Itaú Unibanco Holding S.A. Q3 FY2024 earnings call

Earnings and Capital: - Quarterly managerial recurring results were BRL10.7 billion, growing 6% quarter over quarter and almost 20% year over year on a comparable basis. Consolidated return on equity was 22.7% and return on equity in Brazil was 23.8%. Common Equity Tier I ratio was 13.7% with a growth of 60 basis points in the period, substantially above the Board's approved 11.5%. - If adjusted by the minimum capital ratio approved by the Board of Directors, consolidated ROE would be 24.6% and Brazil's would be 26.4%. ### Loan Portfolio and Delinquency: - Loan portfolio grew 1.9% quarter over quarter, almost 10% year over year. Delinquency levels were within acceptable thresholds, with drops in both short- and long-term indicators. - Individual loans segment grew 2.5% quarter over quarter, SME portfolio 4.1% quarter over quarter, Large Corporates had average balance growth of 5.9% in the quarter, Latin America portfolio grew 1.2% quarter over quarter with 8.2% average balance growth excluding certain effects. ### Financial Margin and Commissions: - Financial Margin with Clients grew 4.5% quarter over quarter and 8.2% year over year on a comparable basis. Commissions, fees, and results from insurance grew 7% year over year, with asset management having 5.2% quarter growth and 16.9% year over year growth. ### NPLs and Provisions: - NPL 15-90 in Brazil, total, and Latin America showed improving indicators. NPL 90 in Brazil improved by more than 10 basis points in the quarter. NPL 15-90 in Individuals and SMEs dropped 20 basis points each. NPL 90 in Individuals dropped 20 basis points and in SMEs dropped 10 basis points. - Cost of credit: Nominally better than previous quarter, with a recovery of BRL500 million in the result, and excluding the effect, cost of credit over the portfolio would have been 2.8% instead of 2.6%. ### IFRS 9 and MP 1261: - Change related to IFRS 9 for banks and MP 1261 related to DTAs would not have any impact on capital ratio, equity, or bank's cost of credit. - Migration to expected loss model since 2010 and public consultation in 2018 has prepared the bank for smooth transition. ### Non-Interest Expenses and Investments: - Non-interest expenses had an accumulated growth of 6.1% and quarterly growth of 5.8%, with core costs growing 4.0% compared to 12-month inflation of 4.4%. - Investments were BRL1.8 billion, with core costs growing BRL1.1 billion. Investments in technology, platform modernization, and artificial intelligence led to benefits like reducing high-impact incidents by 99%, implementing solutions 15 times faster, and reducing cost per transaction by 55%. Over 430 data scientists, over 360 initiatives using generative AI, etc. ### ESG: - In Sustainable Finance, met the goal of BRL400 billion in structuring capital markets operations and individual loans in sectors with positive impact on the economy and society a year and a half early and set a new goal of reaching BRL1 trillion by the end of 2030.

In the loan portfolio, it grew 1.9% quarter over quarter, with a growth of almost 10% in the year. The individual loans segment grew 2.5% quarter over quarter. The SME portfolio posted a quarter-over-quarter growth of 4.1%. The Large Corporates portfolio, despite a growth of only 0.7% in the period, saw an average balance grow 5.9% in the quarter when considering the recovery of a credit case. The Latin America portfolio grew 1.2% quarter over quarter, with an average balance growth of 8.2% excluding certain effects. The Financial Margin with Clients grew 4.5% quarter over quarter and 8.2% year over year on a comparable basis. Commissions, fees, and results from insurance grew 7% year over year, with asset management having 5.2% growth in the quarter and 16.9% growth year over year.

• The credit portfolio growth guidance is between 9.5% and 12.5% due to FX rate volatility. - The original 2024 guidance, excluding FX rate variations, would have brought credit portfolio growth closer to the upper range of the guidance. - Maintained other expectations except for the total credit portfolio growth.

• Exchange rate volatility impacts the credit portfolio growth guidance. - Uncertainties related to AT1 call and its impact on capital structure and dividend policy. - Potential impact of macroeconomic factors like inflation, interest rates, and economic slowdown on credit quality and loan portfolio growth.

Q: Eric Ito asked about capital and dividends, specifically regarding CET I and extraordinary dividends.

A: Milton Maluhy responded that the bank has a larger capital base this year, less regulatory uncertainties, and expects a larger dividend than last year.

Q: Daniel Vaz focused on the portfolio, asking about lines the bank has focused growth on.

A: Milton Maluhy said the bank is growing with quality in all segments, with growth in natural persons, SMEs, Large Corporates, and Latin America portfolios, and emphasizes growth with profitability and quality.

Q: Renato Meloni asked about guidance and exchange rate impact.

A: Milton Maluhy explained that without exchange rate, the portfolio growth would be closer to the high end of the guidance, and the exchange rate impact is more on the portfolio than the margin.

Q: Yuri Fernandes inquired about IFRS and competitive advantages.

A: Milton Maluhy stated that the bank's expected loss model and proactive provisioning show strength, and rational capital allocation is key.

Q: Thiago Batista asked about credit card and CELIC rate.

A: Milton Maluhy discussed the adjustments in the credit card portfolio and the impact of CELIC rate on various aspects of the bank's operations.

Q: Tito Labarta asked about credit cycle and NPLs.

A: Milton Maluhy said the risk appetite is dynamic, and there is room for further improvement in NPLs.

Q: Brian Flores asked about Latin America and hedging policy.

A: Milton Maluhy explained the tax and capital allocation effects in Latin America and the hedging policy related to capital index.

Q: Mario Pierry asked about retail business profitability and efficiency index.

A: Milton Maluhy said retail profitability is evolving and generating value, and there is relevant work to improve the efficiency index.

Q: Bernardo Guttmann asked about origination and super app impact.

A: Milton Maluhy stated that the super app is a growth avenue, but the portfolio growth guidance review was mainly due to FX rate.

Q: Carlos Gomez asked about provisions for labor claims and MP 1261.

A: Milton Maluhy explained the provisions for labor claims and the ongoing discussions regarding MP 1261.

Q: Unidentified Analyst asked about acquiring business.

A: Milton Maluhy said the acquiring business is part of the broader payments portfolio, and they focus on client engagement and long-term value.

Q: Natalia Corfield asked about AT1 call.

A: Milton Maluhy said the AT1 call is an economic decision based on market conditions.

Q: Nicolas Riva asked about Tier 2 and IFRS 9.

A: Milton Maluhy said decisions on Tier 2 are based on economic conditions, and IFRS 9 change will not impact capital ratio or cost of credit significantly.