Banco Santander (Brasil) S.A. ($SANB11)

Good afternoon, everyone, and thank you very much for joining us on our first quarter 2026 earnings conference call. We are live from our headquarters in Sao Paulo, and we will be dividing this event into 2 parts. First, Mario will discuss the key highlights of the quarter and our growth strategy for the coming period as well as an analysis of our financial performance. Afterwards, we will have a Q&A session. At this point, our CFO, Gustavo Viviani will also be joining us. During the Q&A session, [Operator Instructions ]available for download on our IR website. And now I'll hand it over to Mario, who will begin the presentation.

Thank you, Camilla, and good morning, everyone. It's 10:02, so we're beginning right on time. You will see that the presentation for this quarter is leaner because we want to be able to cover the main takeaways, and then we will jump straight into our Q&A because certainly, we'd like to engage with you. Starting with the results. Our net income is down quarter-on-quarter and marginally year-on-year, and I'll give you more details of this how we built this quarterly net income. And I would like to draw your attention to the evolution of earnings before tax. This quarter, we grew 5.4% earnings before taxes, meaning that the organic operation of the bank is growing in the direction that we intended to. So our execution, and we will see that with every line breaking down, we will see that our annual growth exceeded 20%. So in practical terms, we are paying more taxes when compared to the last quarter. This is a point that both analysts and investors were questioning us and challenging us. So we are evolving in the direction that we were committed to. So there are movements associated to our organic operation. And there are also other moves related to the way we are evolving the several entities of Santander Brasil towards having more profitability in the bank itself. And with that, we will be able to absorb capital profitability and earnings as well. So we can talk more about that further on. So how does this earnings before tax is evolving? Our NII is growing quarter-on-quarter, 3.1% growth. we will break it down in different lines. Certainly, this also includes market effects, and I'll tell you how we manage the bank in practical terms, not looking too much at the market, but looking at the margin and the entire perimeter of the bank's liability, but it's certainly a positive evolution. There was a drop in fees of 5.5%, and you will be able to see every line, I mean, what is expected to go down and when do we expect growth? Certainly, we want more. We want to continue to grow fees unproportionately vis-a-vis the portfolio. Of course, we have that on an annual basis, we are growing 1.6x vis-a-vis the portfolio. Our ROE due to mathematical effect, the numerator growing and the average PL increasing, which is denominator. In fact, ROE goes back to 16%. This is not an structural number. It's an accounting number. So certainly, our mission is to seek for ROE that will grow throughout the year, seeking for an average ROE that is above the numbers from the past. So our goal is to seek for a 20% ROE, and this is part of our target, and we are working to deliver that bank in the next coming years. Our cost of risk is flat, we will give you more details about it and efficiency due to improvements in expenses and controlled cost efficiency increases by 110 percentage points in the quarter. We have one slide when we talk about the strategy and other figures. But I would like to say that we always start with customer centricity. So on the left-hand side of the slide, we talk about how we are advancing the numbers. We are growing by 6% in the annual basis of customer growth. So we are growing the franchise, but it matters a lot how much I can extract from all of these customers. We talked about perscipality, and we are also talking about how we can resignify our share, focusing on mass retail we are also growing in our customer franchise. And on the right-hand side, I talked about something very important that we just launched. Recently, we launched Santander Rewards. This is one of the most important deliveries since I started leading the bank. For the first time, we are bringing this customer relationship and focusing on points, benefits and advantages. So instead of the relationship with credit cards that we always had, I mean, if you consume as much, you have a certain number of points or exemptions, but now we are looking at the customer relationship as a whole. So we are privileging customers that also privilege the bank, and we are doing that with a lot of engagement. It's almost like gamification. And with that, in a multichannel way, we have customers even closer to the bank. It's a big launch. The campaign will be will be kicked off on Saturday. I think it's one of the most important events that we will have in Rio. And with that, we will advance this franchise with clients. And this is one of the big pillars we have, as you will see through the numbers. Now speaking about data in the portfolio, we are still focusing on the same line. And I've been almost repetitive. Santander wants to grow, but grow with quality, with capital generation, discipline. So every segment that we produce every day, and as you can imagine, we produce hundreds of millions every day, starting with massive retail, private, small-sized companies and large corporate companies, we look at marginal management of profitability. of the asset and customer profitability at every disburse. We've been doing that impeccably in the past few years. Of course, that every month, we look at the performance of everything, and we retro our origination system. But the cohorts that have been produced in the past few years are according to plan. And certainly, this also mixes with the previous and older cohorts. So when you see growth, which is slightly negative, I look at this construction on a positive side because on the individual portfolio, we are dropping. But that was expected because when you talk about low income, we are reducing a few percentage points in the quarter. This is technical and scientific. And we are doing that according to our schedule. This is our derisking of low income. And we are -- we've been doing that for quite some time. We know that in 2026 and even part of '27, we will complete the derisking of low income because it takes longer because the low-risk portfolio has a longer duration. So it takes a little bit more time, but we are doing at the right speed. So this runoff low income put some anchor in the individual portfolio. And I relocate that to the low income that I want to grow and I relocate that to high income and other segments. The blend shows a drop in individuals, but that doesn't concern me too much because given seasonality, first quarters versus fourth quarters. As I said, our credit card franchise is one of the leading products, and it's performing quite well. We posted a record fourth quarter with coming record months, and you will see that further on. But real estate credit, we are also evolving quite well. We posted growth in the quarter, and we grew slightly above 2 digits in the year. And home equity, as we call it, is a product where Santander has the leadership, and we are growing origination by 13 points vis-a-vis traditional home equity. So we're doing more home equity when compared to the past. We have monthly origination that is getting close to BRL 400 million, which is almost twice as much when compared to what we did before. In terms of consumer finance, we posted positive growth. And now we are monitoring the market because we do not want to grow more, I mean, disproportionately vis-a-vis the market because we are already leaders. So in practical terms, we are diluting origination and the consumer finance portfolio is the crown jewel. But certainly, we have to do that in a very controlled fashion is looking at the current scenario, we cannot exceed growth, but we already grew 14 percentage points in our consumer finance operation. In electric vehicles, out of every 2 e-vehicles, one of them is funded by Santander. We have an aggregated total of 20 to 21. And electric vehicles more. And in terms of some brands, we have 2/3 that gives us 75%. So we have high penetration in electric vehicles because the average ticket is higher. New vehicles, the credit performance is better when compared to used vehicles. Therefore, we have concentrated our growth in the consumer finance in EV vehicles. This is also something that generates higher fees. We are growing exponential our capacity to grow per risk-weighted assets. So between banks and lines of fees, we are doing some impeccable work for small and midsized companies. This is a segment that for many years, I say that I'm saying that we are not growing proportionately and this growth didn't come in the third quarter. Obviously, we wanted to see a different number. And year-on-year, it's close to 10%. But here, we were more cautious given the macro landscape. So in the segment of very, very small companies, the challenge -- the credit challenge is even higher. So we were less aggressive in the first quarter. But together with high income, this is one of the 2 segments where we have to grow 2-plus digits during the year, and we have to bring a large corporate, well, what matter in this quarter was the exchange rate. I mean, we have a very robust trade portfolio in dollars or euros. That was good for the economy, but not so good for the portfolio because the FX effect had an impact. This is not lack of capital or lack of appetite. But as I was saying, it's due to the fact that we are very focused on marginal discipline and cross-selling. So the portfolio evolves 0.4% and the whole portfolio 3.4. I said that we would grow 1.6%. And this relationship between growing fees and portfolio is something that we are very much focusing on. I already mentioned some highlights on the right side of the slide. I mean, individuals, high income -- if you add Select, we are growing 3 percentage points of share. So as we decrease our mass retail, we increase high income. So we have individuals -- I mean high individuals that is growing, and this growth will persist for at least 2 more years. Well, the next point is the NII. As I said earlier, our growth is very good quarter-on-quarter of 3.1% NII composition is more due to market NII rather than client NII. Client NII experienced a 4% drop. I mean when you look at clients, both terms of margins and fees, the delta removes about BRL 300 million between fees and NII. I mean the day effect is not lower. But the way we've been managing the bank, and we've been managing the bank this way for 2 years, we report NII -- market NII and client NII assets and liabilities separately but our ALM is measured according to the perimeter of liabilities as a whole. In September of 2024, we started to do a marginal hedge of provision. It's a very dynamic hedge between 50% to 60% every day, which will lead us to an average of 75% a year and 9 months. If it is dynamic in practical terms, this reduces the volatility of the balance and also short-term interest rates. And it also decreases the -- I mean, the rollover of assets and liabilities. And together with that, we extended our very short-term securities that was very -- that was sensitive to coupon. And so now we are focusing on long-term bonds because they allow us to get better results through time with results embodied in mark-to-market. When you look at our financial management, this was added to the expanded ALM view. ALM is not just measured by the growth results that reflects in market NII. But in the different committees, we manage liability as a whole. The expanded perimeter that contemplates NII and client NII and ALM. So we evaluate the teams like that, and we analyze the members. I mean, the entire market breaks it down as it is here. I just wanted to make a parenthesis because at the end, we are not very much concerned if the client NII per liability is performing well because everything is going in the right direction. If it were not for the accounting effects of the 49%, 66, the spread would be better. I can do the derisking in low income and then I can allocate this capital into other segments I mean the spread is flat, and that is very good. The second message is for the first time probably in the whole history of the bank, we have the individuals portfolio that is capturing -- I mean, funding better than the corporate portfolio. One of the golden rules of our management is that we evolved the funding mix of the bank. We are not where we wanted to be yet. We wanted to to reach 60-40, but we reached 5 49. This not only reflects our transactional performance, not only in retail, but also in the individual portfolio because it costs less to fund individuals. The second point is that in our low income or mass retail, there was an evolution of a margin of 100. There was a drop from 24 to 25 from 10 to 99. But there was 8 percentage points. This same segment with the same cut, I mean, the transactional deposits out of 100, it increased to 106 on year 1. But this year, there was an increase of 16 additional points. Looking at the last 12 months, I grew by 600 percentage points in terms of deposits with the same liability. So one was negative and the other one was positive. This shows that we are managing to focus in the mass retail, yes, it's a little bit lower, but much more profitable. And this with time, will show in the books certainly. Speaking about commissions, this is a line that in the fourth quarter to the first quarter, this offers some pressure, typically a reduction. I look at 5.5% and of course, it positive in Q1. But when I look at the breakdown, some of the numbers are explained by seasonality. Others, [indiscernible] well and others we need to improve. So cards, that's where we have seasonality. Since we grew and we grew cards with quality with a sound portfolio throughout last year. And in the last quarter, we had our all-time high, so we had a seasonality that points to a drop, but year-on-year, we practically grew 2 digits. And this is quality fees with a credit level in revolving credit and installments that have earnings and very good profitability. The insurance business should have felt that even greater seasonality in Q1. Well, it showed a drop of practically 0 year-on-year, clear 2-digit growth. So we're happy about that. This is less insurance-related insurance associated with credit because we are less aggressive in growing portfolio. So we did even better in open insurance insurance, which is not related. Speaking about commissions, this is a line that in the fourth quarter to the first quarter, this offers some pressure, typically a reduction. I look at 5.5% and of course, it positive in Q1. But when I look at the breakdown, some of the numbers are explained by seasonality. Others, somimicite well and others we need to improve. So cards, that's where we have seasonality. Since we grew and we grew cards with quality with a sound portfolio throughout last year. And in the last quarter, we had our all-time high -- so we had a seasonality that points to a drop, but year-on-year, we practically grew 2 digits. And this is quality fees with a credit level in revolving credit and installments that have earnings and very good profitability. The insurance business should have felt that even greater seasonality in Q1. Well, it showed a drop of practically 0 year-on-year, clear 2-digit growth. So we're happy about that. This is less insurance-related insurance associated with credit because we are less aggressive in growing portfolio. So we did even better in open insurance insurance, which is not related. We have -- in current account services, we've had a reduction, but we have dropped less than the market. The market feels the pressure of what we call free accounts, accounts with no commission. natural, it's healthy, but we are able to engage our individuals and corporate clients so that we would drop less than some of our competitors. So this is a number that I also see as positive. Credit operations, a drop due to seasonality and because we are being less aggressive in granting loans to some portfolios. That's not a number I like to see, but it's explained by a lower production. In asset management, we have 2 positives here. In consortium, we are growing at a higher pace. I want to know more than that. I said earlier today to the whole organization that I expect to grow double that quarter-on-quarter. I think we're going to manage but this is more recent growth. In asset management will have an effect in Q4, and we have to look at that 20.9 up year-on-year, which shows that our asset franchise, it's lower than the rest of the bank proportionally speaking. So we need to grow, and we are going to grow. Not -- we don't aim to double it, but rather to triple it, but we have an annual increase base, which is quite good. In securities, brokerage and placements, we did quite well in the quarter, 2 strong line items. securities brokerage and capital markets, one of the strongest quarters we've had. And in collection services, a very good quarter. Others, there are some effects of portfolio sales and others, but nothing that will really drop or call our attention. The highlights, cards continue to evolve well. We grew almost 20% our credit card turnover. In insurance, we have new lower ticket products, Maodaconta and Cart. These 2 new products evolving quite well. And also, we have high insurance or high-value insurance to the network clients, high net worth clients. And we have the consumer finance cross-selling in consortia, we have fixed bid and reduced installments. So these are the 2 highlights for consortium. In terms of the asset quality, there's a lot here. I'll try to be brief so we can speak more about this during the Q&A. Number one, cost of risk, it is dropping some basis points in the quarter. NPL is increasing, but it is increasing in my view, at a very acceptable pace. And this is explained primarily by a reduction in recovery. And this is explained by a reduction in the sale of portfolios. We sold fewer portfolios. We had an on-block recovery. And I would say that business as usual was kind of stable considering the macroeconomic context. So given the context in some portfolios that remain concerning -- and I mentioned them, SMEs, small companies in agribusiness, we have a challenge, although I expect a much better year or a less worse year. Last year was bad for the whole market. And we expect a relative improvement, but every business still a little challenging and very small micro companies being a challenge. And cards is a business that is doing really well, but we have minor adjustments to make because the families are very much indebted. And now the government should launch a new program to deal with that in a matter of 2 days. So NPL is doing well. Cost of risk dropping NPL practically flat in the full year, it remains at the same levels. So we are not constrained here. And when we look at 15- to 90-day NPL over 90 -- in the short term, 15- to 90-day NPL, we see companies dropping a little in the quarter, and there's a component here in companies associated with government programs, and this doesn't become a loss. And then individuals in 15 to 90-day NPL is a slight increase, and this is linked to consumer finance and mortgages. We -- the rollover of NPL to longer term when the stages change is quite contained. So we believe that in these 2 portfolios in Q2, we should have a reversal and thus, we won't have an increase in over 90-day NPL. Over 90-day NPL has some effects here. One of them is in Q4 last year, we did a technical review of each portfolio in our income and consumer finance. And we decided that instead of writing off as losses in Q4, we started managing the portfolio, portfolio by portfolio, doing it very technically, sometimes anticipating the write-offs as losses and sometimes working in the opposite way. So this had some effect in Q4. There's some effect now of lengthening the average maturity of the portfolio. And this is what drove up over 90-day NPL. But of course, we continue with our discipline of writing off everything that we don't believe we can recover. And then we try to offset that by selling the portfolio. I mentioned that there is pressure from agribusiness, low income and very small companies. very small enterprises. So there are parts of our portfolio that require more attention, efficient over all, but would be more attention to some. And these are the ones that are related to an increase in NPL. Talking about expenses, that's another quarter, which I believe we delivered quite well. It's very much in keeping with what I've been saying over and over the years. We have a fine management of the lines that we can control. It's our obligation to do it. It doesn't mean it's easy. We have FX pressure this year. effects helped us, but not last year, inflation, collective bargaining agreement, now technology and of course, the effect of the war abroad. So we are able to offset all of that with a firm management. We are delivering a quarter with practically 0 growth in expenses. When we break down what is general and what is depreciation and amortization, we're actually reducing our expenses by 0.7% in the quarter and in an annualized way, 0.3%. So we break this down into administrative and personnel. Of course, we look at both. And we are reducing our personnel, our headcount. We continue -- we did that last year. We continue to do this. We want to have a more streamlined and more efficient organization. Expenses increased because we are investing in technology. There's a technology expansion. It's positive. So it's 0% quarter-on-quarter and 0.9% increase year-on-year. Of course, I want to grow revenue more, but by growing revenue, you see and maintaining our expenses flat, our efficiency dropped 10 basis points, which is good. Some highlights, cost to serve in Select dropping 19%. I didn't have to reduce the cost of Select so much because I have a very profitable segment with ROE close to 20%, but it's healthy to do it, and we continue to engage our clients. In net income, cost dropped 44% positive. But I want even more and the team knows that we have to improve this by another 30% in the next 2 years so that we can have net income segment virtually as cheap as the digital banks so that we can serve them in the best way possible. We are growing 22% our expenses in business expansion and technology, while we reduced 3% our recurring expenses. Lastly, I'll speak a little bit about gravity. We've spoken about it. The group talks a lot about gravity. But to keep you on the same page, gravity means Santander no longer processing the whole bank, not having those expensive mainframes that you pay to buy and then you pay to consume. We we would stop processing on mainframe and start processing the big in what we call low platform, which are a modern, flexible and efficient platforms. Annualized once we deploy Gravity, which we expect to happen in Q3, ideally in the beginning of Q3, in an annualized view, the deployment of gravity should bring us savings close to BRL 400 million a year. To give you an idea of how relevant it is almost 2 percentage points of the expenses line item of the bank. And of course, we are looking at all initiatives that can bring us to that point. When we think about AI, AI touches practically everything. We are looking at AI and efficiency agenda and also the growth agenda. In our Investor Day in February, the group committed to generate BRL 1 billion by 2028 of results derived from artificial intelligence. Given the relevance of Brazil, this number is about EUR 200 million. So we have committed in practice in 2028 to have this kind of efficiency. But to give an order of magnitude, this year, if we add all of the initiatives on AI, we should have something between BRL 400 million and BRL 500 million due to a more mass use of AI. This and let's talk about our income statement. We spoke about each one of these slides. But the top line growing. Of course, it needs to grow and grow more. It will grow more over time, but it is growing positively with a mix dynamic, which is more and more balanced. The direction is clearly correct and the mix is also correct, but we have to work to improve speed. The mid lines, expenses, others provisions, although growing a little, they're behaving well. Putting it all together, given the operating leverage of the operation takes us to a very positive evolution of earnings before tax. We have DTAs, we have capital and net income reduces. But mathematically speaking, I think that we are at a very healthy state. This is the organic view of the franchise growing, leading us to a CET1 Basel ratio that are very healthy, 15.2% Basel ratio and 11.2% CET1. And we will continue with our distribution policy with IOC, for example. And as the profits grow, distribution will grow as well. With this, I will end, and I'll call Camila to start with the Q&A. During the Q&A for the first time, we're going to have Carlos Muniz, our new CFO, sitting with me. I agree with him that I will answer all of the questions, but he'll be sitting next to me. And if he wants to add anything, of course, he may do so. Thank you very much. Let's continue moving to the Q&A.

[Operator Instructions]. Our first question comes from Thiago Batista with UBS.

Mario, I don't know whether this is your last call or whether you will be present in the next call. My question is about [indiscernible], the government program. I think we are about to hear about this new funding program. We know that this will involve low income, credit card, consumer finance and overdraft. Can you tell us a little bit about your view about this new finance program to be announced? What is the impact you think that this will have in your balance sheet in the coming years in terms of the monetization of PTA?

Well, at first, this is my last participation in this earnings release presentation. So I hope I will be still close to all of you. And I'll be always cheering for the bank and supporting the banking whatever is needed. I talked to the press not very long ago, and I would just like to say the same thing to all of you. I believe that this program, this is [ hola ] indeed necessary. It's been very well designed. I mean it's being led by the Minister of Trade, they are also calling the banks to design this program together. This was not something done by a lab in Brazilia and then the banks would have to deploy it, but it has relevant advances vis-a-vis the platform back in 2023. So maybe that's why the volume was not as high as expected. But now each bank will do that through their own channels, even though the framework will be shared by all banks, but all the banks will be able to engage that in their tracks in this -- [indiscernible] program. Why do I say that this is important? And why do I say that this is the right timing. We are looking at the same data. In fact, despite of the fact that inflation is coming down, the economy is growing due to a miracle, despite all of the facts, the level of household debt and available income is critical. And that's why the NPL levels are bad. We didn't have any advance in terms of the income level of the families in the past few years. That's why the program makes a lot of sense right now. And all the parts that the government will announce about the program. All the new steps make sense. We participated in the design of the new phase of the program, and I'm sure it will be a successful program. And I see -- and I think that there will be millions of Brazilians joining the program. So I think the delay the payment only the NPL will be above 90 days, and people will have a chance to negotiate their debt much better now. So it does make sense. It will happen. And the bank since we are participating in this new design, they will be able to participate in Santander will be one of those banks. So this is about [ Gasinhola ]. And I'm not at the liberty of saying anything else because we hope that the government will will announce it in full. About DTAs, the deferred tax assets, there are many things that are at play here at the same time. We already have a relevant DTA base, not only us, but the industry as a whole, some more or less. But this topic of DTA according to the accounting criteria that will change -- that changed after 2025, everybody accumulated DTAs. But in 2025, you were not obliged to launch that DTA in your accounting book. But by now, we had 120 percentage since December '21 is now posted in our results, and this is competing with the marginal, ALL. The combination of what was in the past combined with historical ALL, this generates a lot of taxes. So I briefly mentioned that since last year, we've been coordinated according to what is correct, we are trying to coordinate all of the results of instruments that have less DTA and sometimes they pay less taxes to our consumer finance, and we are placing all the results to the bank. So I generate more profits because I can observe DTA faster. But on the other hand, I am leading this result to pay more taxes when compared to the other entities. So in the short term, I am reducing net income, and I am assigning to other instruments that pay more. So you're increasing your own working capital in practical terms. So at the most, this will generate so this tectonic plates in our balance sheet, they are happening as we speak. And so through this reorganization, all of the legal instruments, what we want is to boost the earnings of Santander. So you will see that Banco Santander Brasil S.A. will show better results vis-a-vis other instruments at our plant. But the organic operation will have to grow, and it will grow in the several lines, but we will have to grow in the best of the organic that comes apart from the reallocation in other instruments will allow us to offer more taxes and then therefore, we'll be able to absorb more DTAs. We hope that we will be able to absorb all DTAs in the first, second and third quarter. We think we will be able to absorb all the DTAs we want in the first quarters of '27, '28, but this will certainly depend on the evolution of the commercial activity, but we are taking all the necessary measures to optimize the consumption of DTAs in the bank. That's it.

Now we have a question from Daniel Vas with Safra Bank.

I would like to talk about SMEs and try to get more details on the NPL levels for SMEs. I know that there are several aspects that impacted this decline in NPL. I would just like to understand how much of that comes from this block and what sizes of companies or whether there is any specific size of company? And also, if you could elaborate more on whether this will continue to increase in the next quarters. I mean there are also cohorts that were originated in the past and the government funding not FGI but FGO so that they can disburse more in the program. So please, if you could elaborate more on this subject. Well, I'll try. I hope my voice is better.

Well, I'll try. I hope my voice is better. Well, first of all. About the program, about 25% or 30% of the portfolio goes to government lines, and this is where most of the delays occur. But having said that, there is a pressure on SMEs. So this is a point of attention, no doubt about it. Macro affects that segment. So that's a point of attention. So proportionately, I want to grow there more than in other segments. But I'm not going to do that by using a remote control. So this quarter, we didn't grow because we prefer to be more at the margin of that. But from now on, we will look for opportunities to grow more and we'll try to grow 2 digits sequentially in the next coming years. But as a whole, this is a portfolio that really demands close attention. And in terms of the continuity of the numbers going forward. Well, Daniel, it's hard to say that it's going to happen. But with a very tough macro and interest rates increasing less. I mean, if there is a drop of 1 or 2 for this audience, it doesn't make a lot of difference. But it affects the entire scenario. So for Brazil to grow 1% or 2% for this world of service or retail, it does make a lot of difference, maybe more than 1 point here or there in terms of interest rates. So it is possible that the delinquency may go up. You talk about FGO and the government will certainly announce that when the right time comes. But we also know that the government will certainly support Pronamp and FGI. The government is sensitive enough both BNDES and the treasury department, they are looking at that. So we do not believe that -- we believe that both things and this [indiscernible] will be managed together.

Now we will call Mario with Bank of America.

Mario, I would like to thank you for the partnership in recent years. And I'd like to wish you a lot of success in the next steps of your career. I would like to double-click on the auto loan portfolio. You said that your market leaders, 20% market share. We continue to see healthy growth of the portfolio. But when we look at Brazilian Central Bank data, we see the delinquency in that segment was 130 basis points year-on-year. So I'd like to know how do you see this segment still with high interest rates, which you mentioned? What gives you confidence to continue to grow that portfolio? in this Central Bank data pointing to a worsening of 130 basis points. Is there anything contaminating the industry that you're not seeing that we are not seeing? The question is several players changed their write-off policy and perhaps the 130 basis points is a little bit inflated.

Thank you, Mario. Thank you for the kind words. It's been a pleasure. We'll continue to be. Well, I briefly commented when I talked about new cars, new vehicles and EVs. And I mentioned that consumer finance is market leader. I'm not being arrogant about it. But of course, we end up having a gross penetration. What do I mean by gross penetration and ability of capacity of origination, which is not 100%, it would be exaggerating. But out of 100 contracts that are applied in the market, we effectively participate in more than 90% of those applications. So we have visibility in the market, which is virtually complete. Of these 90 applications, we choose to grant 20 auto loans. So there are 70 of those applications that we look at, and we didn't want -- we didn't want them because of the risk return ratio. The margin can be sensing sometimes with the cost of risk, the loan to value and the quality of the collaterals that don't make sense. So we just choose those 20. And that's why I said that we should not grow disproportionately to the market because we would be taking more risk than we want. How do we read market data compared to ours? Do we see deterioration of the market No. And why not? Because with this broad and almost total visibility that we have of the market, we can cherry pick where we are going to be placing our bets. In recent months, in the last 2 to 3 quarters, we have been focusing less on used cars, proportionally speaking, less on motorcycles and focusing more on new vehicles. in new vehicles, more in EVs. It is not by chance that we got 50% of average quota of origination of loans for EVs. And some of the brands, the ones that are growing the most, I'm not going to mention any names, but the ones growing the most, we have a market share of close to 70%, and we chose to do that. We wanted to prioritize new vehicles that have a much lower delinquency rate than used cars. Of course, we end up granting loans to higher net worth clients, clients with more income, with more financial capacity and with a better rating. So this combo, better rating better credit rating, better income. All of that drives our short-term and long-term performance. It doesn't mean that this is not a nervous business. It is. It's not 0 cost of risk. The recovery capacity of Brazil is not equal to that of the U.S. We have the legal framework of guarantees, but it's far from performing as it is overseas. But the margin is improving, and we continue to be positive. our business is perhaps 5% or 6% of the whole portfolio, but it is a very healthy business of consumer finance ex auto loans. We learned from our mistakes and with what we did right, now we have the verticals in our consumer finance business, which is exactly what we want to have a consolidated and profitable business, both in marginal origination and in the stock. We think about auto loans, which is the core, but we have another part with a very good alpha in margins, but we cannot grow out of proportion because consumer finance in Brazil has to be well done. And we learned the hard way that in some verticals, we cannot operate. But overall, it is a healthy business, a sound business. We're paying attention to the macroeconomic environment, but we continue to operate well. We'll continue to grow along the year. just like the market. But if we grow a little less than the market, that's fine as well because we have the right risk appetite.

Pedro Leduc with Itaú BBA.

Congratulations on your trajectory, and I wish you a lot of success. I have 2 questions. First, when we look at the SMEs portfolio growing 10% year-on-year in this macroeconomic context that you mentioned, perhaps you could help us review what should be the strategy looking forward, particularly with this risk opportunity balance. That's number one. Second question is about policies of the 466 and lengthening of the write-offs. Anything happening in this quarter? The NPL formation was different than NPL. And how should we think about impact on overnight NPL? What would be the impact of these changes on the coming quarters?

All right. I'll start with the second question, Pedro. As I mentioned, and thank you for the kind words. But -- in Q4, we saw some effect and in Q1, a little more of this effect of the changes in the write-off policy. I'll stress this because it's important that this becomes clear. We are being a lot more technical, a lot more strict than we were before. We used to write-off according to the average. And everything that is an average is not necessarily technically more accurate. If we prefer to do this double click, we saw the results. And we did a very technical work on that. For example, cards, I've been saying this, and you follow this of close. Cards is one of the portfolios that we have grown the most. It's one of the franchises. We're embedding more chips. In practice, we are bringing forward the write-offs of cards because -- this is exposed looking at many of the previous cohorts. But in a loans and some other products, we have a recovery capacity that lasts longer. It would be incorrect to have a write-off and then recover that by a sale of portfolio. That's the kind of technical analysis we are doing now. And this will bring us a material result. Will this change the curve of our over 90 NPL? No. Our average over NPL, especially over 90-day NPL tends to have a higher number than the average number last year. So perhaps the curve will go up a little. And over time, we can show you what this effect is. It's not a problem to do it. It's something we've done technically. And this was reviewed in all possible forms that you can imagine. and we will continue to report accordingly. From the standpoint of the portfolio, you asked about NPL, cost of risk. And here's what I can tell you, Pedro. There are a number of tectonic plates moving here. We are derisking in mass income, low income. I mentioned some data in my presentation. But to make this more tangible, in this quarter alone, our mass income portfolio dropped by close to 4%. And this reduction in low income has 2 effects and both are healthy. In the short term, I am accelerating my runoff in low-income clients. And this brings a higher NPL because I'm accelerating the derisking. There's another negative effect, but which is also helping. I am not generating revenue that I'll have to provision for. So it's important that you understand that. It's an important digression. My top line, my revenue, particularly NII in an annual view, it starts dropping. This is the information for you. It starts dropping 1% to 2% in the aggregate number for the bank just by derisking low income. Everything the revenue growth is a top recovering that in a technical and surgical reduction that I am doing in low-income portfolios that I'm not interested in. And all the rest is healthy growth. My 0.8% growth in the quarter is not an ultraffxy number. But when you look at the breakdown of that number, it has a very positive quality. And that's my -- that's why I am optimistic because we are growing well and with good health. But this is initial counter effects. When we look at NPL formation, some basis points above cost of risk reducing, it sounds wrong, but there are many moving parts there. There's a concern that you didn't mention, but somebody might mention. What about wholesale? Are you well provisioned? We don't respond to that name by name. But of course, that is part of NPL and cost of risk, and we have some relevant names as anything is, everything is in wholesale. We are safe regarding our provisions every month. And I'd like to make a more general comment here. And you can ask us later how this translates into practice. We provision for the wholesale, first based on the legal vehicle and secondly, based on structure. Why am I talking about a legal vehicle? Some of these single names that people talk a lot about in the media and among the analysts, we have a substantial exposure overseas. Because we're part of a group, we have differentiated funding in Madrid, for example, many, some of these single names, 90-plus percent of our exposure is in "Santander Spain." Of course, I manage that. It's my committee of risk, my commercial team, but it doesn't affect the bank itself and our shares. So that's an important nuance for you to pay attention to. When we see exposure of guarantee exposure of Santander, it's not all in Brazil. I do a lot in terms of assets and project finance. We are leaders in project finance and have been so for about 10 years now. We do a lot in the energy desk, for example, with some operational exposure, not a financial exposure. So when we look at it by asset, we provision according to the level of structure, collateral, if it's operational or not, et cetera. And obviously, we only provision for what is in the balance sheet here. Some of these big players are not in the Brazil balance sheet. It's a broad answer. If I didn't cover everything, please feel free to ask a follow-up.

Now we have a question from Brian Flores with Citibank.

[Interpreted] Mario, thank you for this long-lasting partnership. And certainly, I would like to wish Carlos great success. You mentioned an interesting point, and you talked about 6% growth in client NII and in older cohorts just grew 3% year-on-year. I would just like to know that the gap between these 2 growth doesn't mean a monetization challenge with expenses going forward, whether you wouldn't have to invest more to engage clients a bit more or whether this gap will face some efficiency issues going forward?

Well, thank you, Brian. Thank you for your kind words. This is a very strategic question, and it's a great question as well. Well, this morning, when I talk to my employees, I mean, I talked a lot about that. I mean, to grow 6% year-on-year, given the fact that 75 million is a very good growth, the number is BRL 4-plus million, which is a big number. I think I talked about this many times. We are not running to add more clients because the journey is to grow the franchise also through clients, but mostly active clients and clients with principality. For me, the challenge is, can I do more to grow our client top line, but I want to grow active clients and clients with principality. So the main challenge is to turn 3 into 6 or 6 into more. So what are we doing to that end? Obviously, part of that is credit appetite. So I'm not going to change my credit appetite just to grow the number of clients. I have to grow clients within adequate appetite, and this has to be in tune with my portfolio, balanced, sustainable, diversified and that can deliver an ROE of 20-plus after 2028. And even the group was committed to that number in our -- they were committed to that number during our Investor Day. So we are heading in that direction, and this is a fact. And we only -- we can only do that if we maintain our discipline in terms of cost of risk. So I'm not going to grow at the expense of our appetite. I mean, [ DisnyHollen, ] et cetera, inflation will fall, and this will certainly increase my appetite in the lines where I already operate. But in the audience where I already have a good credit appetite, how can I grow more? This has to do with all the tools we have, commercial value and value proposition. When I talk about tools, I'm talking about platforms, our one app, that we deploy to the entire base, maybe in record time in only 9 months, we began and ended the deployment. All of our account holders are now in the new app. And now we will also focus on customers that only have one product. So we want them to increase their product list. We have our new CRM that started in Brazil and then turned out to be a global platform, a customer interaction process. This allows for hyper personalization. I think I mentioned that oftentimes, Santander Rewards that was launched just a day before yesterday. With that, we want to deliver is a very encompassing view for the client when he feels that he is valued. And this has to do with the tools/value, especially for high income and SMEs. We want to deliver the right value proposition expected by the client. And we want to win that in the market and in high income and in SMEs and certainly in wholesale, we have to have a service model that has to be better than that, that you find in the market. So in terms of offering and tools, given our capital discipline, we have to deliver more. And I am certain that we can do that. But this is a journey, of course, and it's a tough journey because we have extraordinary competitors, not only in Brazil, but in other geographies. And there is a regulating body that is constantly challenging us. So this is the path.

We will now switch to English with Jorge Kuri from Morgan Stanley.

I guess, Mario, before my question, I just wanted to thank you for the open dialogue and proximity you had with the analyst community over the years and wish you all the best going forward. And you've spoken at length about the bank and all of the debate and the metrics. So I don't really have a question there. But I just want to maybe take a step back and ask about the leadership transition. Could you help us understand how Santander Spain, the Board, locally in Spain is thinking about the company's next phase and what specific capabilities or experience the incoming CEO and CFO bring that you think are more relevant to the strategic or operational priorities ahead? And should we view these changes as maybe suggesting or supporting any shifts in strategy, capital allocation priorities? Or is this just more sort of like the normal transition period that Santander rolls people over from time to time, position to position to renew sort of like energy, et cetera. Just help us understand what's behind all of these leadership changes.

Thanks, Jorge. It's a pleasure to speak again and cover transition, which is an important topic. So starting from the end, I cannot speak fully obviously on behalf of the group and the Board, but being part of the [indiscernible], as you call, the senior leadership of Santander Group and also being part of the Board. The transition has very little to do with a need for change, need to alter the strategy or pivot from the direction we're taking or the segments we're focusing on. It has to do much more with continuity and reinforcing the strategy which we've been building, not Mario himself, not the senior leadership of Brazil all along, but the whole leadership of Brazil the Board and the group's leadership that has been very close to Brazil all along. We've been doing this together. So it would be a natural that with the change of the CEO, and by the way, coincidently the CFO, the strategy will change. So I do not expect, frankly, you can obviously challenge us through the next cycle, but there should not be a relevant change in strategy. There should be hopefully even more focus on a disciplined execution of that strategy, which you know by heart because I've repeated it 10 to 20 times at least what we've been doing, what we're focused on, the as we call it now, the borrowing banking strategy, which is as boring as it is, it is as powerful and sustainable as it could be. So we are obviously in the middle of that path. We're not claiming victory. And by the way, victory is a moving target, but we are clearly in the right direction, and I'm pretty sure that the Board and the group with the new leadership here, which is predominantly the same leadership that I built with the new CFO, which I helped to choose and the new CEO, which I applaud the Board and the group's choice. I'm sure [indiscernible], Carlos and the whole leadership with the support of the Board and the support of the whole group, we will continue the execution path we've been taking, hopefully, faster, hopefully better, but for sure, along the same lines of capital discipline, profitability, being more profitable before being bigger, but obviously, being both, being more profitable, being bigger, getting to 20% plus RoTE by 2028 and hopefully beyond because this franchise merits and has all the capabilities to have a 20 lows RoTE on a sustainable and permanent basis going forward. So I do not envision any change and hopefully, an even better execution than we've been executing. So ultimately, it is a more, I would call, BAU Santander transition cycle. Gustavo, as you know, after 26 years of Santander and 3 CFO, announced his departure late last year, and we had a very smooth and soft transition with one of the best, if not the best CFOs we had within the group that is Carlos Muniz. So I'm selling him expensively to you, but he's one of the best indeed that I'm sure you're going to have the chance to work alongside with him. So I'm very excited to have a CFO that now encompasses the controller function in Brazil, which helps as well understand the numbers, narrate the numbers, et cetera. And on my side, as I announced around a month, month and change ago, it was also my decision to close this cycle of 5 years since my initial transition with Sergio, very rich, very, very enlightening cycle for me, for the bank, hopefully, and I'm very much looking forward to the cycle ahead. So it is, I would say, as much as possible BAU. The leadership is very focused, very not stressed, not anxious. And I'm very, very excited to share the next phase with Gilson after a transitional cycle. He's someone I know from my days a long time ago, and I very much look forward to seeing him as the next cycle CEO for Santander Brasil, along with Muniz, CFO. Thank you.

Thank you, Mario, congrats again and all the best of luck.

Portuguese, Bernardo Guttman with XP.

Carlos, congratulations on your career at the bank.

I'm sorry, Bernardo, for some reason, we cannot hear you. You cannot hear me. Just minute, and we'll try to sort out the audio issue.

Can you hear me now? I would like to explore the topic of growth of mix. The bank is clearly migrating the mix to more collateralized products, real estate, consumer finance, collateralized SMEs loans. Is this mix delivering what you expected in terms of risk-adjusted return? And is there any segment that you think you are allocated where you would like to grow more during this year?

Apologies for the technical glitch. The platform I think that it is resolved. So again, I would like to invite Bernardo. Let's try Bernardo.

I think you can hear me now. I'd like to take this moment to congratulate you on your bank, and I wish you success and luck in your new challenges, and I wish Carlos a lot of success. I will repeat my question. It was about growth of the mix. The bank continues with this movement of migrating to collateralized lines, real estate, collateralized SME loans. In your view, is this movement to delivering what was expected in terms of risk-adjusted return? And is there any segment that you feel you were allocated and that you would like to grow more during the year?

Thank you, Bernardo. I would like to apologize for the technical glitch. And thank you for your patience, not only you, but all of you that still are with us. I'll try to make it up for you. You touched on a strategic point of our strategy, one of our golden rules in recent years, which is the mix, a healthier, more resilient all-weather mix. That's what we want to deliver. Every quarter, we are delivering at Santander an all-weather bank for the whole group, for our market, for management. And this has to do with a good mix. We are -- are we where we want to be? Absolutely not. This is a continuum. That will take another year or 2 for us to get to the right mix, reducing mass income and with a greater balance sheet, but we have progressed in the recomposition of the mix as you just said it. Do we see the impact of that in the line items of our earnings? Absolutely. When we look at the cohort of origination and we did the back test of that, I told you we do back testing every month, but we do a more in-depth back testing every quarter when we have a better notion of M3 and delays in payment. And then we do in-depth analysis. And this is headed by Carlos Muniz, CFO of the bank with Carlos Diaz, our CRO. As the first line of defense in the equation for profitability, they challenge the businesses to improve the mix. Do we see this in the new cohorts? Oh, absolutely. Of course, we always have to be feeding back the origination model with the lessons learned. But I would say that 90-plus percent of what we're doing is exactly where we want it to be. And what about the aggregated earnings account of bank? Like I said, there are many tectonic plates moving at the same time. So I am accelerating the write-off my runoff in the special part. This increases NPL in the special segment, but it's healthy that I do that because I'm purging this future NPL in that segment. And I have a top line effect. I don't have the highest spread of the portfolio, which is the mass income segment. But the quality of the earnings I am building, the quality is improving month after month, quarter after quarter. And every quarter, you will be able to see this. So new cohorts absolutely check with a payback testing discipline. If we had more time on Muniz could speak for half an hour about how he's doing this as he recently arrived CFO. But this is one of the main steps of our weekly management. And little by little, this mix will impact the portfolio. And that's why I feel safe to say that with the mix, we are going to have a 20-plus profitability as of 2028 because we will have purged everything that needed margin. And the new cohorts will have originations at 20, 20-plus ROTE

We're moving to our last question from Marcelo Mizrahi with Bradesco BBI.

Thank you for everything in the buy side, the sell side, thank you for everything we learned from you. Thank you for the partnership. I wish Carlos a lot of luck. My question is, this week, we wrote about the 15- to 90-day NPL compared to the over 90-day NPL. And as you mentioned, and the Central Bank also said that the over 90 is losing a little of comparability. And also in terms of comparison within Santander, when we look at 15- to 90-day NPL of Santander, for individuals, the sign of the signaling for individuals and for SMEs is constructive. For SMEs, NPL is actually falling in Q1 and quarter-on-quarter. And for individuals, NPL is growing, but growing less than in recent years. I checked in the last 4 to 5 years, every Q1, especially last year, 15 to 90 NPL would grow more than 0.2%, which is what it grew this quarter. When I look at the 15- to 90-day NPL, I think that's the most reliable piece of information to compare. I have a more constructive quality. So my question has to do with the cost of risk. Looking at the cost of risk looking forward, you talked about derisking of the portfolio. So the question is, if we consider specific cases, I don't know if you have provisioned or you expect to increase provisions looking forward. If we consider the loan book portfolio with a slightly lower risk -- we start seeing this for individuals and SMEs. Should we expect an increase in the cost of risk throughout the year? Or should we see the COR more stable? In terms of our expectations for Q1, we expected a higher provision. But because of this dynamic of seasonality and of the special cases. So I would like to hear more about the dynamics of cost of risk looking forward.

Thank you, Marcelo. And again, thank you for your kind words. You said you learned from me, but I also and the bank learned a lot from the analysts. You're always very technical. You always ask the most difficult questions, and we have to prepare more. So thank you. Martin touched on several points, and I'll try to touch on many of those. If I leave anything out, please let me know, and I'll add to that. It is true that 15- to 90-day NPL has constructive aspects. So when we look at the seasonality of Q1, it is good that you look at the track record, particularly last year, it was even more difficult. And I remember that a year ago, we spoke about real estate. The effect was even more material than it is now. But it is material. If we look at real estate, it's 25% to 30% of that 15 to 90 delta just the real estate. If we consider consumer finance, we will definitely go beyond half. These are products that have a very healthy nature in terms of short-term delinquency. So it seems constructive for SMEs, the same. How do I interpret that, Marcelo? We have been the first to corroborate that. We have been more conservative in terms of growing the portfolio. I'm not saying that we are better than others because of that, but we are trying to be more selective in each audience of each subsegment. And yes, we will try to have an over 90 NPL that is better than the market because we are growing the portfolio less and I grow less the denominator. So the effect on NPL formation and cost of risk, if I were growing the portfolio at 10%, 12% a year, of course, this will help me get better indicators, and I'm not getting that. I'm not getting that because I decided not to. It's not by chance. So it's not helping. In that regard. Of course, in this quarter, because of the FX and some specific portfolios, we ended up having an expanded portfolio that posted a slight drop. I don't expect that the portfolio will end 2025 dropping, of course, not. It should grow some points, x points less than what is expected by Fedra Bank. It will grow so that the denominator should be positive, diluting the cost of risk. And if I can do this well in my portfolio, I should be able to make NPL not grow beyond the growth of the portfolio so that the cost of risk in presence would remain at the same order of magnitude. more or less some basis points. It's too early in the year to say what's going to happen at the macroeconomic context. I spoke about household debt. And I spoke about SMEs and in the small enterprises, we are concerned and agribusiness is not solved. It's not for Santander, the whole industry. So we cannot say that we're going to have a reduction in the cost of risk that will be more visible, but we don't expect the cost of risk to deteriorate at least not materially this year. But in a longer term, '27, '28, the way we are derisking the portfolio, the way we are originating portfolios in a more diversified, balanced and safer way, we'll have a bank to reduce the cost of risk when we think about 2027, '28. That's what I can say because we are going to have a mid- to longer-term effect of our derisking and the new originations, which are more precise, like I mentioned in the previous question. So we expect kind of flat order of magnitude, some basis points more or less this quarter and with some basis points less, even with the portfolio growing. With the portfolio growing, we're going to have a tailwind. And we'll continue with the same discipline and dealing with the macroeconomic environment because you -- we and all of our competitors have to face that. And again, we believe that March 31, the balance sheet will have the right provision for those single names, but the situation continues to evolve. April will be better than March. May will be better than April. We don't do any provision for a scenario that has not materialized yet. Of course, we have our recovery modeling, our net present value modeling of our exposure. So we take into account the scenarios, but whether we have negotiations happening where we sit at the table with the company designing constructive solutions. So of course, we'll monitor all of these discussions to evaluate how many provisions we need because, again, we cannot generalize. We have very low exposures -- and we have more positions in operational assets and projects and in the power desk or derivatives. And it's a different nature when we consider clean operations and holding operations. So we'll continue to do this. And depending on the evolution of the names, we'll have to reinforce the provision. I hope I covered all of the points regarding the cost of risk because this is a cross-cutting team. I know it's important, but the team is available. And I'll give the floor to Camila for the final statement.

Very well. Thank you very much. I would like to thank all of you joining us this morning. Myself and the whole Investor Relations team of Santander will be available if you have any further questions. Thank you very much. Have a great day and a great week.

Thank you very much, everyone. It's been great spending these years with you, and I will continue supporting ensuring for the bank. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]