Itaú Unibanco Holding S.A. Q4 FY2024 earnings call

Key highlights include: Recognition for culture and ESG efforts, with progress in ESG agenda aiming for BRL1 trillion in loan transactions. Significant technology modernization with 99% reduction in higher impact incidents, over 470 data scientists, and over 1,300 AI models in use. Earnings showed strong growth with managerial recurring results at BRL10.9 billion for the quarter and BRL41.4 billion for the year. Credit portfolio grew with improved delinquency and cost of credit. Risk-adjusted annualized margin expanded, non-interest expenses grew with improved efficiency ratio. Capital position was stable, and significant dividend announcements including additional dividends, share buybacks, and bonus shares.

The loan portfolio grew to BRL1.359 trillion, a 15.5% increase over December 2023. The individual loans segment grew 6.9% year-over-year, with credit card loans contributing to the growth. The SME portfolio grew 8.1% in the quarter, with significant growth from governmental programs. The large corporate segment posted 6.8% quarter-over-quarter and 21% year-over-year growth. The unsecured products portfolio grew 11% quarter-over-quarter, pushed by mid and higher income segments. Mortgage loan origination totaled BRL10.8 billion with a 60% loan to value ratio.

For 2025, guidance includes expected loan portfolio growth of 4.5% to 8.5%. Financial margin with clients is expected to grow substantially higher, 7.5% to 11.5%. Margin with the market is forecasted to be between BRL1 billion and BRL3 billion. Cost of credit is nominally expected to be between BRL34.5 billion and BRL38.5 billion. Non-interest expenses are expected to grow 5.5% to 8.5%, and the effective tax rate is expected to be 27% to 29%.

Risks include market volatility affecting margin with the market and other segments, regulatory changes impacting capital and operations, and competition pressure in segments like mid to high income.

Q: Congratulations on the results. It's incredible to see a 25% ROI being distributed here by the bank when adjusted here in Brazil. I wanted to talk about your guidance on expenses. You've delivered improvements on the efficiency. And the guidance, it's implicit that in the midpoint, it worsens 20 basis points because of stability. If you can give us some more detail on what is -- you're growing above revenue. Does that come from more investments in technology or a core cost that is pressured by higher inflation? Since you gave the projection for 5.8% on specific expenses, the efficiency program getting to a more advanced stage. If you can give us some more color on those expenses, that would be very productive.

A: Talking about expenses, very relevant messages. If we look at the year-on-year evolution of this result that we just delivered, you're going to see that there are 3 big effects. One, the profit sharing has improved. It explains 30% of the delta. I believe that this is a very important number to keep in mind, because the result of the bank growth not only in the value creation but also in the bottom line. And that affects naturally all the pools of the bank. That affects -- that's the first effect. The second effect; we had a year that we improved the labor provisions that generates a year-on-year effect. Central message -- this is an exercise that you can look. You can see what we have for labor against the costs incurred during the year. This is a model that has labor expenses that anticipates what's up to come and with a very relevant coverage. We have 3 years of coverage at least of these provisions. And it shows discipline, discipline in management. Thirdly and most importantly, all investments that we do all throughout the years -- we've done delta investments since 2021, very strong. And when you see the growth of investments, part of what we could activate, we've expensed on the result of the year itself. Part is activated and the activated part will depreciate, will lose value throughout time because of all the intangibles that we have in the balance sheet of the bank. The most important thing to see is that we're growing the level of investments. And we've stabilized for some years. We're still in the curve of depreciation. We're going to get to a plateau over the next 2 years. Delta depreciation tends to decrease year-on-year over the next 2 to 3 years until stabilization and everything is more constant, the investment is constant. So we've managed to deliver the level of profitability and result and growing the top line above expenses due to this level of investment that we've done. But this is the same level of investment that we've done that will allow us to take leaps of efficiencies in the future. So we have a platform that is completely digital. We have all applications of the bank, ultra-modern platforms of tech migration to cloud. Once you go through this maturation of the investment cycle, you get to a capture value cycle, because either you're going to turn off mainframes, you're going to deactivate a lot of expenses that you have today, so you'll have the cost of operation lower and also you'll have a value proposition and a model of business that is more digital which allows you to take relevant leaps in the efficiency of the bank. We are in the cycle, therefore, of investment that is not complete. We've gone over the midpoint. And what's up ahead, we are going to get into a cycle of capture of value that is very important. This is a project with an efficiency level. Looking up ahead, it's natural that part goes to price and competition. That's why we are more efficient. And part of it is so you can absorb more risk, especially in the retail operations. We're still investing nonetheless. We have inflation -- a banking inflation which is higher than the current inflation and transactionality issues and volumes that are important. So our volume is growing. Therefore, we see that our unit cost is decreasing which makes a big increase in the transactional. The volume grows, therefore, we have a leverage -- operational leverage that is much higher but with the space to grow and evolve. I am still very hopeful for the expectations of what we can do up ahead.

Q: Congratulations on the results. I have a question about the guidance of growth for NII clients. Taking into consideration the reduction of the risk on the portfolio and the perspective of an expansion that is lower on the portfolio, when you think about growth from now on taking into consideration some current market dynamics such as the Nubank's well position in the mass segment, high income, more competition -- so which segments can bring the best opportunities for the bank to increase its spreads? Where are the opportunities and where can we still see pressure of the competition?

A: Right, Bernardo. Well, let me do a general statement first about the guidance and the numbers. First, when we do the scenarios and we do the budgeting of the bank, it always has the -- it's not matched between the moment of the budget and the moment that we publish it. And we try to do the adjustments that are more relevant corrections. But this temporal -- this adjustment exists by design. Secondly, guidance, we have thresholds. They are not midpoints. So these are the best thresholds. We are conscientious of the guidance that we are publishing and the thresholds are there to capture some deviations of what we imagine with the available information. Third aspect, very important. The bank never has been so well prepared to face any scenario in the future as of now. Whether if it's a positive scenario or a challenging scenario, it doesn't matter. I am saying that because of the indicators of the cost of credit, also because of the indicators of bad debt or delinquency. We are talking about the position of the business as a whole, the capacity of growth, modernization of platforms, improvement of the journeys, evolution of NPS and the credit indicators with a robust balance, with adequate provisions for the cycle and then capital index that is post adjustment of the dividends, additional dividends, that we're probably going to talk shortly. When we look at the whole bank, the bank is well positioned for the challenges up ahead. We've done that investment in modernization of the platforms, not only the platforms that are conventional. But also we've modernized the credit and coverage. And these are relevant projects and we've concluded these projects. So our speed of reaction for any scenario that is up in the future has never been so fast. These are not decisions that you do with 30, 60 days lag. You do this every day. So we have tempestiveness in the management of the control of the bank, monitoring of the businesses, of the scenario. And we do it daily. And this is where we're going to do the fine-tuning, the adjustments so we can evolve as the scenario is showing favorability. We show -- we see the macro and micro indicators. We look at the customer profile that we want to grow. Portfolio management, it's very important through the cycle. I'm answering your question. So we implemented that management of the portfolio in wholesale. After the crisis in '15','16, we've done -- we've seen that the crops are growing. And we've done this project over the last few years in retail as well. So we have the thermometer. And the speed of reaction is instantaneous. Remember in the first quarter of last year when I gave you the first result, the first question is, "You're going to be below the guidance with this projection?" I said, "No, we are very comfortable to get here," and we overcome the guidance. We did the adjustment in the quarter. And a great deal of the effect is exchange rate related but the portfolio has grow -- grew a lot. This is an opportunity to -- well, we have a decision today about the increase of growth. We're going to do it if that's the case. And the guidance is the best information that we have available. If we have to do any adjustments for the guidance, we are always going to do it looking up ahead. We are not saying that this is set in stone. We have to fulfill the guidance. No. About the delta portfolio and margin, it's -- well, we have a portfolio at the end. It has a mix that is very distributed amongst the businesses and in a year that the portfolios grew a lot, 15%. So it's natural that when you have a base effect, your expectation for growth at a cycle of uncertainty, monetary uncertainty, inflation and interest rates, you have the trend of not being more conservative but you allocate the capital in the most efficient way taking into consideration the scenario, the scenario that is. We cannot ignore what's up ahead, positive or negative. So we discuss the indicators as if the scenario is not a relevant point. It's very relevant for the decision-making. Second aspect is that the average portfolio which is what generates margin, will grow strongly than the other portfolio. It depends on the capital markets. It depends on exchange rate. It depends on our capacity to grow in the business, where the opportunities may arise. Interest rates also play a part. The terminal interest rate, 15%, this is a macro projection based on the best information available. The change in that threshold that is lower than what we've observed can give you maybe an even lower rate depending on how the inflation will behave. That might or might not have an effect whether -- at the growth of the margin because there's a lot of products that are capped by regulatory rates or whether by our capacity of growth. This is a central message. We see spaces of growing in all the businesses but always with that strategy of having the resilient target clients through the cycle. And in the middle to high income which is a part of your question as well, this is where we managed to grow the most. So we get share. We are still growing, because this is a segment that was always available. It's not new. The mid, high income, it's not a new segment. Competition was always there for this segment. Of course, when you see a performance that is much more stable of the bank -- through the cycles, you see the strength of our balance sheet. Whether if it's the mid to high income on the retail or our wholesale Itaú BBA asset management, treasury which together let us work with a profitability level that is much higher than the average of the industry, not adjusted by the capital index of the average of the industry. We have a higher index. So we have an opportunity of continuing to grow in the mid to high income. And the last point. In One Itau, our platform, our super app that we migrated 5,300,000, to give you an updated number. What we're discussing here, we migrated 6 million clients. We've increased right at the beginning of the year and we're going to conclude the 15 million. Our capacity of growing in this public which is not a low-income public, it's very heterogeneous. We have clients all throughout the spectrum. And then we have nothing implicit in the numbers that you can see here because our main challenge was migrating and taking care of the transition. Once we've done the transition and the migration in the best way possible, NPS above 80, then you have the opportunity of cross-sell in all the products that we can service and offer within the journey and the context of these clients. None of this is contained in growth of margin, growth of portfolio. What we want to do is first test and see the potential results before we do any estimation. We are still on track. We doubled the speed of what was expected. And this is a great opportunity for growing in all segments, low, mid, high income. This is the watershed moment for the retail operation of the bank. Sorry for the long response but this is important to pinpoint some points on the guidance.