the end of all these next years, so we can improve the efficiency level of the segments that really need to be more efficient so we can generate value. With this level of efficiency for some segments, we have profitability that are high. For others, the profitability is suppressed specifically for the low-income. And then there is a super app to tie all that down. If we look at the monoliner operation and compare to any new bank, we see our efficiency level is very similar. The results are similar. What changes is the size of the portfolio of credit and the appetite for risk.

If we remove that, we have the capacity today of growing and servicing these clients. And the super app will be the most efficient way for us to service these clients through an app that has the completeness that it should have so that the client that doesn’t have the capacity, doesn’t have the pockets to be serviced by the high-medium income, they start to have a value proposition that is more efficient. This is the work of the super app that services not only the base of the mono app clients, but services for the clients that are going to have a completeness of offerings that are much better through a super app in a more efficient way with the capacity for generation revenue that is better with an experience that is much better. This is our strategy.

This is the path moving forward. But we’ve never been so advanced and so doing so well to take the next steps.

Renato Lulia: Next question. Bernardo Guttmann from XP. Welcome.

Bernardo Guttmann: Good morning, Renato, Milton. Thank you for the opportunity and congratulations on the results. You had an evolution in the sequential, in the credit origination at the beginning of the year because of the expansion of the guidance, but the appetite is more cautious in the lines that are for the natural persons, even though there is a quarterly growth. The question is, will the rollout of Itaú-1 and their potential of cross-sale, would it contribute for an acceleration in your origination? The review of the guidance already predicts implicitly an acceleration that is stronger in this segment. Now that this process of risk-off has finished, can we expect the portfolio of natural persons converging for a higher threshold, maybe closer to the total portfolio in the next three, in the next quarters?

Milton Maluhy: Thank you. Thank you for the questions. Well, no, there is no impact in the growth of the portfolio of the super app in the review that we just conducted. It was exclusively the effect of the currency that I commented. It was a mechanical effect. But we believe that the super app is and will be a great avenue of growth, specifically in the natural persons. Why? Because it’s not open ocean, because these are known clients. These are clients that we have a record of credit. We have the behavior of this client and looking across the capacity of delivering other products for this client is a completeness of relationships and engagement that is different. This will make the client to have more to be the main — we are going to be the main ones.

You have the return allocated per client, which will allow you to expand the credit portfolio. And you can, with that, have less delinquency because of the time, the engagement that we have with the client, because we are the main bank. This is the strategy. Now, we are moving on this path. But to expect — to administer this expectation, everything that we propose ourselves to do, we are over our expectations. But the crucial step, which is to see the cross-sell and growth, our portfolio has just started. We are learning with this process. It’s a continuous evolution. We are very positive and optimistic on the projects that we discuss the most and the ones that get the most updates. We are very positive in regards to that. We’re closing the expectation of the growth of portfolio and looking up ahead in the scenarios fundamental.

So, this catch-up that we’ve done this year is a catch-up that we’ve done for many, many years. Growing the portfolio and target clients, which are masked by the reduction of the portfolio naturally in vehicles and credit cards, some things that we had to do strongly in the portfolio. Looking up ahead, our expectation is to grow in an adequate level the — we tend to have a growth in the margin, so we expect to have a growth and we’re going to generate top-line. But the most important thing here than generating the growing, generating top-line is the cost of credit that is well-behaved, which allows our financial margin to continue to expand and evolve looking up ahead. So, growing the top-line more than the cost of credit and the cost of credit will always have a relationship, natural relationship, with the growth of the portfolio.

We see the capacity of growth in the portfolio. I wouldn’t want to have an implicit that the review and guidance from 9 to 9.5 is not a point of lining for the next year. That’s not the message. We haven’t closed the numbers. We can see growth in all the segments, but we are not here saying we’re anticipating that our guidance of growth of portfolio is going to be from 9.5 to 12.5. We’re — I’m not anticipating the guidance for ’25 and we are going to discuss this at the beginning of the year with more data, more information, and more information on the scenario. So I believe that there’s going to be the elections today in the U.S., all of that discussion in the fiscal tax, interest rate, inflation, exchange rate, very relevant variables that impact naturally the appetite for growth of the portfolios.

And at the beginning of the year, we’re going to have more information to be more precise and transparent with you guys.

Bernardo Guttmann: Perfect, thank you Milton.

Renato Lulia: Flipping back to English because we have with us now to make the next question, Carlos Gomez from HSBC. Hola, Carlos, welcome. Thanks for joining us.

Carlos Gomez: Hola. Thank you very much and congratulations again on the results. So two technical questions. One is on your provisions for labor claims. I noticed that they have increased almost 70% this year versus last year. I wanted to know if there is something special that has changed or this is voluntary given that you are having a good result? What is the reason and what we can expect in the future? And second, in regards to the provisional measure 1261, could you give us the details as to when it starts being applied and which period you are taking between 7 and 10 years. Thank you.

Milton Maluhy: Yes, thank you very much, Carlos. About your first question, it’s a great question. I’d like first to highlight that if you look to the level of provisions we have for labor, with respect with the payments we made in 2024, looking nine months, you will see that we have a ratio of 3.5. That means that we have a level of provision 3.5 times the level of payments we made cash in 2024. So I think this shows you how strong is the level of provisions we have. And the same way we do for credit, we do for other risks, we do for labor provisions, the expected loss provisions. So we are always anticipating the cycle and making provisions almost in our expected loss for labor discussions, labor claims. Talking about the growth, I think the most relevant information is that we see that the decisions are much faster in 2024 than it was in 2023.

So we are seeing an increase in decisions being made by the court being 15% to 20% more than what we saw last year. So this is one of the effect. The second one we had positive effects in 2023. So some reviews that we did, some reversals we did in our balance sheet. So there is a baseline comparison that it’s not exactly the same. The third good information is that our cost by legal law, legal suit is specific on labor has been reducing strongly year by year. So we are much more efficient, we are being much more sharp in making those decisions and discussions in the court. So, in general, I think it’s a baseline comparison and the most relevant impact has to do with more cases, has to do with some restructurings we’ve been doing in the bank throughout the year.

So we have more cases rising and also much more processes being discussed in the court. So that’s the most relevant impact that I see. This is the first topic. The second question was?

Renato Lulia: Provisions for resolution.

Milton Maluhy: And the provisions on the DTA side, on the tax side. So my view here is that we haven’t made the decision yet. I believe, as I was saying, that if it’s for 7 or 10 years, we wouldn’t have any capital index impact. But we are right now making these discussions because we have by the beginning of the year to make the election. And this will be applied beginning in 2026 on. So 2025, it’s like a grace period. And then from ’26 on, we’ll have this impact. But by the beginning of the year, we’ll make this decision. Of course, it depends on many things, but as it’s a long cycle, we have to make the decision according to those projections. So we haven’t finalized yet. We should be releasing this information by the beginning of next year.

Renato Lulia: Very clear. Thank you. Thanks, Milton. Thanks, Carlos. And we’re going to remain in English as the next question comes from Andrew from Morgan Stanley. Hello, Andrew. Thanks for joining us.

Unidentified Analyst: Hi, Milton. Hi, Renato. Thank you for the opportunity to ask questions. I was hoping you could explain what you’re seeing right now in the acquiring business, Andrea. There was a nice quarterly improvement in revenues, but the TPV I think of 4% year over year is about the lowest growth rate since 2020. So is — kind of curious what you think is driving that deceleration. Maybe it’s competition, maybe it’s simply the fact that your disclosures don’t include PIX and there’s a mix shift in the volumes to PIX, how that is impacting the business. And kind of curious on what you think will likely happen as the leak increases, whether you might see some other players try to increase prices, whether you may try to do the same. Just anything you can share on that side of the business would be helpful. Thank you.

Milton Maluhy: Okay. Thank you. Thank you, Andrew, for your question. First of all, when you take PIX in consideration, you will see that specifically on the debit side, PIX has a huge impact. That’s for credit cards or debit cards and that’s for acquiring business on the debit side as well. We’ve been able — the way we show the acquiring business is not reliant because it’s separate in many lines of the MD&A. So part of the results are in the results of services; part of the results is in the financial margin with the client; the cost of funding is there, the flags or the MDR in the services margin. So we are thinking about how to give a better information for you, for the market from 2025 on. But the most relevant information I need to give you is that we don’t look to the acquiring business as a product anymore as we used to look in the past.

I think at that time, we had many companies, all of them competing on the acquiring business the same way. We had a separate company. We had public companies. So everyone, everybody with an eye on that specific business. For us, we look for payments. We don’t look for acquiring anymore. So the business of payments is 10 times the business of acquiring if we consider all of them together. And this is just another value proposition that we have when we’re talking about payments and receivables with our clients. So it’s part of the portfolio, the huge portfolio that we have. We have the acquiring business as another product that we offer to our clients. We’ve been very cautious in pricing. The TPV is basically flat. We’ve been increasing the capability to increase more financial products, and of course, looking the relationship with the client as a whole, not only looking the relationship with the client on a product view.

So this is basically what we are seeing. We’ve been able to defend market share somehow. We are the leading company in the market. We see a lot of efforts going on, but the way we see sometimes the market putting more people to sell, this is not the way we believe is the right way to move forward because at the end of the day, you can sell a lot, but you don’t guarantee and you don’t reduce necessarily the churn. The cost of acquisition is very high and you don’t generate engagement. And for us, the name of the game is engagement, long time value — lifetime value and long-term relationship with the clients. That’s why for me, acquiring business is one product that we have in a very broad portfolio of payments and receivables. So even though you are seeing this growth being a little bit lower on the credit side, it’s been higher, and we have to look the other payment methods together in this portfolio to have a more broader view and the client view of course.

So this is my view on that.

Renato Lulia: Thank you, Milton. Now going back to the next question to Portuguese, we have Natalia Corfield from JPMorgan. Hi, welcome.

Natalia Corfield: Good morning and thank you for taking my question. It’s related to capitalization and the call of the AT1 that was announced yesterday. I am assuming that that AT1 will be totally substituted by local AT1. And I wanted to know if I am correct and I wanted to know what led you to do this call. What happened? What went through your mind? And what led this decision? And how do you see the balance in AT1 locals and AT1s that are international?

Milton Maluhy: Well, thank you, Natalia. Thank you for the question. Great to see you. Look, first of all, going back to what I always say in the calls, the decision to take on a call of AT1 is an economic decision. Of course we take into consideration of other factors, but mainly this is an economic decision. First information. Second information; we don’t have the obligation and not even the directive. We don’t — we didn’t self-impose this directive of riding with the full tank. So what I say, we don’t necessarily want to walk around with a full year run rate because it depends on the capitalization level of the bank. With a CET1 of 13.7, if we don’t have a capacity of allocating in the market very efficiently, it doesn’t make sense for us to carry debts with a threshold of coupon of interest rates that are so high.

So the decisions are not necessarily 100% correlated. Of course, we exercise a call because we saw the opportunity of issuing locally with more competitive conditions than simply doing the reset and continuing with that perpetual open. That was the main decision. Now, not necessarily I’m going to access the local market in the same volume that I exercise in the exercise of the call because we have the tolerance to go below 1.5 if necessary. If there is opportunity of capturing a volume that is equivalent to what we exercised in the foreign call exercise, then we are going to look for that opportunity locally, but for us to have the price and opportunity is more important than the volume of the offering. And just to give you numbers, from September to October, BRL3.8 billion in perpetuals, and we exercise that call BRL1,250 million.

So we have less reais under call that we exercise now, and we are very comfortable with that, even though the AT1 is going to go to a threshold that is lower than 1.5, which is the maximum regulatory. And I go back to the original point that does not impact the dividend policy in the organization. So when I exercise the call of the AT1 and I reduce the level of AT1 and the balance and the capital indexes of the bank, that doesn’t mean that I am repurchasing as if it’s repurchasing of shares and therefore reducing the payout of the dividends. No. We are always going to look at the capital CET1 in the way that we publish. And this is where we have the decisions for the payment of dividends. So the decision was economic. We understood that in the current price, it’s more efficient to issue locally than continue to carry over this operation, even though we could issue a lower volume than the call that was exercised.

And this will always be the logic on our decision. Oh, there’s going to be a call in March of next year. How are you going to decide? Same rationale, depending on the market conditions and looking at the domestic market, looking at the foreign market. Oh, maybe you’re going to issue new, or — we don’t know, we don’t have the need. That’s the main information. What’s difficult is when you go to the market is when you have the need because then price is not a variable that you control. We’ve managed to do this with anticipation. So we can do this at the best price and the best opportunity possible so that economically this is a decision of capital management that is adequate.

Renato Lulia: Thank you, Milton. We are now going to switch back to English for the last question of the day, last but not least with Nicolas Riva from Bank of America. Hello, Nicolas. Great to have you here. Thanks for your question.

Nicolas Riva: Hi, Renato. Thanks very much for the chance to ask questions, and hi Milton as well. So I’ve got a follow-up question on what Natalia asked before. So she asked about the AT1s and your point was clear that you can have less than 150 basis points of AT1 capital. So we shouldn’t expect, I think, an issuance in the international market at least of AT1s. Regarding the Tier 2s, you have also announced recently you’re going to be calling the 29s in November. The impact on capital is smaller. I think it’s only 30 basis points. You have also been raising Tier 2 in the local market. In that case, should we assume there’s not going to be — there are no plans really to issue Tier 2 in international market? That’s my question on the Tier 2s.

And then second question on IFRS 9. So you had a slide in the presentation, and it seems that your message is there’s not going to be any significant impact on provisions for loan losses on capital ratios. I understand you are already using expected losses to calculate provisions for loan losses. In terms of the way you disclose asset quality, I believe you’re going to be breaking out the loan portfolio in three stages based on the number of delinquency days. I want to confirm that stage 3 loans are going to be defined as 90-plus day NPLs as well. Thanks, Milton.

Milton Maluhy: Yes. Thank you. Thank you, Nicolas. Well, first of all, the same comments I made for the AT1 applies to the AT2. Okay? To the Tier 2, not AT2. So that means that on an economic perspective, we’re going to be looking to the market, what are the market conditions, the price. Of course, we know the relevance of having an international curve for our debt. So we always try to have a mix in the way we fund the balance sheet of the organization, but at the level of price needs to be there. Otherwise, if there is any arbitrage or any incentive to do it locally, we’re going to do it locally. If the price conditions, or if we understand that we have pricing conditions to do something offshore, will be there as well. So it’s not only price.

Price, it’s a relevant input of our decision, but we take in consideration other information, as the one I was saying, the deepness of the market, how much I can raise, the needs that we have, if it’s important to have a curve in U.S. dollars and to have, of course, investors being served by this debt. So we take all of these in consideration and this is the way we’re going to pursue. So about the second questions on the IFRS 9, we have to remember that it’s not exactly the way we see the IFRS 9 approved in Basel. So it’s — the guideline, it’s pretty much the same, but we have a few adaptations for the Brazilian view. And this has to do with many topics. So it’s not exactly the way we provide the IFRS 9 today. It’s a different way. So we are very comfortable about the level of the stages we have.

You won’t see many changes. There is some changes in accrual. Today we have to do 60 days, it’s going to be changed for 90 days. So in the other hand, the provisions for securities, we have to do on expected loss. So as soon as we have all the balance sheet consolidated there, you won’t see a very different — big difference in what we released today, but there is some adaptations for local laws, local regulation that we have to take in consideration. And those adjustments will be made and will be released as soon as possible. I think the key message is that when you mentioned at the beginning of your question is that there is not going to be any impact for us in the capital of the organization, in the index, capital Index, neither on the cost of credit.

So this, I think it’s the key message that I need to release. Other adjustments may be seen, but not relevant at all.

Renato Lulia: Thank you, Milton. And with that, we have the last question from the analysts, but remember, we received a lot of questions via WhatsApp. They’re all going to be answered directly to you by the IR team. If you can finish the call with the messages for our audience.

Milton Maluhy: Thank you, Renato. Well, thank you everyone. It’s been a great pleasure to be with you once again. This was a very solid quarter with a lot of quality, adequate mix, and positive perspectives, and we can deliver a better bank, larger bank and with good profitability. Challenges are always there. We are humble facing these challenges. We cannot — the past performance is not an assurance of future performance. We have to work with the higher engagement and higher level of energy in the organization, and as a company that is centered in the client. And we are a company that has transformed itself all throughout the years and this has been our purpose, daily purpose. So I would like to thank you for your trust, and all the questions, quality questions.

Your questions make us think maybe there is something that we can do differently. And as we say in our culture, we do not know everything, but we are going to work on it and we have a positive energy, positive attitude and optimistic. We are optimistic. It’s another hundred years in the future. So we have a lot of work to do. And I wanted to thank you for taking part in this presentation and we will see you briefly. It is always going to be the guidance, dividends. We’re going to discuss dividends where I expect positive news and also on the results of the fourth quarter. Thank you very much and see you next time.