Itau Unibanco Holding S.A.

Hello and good morning, everyone. My name is Renato Lulia, and I'm the Head of Investor Relations and Market Intelligence at Itaú Unibanco. Thank you very much for participating in our conference to discuss our earnings for the third quarter of 2023, which, as always, we are broadcasting directly from our office at Faidia Lima. Today's event, as usual, will be divided into two parts. In the first part, Milton will go through our performance and our earnings for the third quarter of 2023. Right after that, there will be a Q&A session during which analysts and investors can interact directly with us. I'd also like to give you some instructions on how to get the most out of today's meeting. For those who are accessing our website, there are three audio options on screen. The entire content in Portuguese, the entire content in English, and the original audio. In the first two options, there is simultaneous translation. To select your option, just click on the flag in the top left corner of your screen. Questions can also be sent via WhatsApp. To do this, just click on the button on the screen for those who are watching on the website, or send a message to 11 97 825 5707. Our presentation today is available for download on the website screen, as well as on our IR website. I'll now hand over to Milton, who will start the earnings presentation, and then I'll come back to moderate the Q&A session. Milton, the floor is yours.

Good morning, everyone.

Welcome to our earnings call, supported by a very objective presentation. I'm going to run through the figures for the quarter and emphasize the Argentina effect, which, as you saw, on Friday we settled the sale of this operation. I'm going to show you how this affects our earnings and how the guidance is kept unchanged. except for just an adjustment that removes the effects of Argentina from the seven months that this operation was part of our earnings, and how we've disregarded the remaining five months in the guidance that's been published in the second quarter. So let's get started. We've delivered a recurring managerial result of R$ 9 billion, which points to very strong earnings that has grown 3.4% quarter over quarter. We've reached a consolidated ROE of 21.1%. Brazil's ROE, which is the most comparable with the market, was 22%, up half a percentage point. It's key to highlight that if we were working with our capital within the risk-appetite threshold approved by our board, this ROE would be around 24%. I'm telling you this just to give you an idea of the effect that capital has and how it dilutes ROE by two percentage points. In commission and fees and result with insurance operations, the growth was 3.6% quarter over quarter, reaching 12.9 billion rials, at a cost of credit of 9.3 billion rials. This is the first nominal drop we've seen with a 1.9% decrease quarter over quarter. This is very good news from lending. The NPL rate is absolutely stable, with no news, which is in line with the message I've been sending you for a few consecutive calls now. The level 1 capital ratio, which I mentioned just now, reached 14.6%, an increase of 1 percentage point in the quarter. I'll show you in a moment our set 1 running at 13.1%. But there was also a significant increase in the bank's capital. Speaking about the loan portfolio, the individual's portfolio grew by 6% year over year. As for the quarter, the credit card portfolio is still decelerating. But I'll emphasize this in a moment. Personal loans portfolio grew by 4.2% in the quarter, payroll loans portfolio reduced, and vehicles portfolio increased slightly in the quarter. So the portfolios in general, except for personal loans as mentioned, grew 6% year over year. The SMEs portfolio grew 3.2% year-over-year, but we're already seeing a significant pickup this quarter, growing 3.3%, which means that the quarterly effect is already above the trend we had seen for this portfolio. And in the credit portfolio as a whole, after adjusting the Latin America effects, we see a growth of 4.7% year-over-year and 1% increase this quarter. The message I want to leave you with, which for me is the most important one, is that in the portfolios where we decided to not stop growing, they continue to expand significantly. Thus, if we take the two middle and high income segments, uniclass and personal et, the portfolio grew 3.7% in the quarter and the individual loans portfolio grew 0.6% on a consolidated basis. Year over year, this portfolio grew 17.5%, while the individual loans portfolio grew 6%. The portfolio of the middle and high income cards grew 3.6% in the quarter against a drop of 0.5% on a consolidated basis. and by 15% year-over-year against a drop of 0.8% on a consolidated basis. And in middle and high-income personal loans, we grew 6% in the quarter and 24% year-over-year. This shows that we've been increasing our engagement in the middle and high-income segments, where we've delivered and performed very strongly over the quarters, and we've made a portfolio adjustment. We've made a significant de-risking in our portfolio. This saved the banks almost 200 NPL points throughout the period. The portfolios where this de-risking was more significant were in the credit card portfolio, which already had a significant nominal drop in the period, and also in the vehicle portfolio, to which we had to make very significant adjustments. In the other portfolios, we continue to grow, and especially among those clients that are in fact resilient throughout the cycle, as we say. Through the cycle. That's how we've managed our portfolio. When we look at the payroll loans portfolio, for example, we have two key messages. The first is a drop in the INSS public pension portfolio, which is in line with the information we've been disclosing, as Febraban itself has done, due to the limits that have been set. When this happens, the access to a cheaper financing facility cannot be made available to pensioners, who end up electing more expensive facilities due to these limits now in place. We can see these portfolios dropping. On the other hand, we've managed to expand government and private companies' payroll portfolios, where we've grown by over 12% year over year in both cases. As for credit origination for SMEs, we see that it's continued to grow since the first quarter of this year. For large companies, there was a slight increase up to the second quarter. And since then, we've seen a growing demand, already reaching 118 year-over-year on a 100 baseline, which shows that we've managed to grow with quality by always focusing on the net interest margin. To focus on generating operating revenue is not enough. We have to look at the generation of operating revenue, the related cost of credit, and the return thereon, by analyzing the net interest margin, therefore already adjusted for the service cost, which may conclude whether these transactions are adding value to the shareholder in the long term, or whether they are simply showing a growth in earnings that does not bring a return on the shareholders' capital. This is the type of management and work that we've done consistently each quarter. This is our daily work. As for the financial margin with clients, we have good news. The line expanded by 700 million in the quarter, a 3.2% growth. It was a well-distributed and balanced growth, with the effects of volume, the volume of liabilities, number of working days, some effects in Latin America and others. These are very sound results, and for the first time, to increase transparency, we've broken down the Argentina effect. Argentina and the working capital had an impact of 3.2 billion last quarter, with 2.9 billion from working capital itself and 0.3 billion from the Argentina effect, which contributed with approximately 100 million to our monthly earnings. When we look at the end of the graph, we get 3.1 billion, with 3 billion from working capital, which compares to 2.9 billion. It shows that we've managed to adequately hedge our investments and grow in equity. In this quarter, we only have one month from Argentina, so we show this result considering July, as the earnings of the other two months were not affected, because we stopped to account for this asset as a consolidated bank, as the Argentina operation was recorded as an unavailable for sale asset, due to the sale process that was underway. When we look at the consolidated margin, it expanded quarter over quarter from 5.1%, and we reached 5.6% in the consolidated margin this quarter. And when we look at Brazil, we also see this expansion taking place, reaching 5.9%, 30 basis points in the quarter, which is a very strong result. As for the financial margin with the market, the quarter was in line with the previous quarters, reaching around 700 million reals, after the effect of the cost of the capital index hedge. The effect in Brazil is in line with these figures. We see 1 billion reals in margin with the market, and in Latin America a slightly lower figure. Remember that here we only have one month of Argentina and two months where we've already recognized this investment as available for sale, thus it doesn't impact earnings. This was the effect of the margin with the market, with no particular news. I'd like to detail some information in commission and fees and result from insurance operations. First, the strong quarter-on-quarter income from credit and debit cards as we've managed to expand issuance, which grew 4.5%. The acquiring business grew 2.8%. It's worth noting that, in light of all the integration work, better management and proximity to the clients, the acquiring business is going through, in short, a process of engaging our clients that has helped us to reprice and adjust our operation as a whole. Year-on-year growth was 18.9%, a very sound result. Transaction volumes are also sound, growing 5.3% in the quarter, while posting good profitability, which is the most important. and in issuance, we grew 2.9% year-over-year, with a volume expansion of 2.7% in the quarter. We remind you that this was the portfolio where we've actually made the most adjustments. We've reduced substantially our exposure to the open sea, and this adjustment, of course, not only affects revenue, but also the portfolio growth. When we look at the advisory services and brokerage line, we see a very strong growth of 22% in the quarter and 21% year-over-year. In further details, we came first in the investment banking ranking in ECM, M&A, and DCM, achieving 18% market share in ECM, 15% in M&A, and 29% in DCM, which shows that we've been consistent and delivered very solid earnings in this line. When we talk about asset management, there was actually a slightly lower year-on-year growth, with an expansion in the quarter, but the most important thing is to show that the open platform grew this quarter. As a result, we are already seeing a certain migration trend to this platform, and the line of owned products has been growing a lot throughout this cycle of monetary tightening, so the pickup is lower quarter over quarter with an increase of 2.2%. Finally, in insurance, we grew 19% year over year, with a growth of 5.4% in the quarter, which shows that we are consistently expanding our insurance operation and increasing the value of this operation within the bank's balance sheet. In terms of credit quality, our first message is from a global standpoint. When we look at Brazil, at the total, and at Latin America, short-term delinquency reduced in all three cases, and coincidentally, in all of them fell from 2.5% to 2.3%. This shows that short-term delinquency is well-behaved. When we look at the NPL 90 days on a consolidated basis, the total is fully in line, just like in Brazil and Latin America. And when we look at the short-term delinquency in Brazil, for the second quarter in a row, we have a reduction in the individual loan portfolio, from 3.5% to 3.4%, and now 3.2%. In fact, the first quarter is usually more pressured by the previous quarter's spending, and we've seen that in two periods we are already returned to the levels we had before the start of the year. In very small, small and middle-market companies, the indicator fell by 10 BPS, while in corporate segment, the indicator went sideways, without any news. When we look at the 90-day NPL in Brazil, in line with what I said last quarter, we have an absolutely stable rate, and our best expectation for the fourth quarter is a drop in the NPL for individuals. Bearing in mind that this is a portfolio that has decelerated a lot, so there is a much more controlled overdue effect and a denominator effect, both show that we have a very healthy portfolio and no worries. In SMEs, we are in line with what I said in the last call, that we expected an expansion of around 10 BPS, and that's what happened. But our expectation is a drop in the fourth quarter, so we see that the short-term delinquency is reducing. Thus, we don't have any specific concerns. Our very small, small and middle-market company's operation is posting very strong returns, both in a middle market and in retail. So, no specific concerns here. We have a very controlled cost of credit. When we look at the nominal cost of credit, in this series we have the first quarter with a nominal reduction. It's important to remember that in the fourth quarter we had the effect of one retail company which ended up changing this figure. If it hadn't been for that, we'd have seen a gradual growth over all the quarters. So this is the first quarter that we've actually seen a nominal decrease, and in relative terms it's fallen to 3.2%, which is a very comfortable figure, and with a portfolio that is growing. In the renegotiated loan operations, we have two news. The first is that it appears nominally stable at 40.9 billion rials and 3.5% compared to the portfolio, which shows a very controlled and well-behaved portfolio. As far as coverage ratios, there's not much to say. You'll see a certain stability, only small effects, but absolutely stable. In other words, the bank's balance sheet continues to be very well covered and protected, with very adequate provisions. As for non-interest expenses, this quarter is typically subject to stronger effects, such as the collective wage agreement. As a result, personal expenses accelerated from the second to the third quarter, while other expenses are very much in line. Thus, non-interest expenses grew 8.4% in Brazil, and with the effect of Latin America, they grew 6.9%. And what are the key messages? The efficiency ratios are quite good, clearly much better than what we've seen in the market as a whole, both in Brazil and on a consolidated basis. And these are international benchmarks. We've managed to deliver a very appropriate efficiency ratio with two main messages. The first is about the bank's core cost, or run the bank, which is in line. In the nine-month period compared to the same period in 2022, we grew only 1.1%. On the other hand, what has actually been expanding this figure is not just cost itself, but the investment that we continue to make. Our goal is not to manage costs for the quarter. Basically, what we have to do is to make our operation more productive, more efficient, thinking about how we invest in our operation by investing much more in technology, data, and business expansion. So we're always looking at the franchise over the long run, always with a longer time horizon. So that's the reason for all these investments, which is still being absorbed by the P&L, resulting in the level of profitability I've just mentioned. I believe these are the key messages regarding costs. The bank's efficiency program continues to make a very positive contribution. And in terms of transactional volumes, if the unit cost is the same as lower or rising less than inflation, if we actually increase volumes and do more business, this is a benign cost. So we've still been able to finance all this benign cost expansion with all the efficiency program at the bank. One of the most talked about topics lately is data. We've talked a lot about machine learning, models, generative artificial intelligence, among others. This is a topic that comes up all the time. So what we wanted to do here was to provide a summary of our various initiatives. This isn't just a topic for a specific department, it's a topic for the whole bank. And we have some data that shows and reinforces how strong our investment and belief in this data agenda has been. Starting with our data structure, which has 100% of all the bank's data in the cloud, and a very modern data mesh architecture, which makes the data much more democratized within the institution, not being used by just one department, as all departments start consuming that data. And not just consume, but adding their own data much more efficiently to the bank as a whole. So we brought you some information that I think is relevant. We have more than 350 data scientists in the organization, more than 200 initiatives using generative artificial intelligence, more than 50 machine learning engineers, more than 150 professionals working with generative artificial intelligence, and more than 570 models currently being used within the organization. One of the cases that I think is relevant in terms of outcomes rather than output is service. For example, we've increased by 45 percentage points the volume of client service that is automatically retained through our models using artificial intelligence. 72% of all calls made are already handled by artificial intelligence, with much greater efficiency, accuracy and speed, and with improved NPS. And this is in line with all the investment in technology and efficiency that I've just mentioned. This shows a much more scalable and efficient bank in the long run. And we have a series of other initiatives, with greater security for our clients, since we are able to interact and identify the voice of a fraudster, thus allowing us to protect our clients. With regard to productivity and the corporate client experience, we already have a lot of information for every documentation analysis, so that it can be done as accurately as possible. We currently have a 97% accuracy. We've also been using chatbots to interact with our clients. We've used our artificial intelligence models in different businesses, and we have no doubt this will be an agenda that has come to stay and will grow exponentially over the coming years. We want to be at the forefront. We had no choice but to migrate our systems to the cloud and upgrade them. As for the artificial intelligence agenda, we have everything it takes to lead this process. We want to be at the forefront of this agenda. I'd also like to comment on a few topics about culture and people, which are very important to us. We've recently announced two objectives, black representation in the institution and women in leadership. When we set this objective, we said that by 2025, we wanted to have 27 to 30% black representation in the organization. We've already reached 27.3% in July. 40% of our hires today are black people, which naturally means that we can evolve in these indicators. We really believe that it's not just a diversity agenda. It has to be an agenda of diversity and inclusion in order to keep this flow sustainable over time and to ensure that these indicators evolve consistently. We are very proud of the work we've been doing, and as I always say, it's not a job that has a day and a time to end. This is the new normal, and that's the agenda we've been working on. We also had a goal of achieving between 35% and 40% of women in leadership by 2025. We've already reached 35% in September 2023. So we are already at the lower end of our 2025 target and will naturally keep moving upward. Regarding the hiring flow, our goal was to hire 50% of women in the flow. We've already hired 53.8%. And here we are talking about an indicator of women in leadership. When we look at women in the bank's total workforce, we now have 54.3% women. We brought this indicator just to give you an idea of the importance of this agenda, and we have to constantly talk about this ESG agenda. Of course, the narrative is important, but the results you can deliver are much more important than the narrative. And every quarter we present some output, some focus to show how this agenda is part of our DNA and how it is one of the pillars of our culture. Regarding some acknowledgements, for the second consecutive year we were named the best company to work for by Great Place to Work. And not just as the best bank, we won the best financial institution and also the best company with over 10,000 employees. What I always say here is that if we have happy and engaged employees, a strong culture, client centricity, naturally we will have satisfied clients. These are fully connected. We won the Most Amazing Place to Build Your Career, and we also won this award for the second year running. That's very good news. And last but not least, also for the second consecutive year, we won the Valor 1000 award as the top company among banks. This shows a little of the recognition we've achieved. We talk about these acknowledgements with our feet on the ground and with a lot of humility. This is very important for us to keep moving in the right direction. but with great care and humility, because we still have a lot to do and we believe that this is a longer-term agenda. We're not going to be complacent with these results. The bank has a lot to evolve, and this is the agenda we will continue to pursue. Now, radically changing the subject, I've talked about culture, I've talked about diversity, I've talked about inclusion, I've talked about awards, and now I'm going to talk about capital. As I've said a moment ago, we came out from a set one of 12.2% last quarter, and we've already done a pro forma last quarter, showing the positive effects of the regulatory changes, which have in fact materialized now with plus 0.9%. As a result, we've reached 13.1% of the set-one capital ratio, and our appetite is 11.5%, as defined by the board. So, there's been an expansion in all consecutive quarters, since the first quarter of March 2020, during the pandemic, when we made those material provisions. Since then, we've been expanding and growing our capital ratio. We have plus 0.4% growth in earnings already adjusted for dividends. We have the minus 0.3% of RWAs with the consumption we've had form credit, market and operational. And the plus 0.9% I mentioned is basically the evolution of our models and all the regulatory changes, which leaves the bank at a very adequate capital level. Regarding Itaú Argentina Bank, I'll try to be very objective, but it's important to emphasize this for you. Considering the earnings that we see on our balance sheet, the seven-month result of 578 million reals also poses an opposite effect in equity that doesn't go through P&L. which is the effect of inflation and the foreign exchange variation of the equity in Argentina. So, if you look at earnings isolated, you get the feeling that it's an accretive investment. But deep down, when you consider the economic effect, from the stockholders' standpoint, we saw a seven-month loss in Argentina of 113 million reals. As a result, we made the decision to divest, especially in the retail business in Argentina, an operation that we had in this country for many years. We'll keep a very small operation, in this case a representative office focused on a few corporate groups. We have a very close relationship through capital market transactions, investment banking, some lending transactions. But we felt it was important to carry out this sale. The sale was completed satisfactorily with the regulator's approval and its financial settlement last Friday. From the earnings standpoint and the material fact where we announced the sale, we said that we'd post non-recurring result of approximately 1.2 billion rials. And this is the result that is actually materializing in this quarter's earnings. So this settlement of this impact on equity that has been accumulating over the years, which is the CTA that we disclosed on the balance sheet, and the balance sheet as of September 30th does not include any more the effects of Argentina, because from July onwards we have the effect of only one month in the quarter, which is July. We started treating this asset as available for sale and no longer as a bank consolidated on our balance sheet. The result excluded was a credit portfolio of 4 billion rials and operating revenues of 1.9 billion rials, a non-interest expenses of approximately 650 million rials and earnings of 578 million rials reported in PNL, which is the figure I've showed you just now. Thus, we no longer include Argentina in our earnings. As a result, we simply took the guidance that had been released to you last quarter and we made the adjustment by excluding the impact of Argentina. How did we make this adjustment? We went back to the guidance and looked at what we had projected line by line for Argentina over 12 months, and we simply excluded them from the projection. And now we are restating the guidance without any changes. Basically, what we're doing is excluding the effect of Argentina from the last five months, two months of which are from the last quarter and three months from the coming fourth quarter 2023. Thus, here you can see the figures adjusted across the board. The basic message is that our guidance is being reaffirmed. We continue to believe in the projections, and we are delivering earnings within these lines. Needless to say, geography can always change from one side to the other side, but all ranges described here absorb our best expectation of how we should end 2023. This concludes the presentation, and I'll now join Renato so that we can answer your questions during the Q&A. I'd like to thank you once again for your trust and say that we remain very confident in our agenda. We've been working tirelessly on this cultural transformation that I've talked about so much, this obsession with the client, with expanding all NPSs, ensuring that our business keeps evolving and growing. We still have a lot of opportunity for growth, and we're going to continue evolving at the bank, but always with that focus and that long-term view. Creating shareholder value is a mantra for us, and it's something we have very strong in our DNA. Then, we're not going to fight for growth that leads to one or two quarters with better earnings that is not sustainable in the long term. We are going to keep this long-term view, as we've always done here at Itaú Unibanco. Thanks everyone once again for your time. I'll join Renato and we'll continue our talk. Thank you very much. See you in two minutes. All the best to everyone.

Well, Milton is back with us. Thank you very much for being here and for your presentation. And now we will start the second part of our meeting, which is the Q&A session. Remember that this is a two-language session. We are going to answer the question in either English or Portuguese. If you need support with the translation, you can choose the audio that you need. You can submit your questions via WhatsApp. The number is 11978255707. The list of participants is long. We have the first question. Without further ado, let's start. We have my friend Renato from Autonomous here with us in the video. Thank you for taking part of our call. Good morning, everyone. Thank you for the opportunity. Would you please comment on the improvement on the ROA with the business on retail, regardless of the revenue didn't grow so much? I wanted to understand the drivers behind that improvement and maybe understand the scenarios for the next quarters if there is a trend, and if you can comment on your expectation regarding the meeting with the central bank that is scheduled on the credit cards. Thank you. Thank you, Renato, for the questions. Welcome, everyone. I would like to start with profitability. In fact, when we look on the quarter on quarter, the result on the retail is stable, but with a composition that is different. With the turn of the quarter, we have had a revision of the capital allocation with the regulatory changes, and the demand of capital in the retail operation was reduced. Therefore, the capital that was economically allocated on the operation is dropping, but the operation is stable. Why? Because all the remuneration of capital is inside of the business. You have less capital allocated with the business. You have less remuneration of the capital allocated in the business. That's why you remove the effect of the margin of the operation. But the core, the operation is improving a lot. When you remove the working capital, you have the constant remuneration. And then you demand less capital, and then you have 2 levers, the operation of the companies that is expanding and growing with greater profitability with more efficient capital allocation. And the inflection point that I said, with the business of individuals already happened, and we are improving quarter on quarter. the profitability so yes there is a return there is an evolution with every return even though it's flat quarter on quarter year on year there is an important growth and we can see on a recovery in the individuals with all the drivers more client engagement less cost of credit more efficient less cost less costly operation we can work with all the levers and the companies have been growing with great profitability and the composition of both. Plus the insurance has allowed us to improve the profitability of retail, and we can believe on an improvement looking up ahead. This is one point. Second question, which is the credit card discussion. Our expectation is, well, this is an agenda with a lot of associations. There will be a debate. As usual, the regulator has the capacity and the conditions to understand the different opinions. It's important that they hear all of the market, all of the players. And the most important thing here is that we want to solve. What are the starting points for the debate of the credit card? And the starting point, the inception, is so that the rate of the installments are lower than what we were expecting. nowadays because today there is a delinquency level that is very high with the credit card because there is well those of you when you hired a credit card when you requested the product you had the comparison of the rates you see the programs and you see the experience of the product then you see if the limit is adequate so when you get into the credit card product the client doesn't expect to sell finance because this is not the product. This is not the way that the product was designed. And our defense is based on that. How do we transform the credit card that has a penetration of 40% with a platform, turning it into a platform that finances the use, expanding the offering and making the most vulnerable products that get into the market. into the higher rates to actually pay their credit cards. This is the regulator. They're going to make the decision. And the commitment here is with ethics, is with the consumer. And they might have financed with less competitive conditions. And we are making this credit card platform with more efficiency. This is why just Brazil, Brazil is the only country that is different. This is an anomaly with the revolving credit, and we have to deal with it. So we have to, we have the understanding, the diagnosis, and we hear once again, ethics for is non-negotiable. So we're not, we would like a technical correct discussion that is well done. And this is what we are supporting. Febreban is the leader of this debate for the institutions as a whole, financial institutions, of course. Thank you, Renato. Second question. We have Bernardo Kurman from XP. Good morning, thank you. The floor is yours. Good morning, everyone. Thank you for the opportunity. I wanted to understand more on the retail segment. The bank has de-risking, very objective de-risking, and now you have the results with the delinquency debt stabilized, you talked about the high income and the bank is very well positioned in that segment however on the other hand some competitors already have results pointing out with more appetite releasing the strains on the retail and well you didn't get out hurt out of the cycle wouldn't me would it make sense to expand the composition of the portfolio looking at the segments that are the base of the permit pyramid that are focused by mainly by the fintechs. Thank you for the question, Bernardo. Thank you for your time. OK, let me give you an opinion, an overview. We are very much convinced about the decision well, looking back, the de-risking decision of the portfolio was a very correct decision. Not only de-risking, but we all throughout these quarters, we have grown in our target segment. Since our portfolio is very large, you have the credit card portfolio, 120, 127 billion reais, big numbers. Within that portfolio, you have the high engagement clients, with the profitability and risk levels that are adequate. You have a big portfolio that we call it the open ocean, not only the clients that we acquire digitally, but the finance and the association that we have. This is a very big portfolio. And we've done, well, Credit Card is one of the products vehicles We've also had to do adjustments. And just to give you a few numbers that really stand out to me. This is the first quarter consecutive that we have the reduction of the NPL of credit cards So the market did the first inflection, the system as a whole. We are in the second quarter with a relevant reduction in vehicles. We're in the third quarter consecutively doing the inflection of the long delinquency with expressive drops in delinquency. And the equation of risk and return. We look at all the production that is done, all of our models, and what we expect of profitability through the cycle. And we've implemented the portfolio management that was very efficient on the wholesale, we implemented that on retail. So we balanced the portfolios, We have worked with all the public. It's not that we don't work with lower income. We work with lower income, with a correct product, with a correct client, in a correct way, with an adequate rate, so we can, through the cycle, have more resilient products. We double down the high, medium income, and we've grown expressively year on year. that has strengthened our position, our leadership in that segment. We believe in the importance, and we invest in that. But there is a segment, which is the lower income, that is still very relevant in our portfolio, regardless of the risking. It was 35% of the portfolio, it's still 20, very relevant. But again, with the right product, with the adequate profitability, with a resilient client, so we can work with the adequate public. In my opinion, the big drivers up ahead so we can grow with more efficiency and quality in those publics are, first, the platform, the Itaú platform, the capacity to deliver a bank that is a full bank, one Itaú. for all the clients of the organization. It doesn't matter if they come through real estate or the payroll loans. We want to deliver a full bank experience for the client. And here in the bank, if we just look And the amount of clients that we have on the pseudo-open ocean, we have the millions of clients that have a record with us, that we have a relationship, but that we do not have. We could not deliver, because of a technology issue, a full bank offer. And this is what we are going to work on in the future. And we can accelerate through that the growth in those clients. So we have a few uniclass outside of the full bank, some personalitets, We have a lot of clients that fit into our target and that we could grow with quality. The last point is the play of cost. We try to be more efficient. We try to have an offer that is lean, the simplest possible. Juanita will allow us to do this on the lower income clients where we have an adequate cost and an adequate appetite. Several of these clients, they don't go through the threshold of credit. It's not the cost. The cost of credit over loss is so high that there is no efficiency that justifies working with this client. And you end up with a portfolio that seems to be growing because of the dynamic and the accounts receivable, but the loss is on the long term. So we are focusing on the net margin through the cycle. Profitability has to be the adequate profitability, and we have the capacity to rebalance this portfolio and continue to grow with quality, improving the profitability of the business as a whole. So we have an efficiency agenda for the public. There is an integration that we can grow more and more in these clients. that we do not service with a full bank offer. And we are going to continue to do what we have always done, which is reworking the segments with Personalité and Uniclass where we're growing double digits with great quality and generating more engagement and loyalty with these clients. So these clients that are more engaged with the bank, they have lower delinquency. And this is our agenda for the future. And we believe that there is a big space yet to be worked with. Thank you, Milton. We have Tiago Batista, UBS, the floor is yours. Good morning, everyone. My question. Well, still working with the previous questions, credit card and low income. Credit card, it was an impressive improvement. You talked about the two quarters, of the HR, the BIPs, but you've shown that there was a change in the mix that was very big. The growth, strong growth of unit class and personality, big drop in the lower income where you don't have the numbers. My doubt is if the mix is constant, would we have a better outcome? This is the first point. In the lower income, you mentioned of it, some of the competitors, Santander, they said that they have a deficit in the lower income. So they need a solution for that business. Well, based on your explanation, the solution is the Ita 1 or something along that line. How are the on-site, well, the... would it be viable to have the, well, the question is, well, the bank agency, this ITA-1, I'm sorry for the question, it's very complicated, but yes, would the ITA-1 would be a solution? Well, if we maintain the same mix, the results wouldn't have improved, as we've observed. We estimate that the risking of the portfolio would be 200 points of NPL in our delay. So just so you can see the dimension of the risking that we've done and the moment that we've done. At the end, these are portfolios that can generate the bank product. We talk about the top line. If you don't see the bank product through the adjusted cost of credit net margin, it induces you to take a decision with the inadequate appetite. Of course, there was an over-offering of that product in the market. Every new competitor got in with a credit card offer. So a client that today could have had two credit cards, the experience of having a credit card is more difficult. Today, digitally, in one day, they can open and get five, six, seven credit cards. Since there is a phenomenon of not charging the fee, it seems like it's free in the pocket of the clients. They use the credit cards whenever they need. And if they are not a client that is engaged in the organization in the first credit cycle, they get their credit card away, and then they go to the next product. And then they try to keep the last credit card with the bank that they have the best relationship. There is a natural trend that the engagement leads to lower delinquency. But the credit models, for as better as they might be, they do not improve the income of the clients. So that's the first point. We are very much convinced that de-risking is fundamental. Just so you can understand, our delinquency on credit cards, quarter on quarter, we show the balance sheet, the delinquency dropped in 6%. The vehicle loans also dropped in a quarter. These are numbers that we don't talk about, but all the de-risking in the portfolio has a result in... in the delinquency, the MPLs has dropped, and we have improved the profitability. But the credit card operation, monoliner standalone, is an operation that is not positive. It destroys value as it is. It runs below the cost of capital. So in some businesses, you can have a positive result, but it's diluted on the ROE, and on the other businesses, which are the most risky, you have a negative sometimes result. So you're diluted for the income and diluted for the ROE. And still, given the size of our portfolio, we could absorb this importantly. What would have been the ROE that we would have had if we don't have to mix the composition of the credit card and the size that we have? I mean, the numbers would have been higher if we had the size of the industry as a whole and the lower income issue. I think it really depends on the channel and the product and the client they are working with. Generally, yes, it is a deficit operation. The cost of service is very high for clients that do not have the capacity. This is a client that you can operate with the credit with a delinquency rate that is very high sometimes. Through credit itself, they do not contribute for the operation of the bank. So what we believe is that the network of branches will continue to have an important role. The remote service, many clients for the high medium income, they still like to be service to talk to the human to have the onsite service. And we believe that the branch network, the way that we reworked with our model, the satellites and all the branches and. with an adequate footprint, very well coverage in the geography, we work in places that we still play an important role. But just the one, you know, the platform that we're developing, It will certainly give us the fire power that is unprecedented because this is a client that I cannot service or that has a deficit in the on-site. I can make them digital and bring them in on the digital. This is the only way that we can make this client profitable. And the capacity of cross-sell that I've mentioned that we can do because we have a full bank offering for these clients. This is our bet. This is a plenty of cost of play of efficiency. The agency has a very important role. It has a composition that is very relevant for our business model, and we believe in the digital model. And we believe adjustments in the branches are necessary. We've done adjustment this year, and we are trying to maximize the efficiency. And in the end, the branch network will be the size of how. our clients want, as long as we can add value with the branches, there will be an important place for the interaction with our clients, specifically for some products. We believe and we like in our model, and this is an adequate model. Thank you, Tiago and Milton. Fourth question from Rafael Frader from Citibank. Rafael, the floor is yours. Good morning, everyone. Two questions. One, well, you commented on the issue of the risking of the retail portfolio, but it's very surprising that, in fact, when we look at the last 12 months, the sell-in consolidated goes up regardless of all of the risking. So the question is, at which stage are we in? Looking up ahead, that is less, let's just say, a win against us. and we have a better growth in the portfolio, we can have a marginal improvement on the portfolio. The second question is regarding the financial margin with the clients that have had an expressive growth in a quarter, but when we subdivide between the retail and wholesale, actually more than half of that improvement on the client margin comes from assets of corporations. So can you, just to understand, what was the factor? How do you, how is this reflected on the others? Well, thank you, Rafael. Let me start by the second question. And then I can answer your question. NIN issue. Second question, very simple. If you look at the financial margin in the way that we publish, we separate the working capital effect. So you can see that in the margin, there is no working capital associated to the market. But 97, 95% is with the capital remuneration with the client because it's a credit risk and operational risk associated to the credit operations. So when you see that we exclude 2.9 billion in the last quarter, and in this one it was 3 billion, you can see that in the consolidated, the remuneration of the working capital is stable. There is an increase in PL in the period, so there is a patrimony growth, and our rate continues to be positive. and the way that we do the hedge of the working capital. So we still have benefits. That is important information. How do we unfold this to the business? And this is where you see the difference. So if we look at quarter on quarter, there is a change in the regulatory working of the capital. How do we work with our business models? I have the necessary capital that has to be allocated in the operations. Since there was a reduction in the risk factor, for the credit risks, for the risk of credit, for example, for Basilea III, for retail and wholesale, there was a reduction. What do we do with our business model? We exclude the excess of capital that was still larger, and we put it on the corporation. So I don't leave it in the business. The remuneration of the excess of, It stays in the corporation. So when I isolate 2.9 and the 3 in that slide, it's already contained in there. Why? Because it's the whole. that breakdown is just how i allocated between business when i look at the financial margin the 700 million which is the core is the core growth the other one is just a recalibration between the businesses of the working capital the access of the capital that i take to the corporation so it's just a way to represent the distribution of allocated capital i hope that it made sense because it's the way that we work with our business model. So all of the access, clean access, I leave it in the corporation. That's why you see the delta in a quarter of 100 million to 550 million in that line of the corporation in the margin with the client. So it's just a redistribution of the working capital between the businesses. Going back to your first point on NIN, We believe that the core of data risking already happened. The negotiated portfolio is very well provisioned, very well negotiated. We've seen an expansion in the line. We've managed that. We've improved our mix. And the mix is not just the retail wholesale. It's the mix, and we've improved the profitability and more so. Here is the engagement issue. The other relationships, other products, all the crossover is here. So liabilities is here. So we've managed to deepen the relationship with our clients and improve the set of products that we service our clients. So the line adjusted to the risk has two effects. There is the top line effect, and then there is the de-risk, and therefore there is a lower cost of credit, which can help us along the way. through the time with an NIN that is better. On the other hand, we did with the risking better clients, lower risk and lower profitability. So even though it's generating value adjusted to the risk, we've had margins that were lower because we've worked with profiles of companies and individuals with more affluent and a better level of risk. So with contribution margins that are lower. but we are still positive in regards to the NIN and maybe keep what we are operating or maybe this is something that will happen, but it depends on the macro scenario and the future perspectives. Thank you.

Coming from abroad, we have with us Tito Labarta from Goldman Sachs. Hi, Tito. Good morning. Thanks for joining us.

Hi, good morning, Milton and Renato. Thank you for the call and taking my question. A couple of questions also. Shifting a little bit more to capital, you showed a nice increase in your core tier one above your minimum and doing good ROE. How do you think about potentially increasing dividends? Also, just thinking about loan growth, right, you know, 6% to 9% is the guidance for this year. How do you see loan growth evolving from here into next year as asset quality seems to be getting better, interest rates potentially coming down? Can you accelerate the loan growth into next year, and how will that influence potential dividend payouts just kind of thinking of capital and loan growth into next year? Thank you.

Okay, Chito, nice to see you again. Thank you for your question. I start to say that we are taking the full benefit on the interest on capital on a running basis. So we expect this year a minimum dividend payment of around 30%. This is where we are when we consider the interest on capital. On top of that, we are still expecting the regulation on operational risk, Basel III. We should have about that in the coming weeks. I would suppose that this month we would have the view of the new regulation, and with that we can do our planning of the capital need to run the business because the operational risk will be implemented in 2025, and we still don't know how the phase-in will work out. The good thing is that our capital generation has been improving, as you know. But we want to approve by the end of this month in November in our board of directors what direction we're going to go and what are the alternatives we have. And we have a few. We should or we can increment the dividend. We can repurchase shares. So there is a mix of things that can be done. And these discussions we'll have by the end of this month if the regulation on the operational risk comes up. And this is our best guess now. With that in mind, our view is that we could and we should have an increase in our dividend and or repurchase of chairs will depend on the alternatives that the board will take in consideration. We will have and make a proposal by the end of this month. So we believe that in the coming weeks, we should release new information to the market with that respect. And talking about growth, portfolio growth, I would say that we are right now planning 2024. We should have the guidance then releasing the numbers of our next quarter by the beginning of next year. We're still working on that. The same way we did looking to the portfolios that we want to have in the long term, understanding how to manage the portfolio and to balance that in the long term to be more resilient through the cycle. And this is the discussions we're having now. I cannot anticipate that because we didn't finalize. We still have some work to be done. And so far, whenever we have this information available, we will share with you.

Thanks, Tito.

Going back to Portuguese and now English. We have Rosman from BKG Pactual. Good morning, everyone. I'd like to talk about valuation and the opportunity for M&A. So I wanted to get the opinion of Milton on the valuation of the bank. In the world, the ROEs are positive. Most of the geographies, nonetheless, the valuations are very cheap. Because in the past, it was very low and we didn't know what was the real book and what was the ROI. I think that Jane Diamond had... in complaining about the deficiency of capital in the United States. Santander talks about the unfair competition with players that are non-banking players. So what is the challenge for the sector, not only in Brazil? Have you discussed with other CEOs all throughout the world about this? And maybe to understand from you, do you see this as an opportunity to have capital, access capital, as you mentioned? You have a suboptimal operation in Colombia. In Chile, there is a space that you can be more relevant. So would it make sense to use some of that capital to eventually maybe purchase banks in the region? I think that for the bank, it's always challenging to pay above the booking because of the intangible. I wanted to get your opinion. Thank you, Rosman. Thank you for the question. Well, I agree with your initial affirmation. Our vision is that the prices are cheap. We do not manage the business on the price of the share on the short term. There is volatility. There is always the effect of the bankers, the effect of the competition. There is the effect of Brazil itself on the activities of the bank. So our share ends up having multiple effects. You can have. the multiple bank, but then you have to look at the competition where we can have more upside or less upside. So that's why we look at the TRS on the long term. That's how we deliver the value on the price of the share and the price of the dividend, the value creation. We believe because of the level of results that we are generating up ahead, the prices are low, not only ours, but our other banks outside of Brazil. We've seen that. This is a bank dynamic of the shares. The issue of the M&A. We've always had it. You know of our history of records. The bank is because of a relevant fusion that happened in 2008. But we are always looking at opportunities. Outside of Brazil, the asymmetries are still very relevant. Regardless of the price of the assets, whether if it's a fiscal asymmetry, which is I have to pay a tax, the difference of the tax, you have an effective rate in Chile, lower in Chile and Colombia, and I have to bring it and recognize it in the books of the bank and capital above all. When I consolidate the assets in Brazil, we work with the appetite level of the board that is set one plus uh one and a half of 81 with three percent of level one those operations uh run with the work with the level capital below that so when i bring the operation of chile that is nine percent and i consolidated here in brazil that delta capital i do not need to reserve it then brazil because this is the level of capital that my shareholder expect me to retain in the operation when i allocate That cost of capital to 1415, whatever the cost of capital it is, it's very difficult for the profitability of that operation to generate value for the shareholders. So the logic of the value creation, you can see that works with the best profitability is when we do the consolidation. We have all the cost of cost of hedge, the capital index, the capital allocation per se. and the tax asymmetry that makes the profitability in the vision of the shareholder in the four is lower. So it's positive for the income, but it's diluted on the ROE. So when we look here, we don't have big opportunities outside of Brazil that can change that trend, not even in Colombia or Chile. So our objective has been to improve and simplify and gain efficiency in Colombia, which is a subscale operation in Chile. The operation is running in good thresholds of profitability, of client centricity. The improvement, the investment that was done is paying off after a few years. And we continue to be very comfortable with what we have. There is nothing, you know, Argentina is something outside of the curve. And in Brazil, I mean, there is always a regulatory competitive issue. What are the businesses that we can advance? And of course, we have businesses that complement our offer. We've found smaller businesses that complement our ecosystem, but we haven't seen the opportunities that are relevant. And we've seen other opportunities and we declined because there wasn't added value, the price wasn't adequate, and we still look at the market in that sense. I understand an opportunity that generates value. We are open for that. We have M&A, an M&A area that is dedicated, a team that is highly qualified that is ever looking at the market. the mapping the opportunities but our opinion is that the opportunities is more technological platforms such as avenues that was approved recently by the central bank and we can and they can complement our offers of investment the adl brokerage full digital that complements also the partnership with totals we are still active whenever there is a good opportunity we continue to advance thank you milton Next question, Daniel Vaz. Welcome. Well, I hope that you have a great time in your new house. The floor is yours. Good morning. My question is also on capital. I know that it was commented in the question of Tito, but I wanted to understand in your capital overview and that variation of the origination of SME that we've just seen, SMEs, that represents The additional capital that you have, in your opinion, will it be what is behind in more originations for the small and medium-sized companies? Do you have any real movement seeing an improvement in the perception of the risk, or actually these movements are in the adjustment of the origination, if you consider... Well, that's the first question. And last but not least, in the renegotiation, we saw the stability in the quarter. I don't know if there is an effect of the disenrolle, but maybe this will be a good indicator looking up ahead. Do you agree with that affirmation of the renegotiations? How do you see this from the standpoint of the bank? Thank you, Daniel. First and foremost, Capital is not an active restriction of the bank for growth. This is the main message that I wanted to leave to you. When we do a capital plan looking at the long horizon, we take into consideration the capacity of growing the portfolio within our appetite and the capacity to generate capital with a profitability level that we've managed to bring to the operation. Today we have the organic capacity for generating capital that is strong, more than enough for growing the portfolios. So I wouldn't say that today capital is a restriction in and of itself. In the end, the restriction will always be at this moment, always appetite until we well, how do we want to grow in which public the with which product with which deadline which portfolio is the optimal one so we can at least get volatility through the cycle and this is the way that we're working uh look at the volatility of the portfolio of a wholesale in the more volatile moment this is what we've tried to do with the retail portfolio so we rather have less cycles of upside down and having a positive vpl with less volatility this is what we try to do with the management of the bank capital is not a an an active restriction, but the vision is to have that excess capital. We don't want to retain more of that excess than what we niche for growing and investment. We've talked about the capital allocation in the beginning. If we were working with a defined capital by the board of 11 and a half of set one, our ROE would have been 24% of ourselves. We have an ROE of 22 and with a capital level one of 13. And we've managed to act that To remunerate and allocate the capital adequately, we don't want to retain the capital more than necessary. This is what we want to do from November onwards. And our expectation is that there is an increase of the payout and the repurchasing of sales. Something will be done. And we're going to go beyond what was done, which is the optimization of JCP, which has brought our payout to closer to 30%. So we should improve that payout and place to pay out again via the repurchasing our dividends recommendation of both. We're going to give you more disclosure in the next call, not in the next month, possibly after the discussion that we're going to have at the board of directors. This is the first point. The second point on the renegotiation of the board for the impact of that is very small. We are very engaged. The market was mobilized. Very good program. But the impact on the second stage, very small. There is still work to be done. The experience of the client, eligible clients, how the bids are going to work. But the impacts, they do not really move our numbers. This is a very strong work. We have renegotiated what is necessary. If you look at the records of renegotiation at the back, you're not going to see ups and downs. We never use the renegotiation to administer delinquency. We renegotiate with an economic vision. When it makes sense to renegotiate at a correct price for the client that needs and for the client that does not have the conditions to renegotiate, we rather continue with the process of charging if the renegotiation doesn't make sense for the bank or the client at the wrong point. So we've been very disciplined in the management of renegotiation. This is our agenda. And, well, Charlie and As we can recover cash from our operations, this is important. So we continue with the collection billing. And, well, this is a question that we should explore, is understand the renegotiated portfolios. provisioned well. We do the stress test in the renegotiation. They are on the deadline. There are renegotiations that are being done. They are paid. Of course, there are some long and short delays. We always look at that portfolio. We do the threshold of stress, always looking at the worst rollouts, if it was the full portfolio, what is the rhythm, how that portfolio is going to work. Is there individuals? Are there companies? We always run the stress test. So I can guarantee you that there are generic and specific provisions that are enough to deal with this portfolio in the cycle of what we expect, even in the cycle of stress looking up ahead. So very well-protected portfolios and very well-provisioned ones. Our access of provision today, when you look at the generic, a great deal of that or a great deal of that access is allocated to those portfolios. So the bank is really well-positioned. provisioned and we don't see uh relevant effects looking up ahead in the pnl uh in the sense of deterioration at the portfolio the balance is very well protected so we can go through that cycle this is not the base case but we have a great provision but of course with the deadline uh that is longer than what we expected with portfolios thank you next question we have gustavo from dbi good morning Good morning, everyone.

I wanted to ask two questions.

I wanted to be more specific on the payroll loan. I know that you talked about the retail, but this is a very important product. And, well, you have the reduction in the INSS portfolio. looking at your material you have you say that it was intentional the reduction because of a profitability that was lower i wanted to understand from you i mentioned that this is related to the caps that happened and if we look at the recent records as this elite rate is dropping and well there will be another drop in the cap of the inss so if you can tell us what is the strategy because this is a product that when we see that the risking happening across the board, all the banks are going through the rhythm. They decrease the appetite in more risky, you know, lines and credit cards. So the payroll loans are a product that the banks use as a counterpart against the reductions on the retail. So can you explain what is the strategy on the payroll loan? I think it would be very interesting. And the second question would be on the ROV. You mentioned twice that if we had adjusted as an equity one to 11 and a half, we would be talking about 24% of ROE in Brazil. If you already advance that there is a perspective for profit dividend sharing, dividend distribution, sorry, of course, according to the decision of the regulator, there is a possibility, I imagine, that the bank has maybe a gain in efficiency. The PDD is dropping next year. So can we look at 2024 and maybe dreaming of an ROE 24, 25% next year? Thanks. Well, I like to dream. I always dream big. And this is the path that we will continue to trail. Looking at the ROE, well, clearly speaking, we still see quarters that are very solid, very consistent. You have the turn of the year, another quarter, right? So how do we, since we affirmed in the guidance, the guidance has predicted the result of ROE above 20, of course, we are reviewing the numbers for next year. There are elements well-known and those that we use because of the budgeting, looking up ahead, and there are the elements that are unknown. There might always have a change, a regulatory change that is positive. We are considering that. We believe, I'm not gonna anticipate, that the profitability level that we are operating seems sustainable looking at the horizon of 24. I cannot say, of course, there are levers on both sides, but ballpark, we can imagine, I would say 20%, close to 20% seems reasonable we would have to naturally look, we are tracking the numbers here so we can have a more long-term vision. But to say that it was 24-25, I cannot give you a guidance on that. It depends on the FY, the budgeting, and the market conditions. But the dream is there, as you mentioned, and if there is an opportunity to improve with all the management that we've done with profitability and value creation. But now, remember, I digress. We're going to have a cycle of reduction of the interest rate, And it's important not to look at the other way. Are we isolated from the cost of capital? Because if the interest rates are going to drop, as we mentioned that they're going to drop, what's going to happen is that the cost of capital is going to drop as well. And the level of profitability tends to follow suit. There is a correlation not so big. We see that the sensitivity is less than the select rate. Of course, it doesn't accompany the selection, but the cost of capital is dropping. Then you start to work with the price, more competitive. And what we see as a delta ROE for the cost of capital, which is the value creation, and we're going to continue to deliver that with our best expectation for 2024. We really believe in that. Now, going back to your original question, it was, sorry, I, oh, okay, payroll, payroll loan. Let me affirm, Febraban stated that the cap problem, first, we believe that the market, the rate, whatever, is defined by the competition. There's no need to place a cap because the rates practice on average, they end up being within the caps. And the market is dynamic. I mean, there is a series of players, banks, big banks, medium banks, small banks, that work with payroll loan, and the market is very competitive. The problem is that the cap looks at the SELIC rate in an isolated way, and it doesn't look at the long-term curve. What we've seen over the last few months is that it's a big drop, but because of what happened abroad and the fiscal uncertainty, the interest rates increased the long terms. When the long interest rate goes up, you end up losing the capacity of originating new credits because the rates of return are not adequate. Once you get the cap, you remove a population of the banks that stop having access. What Febraband published, 2 billion reais of production, monthly production left the market. So 2 billion less of credit for retirees in the cheaper credit line. So you try to get efficiency in regarding the Selic, but you leave outside a very relevant public that has access to more expensive products. credit lines and you and you hinder them because you had a better offer credit offering you have two possibilities for the distribution of the payrolls for the person that that are in the bank or but with the correspondent uh bank which is important for the payroll loan the only way that you can make a profitable product is making adjustments and every bank has payments and Some offices are going through larger difficulties, and you have to consider, when you consider the commission for the corresponding bank and the price, you end up reducing the public that you have the capacity to offer the payroll loan. So you have to, so the portfolio end up suffering. 40% of our production is with the banking corresponding. 60% is in our network. In the past, it was the opposite. But with this change in the dynamic, we are removing a lot of costs that are not paying for itself and not necessarily the cost is dropping for the one that takes a payroll loan in the end up you end up making them having access to more expensive lines and this is the defense of fibra bomb we believe that the cap is not the best way we have to look at the long-term interest rate and then the reduction of the cap isolated following the select rate drop is not the adequate way of managing the cheapest and most access line for the retirees that is a success and that the market has always seen with good eyes. So, here we need to be very careful with that. The government has that clear, that message already arrived. We respect the decision, but the impacts are presented as we've shown. Thank you. Thank you, Milton.

So, next question, switching back to English. We have with us Jorge Cury from Morgan Stanley. Hi, Jorge. Good to see you. Thanks for joining the call.

Hi. Hi, everyone. Thanks for taking my question. I wanted to go back to the credit card regulatory inquiry. I appreciate Milton's comments about how this has opened up a discussion about the card industry and the different puts and takes, and it feels that everyone's more educated on how the whole ecosystem works. But at the end of the day, the reason the interest rates are high is because you have all of the parcelados. And so it just feels that any outcome that cuts rates without modifying the parcelados will be artificial and not really move the business forward. And we've gotten mixed signals from the government. The central bank has commented that they're open to it, but the finance minister has said absolutely not. And so where do you think the current thinking is among decision makers, the people that ultimately are going to have a say in these, on reducing the parcelados, regulating the parcelados, phasing them out, tightening them a little bit? And, you know, so that's question number one. And the second is, If that just doesn't happen because it's not palatable from a consumer perspective and the negatives that that may have on consumption and this is a popular government... How does that leave you if then the solution is just as simple as, okay, you know what, we're not going to move any of the different moving parts other than rates, and we're going to put a cap that is equivalent to 100% interest payment over the size of the loan, kind of like what the law currently stands. What does that mean for you in terms of um the growth of that business the profitability of that business um you know how many cars you're going to have to cancel because evidently about those level of rates some of those are just not good businesses so i really wanted to get more details rather than just this overview of you know everyone gets it and you know we're having this nice conversation but you know it's it's a pretty simple thing either you got the parcelados or the outcome for the card issuers is going to be bad yeah uh

I'll take you with me in the next meeting with the government because I really believe that you understand that it's very difficult to explain. I think the government understands, the central bank understands, but it's a complex topic. It's not simple. This is something that the country has been working with for many years now, and it's very difficult to introduce the concept and to show people what are the real impacts, as you were saying right here. So being very objective, I have nothing to say. different than what you said at the very beginning. So we know that there is a disequilibrium. There is a way where the risks are not priced accordingly. We have 127 billion reais credit card portfolio out of 20 billion reais pay interest. So how come? How come you bear the risk for 120 billion reais portfolio and only 20 billion reais pay interest? Who pays the interest at the end of the day? is the less capable population, and the delinquency, as you have a selection, adverse selection, is very high, so you have to charge very high interest rates. So if you ask me what we believe, we do believe that the government needs to understand that the parcelados sem juros bear interest. It's only a communicational issue. That's all, because it bear interest. The acquiring company anticipates to the merchant, the merchant embeds the interest inside the good, and so there is no parcelado sem juros. But people believe that there is no interest at the end of the day. So that's why the communication comes like that, the narrative comes like that. And people believe that because they don't understand and say, look, I have something, and who pays that? The issuer bears the risk, the acquiring companies anticipate and get the the anticipation profitability, charging the SMEs a risk that they run at the end of the day, that is Itaú, Bradesco, Santander, Nubank, and all the other banks. So this is the risk that they bear. So our view is that if we don't look to the international market and we do a composition of rebalancing the parcelados sem juros, reducing the parcelados sem juros, creating the parcelado com juros, where you transform that in a way to finance the clients at a very, very competitive level, 4% per month. You can do that with the parcelado con juros. And also, you make a way where you can reduce strongly the rate on the rotativo, on the revolving credit, where you can charge from these people a very, very lower interest rate. So what's the problem we want to solve? We want to help the population and make the transition. Just to give you a few numbers. Let's say that we have a cap in interest rate of 8% in credit cards, the same way we have in the revolving credit in the current account, overdraft. If we have this 8%, we have to cut the country as a whole. 60 million credit cards, 60 million credit cards needs to be abandoned. And also, you might have an impact of 350 billion reais in consumption because you take these people out of the consumption market. You will have a very huge impact in the population that was included in the financial system, they will be excluded for the financial system. Where they will finance themselves, how they will buy, how they will be part of the system. So this is the impact. If we have, if the central bank, together with the Minister of Finance, the CMN, and the Minister of Planning, if they don't find out a solution that puts everything together, and at the end of the day, who is getting benefit of that? It's not the issuers, it's not the acquirers, it's the consumer, it's the merchant. This is what we defend. And I want to see a discussion that's very technical on that. The rates that are being practiced on the anticipation are clear. You can go to any website of any merchant, of any acquiring company, you will see there the level of fees that are being charged for the SMEs. So the narrative is very dangerous, and this is what we have. So for me, it's much more a political issue than a technical issue now. And everybody needs to understand that we need to find out a solution that is good for the country, and we have to plan a transition. At the end, if we don't do that in 90 days, you are right, you will have this cap that was approved in Congress. It will take the rates a little bit down. It won't solve any of the issues that we have today. The clients that pay still be the same. they're still going to have a subsidized between publics. We won't be able to increase the portfolio and finance the construction more than we do. And we will have to cut a lot of clients out of the market because at this level of rate, we won't be able to make this sustainable in the long term. So this is the impact that this is simple, but this is not the right way of making the right decision. So for a complex problem, a simple problem, Decision is not the most effective. And I think the central bank has all the tools, has the technical teams, and they will have to come up to a solution that is good for the country, that is sustainable. And we don't advocate, us as a bank, to maintain or to preserve our business lines. And why is that? Because we are the number one issuer and the number one acquiring company in the market. We are in both businesses. So there is no conflict. There is no conflict at all. will be the most impact in either side. So it's not a matter of conflict. It's a matter of delivering to the market what is better to the market in the long term. And we believe that the information are available. You made that briefing very clear. And I think the technical people knows that. Let's see what is the appetite to get or to make this discussion happen. Thank you very much.

Thanks, Milton.

Next question, Mario Pierre, Bank of America.

Good morning, everyone.

Congratulations on the results. Two questions. I lost his audio. You lost his audio? I can hear you. Okay, Milton, can you hear me? No. Okay, two questions. the beginning of the year you do a hedge of the capital for uh a real uh for the exchange rate uh about two billion reais at the beginning of the year given the sale of the assets of argentina cam we expect those costs to be lower next year and can you give me the magnitude of that reduction second question milton i believe it's very clear that the appetite of the bank to give credit is improving given the improvements on the delinquency but i wanted to hear from you how do you see the demand of credit do you see the appetite improvement improving with the economy with the reduction of the interest rates can you tell us on the side of the demand more stuff well thank you objectively speaking, Argentina, in the same way that it had a negative CTA, for the cost of the hedge of the index would bring a benefit and not something bad because of the difference in the interest rate. What would cause a problem to carry over this asset, which was the cost of Brazil with the exchange rate in the Argentina? When I do the hedge of the capital index, the carry of that Argentina peso is positive in regards to the real. So in the last quarter, about 70 million reais, if we remove the two months, would have been the impact, positive impact, than the cost of hedge so we see on the long term we have improved our way of doing the hedge using well using the hedge of the strong uh of the strong currencies while the correlation with the rail is very close to the other countries in latin america we have a big emphasis in euro and the dollar because there is not a big it's not a good correlation and that helps with the hedge and the interest rate that is dropping That helps with the cost of the hedge. That's why we see a reduction over the last few months. Argentina, for that end, out of all the impacts, there was a positive impact. Well, the carry of the currency was in favor in regards to the cost of hedge. That's the explanation. Looking up ahead. To the portfolio, we've seen an increase in the demand. I've shown you the origination of the big companies increased over the last quarter. The capital market is coming back. So we see a market that is more active. The companies anticipating the drop in the interest rate. There are more positive perspective GDP growing this year. So we've seen a stronger activity, but we can see that in the third quarter, the gdp will be published should be a weaker gdp because of the monetary policy as expected to control the inflation but we've seen we've seen the increase of demand on the origination and we serviced it very well with a great conversion level favorability great returns and well-priced operations and when we see an exaggeration of pricing our market We'd rather lose share, market share, and defend our convictions on the long term. But the demand has grown, and we've managed to service it in a very relevant way. Via capital markets, the numbers show that, or the balance sheets of the big companies, we've seen an acceleration in that quarter. Our expectation is that that will continue to be so in the long-term future.

The same bank, different analysts. So we have with us Nicolás Riva. Hi, Nicolás. Good to see you. Thanks for joining the call.

Hi, Renato and Milton. Thanks for taking my question. Nice to see you guys. So my first question is a follow-up on the question that Mario just asked about the Argentina sale, which is really why sell now that business? So you sold for $50 million. You had an important loss on the sale, 1.2 billion reais. I calculate about 0.2 times price to book on the sale. If you can confirm, actually, that was the price to book on the sale. And again, why sell now that business? I know, Milton, that you referred before to the fact that outside of Brazil, for you, it's difficult to generate perhaps an ROE above your cost of equity and generate value for your shareholders. And then a quick second question, my usual question on the bonds, on the TR2s, the 29s. If you can... I know whatever you do with the coal is going to depend also on market conditions and refinancing costs, but if you can at least tell us, confirm Milton, that given that the tier 2s, the 29s, start losing capital treatment next year if not coal, if the inclination would be, if you would be more inclined to coal, even regardless of market conditions to some extent. Thanks.

Thanks, Nicolas. Thanks for your question. It's a very simple answer for Argentina. The NPV of this transaction, on an economic perspective, looking from the shareholder view, is positive. And why is that? Because even though we don't capture the full book in Argentina, between the announcement and the payment, there was a relevant evaluation in Argentina. And the amount was set in U.S. dollars, the $50 million, what put the transaction at fair value the way we were planning. Second, the payment was made outside of Argentina. So how can I get the capital out of Argentina without the discussions? So the acquiring company had the capability to issue bonds outside, had the approval to pay outside. So we received good dollars. $50 million was not a virtual transaction when you try to make a better price locally. And the most relevant reason why we sold has to do with the CTA that generate this impact. The CTA, we've been accumulating for a long period. The net CTA in the balance sheet of the bank is positive when we consider the other operations that we have. But in the case of Argentina, due to the level of interest rate, it was very, very huge impact. And we've been accumulating that for many years now. So what happens if we don't do anything is that we will keep accumulating a negative CTA in the long run. And the profitability of the operation together with the CTA was generating a loss in our balance sheet. It was not remunerating the capital. And we have to keep the balance, to keep the bank, to maintain the bank. There is a lot of costs of maintaining the structure. We have regulation aspects. We have to consolidate the operations. So when you put everything together, even the cost of the hedge of the capital index, which was positive, the decision to sell was much less for the amount that we got in the operation standalone, which was at fair value at $50 million in our view, the way we were valuation. And the second question, how do you do a DCF in Argentina with the cost of capital in Argentina? So do the banks trade at book value? what level of profitability you need to have due to the cost of capital to in a DCF get something better than book. So it was very difficult to do this DCF. So when we do the DCF, the price was fine. But in the other hand, we don't have the CTA anymore. So it's a stop loss on the CTA in our balance sheet, which brings us to a very positive NPV. And regarding your second questions about the bonds, We'll keep, I know we've been telling that, we'll be looking to the efficiency of the capital of our Tier 2, how much it costs, how much benefit it brings in terms of capital, what is the cost of a new one, and our capital needs. So this is the way we are approaching every single maturity and every single call. And on the economic side, if it makes sense to us to exercise the call, we will. If it doesn't, we won't. But we'll give clarity to the market Of course, before, in a window where we have the confidence to give you more information, we're going to be very transparent on that.

Thanks. Very clear, Milton. Thanks, Milton. Next question coming from Carlos Gomez from HSBC. Hi, Carlos. Thanks for joining the call.

Hi, hello, and thank you for your patience and for trying to reach every single question at length. So briefly, first I would like to ask you about the – Also, portfolio. Where are the NPLs? I mean, we were expecting to see a normalization of credit costs this year. I think that's fair to say for everybody. And it continues to be better than normal. Is that because they are coming later or they are not coming? And second, would you tell us whether you think the insurance result that you are having today is sustainable or it should be higher or lower in the future? Thank you.

Yes. Hi, Carlos. Good to see you again. Thank you for your question. I hope we don't see the NPLs, so we're not looking for them, but just to let you know, I think it's a mix of things, okay? First of all, we thought this year could be a little bit worsen in terms of cost of credit, and it's been better than what we thought on the wholesale spectrum. But you have to remember, and you know that better than most of us, that the NPL in the wholesale, it really happens at the very end of the process. It's very difficult. Before you go to the NPL, you do a restructuring, you do a negotiation. There are clients that go to bankruptcy or to Chapter 11, and they are not due with their obligations still. So the NPL is not a very good index. I don't like the index to look to the healthy of the corporate portfolio. We have to remember that the middle market is in the SME index. So we are talking here basically about large ultra-large clients in this NPL. So our view is that the level of provision that we have in balance sheet is very high. That's why we have this level of coverage through NPL in the wholesale portfolio, because you discuss name by name in the credit committees and you apply a rating, you attribute a rating for each client, and this rating defines the level of provision that we have to make. So in most of the cases, you will see clients that we have 70% of provision, Let me give you a good example. Americanas, which is a public name. We have 100% provisions. Has not gone through NPL. But we have 100% provision. So part of that, whenever, if it happens and goes through NPL, then you will have an important consumption on the coverage that we have today. So the portfolio is very well covered. We look name by name. And we have on the single names provisions and also on the generic provisions, we have allocated the level of provisions that we believe are necessary to the most risks clients, to every single client that we need to have additional provision. So the balance sheet is very covert. We are very confident about the level of provisions we have. We are not seeing a credit crunch, but we are seeing specific names coming. So far, we've been able to go very positive throughout that scenario. And next year, if the interest rate keeps going down, the macro gets a little bit better, the environment gets better, we might not see a relevant normalization. But some normalization is to happen. And we still believe that this level of NPL should increase in the coming months, maybe increase. But remember, we have the provisions for what we see now. Of course, we have the necessary provisions. So you might see some change in the NPL. You won't see some relevant change in the P&L of the bank.

Perfect, Milton.

Two questions to finish. Next, Enrique Navarro from Santander. Thank you for the opportunity. Well, it's great to talk to you guys. My question. From what I understand of the conversation itself, Itaú starts a cycle of accelerating the credit origination, that origination doesn't appear in the numbers of the fourth quarter because there's still a process of de-risking of some portfolios, specifically OpenOcean. Okay, looking up ahead, where do you get that credit growth? Because of all the participants in the market that we talk, it seems that everyone is avoiding the open ocean. Everybody is reducing the open ocean. In the existing clients, the indebtedness of the family is still dropping, but it's still high. But where do you get the growth from? Well, maybe the high income. There's a lot of banks saying that they're going to grow in the high income. We see that the high income is with the lines of credit. We cannot just depend on the high income per se to have the growth. So I wanted to hear from you. Where are you going to get that growth? Thank you, Enrique. Great to see you. First, we're talking about wholesalers. Retail, sorry, with the individuals. We've grown consistently and also with the companies. The risking was done with this process in the companies retail with great results. We've worked with the companies that have a high invoice. We didn't focus on the base of the pyramid. Our mix is different from the market. This explains a great deal of the performance that we've obtained. We still see a great opportunity and a lot of space for growth in the BU for the companies, and we have grown at high levels. The portfolio of SME had a great acceleration also. And we see a great increase with the middle market and middle market retail. In the individuals, we've gained share with our clients, which is very important. These are well-known clients that we have grown. I agree that we cannot imagine that all the growth is going to be in the high income because it's not. And it's not just high income. But our portfolio management has had an important role. Our credit card, $120 billion, two-thirds is not a high income. And we've still managed to do business with profitability. All the crops that were produced in the quarters with great quality in all segments that we've managed to grow. But there's still some adjustment in the portfolio. And I mentioned... the delinquency and the vehicles and credit cards dropping. So you have an inertia of a high risk portfolio that is reducing importantly, renegotiated, stable, and the portfolio with a better quality growing. This is a combination that makes our growth being less than what we observed in previous years. But still we've managed to do a positive margin and you know, making the capital profitable. This is what we're seeking. In my opinion, I go back to the discussion of Juanito. In the retail individuals, we have millions of clients and we have great relationship, mono product. So the capacity to the cross-sell and having a full bank offer is what's going to make the retail improve in the individuals. Still being built. I don't want to anticipate what we haven't delivered. There is still a lot of challenges in-house. but I am convinced we are convinced that in the moment that we do this, this is going to open an avenue for growth in our segments that are very important. We have another unit class within our bank. We have a fraction of the personality debt in the bank and other businesses in a relationship that is monoproduct with this client. So there's still going to be a great growth here. And in the lower income, it's a player of credit risk management and efficiency that we're going to continue to deep deepen in the banks. For every public, there is a logic. The more efficient, the more appetite. And on the other hand, that capacity for cross-sell for the public that we have in-house certainly will be a great driver for growth looking up ahead. We are very optimistic with the project. Let's see if from next year onwards we can show you more data on the advances. And on the other, well, retail companies, great opportunities there is being used outside of the market, in the middle market, the same. We've managed to grow with quality. So growth is not of concern to me. Great opportunities. We're still going to deliver growth with quality, sustainable, without problems. the volatility of the balance sheet, which is what we are seeking on the long term. Thank you, Milton. Next question from Yuri Fernandes said, waited for the, well, if you can just wait two minutes, I'm going to get back to you.

From Carlos, there was an answer because Carlos asked you about insurance business as well. I didn't hear that. Yeah, because we had an audio issue. Carlos asked about if you see the insurance business being sustainable going forward, what is your forecast for that business?

Carlos, sorry for that. I didn't hear that question. We had some audio issues, but here I am again. So on the insurance side, yeah, we believe it's sustainable. We had this acceleration somehow compared to the other periods because we were growing 50% year on year. So we reduced to 20, 25% year on year. On our core insurance business, which is three quarters, 75% of our business has to do with the core business that we believe, banking assurance. And with this expansion in credit and all the expansion I was making, talking right now about the cross-sell with this Winnetou platform, so on and so forth, this will give us the capability to keep growing insurance in a sustainable way. So we're still very positive. We found a way to grow. We are very, very embedded in the operation, a huge synergy with the commercial team, the insurance company's team. We changed the way we approach clients, so we're very comfortable that this will keep on track and will be sustainable in the long run. We're very positive about the insurance. And also, if you look to the P&L on the insurance side, you'll see that we've been growing the premium that we receive and reducing the cost of losses. So our combined ratio has been evolving three points from 53% to 50%. So it's a very good combined ratio. and also the open platform has been playing a relevant role, and we will keep pushing that so on and so forth. So we have the manufacturer, the distribution, and the open platform. They have a very relevant role in our business.

Thank you, Milton.

Now, last question.

Thank you, Yuri, for your patience. Thank you. The floor is yours. Thank you, Milton and Olia. It's just one question, quick question. It's about the digital transformation of the wholesale, of the retail, I apologize. So it really brings your attention to the level of the opening of new digital accounts. there is a drop, so it was 900,000, one million, and this quarter it was 700,000, 750 open new digital accounts. Maybe the bank is still cautious with the open ocean, but more than that, the number of the accounts being opened on the table, there is the data of the share of digital transactions per volume. When we look at the digital transactions of credit, investment, payments, we see stagnation. My doubt is along that line of digital transformation. Do you see? Well, I wouldn't say that this is an inflection point. It's circular, but maybe there will be less growth in the penetration of the digital channels. Well, that's it. Thank you. Sorry that you're the last, but you're the last, but you're not least. First of all, let's start by the second point. We certainly are working strongly in digital, but we understand that we went through a high level of penetration. Therefore, the new penetration, the marginal, will have a lower speed because most of the space was reached. Now, having said that, we are very focused. We are reviewing. the client journeys, the access to the digital channels, making your clients digital. We even believe that the mix of the clients in the market, you will improve the penetration of the digital channels, and we're gonna see an evolution that is maybe slower than what we observed in the previous quarter because the pandemic had an acceleration role, and after the pandemic was over, the inclination, the slope of the curve has changed, and you're correct. And we're following up on that. And the relevance is important. The importance of the network. It shows not only an issue of the digital channel, but how the other physical channel is still very important and how the clients still like for credit for investment, still to have access to the branch. The onsite, to talk to their managers, to understand that only reinforces the other side of the same coin. If we were a full digital bank, a relevant part of our revenues would go away. and it is the defense of the digital model. We have to look at the penetration of digital channels, and we are following up on that, but you also have to look at the relevance of the onsite service for that offering and the delivery of value for the clients. This is the other side of the coin. About the accounts receivable, well, the reduction, the accounts, sorry, is the reduction of the filter. One is credit, because for you to open an account with the client and you have the low capacity to give credit, You have the CIC, you bring the client to the bank, you make the client frustrated that is expecting the credit and with a filter is not going to have access to credit. And it brings a cost to the bank that you didn't have to. So we've tightened that filter. So to guarantee that the digital accounts that we open, they improve in terms of quality. So we're not going through the quantity, but the quality of the accounts that we're bringing in. So 900 is not better than 700. because the quality mix is better maybe in the $700,000 and the $900,000. So we should look at that and not the absolute numbers. So the credit filter and, in fact, clients that I know that I'm going to be able to engage, that I have a value proposition that I can deliver a product, that I can have a long-term relationship, this is a win-win for the client and the organization. So that's where we get the adjustments. Thank you, Milton. Well, that was the last question of the analysts that take part. We have had several questions via WhatsApp. We are going to answer thereafter with the IR team. And therefore, we finish our Q&A session. Thank you, everyone that was connected to us for two hours. The floor is yours, Milton, for your final remarks. Once again, thank you very much. It's a pleasure and privilege to be here with you. I believe that the numbers that we managed to communicate to you, we've been very careful to provide transparency. The numbers are always the numbers that you can ask the questions. You're not gonna leave without an answer. Maybe I cannot answer at the time, but you're gonna get an answer. I can guarantee that we work with transparency We understand your questions. We always do a debriefing post-call to understand what is the message, the concern, so we can have surety that we do not, that we don't have any blind spots. Thank you for your questions. And I hope, we hope to meet your expectations. Very happy with the results. Very trusting in the future. We really believe in our journey, whether it is digital transformation, efficiency, cultural transformation, and we've managed to change the value vision for our client. This is the most important thing. We've grown in engagement in our clients in all the segments. With that, I finish. I think that I've spoken a lot. We will see you maybe in the market in the next call. Thank you very much, and have a nice day.