Banco Santander (Brasil) S.A. Q3 FY2021 earnings call

• Strategy focus on delivering high ROE (22.4%) and consistent net profit growth. - Customer base grew 9% y-o-y, with 1.6 million new clients in the quarter, and the most active clients segment up 25% y-o-y. - Digital initiatives: 70% customer acquisition via digital channels, NPS 62, digital platform enabling new sales records in insurance, car sales, etc. - NII growth due to better mix and market activity, fees up 13% y-o-y. - Loan portfolio growth led by retail, with individual segment outperforming. - Expenses managed with efficiency ratio stable at 35.7%, though provisions rose, general expenses remained below inflation. - Asset quality well-controlled with 90-day NPL at 2.4% and cost of risk 2.9%.

Net profit for the period was BRL4.3 billion, a 4% increase from the last quarter and over 12% from the second quarter of the previous year. NII grew due to better mix and market activity, fees increased by 13% year-on-year. Provisions grew 10% quarter-on-quarter and 26% year-on-year. Efficiency ratio was 35.7%, recurrence ratio over 88%, return on equity at record highs, and return on assets improved 20 basis points year-on-year. Loan portfolio grew 2.4% quarter-on-quarter and over 13% year-on-year to BRL450 billion, led by retail.

• Economic conditions affecting loan quality and repayment capacity of clients. - Yield curve movements impacting NII and loan pricing. - Inflation and foreign exchange fluctuations exerting pressure on expenses. - Potential deterioration in GDP growth affecting loan growth and asset quality.

Q: The bank posted expected growth in trading gains. Could you explain what supported this growth and its sustainability, and impact of spike in long-term interest rate?

A: Trading gains were good due to treasury and wholesale banking activities, but volatility exists. Impact of long-term interest rate spike includes better NII on liability side, but harder for companies and families to repay.

Q: Active client base expanded by 2.4 million. Are new clients from new regions, other banks, or digital? Employee base up 9% while branches down 6%. Explain trends.

A: New clients include bancarized individuals, acquired via 4 channels (physical, digital, remote, external), 70% via digital. Employee increase due to remote channel transformation and tech operations. Branch movements involve opening small shops in growth areas and merging/relocating branches.

Q: Interest rate to move up 700 bps. Impact on results?

A: NIM sensitive to 100 bps move, better NII on liability side, but harder for borrowers, normalizing risk quality.

Q: Cost of risk increased sequentially. Expect further normalization?

A: Risk department continuously monitors and adjusts, cost of risk seen as normal movement back to historic averages.

Q: Credit card business expansion. Strategy?

A: Focus on making product usable, positioning in payments, segmenting product by client, and trial-error with clients.

Q: Other operating income/expenses BRL2.8 million. What drove it?

A: Volatility due to various factors like insurance results, foreign exchange, precatorios, and program expenses.

Q: Demand deposits decreasing. Funding outlook in 2022?

A: Funding focus in 2022 due to importance for NII and diversification, moving past strong liquidity of 2020.

Q: Coverage ratio and NPL pressures?

A: Coverage ratio a consequence of risk provisioning process, no specific geographic NPL pressures beyond usual Brazil trends.

Q: Effective tax rate decrease in third Q 2021. Recurring level?

A: Impacted by interest on capital payment, tax rate around 30% in quarter, average year around 35%, depending on interest on capital and tax changes.

Q: Long-term net income growth consensus. Reaction?

A: Bank has outperformed consensus, attributes to strong client acquisition, digital initiatives, employee engagement (94% proud to work there), and ESG focus.

Q: Relationship with Getnet and labor claims?

A: Getnet relationship continues as expected, working groups and committees maintained. Labor contingencies in quarter were around BRL106 million in other expenses.