Banco Santander (Brasil) S.A. Sponsored ADR Aktie

Good morning, everyone, and thank you for joining us for our second quarter 2026 earnings conference call. We are broadcasting live from our headquarters in Sao Paulo, and we will be dividing this event into 2 parts. First, our CFO, Carlos Muniz, will provide a detailed analysis of our performance and our strategic direction for the coming periods. Next, we'll have Q&A session. [Operator Instructions] Today's presentation is already available for download in our IR website. And now I'll turn the floor over to Carlos to begin the presentation.

Thank you, Camila. Good morning, everyone, unfortunately we don't happen to have any button or translation into Spanish so I'll try to use my best Portuguese. And then during the Q&A, you can ask your questions. I will start with a summary of the best results for the quarter. We ended the quarter with recurring net income of BRL 3 billion and ROAE of 12.5%. This result reflects a more challenging macroeconomic environment, particularly due to the rise in the cost of risk. It also reflects the decisions we made in managing our balance sheet. We are rebalancing our product and customer mix, always striving to achieve a better risk/return ratio. This shift may have short-term impact on revenue, but it is essential for building a more balanced, resilient and predictable operation. Our focus remains clear, to grow with quality and sustain consistent profitability over the medium and long term. Now moving on to the next slide, we present the evolution of our customer base and the initiatives to deepen our relationship with customers.

We ended the second quarter of with 76.2 million clients, a 6% increase over the past 12 months. As you may recall, we discussed in the first quarter the launch of Santander Rewards. The first cohorts already show increased engagement, particularly in the growth of card spending. To date, 15% of the eligible customer base has enrolled in the program. We also posted a 30% increase in the number of registered PIX keys. The rewards program combined with the use of artificial intelligence should expand our ability to create value with every interaction. As a result, we are strengthening customer engagement, customer primacy and long-term relationships with our clients. Now we will move into the numbers. As we have highlighted in recent quarters, we continue to grow our loan portfolio selectively.

This progress reflects our dynamic portfolio management and our ongoing focus on risk-adjusted profitability. We maintain strict lending criteria. And as a result, we see varying growth rates across products and segments. In all cases, we prioritize quality, pricing discipline, customer loyalty and transaction volume. On a year-over-year basis, I would like to highlight growth of 13% in cards, 15% in customer finance and 11.5% in small and midsized enterprises in retail banking for individuals. We remain attentive to the portfolio's composition. We have reduced our exposure to higher risk profiles, especially among customers with monthly income below BRL 4,000. The portfolio of this segment has declined by approximately 30% over the past 12 months.

In mortgage, the highlight is home equity with 40% growth over a 12-month period. Consumer finance also remained significant, supported by a higher quality mix and a greater share of new and electric vehicles. In corporate, we maintained positive growth concentrated in the corporate segment and supported by disciplined pricing.

Overall, the portfolio reflects the choices we made to improve its composition and strengthen the risk/return profile. Next, we see that client NII has remained virtually flat for the year despite the decline seen in the quarter. There are 3 main reasons behind this trend. The first is the increased impact of deferred expenses related to banking correspondents. The second is the lower funding result due to the lower average CDI. And the third is the selectivity in loan origination, which we discussed in the previous slide. Combined, the effect of the deferral and the lower CDI impacted the spread by approximately 10 basis points.

NII also reflects the shift in the customer mix toward the high income segment. This segment has a lower structural spread approximately half that of the low-income segment. Therefore, its increased share is consistent with the portfolio rebalancing. As for market NII, we saw a slight improvement in financial management results, partially offset by weaker performance in the market-making activity. in funding, we continue to expand the retail share of funding. This strategy reinforces customer loyalty and increases transactional volume. Transactional deposits grew 18% over the past 12 months. This progress reinforces the growth of primacy and better funding composition.

Talking about commissions and as a result of this trend, fees and commissions were also impacted by strict stricter credit standards. Nevertheless, we maintained strong performance in credit cards and consortiums both on a quarterly and annual basis. In credit cards, we continue to grow within our existing customer base, driven by increased transaction volume.

In insurance, we saw improved performance in noncredit-related businesses. In credit-linked lines, however, the trend was influenced by selectivity in origination and by the higher share of new vehicles in our customer -- consumer finance in checking accounts, increase in transaction volume has expanded the benefits and waivers granted to customers. this trend helps explain the performance of this line item. And at the same time, highlights the growth in client primacy.

Now turning to provisions. The quarter was impacted by a couple of significant factors. Among them are specific wholesale banking cases and the inventory adjustment resulting from the new methodology for writing off transactions, together, the factors totaled BRL 700 million. We also continue to see pressure on the portfolios of smaller companies in the Agribusiness segment and among low income individual clients. This scenario required a higher level of provisioning. Part of this trend also stems from the more restrictive stance that we are adopting in renegotiations. We have been requiring additional collateral or cash [indiscernible] to formalize the agreements. This discipline may create pressure in the short term, but it will improve the quality of renegotiated loans.

Regarding delinquency, we observed a favorable trend in the short-term indicator. The long-term ratio also improved. However, part of this change is related to the adjustment in the classification of nonperforming loans, which had an effect of approximately 29 basis points on the total indicator. We continue to monitor these portfolios closely, carefully and with discipline.

Moving on to the next topic. Let's review the evolution of expenses. During the quarter, Personnel and administrative expenses remained well under control, favorable behavior. Their growth was significantly below inflation, reflecting our continued discipline in cost management. Lower revenue generation put pressure on the efficiency ratio, which closed the period at 39.3%. It is important to note that this performance was primarily driven by revenue dynamics. There has been no change in our spending discipline. We continue to invest in business expansion and technology.

Today, 100% of our employees have access to AI-powered tools that support both our efficiency initiatives and our growth agenda. At the same time, we continue to reduce our cost to serve. In the low-income segment, this indicator has already declined by more than 30% over the past 2 years. In addition, the broader adoption of global platforms is expected to further increase our operating leverage and accelerate this efficiency journey.

To conclude, we see here our income statement. We ended the quarter with recurring net income of BRL 3 billion and a 12.5% ROE. The decline in net income and profitability reflects a more challenging macroeconomic environment. Revenue growth was lower, and the cost of risk increased with the latter being partially affected by one-off items, as I mentioned. Even so, our portfolio continues to show an increasingly attractive risk return profile. We also maintain a well-balanced funding mix across funding instruments, client segments and pricing.

This quarter reinforces an important take-home message. Discipline in balance sheet management may have short-term impact yet. However, it also leaves us better positioned to navigate periods of volatility and sustain a stronger trajectory of growth and profitability over the medium and long term.

We continue to make progress in key areas, such as client primacy, while improving portfolio composition, funding efficiency and technology. We are building an increasingly balanced, resilient and predictable franchise. Thank you very much. And now let's start the Q&A with Camila.

[Operator Instructions] The first question comes from Pedro Leduc with Itau BBA.

My question is related to revenue. I would just like to get a better understanding because when we look at NII and fees and services, there may be some detractors or also some positive things. Could you please help me understand about the offenders like changes in mix or whatever went against it. but maybe you can help me explain what would be a favorable wind.

And at the end, maybe you could help me understand when do you think that revenue will resume growth maybe year-over-year or month-over-month, that would be great.

Okay, Pedro. There are some aspects that we can control and some other aspects that escape our control like CDI is something that we have no control over, and we have no idea how we will perform in the future. We have an idea, but not any certainty. The adjustment of the correspondence is something that we know, that's something that will happen. We know that things will not be any worse in the future. And then, we usually say that we -- it's not a matter of following, believing or not believing, but we focus on quality, quality, quality. We are not concern with market share in the short run, we are more concerned with macro returns being certain that every origination we do has to be a profitable origination 1 that makes us comfortable.

And this is what's leading us to make tough choices. I wish I could have like overwhelming revenue. But with all of the things we have in the macro return, I would like to focus in a more safe path, but then what happens is that we are putting on the side of the most profitable products. We are decreasing our presence in all products that have very, very large margins and rather focusing our attention and secured operations, government guarantees, pronoun, CD plus, real estate guarantees or mortgage guarantees I don't know whether I've heard it from you or other analysts, but our consumer finance is growing.

We are growing in new vehicles, electric vehicles with a very strong down payment at the beginning. And in the older vehicles, we just focus on the audience with lower risks. And so this is linked to many of credit operations, fortunate or unfortunately, the more risky customers, maybe we have the possibility of getting more fees. But we are putting that on the side just to other areas that we have more opportunities. And this is why we are stepping back a little bit in our fees.

We are expanding in other lines like consortium, insurance and others, but we also saw some drop in those that were more linked to credit in the lower brackets of the population. So we are very optimistic in terms of growing our revenue. I think we will have a good performance, but the purpose is now not to grow this line, but just make sure that we are not going to make bets or investments because then we don't want to have to put the bill in the future, okay? So we are still in the process of low single digits in the year.

Pedro, I will only add here something related to client NII. If we look at the spread, Carlos quickly mentioned the impacts we have in terms of funding margin and with a lower CDI in the quarter and also impacts with the higher expenses of banking correspondents quarter-on-quarter, and this has a 10 basis point impact. And in the year, almost 20 bps or basis points. So this impact should be fading out over time. So we hope that by the end of the year, we will get back to our regime in terms of expenses. And as for the mix, this is what is putting pressure on credit. And there, I would highlight 2 aspects. One, we are growing more with secured loans. As you said, in SMEs, we have more than 40% of the portfolio. that is secured. And in terms of individuals, I would like to highlight 8% growth in the Select segment, whereas in the lower income, there was a drop of 10% in the year. So as far as this puts pressure on the result, we impact revenue, but there's still the counterpart of loan loss provisions. But at the end of the day, we hope to reap the benefits.

Now we move to our next question from Ricardo Buchpiguel from BTG Pactual. And now we have -- sorry, it's Schroden, Gustavo Schroden from Citi.

I will speak about not necessarily about revenue, as Leduc mentioned, but a combination of revenue, loan loss provisions and credit quality. I think it's very clear through your comments that the bank's intention is to be more conservative to focus on mid and high income, but the counterpart is not there yet, which would be a lower loan loss provisions.

And we understand that there will be some one-off cases, there was 1 very specific case and the change in the write-off policy, BRL 700 million should be, therefore, understood like a one-off in loan loss provisions increase. But we see a higher over 90 NPL in all lines. Therefore, what could we imagine in terms of asset quality and loan loss provisions throughout the year? Or if you could also give us not a very specific date, but when do you think we would be able to see NII after loan loss provisions improving. Do you think it's more towards 2027? Or maybe by the end of the year, we would see an improvement in this risk-adjusted line.

Well, thank you for the question, Gustavo. I think I already said that, personally, I'm not very optimistic. So if I had to put this date, maybe the state would be closer to 2027 and I don't know whether Camila would agree with me. We are still waiting for this change, not only improvements in loan loss provisions, but we still have operations following the 4,966 section. So every year, we have to incorporate a new macro scenario.

And this macro scenario, I wasn't here when it was done last year, but I think -- what we will have to incorporate this year will be worse when compared to what we have currently in our models. So I do not expect a big change because probably, we will have this impact, and we will have to factor that in, in the next quarter if I'm not mistaken. The important thing for me is that what we started to see is the actual performance of the portfolios, and we see some more positive scenarios. I don't know whether this will be able to compensate this entire impact. And you noticed that loan loss provisions now it's better in the portfolio, even though it's not exactly in line with everything you mentioned, but we are doing the right move. And at some point, this will have to stop.

I think that the mix adjustments we've done is not yet apparent in that line. And as Carlos said, in the past quarters, we've had impact both coming from the wholesale and agribusiness. We already talked about this reduction, but this still represents about 40% of our individuals portfolio. But with time, this will be diluted and then we will do more with models and also macro deterioration. The main lines, as Carlos said, but we see more pressure in low income, agro -- we lost sound -- okay. That's great.

So lower agro and SMEs.

How much of that higher LLP refers to review of models 4,966? And how much of that reflects the deterioration of the portfolios?

In terms of LLP, we've seen it, as Camila said, only individuals of low income and in the lower segments of companies. The remaining portfolios are flat, or even improving, I would say. The model -- for the model, I don't have a number yet. I wish I could share it with you, but we haven't yet made a calculation with the current scenarios. We're still -- that's still work-in-progress. We know that this country will have elections right around the corner. And I come from a country where things didn't change every week like they do here. So I don't know exactly what is the macro scenario that we have to assume for 2027.

So I think for the next regulation, we will have more clarity about how much that bill will be. But I think we will see the worsening of a scenario.

So as a reference, Carlos highlighted during the presentation. But if you look at loan loss provision expenses, this first quarter was BRL 7.7 billion. And now we mentioned this as being more one-off impacts. There were some things related to wholesale banking and also the deployment of the new write-off policy, especially for unsecured loans. So both things consider we had BRL 700 million. So there is a percentage of recurring. And so as Carlos said, when we update the macro scenario, we will probably have more demand in some more specific lines.

All right. And now with Ricardo Buchpiguel with BTG Pactual.

In the quarter, we saw that DTAs have increased, putting pressure on the tangible capital of the bank, given the importance that this part of capital has on ROE and dealing with high interest, do you see room to increase the tangible cash of your balance sheet? What initiatives can you have to accelerate this process?

Well, if you have the question for that question, please do share it with us -- but unfortunately, the uses to generate revenue and revenue that will not entail loan loss provisions. The moment of the country is not helping. We are focusing on risk-free revenues on 1 hand and to improve the cost of risk that we are having. You will remember that in parallel to the solution, which is this -- we're making an effort to simplify the organizational structure. This is happening in the possible speed.

We are including organizations outside the perimeter of the bank. We did the last 1 in Q2. And this has to improve. And this will improve the consumption of DTAs, but these are the levers we have in mind, integration of other organizations to improve the tax base of the bank, improve the results which unfortunately is moving forward more slowly than we would have liked.

Clear. And do we have any visibility of the timing for these processes to be completed? I don't know if you can know.

Well, we have told you that we thought that we would start having a turnaround of those tax credits, DTAs between 2027 and '28 I have got plan for the next 3 years yet. For '27, '28 -- '27, '28, '29, but it shouldn't change much.

Now we have a question from Daniel Vaz with Safra.

Carlos I actually would like to go back to the point of revenues and risk-adjusted NII. I think that the big miss in market forecast, was not the provision, but rather NII, particularly NII in the spread seems to have a greater carryover for you to recover. As Carlos mentioned, we need revenue. And this gap that will take longer to recover post provision NII seems to be playing against your ROE for longer. So with this ROE level around 12%, 13% -- between 12% and 15%, how long will that take about a year? And does this have an implication for the payment of IOC, you're paying BRL 2 billion, by half year, do you have comfort to continue to distribute the same level of IOC given the lower level of ROE?

That's a good question, Daniel. Let's try to answer it in 2 parts. IOC and pressure on profitability. I think I spoke about the mix and that we are convinced that we are making the right choices in terms of the mix. The spreads we captured in high-income clients in mortgage or [indiscernible] this mix. The growth we have in mortgage is not helping us post a strong growth on that end of the equation. Without -- even with the policy of renegotiations and doing things well, playing safe, I should say, this is not helping us have a booming growth in the top line, but this will improve in the mid to long term. Will this impact the payout? No, we'll maintain our payout policy of 50%.

Of course, this will depend on the budget and on what we think we can achieve in terms of results next year. But the payout policy is not planned to change. We have committed to 50% in this quarter was a little over that within EBITDA under more pressure, it ends up being over 50%. We have had periods where during the year, this was a little bit higher, a little bit lower, but I think that 50% is kind of a benchmark for the long term in terms of our payout policy.

It's clear. And a comment on the ROE, I asked whether you have visibility of how long it should stay kind of lower in that lower range from 12% to 15%? Any estimate of duration?

I believe that by next year, we will be returning ROE to more reasonable levels. The market will put pressure on us to get there. And in truth, I cannot really show you, but what we came in the latest origination cohorts, it's making me feel more comfortable that we will achieve better levels. What I do not control is the speed of what we've had in the past. But if we had a possibility of having a write-off of the whole bank, at once this would show you the results of the last 12 to 18 months I think that you would have a bank that you would approve much more.

Next question is from Mario Pierry from Bank of America. I think his screen is frozen. Mario, can you hear us? Well, let's go to the next question, and then we go back to Mario. So next question from Thiago Batista with UBS.

Can you hear me well?

Yes. Loud and clear.

I just have a follow-up on Vaz question. Because Carlos, you said that Spain will be demanding a view better profitability, and they are very vocal saying that especially when interest rates become more normal, we should see tangible equity or better returns in tangible equity approach by 20%. What about today's ROE, not even the days? I mean, even before the last quarters, what would be the main levers of this ROE goes from 16 to 20 or something close to 20. What does it take?

Well, it's very simple. On my side, we have to continue making progress with non-credit linked revenues and the second has to be ceded with the group. We have to capture all of the investments we are doing in global platforms. And the third aspect is normalization of the loss provisions, which reflects the choices -- choices we made in the past. So the combination of the 3, I don't know whether they will all happen at the same time or they will happen in sequence.

But that's what will help us go up to levels close to 20%, as you mentioned. Just to give you a little bit more details. nonbinding credit revenues, some of them have a higher wait when you are accelerating the portfolio, but there is also funding. There was an impact due to lower Selic rate, but we are working hard in the funding Selic to reduce the cost of deposits, while at the same time, having additional revenues coming from that same line.

I think, Camila, we also talked about market NII we have a legacy portfolio, a legacy portfolio. that we inherited from the past. But with time this will be and hence, this will improve as we've been saying to you, we are expecting some improvement on this side. And this should also help improve profitability. And then I would say this is positive on the NII line, even if we pursue the same strategy of credit origination.

So let's try to go back to Mario Pierry. Mario, can you hear us?

Yes, I just had some technical problems. I would like to focus on the mass market segment that still accounts for 40% of your portfolio. And this is a segment that is going through a lot of pressures given the macro landscape. We have high interest rate, interest rates high household debt level. So what would be the ideal level? I mean, how much would you like to decline the exposure to this segment. And I also noticed that you made changes to credit cards in lower income. Does this have to do with loss of primacy or not?

Well, you need to have the answers from many banks before I can answer that question. In our case, it's not a problem of client primacy, but it's a structural problem that affects the entire country. High interest rates put pressure on households. I would say that I mean, I don't know what could happen in the future or what will happen after the elections. I don't know whether the parent levels of support we have from the government to the population will be maintained after the elections are in the future. And whether the level of employment I mean, that's historical figures ever. I don't know whether they will be maintained. Given the speed of the economy or whether the economy improves, probably our feeling regarding the more vulnerable sectors may change. So we don't know what may happen.

And in regards to the wealthier segments, we'll have audiences that are cohorts that are not so profitable to us. And -- these are segments that we cannot monetize as much. We have people who earn less than BRL 4,000, and there are banks that can operate with this segment much better than we do. So the speed of the portfolio reduction will involve a mix of our operations and origination. We are still doing origination with payroll deductible loans, 400, 500, and I think we may end the year with levels of origination higher than that.

I think it's more -- what is more difficult to control for us is the fall or the drop of the portfolio that we have because then that depends on our payment capacity or how negotiations will be happening. And I mentioned that during my presentation, that we do not want to do just smoky renegotiations or things that fade out in the air, we want to be able to deliver discounts to those who have the firm intention to repay their debt after the renegotiation is in place.

Well, I would add 1 more point, Mario. We've been doing strong work cost of to this specific segment. So I mean, Carlos just said that there was a reduction of 30%. Part of the monetization of this group is LLP. That's the main part. That's where the pressure is. And the other part has to do with cost to serve. And we are working in that segment as well. So we want to be profitable in the Board that at the moment is not profitable, but we believe that in the near future, it will become an interesting business for the bank.

If I can come up with a follow-up question because you talked about the renegotiation. What was the impact of the Desenrola program in the quarter for you?

It was very low. And in January, it was low. Mario, as I said before, we already had our own recovery policy. I don't know whether the word is aggressive. We offered big discounts to those clients that had a firm intention of paying their debt. And so Desenrola didn't expanded those opportunities. I mean it's not that the rates were better in the program, but it didn't move the needle for us very much. I don't have the numbers right off the bat, but I think Camila can help me I think, I mean, just hundreds of millions. And in terms of individuals, maybe it was a bit better, but it didn't change the level much in terms of recoveries.

Okay. It was slightly higher than the Desenrola program. But what we noticed is that there is very little adoption from the people in debt. So -- it was the same thing in the original program. As Carlo said before, Desenrola, we already provided interesting conditions for this renegotiation. So we didn't see any significant increase with the Desenrola program.

Now a question with Yuri Fernandes with JPMorgan.

I'd like to go back to NII. I think that this has been asked, but I will ask differently. I think Camila mentioned that of the 40 basis points about 30 came from funding and the impact of banking correspondents. Actually 10% and 30% is the mix related to derisking. So my question is, you will continue to rest the portfolio, right? That's what I understood from Carlos. But will the spreads continue to drop because the risk continues, or 2, no, there was an impact of write-offs. We had more write-offs. We got a renegotiated portfolio. and that included perhaps the renegotiated portfolio. And personal credit, personal loans and perhaps this has influenced a greater drop than the 30 basis points. I just want to know whether there is another factor because a derisking trend is new with Santander. You've been reducing the mass retail. And why did it drop a lot? And if the derisking continues, it will drop even further. And the other question regarding fiscal DTAs, provocation is to recapitalize dividend. You have -- you see have the tax fiscal to call back the capital. It's not easy. The problem continues, but it's just a provocation. It is 1 way of consuming DTAs over time.

I like the provocation, Yuri, a conversation we had internally and haven't decided yet. We have to support Gilson and the rest of the management to see what we're going to do, but we will communicate the market when we make a decision in that regard. Now going back to your question about the mix, which is a good question. We did have greater impact that impacted the drop in NII and the loss of these basis points that you mentioned the derisk trending is kind of old, but I would say that it's becoming more aggressive in recent months. I think that government programs or are there all the time. in the conditions of these programs put even more pressure on margins. Renegotiation conditions are kind of newer at the bank, and we will continue with discipline. And this has a cost -- NII paying a price.

And I spoke about riskier products, I get surprised when I look at the level of interest rates that we have in revolving credit and others. So that we -- we shouldn't just focus on charging interest because we've seen some indications by the government in the past, putting caps on these products. So I don't want this to get in the way of our business model, which is highly dependent on these audiences and interest rates that we don't think that they are sustainable in political terms.

I think that there is the impact that you mentioned, a slow portfolio pulling down the spread. There are some securities that we carry and then we put available to clients, but the bulk of it is the mix, as Carlo mentioned. As we reduce, as we said, the spread of special versus select. In Select, what is growing is mortgages, real estate loans gaining almost 100 basis points. In the last year, these are portfolios with lower spreads, and we are betting on them for the mid- to long run when that line item would be adjusted to the cost of risk in the consumer finance. We had an origination of new vehicles of 7%. And now we are at levels of 22%. So these are choices. We are deepening the strategy because the macroeconomic environment is not helping us to be more optimistic. So again, I prefer to play safe. in my first communication with the market, I prefer to have a bank that is safer. They won't give us to positive surprises, but not negative surprises either.

Now we have a question of Marcelo Mizrahi with BBI.

My question is related to derisking, could you share with us any information to help us try to measure the size of portfolio adjustment. If we think that we have about billion in consumer credit, SME is about 60-odd being the credit card portfolio with more billion. So Thinking about the portfolios individually or about the whole portfolio, this is how much is not the target portfolio anymore in the portfolios that are undergoing derisking the low-income mass retail portfolios that are not providing us with the desirable profitability.

Well, Camila can help me. We haven't got any problems. We have actually appetite to continue to grow in the wholesale segment of larger corporates or second level companies and SMEs. That's the more concerning group. We have a reasonable behavior in the government program to give us an opportunity to generate credit that we are comfortable with.

Now as for individuals, Camila was very clear. We have a clear in our head the select group and the mid select. These audiences that make us comfortable but with half the spread. And for mass retail is mass retail untouchable? No. we can work on it, but this is to be done selectively. I think that people earning less than BRL 4,000, we will not be able to compete with other incumbents, and we are not going to go for that above that income level, we'll always look for operation with kind of collateral, either in consumer finance, with high-quality cars, no motorcycles. And in payroll deductible loans.

But we won't -- but the unsecured loans that will be complicated for us, leading with lower income groups. Well, if Santander is not leaded sharing the leadership in the vehicles in auto loans in Brazil, Santander has an important card portfolio. So we are talking about -- you mentioned 7% 8%, increasing to about 15 or 20 EVs, electric vehicles.

But I have the impression that this portfolio classified those mass market is still very large compared to the whole portfolio. So order of magnitude, this is corresponding to half the portfolio. I mean, this portfolio that the bank is more cautious about. Is it 1/3 of the whole portfolio? Or how much of the portfolio will shrink. And it will be gradually replaced by a more defensive portfolio.

My goal here is to try to do a simulation of impact on revenue. Well, in individual's portfolio, about 40% is classified as low income, which is not -- let below BRL 7,000 monthly income in SME is 20% of the portfolio corresponds to smaller companies that are more under pressure. As Carlos mentioned, it does not mean that we will exclude this 40% of this 20%. There are products that we attracted to. So for SMEs, we have been trying to grow them in [indiscernible] for this segment, we are increasing the share of this over the recent quarters. And for individuals, there is a great participation in consumer finance. They have a great churn in credit cards, and this is what we are reducing. And what we have to accelerate over time is private payroll, deductible loans.

We made an adjustment with more repressed loan granting, but it is a product where we see an opportunity to grow even in low income. And given that we are strong in payrolls, this gives us a better visibility of our clients.

Now next question from Tiago Binsfeld with Goldman Sachs.

Expenses. The bank has been going to a significant process in terms of branches and personnel. So do you think that this process will be over in 2026? Or you still think that this will go beyond this year? In terms of cost to serve, how do you see the adoption of AI in the bank, and whether you could accelerate the process of efficiency gains in the bank.

I think Camila already said that 1 of the main concerns we have if the bank is cost to serve because cost to serve for us is the leverage that could help us monetize in some audiences that we cannot serve as we hope to. Therefore, this debate about what would be the correct footprint is an ongoing debate.

In fact, this is a conversation that is constant in the bank, and I would love to hear the opinion about the number of points we have and the format of all of our POS. I mean how many stores we have and also the size and the service that each branch serve the each bank renders to the clients in the market.

Now about AI, I think I already talked about AI. I mean, everyone in the bank uses some sort of AI. One of the advantages of belonging to a large group is that the bank provides very powerful AI tools that we are beginning to deploy with good results. I don't know whether you heard what I said. But on the side of cost, I mean, everybody uses AI as a leverage to do the same thing at a lower cost or more at the same cost. But not only that, but AI tools are allowing us to come up with offerings that impact revenue. I mean something more customized is a lot more bespoken.

And in our cost agenda at Santander Bank, I think I've been with the bank 22 years. So it's not just 1 single year that we go without talking about cost, but we talk about it every year. But now with the new tools available to us in the market, we will certainly, the market will be more competitive. And Brazil is a very competitive market. Here, we know that there are many opportunities and this cost to serve can be reduced. Therefore, we keep focusing on finding the best levers to improve further.

We have a question now from Matheus Guimaraes with XP.

Congrats on your results. I think we already talked a lot about revenue and costs. but I would like to learn more about your high income focus. We've seen competition increasing in the segment of mid- to high income. And you are stepping on the brakes a bit when it comes to mass market. And I think competition is becoming fare in this segment. What do you see going forward? And what would be your offering differential to continue on that course. Camila mentioned 8% growth in the Select segment. what, in your view, is your differential? And how can we see that going forward, especially considering the whole consolidated scenario of the bank?

You're mentioning a very relevant point. How can we distinguish ourselves vis-a-vis the competition. We talked about the launch of Santander Rewards. I was firmly convinced that the program would bear fruits. And in fact, now the numbers are proving that we made the right choice, because it brought a significant improvement. We are bringing the group of people that already subscribed to the programming, those that have not yet subscribe to the program, and there was a significant change in more than 10 points in the satisfaction levels.

And this will be 1 of the main levers that we have in this scenario. The other things are stories from the past that are also bringing good results, not only our advisory teams that are working much closer with investors and insurance is another area that is proving that we are on the right track. It's a complex task very complicated, as you said, but the group is helping us to identify how to do that work well. So I'm very certain that we will be successful. And this has been proven by recent numbers. Revenue is growing. Client engagement is growing. And by and primacy is also growing. So I remain very optimistic.

I think Matheus, if I can add cards with cars, we are increasing client share of wallets, spending is increasing, and it's been so in the past year. So Carlos mentioned client primacy is something that we are measuring in this segment. And mortgage or real estate we even gained market share in the past few months. And we have a good offering, and this is a segment that is 80% high income. This is that is then aligned with our proposition for high income. And on the service side, as Carlos said, we have this AAA offering in the Investment segment. So we are -- we have a very good net funding in the Select segment.

And with Santander Rewards, we can now award clients. In the past, we were using -- we were looking at credit card spending, the benefits and how they were using the mileage. But now we are having a more holistic view of our clients. And the first results are very encouraging, even though it's been around for a very short period of time.

With this, we are ending our Q&A session. I would like to thank you all for joining us this morning. After this video conference, I and the entire Santander Brasil Investor Relations team will be available to answer any further questions you may have. Thank you very much. Have a great day. Thank you.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

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.]

[Interpreted] Good morning, everyone. Thank you for joining us for our fourth quarter 2025 earnings video conference call. We are live from our headquarters in Sao Paulo, and we will divide this event into 3 parts.

First, Mario Leao will address the main highlights of the quarter and the directions for our growth in the coming periods.

Next, Gustavo Alejo will provide a detailed analysis of our performance.

And finally, we'll have our Q&A session.

I will now give you some instructions. We have three audio options on the screen, all of the content in Portuguese, all of the content in English or the original audio. [Operator Instructions] The presentation we are about to give is now available for download on our IR website.

And now I'll turn the floor to Mario to start the presentation. Good morning, Mario.

[Interpreted]

Good morning, Camila. Good morning, everyone. It's a great pleasure for me to be here to give you the wrap-up of 2025 because '26 is already in its second month.

I would like to start by highlighting the main numbers. And as you can see, we delivered a sequential performance or net income of BRL 4.1 billion, almost 6% year-on-year and 1.9% quarter-on-quarter. So we maintained profitability at 17.6%, meaning that with everything that I will tell you further on, we will see that this is an intermediary step in our journey towards 20-plus of profitability, and we can elaborate more on that further on.

And we do that with a growing customer base, about 4.5 million clients. We will tell you that it's 64 million, rounding it up. And the main thing that we will tell you about has to do with an NII that grows 0.8% in the quarter and year-on-year is down due to the markets, and this is something that we've been telling you for quite some time. So market NII, as Gustavo will elaborate further. It's a bit more negative quarter-on-quarter, and this has a rationale behind it. And our overview for '26 is better. But in terms of clients, there was a quarterly evolution that was up by 4.6, and there are further opportunities to improve even further.

Our quarterly delivery is 3.6% quite positive in an annual comparison, slightly above, and we will see 3.6% in details, in some fee lines that are very key to what we are doing with our clients strategically speaking.

Our expense management in the quarter grew nominally, but quarter-on-quarter is impacted by the collective bargaining. Now we are 3 months ahead in addition to seasonality, marketing expenses, et cetera. So despite this nominal growth in the quarter, year-on-year, the number was negative. That means I mean, and we've been talking a lot about how we are managing this line. I mean, certainly, this is what we control even more.

Mean efficiency ratio is up because of relationship with markets, and we are earmarking our expenses, but we are on the right track. Macro expenses remain the same. We're not changing the strategy. We are very disciplined in terms of managing our operations, very resilient. This is beyond just a quarter or a year. It's a midterm journey, but we are moving quite well in this direction. And we are constantly moving ahead little by little.

The management levers are the same. The golden rules that we often talk about. We will highlight some of them further on, but as the core of the strategy is our transformation of customer journey and primary relationship.

Customer centricity. I already talked about the total number. At this point, we have more than 74 million clients. Not only we are looking for -- looking to increase the number of customers, but we want them to be more active, to be more transactional. And this will allow us to be the primary bank of these clients. And so we are focusing on these 2 levers and one being hyper-personalization and the other one being AI.

I mean as for hyper-personalization, we highlight something quite positive because in my view, 60% of all interactions we have with clients in the channels, all channels, not only digital, they are already hyper-personalized. Meaning that I speak to a client knowing name, last name, the way they like to be treated or spoken to. We know the context behind the relationship that we have with the client, access to market. And with all of that, I have a context-driven conversation. And I know what the client needs to be unique. So this is the issue of having a primary client.

We made important advances last year. There is a new app also that I will talk about soon. And there is also what we call the customer interaction platform because it is our new CRM, but something much broader than CRM that allows us to integrate all of the information about the client, market information, while at the same time, we personalize campaigns. Between notifications, banners and products, we are making important advances. Last year, not only we deployed all of that, but we conducted more than 1,400 campaigns that are hyper-personalized.

And also, we are intensifying the use of AI. Certainly, AI has one side, that is what we call AI for efficiency, the use of AI to make the bank more efficient, to improve processes, to reduce manual processes and operating costs. And we have ombudsman and fraud. In these 2 areas, volume is important. We have to be more efficient and to serve customers better.

And there is also AI for Growth, meaning how AI can help us to improve our business, to enhance primary relationship with clients. And there are some examples. One being Pitch Maker. That is the first tool that we launched in the midst of last year for our AAA and investment advisory system. And we also bring there that to our Select segment. In 30 seconds, in only 30 seconds, we can have a personalized pitch allowing experts to address clients in a much more direct manner. Instead of taking half hour to recover e-mails and to look at the systems, but we can do that in only 30 seconds, meaning that the interaction level is much better. This is just an example.

Now to give you some business highlights, I will talk about Consumer Finance; Transactionality, payments; and then I will talk about Investments and corporate. In consumer finance, we are very proud of our franchise. Maybe this is one of the jewels of our crown. Last year, we posted a record year in our Consumer Finance because we grew the portfolio. We grew top line, bottom line, but more than that and behind that, we are increasing and enhancing customer experience.

I mean our Consumer Finance is our oldest business. So this is a journey of 90. Of course, the Consumer Finance focuses on finance, of course, granting credit. But we are growing the capability of granting loans. We also offer insurance, auto insurance. There are many new insurances that we launched. In terms of insurance and fees, we were up 73% year-on-year from a base of 100. Therefore, the Consumer Finance posted continuous progress. Again, we had a very good year last year, and we trust the business, and we know what we have to do in 2026.

The middle column talks about a very central topic that is part of our everyday operation and it has to do with the customer journey. And this involves Payment and Transactionality together. This has been our focus for quite some time. We've been investing here. We delivered new journeys last year. We are bringing here as Trazer dinheiro, Bring Money, in open finance. This is a very simple journey that I would say that is one of the simplest in the market for corporate and SMEs we talk to clients and what they have in other organizations, financial organizations. So we encourage them to bring that to us in a simple click. We give them additional overdraft capability.

We want to post progress it PIX, all of the journeys related to PIX puts us in the industry standard. And with that, we increased volume. Even in the low income segment, we are advancing, even if credit appetite is low for low income. We are growing 26% in fees in 2 years. Cards, we grew close to 20%, 17%.

But when we look to the right and look at Investments, I will start with what is the last topic. In low income, we are growing deposits. So deposits grew by 24% in 2 years and in high income, even more, 34%. What I would like to say is that in that journey that is [ pluriannual ] to improve the funding of the book and to close that in retail, we reached an important landmark last year to reach 50-50 between corporate and individuals. It's not the end of the journey, probably the mid part of the journey. In '23, it was [ 27.43 ]. We are interacting a bit more, and this number was still higher in companies and lower in individuals. But now we are reaching a balance. But obviously, this has to go on. So we have to reach at least 60% in companies and -- I mean in individuals and companies, more small and large companies.

Now here, Santander Empresas or companies. I already said that we have a mid -- small and midsized companies that should double in a year. Of course, we have the necessary capital, teams and offerings. We will grow disproportionately as it has been the case in the past few years, but we want to do more. It won't be linear. It will be in all segments. Macro is an important element, and we'll take that into account. But in terms of our directions, we want to grow a lot more here.

And to that end, we segmented things. We segmented all the groups of customers per income in a much more surgical way, much more dynamic. And with that our offering and our model to serve will be even more earmarked and dedicated.

For small companies, we no longer have an expert in the bank. We have micro regions. And that's when you look at the map of Brazil, this is an actual map when we have all of our micro regions. As you can tell, we are scattered around Brazil. And we had a campaign last year where the bank went out of the bank. We don't want to manager sitting at a desk with a desktop and waiting to talk to a client. I mean, the manager or the expert has to step out of the bank and call on customers. And these calls are more frequent. They bring more NPS, better business and a better portfolio quality.

On the right-hand side, we talk about the offerings, Get is playing a more important role. It's a combined offering. Get, it's is a separate company, is no longer part of Santander Brasil. But in terms of business, it is very much present in the bank. It is part of an integrated approach of an integrated solution, and we are certainly becoming stronger with this partnership. In addition to that, we are making progress with the channels. We are working in the company arm of that and very soon, we'll be able to talk more about it.

We have a new brand positioning that's been around for about 1.5 years. We are making great progress with a major campaign. And finally, we're very much dedicated to what I mentioned before, that is the rewards journey, and we will tell you more about how we are trying to engage both companies and individuals in the journey.

To conclude my part and before I give the floor to Gustavo, this is just a zoom in into the subject. Since this is a topic that we've been delivering quite well, and we will certainly be focused on doing so -- doing the same thing throughout this year, and I'm referring to our efficiency journey. In 2 years, and again, if you go a little bit further down the journey, in 2 years, we grew revenue by 17%. In the same period, our expenses grew by 5%. If we were to eliminate inflation, it will be minus 4%.

But let's talk about -- I mean let's leave actual evolution on the side by now. Growing 17% against 5% growth in expenses. This is quite positive. And this gives the bank some operating gains. But the way we invested the 5%, it's even more important, in my view. We grow in expansion and technology, 16% over the past 2 years. That means where the bank has to grow and where the bank has to transform itself and engage customers even more. So we are growing 17%. And this is funded with "while the entire rest of the bank is at 0," so we have an aggregated view of 5%, which is quite good, plus a very healthy mix in my view. And the mindset to look for a bank that converts, that has a mindset of nominal gain of minimal -- nominal expenses of 0. I mean, quarter-on-quarter or annually, it was negative.

And now I have 2 things that stem from them is that our cost to serve was down both for high income because they don't need as much because of the income and mass income, which is crucial. I've been referring to our mass income or low-income segment. We need much better cost equation. To be feasible, of course, the portfolio or the credit mix has to be very healthy, and we are working in both directions. But we see a 43% reduction in 2 years. But obviously, we can do more, productivity also increase.

And on the right-hand side, I mentioned a few pillars. I mean the list could be much longer. But I talk about the technological spectrum that allows us to do that. So we are working together with the Santander Bank on the Gravity project, and we will talk more about it, but this is a much more modern and efficient way to process the bank. I mean we are leaving the mainframe and going towards a lower platform model that consumes much less and is much more dynamic in terms of management. We did that in many other large geographies. Brazil is one of the largest and very complex part is our credit card platform. It's already fully implemented for credit. And so this is a major step towards enhancing our efficiency.

And One App makes us proud. We have more than 50 million customers that migrated to One App. And it's a very active platform. And now in 2026, we will deploy new versions within the same core plan. And with that, we will grow -- we will enhance engagement in this new app that has been totally refurbished and remodeled that was launched early this year.

And with that, I'll ask Gustavo to come and comment on the numbers, and I'll come back for the Q&A. Thank you.

[Interpreted] Thank you, Mario. Good morning, everyone. In line with what we have presented in previous quarters, we continue to make consistent progress across all lines and businesses, reflecting our dynamic portfolio management and ongoing focus on increasing risk-adjusted profitability in our operations. We remain cautious in grant credit, which translates into selective growth of our products, always prioritizing greater client loyalty and transactionality.

I highlight the positive evolution of the main portfolios in the year-over-year comparison with Cards growing 13.4%. Also, another highlight is Consumer Finance, up 13%; and small and medium-sized enterprises also growing 13% year-on-year. With these increases the relative shares of small and medium-sized enterprises, consumer finance and high high-income individuals increased in the banks of portfolio. That's very important in the mix.

In Retail Banking, the focus remains on product mix and segmentation. We continue to make consistent progress in lines with higher profitability and continue to reduce exposure to high-risk profiles as we have been saying in prior quarters. We still see room to accelerate growth in the high-income segment, and we continue to work to capture this growth.

In Large Corporates, we continue to evolve positively, but always maintaining price discipline. On the funding side, its composition remains aligned with the strategy shown by Mario and the evolution we have seen, i.e., increasing retail share of funding, strengthening customer loyalty and transactionality. So what does that mean? The funding mix plan is evolving satisfactorily.

In time deposits from individuals, we had a very favorable performance with an annual growth of close to 20%, which reinforces the evolution of our customer primacy. In turn, in demand deposits, we observed a reduction because there was a natural migration to time deposits.

Client NII grew 1.6% in the quarter. And this increase was mainly explained by higher average volume of credit, which offset the lower number of business days in the period.

In the annual comparison, NII growth was higher compared to credit volume, which demonstrates our discipline in pricing and the continuous optimization of the mix of assets and liabilities.

With this more favorable mix together with CDI increase, spreads increased in 12 months, as you can see. However, the quarter was impacted by fewer business days. A larger share of the noninterest-bearing card portfolio and an increase in deferred expenses of banking correspondents. In effect, that has been gaining relevance over time. These 3 effects combined account for more than 80% spread variation in the quarter, as we can see.

In terms of market NII, we observed a slight improvement in asset management, combined with a deterioration in market making quarter-on-quarter. Fees performed more positively in the quarter, reflecting, of course, the seasonality, but with Cards and Insurance standing out.

In Cards, we had another positive quarter, driven by increased customer transactionality. Insurance, in addition to the seasonal renewal of a significant policy that we had, we saw an improved performance, also due to the strong commercial focus of our sales force and new products. In securities brokerage and placement, despite a slight decline in the quarter, we posted significant growth in the second half of the year, supported by improved performance in debt issuance.

Now moving on to provisions. We observed improved performance quarter-on-quarter, mainly reflecting 2 things: lower write-offs of losses, which I will discuss in a minute and the absence of significant one-off effects such as specific cases in wholesale. As mentioned in the second quarter, we anticipate write-offs of losses in operations with lower expectations of being recovered. Comparatively, in the first half of 2025, the volume of write-offs was 55% higher than in the second half.

What does this mean? This has an effect on NPL over 90 days in Q3 and Q4 of the year. More precisely, in the fourth quarter, 25 basis points of the increase are explained by this effect. The other part of the increase in the over 90-day NPL relates to lower income segments, agribusiness as well as operations guaranteed by government funds, which impact the delinquency rates for SMEs. These operations structurally have lower levels of provisioning. Therefore, there is an increase in volume of the portfolio in Stage 2, but with lower coverage in the quarter due to the better quality of the migrated credits.

Despite the increased pressure observed in over 90-day NPL, we continue to see more well-behaved short-term delinquencies and a slight improvement in NPL formation. We recorded lower contribution from loan recoveries in the period due to increased activity of portfolio sales throughout the year. We continue to take a restrictive stance on renegotiations. The increase observed in the renegotiated portfolio in the quarter is mainly due to the inclusion of transactions renegotiated before 30 days of delay. So there has been no change in the renegotiation policy.

Even after adjustments to underperforming portfolios, there may still be some additional pressure on quality indicators throughout the first half of 2026. Still, we believe that this dynamic is consistent with the current stage of the cycle, and it is being addressed in an active and disciplined manner.

The next slide shows the evolution of expenses. During the quarter, we saw the full effect of the new collective bargaining agreement in addition to the typical seasonality of the period. Even so, we ended the year with expense growth below inflation as a result of our effective cost management. Higher expenses associated with business expansion and investments in technology were more than offset by reductions in recurring expenses.

Over the last few years, we have demonstrated a truly solid management in terms of expense management and resource allocation. The one-off increase in expenses in Q4 impacted the efficiency ratio, but this is a seasonal effect, as I mentioned, rather than a structural effect. Comparing 2025 with 2024, we see an improvement of 140 basis points in the indicator -- in this indicator.

To conclude, I present our income statement. We ended the year with a 12.6% growth in profit and ROAE of 17.6% in Q4, reflecting consistent revenue growth and controlled expenses. CET1 ended the year at 11.6%. Our loan book shows an increasingly better combination of risk and return, supported by well-balanced funding as we've shown in terms of instruments, customers and prices. And this performance, even in a more challenging macroeconomic scenario reinforces that the discipline with which we have -- reinforced the discipline with which we have managed our balance sheet in recent years. It leaves us in a better -- it leaves us better prepared to face short-term volatility and sustains our trajectory of solid and sustainable profitability in the mid to long term.

We will begin the Q&A session. Thank you.

[Interpreted]

Thank you, Mario and Gustavo. We will now start the Q&A session. [Operator Instructions] First question from Yuri Fernandes with JPMorgan.

[Interpreted]

I think that Gustavo will stay one more quarter with us. I would like to thank you for the partnership and wish you a lot of luck, Gustavo. I have a number of questions also related to other expenses, but let's focus on delinquency -- SMEs delinquency.

I think that there was some worsening in the delinquency ratio. I think that Gustavo actually mentioned that it was additional pressure. Mario mentioned that the cost of risk was not what he would like. It's not normalized. It should improve, perhaps not in 2026. So my question is what's happening with the small midsize enterprises? Santander stepped on the brakes before the others, you were more cautious. Is there a specific industry or level of company, I understand that high interest rates did not help. But this worsening drew my attention, both in short term and 90-day NPL. So any color you can give us would be more than welcome.

[Interpreted]

Thank you, Yuri, for the partnership. It's always good to be with you. Well, the pressure we saw in small- and medium-sized enterprises is basically in the smaller companies in the small enterprises. So we have felt some pressure there. It is more related to the size of the companies and less related to specific industries. We haven't seen any specific sector standing out. So it doesn't make sense to comment on any specific sector. It's more related to the size of the companies.

The medium-sized enterprises are doing well. In the corporate, well, they operate with events. So for large companies, we see some -- we don't see more -- any more highlights. So it's basically smaller enterprise in the SME segment.

[Interpreted] And here, I can add Yuri. And thank you for the nice words. Here, I always try to make this very clear. SMEs is one of the lines of business that we believe in the most that represents Brazil. Brazil is a big country of SMEs. It can be even bigger. I spoke about this in the Board meeting, and I'll say that loud today. We have an obligation to have the ambition to double this business. To double the bank share is hard because we don't control the other players and no one is going to sit still. There are no fools in the market. But we want have a business which is proportionally bigger than it is today.

So when we can do it, we acknowledge that there's room for improvement, and we'll have the most impeccable execution to get there, which does not mean that it's going to be done in a linear fashion. If you do it in a linear fashion, it's based on an average. Although the whole segment is highly profitable, and even our small enterprises continue to have an aggregate profitability level above the famous ambition of 20% plus of return on equity that I have been talking about consistently.

It's not that it fell below this, but since it has the potential and it should be running way above 20%. When we see our most recent performance that started in the last months of 2025, and we'll keep tracking that in Q1. We will see what kind of growth we want to have with which sub clusters so that we can continue with the average profitability of this segment well above 20%. We continue to believe in this segment.

I think that this is more related to the macroeconomic context. We are in our fifth year of a very high interest rate. Of course, this impacts the whole spectrum of enterprises, but the smaller enterprises, the ones that have less buffer, less size or historical presence. They suffer more. Of course, we don't want to generalize. But this is something we are monitoring a lot, and we will calibrate our appetite so that we can grow in a disciplined and sustainable fashion. But it is a segment in which we believe in a lot.

[Interpreted]

And thinking about PLL, does it make sense that PLL will grow more with the portfolio this year?

[Interpreted] Yuri, again, as a reminder, we don't give a guidance, as you know. So I understand the reason for the question, the temptation to bring about that conversation. So I'm going to answer now based on the average. We will look to evolve the portfolio in the healthiest way possible. Again, growing disproportionately in some business segments. And I mentioned just now that SMEs is one of them.

High income is another one. And you can also test -- during the year. But at a price, deciding that our low income may be reduced throughout the year. Not that it may, it should. It doesn't mean it is not important. It doesn't mean that Santander is giving up low income. That's not the message. But Santander, has more and more data and more and more technique, looking for an optimized low-income portfolio, which would be viable, healthy and will be part of this ROTE healthy.

So we'll grow the portfolio in a healthy way. And we want to have a PLL which is compatible with that, a PLL which will not increase with portfolio growth. But PLL may still increase due to a carry effect of the portfolio. In some subsegments, we can have provision for loan losses growing a little more. And that's why the mix is important so that the whole mix will allow us to grow the portfolio in a healthy way, continuing our derisking effort, which will continue in 2026 and in this aggregate so that PLL will evolve in a more compatible way with the portfolio, although segments have different behavior patterns.

[Interpreted] So now we move on to Thiago Batista with UBS.

[Interpreted]

I have -- I mean my question has to do with the answer you gave Yuri, related to retail and the journey transformation plus the branches. When we look at it, I mean -- you make -- you had a relevant reduction in the number of branches and stores like almost 25% of your base. And last year, you said that the profitability of the mass income segment was even below what you had in mind. And now you told Yuri, about this potential improvement in provisions in the mass income segment.

My question is what is relevant for you? How do you see the relevance of the branches in the midterm to serve this mass income segment or low-income segment? And if you can indeed have a return or RoTE of around 20%?

[Interpreted]

Thank you, Thiago, for the question. The answer is longer, but I'll try to be brief. What value do I see in the stores as part of the multichannel offering to our clients? I see that they still have a relevant role. They play a relevant role, but they have to be -- not so many stores, and they have to serve a different customer base.

But let me say it differently. We are reducing the number of the stores not for the mere fact that I want to reduce the cost. I mean the output -- I mean, is reduction, I become more efficient, and you can see that translated into net income. But that's not just related to the stores. Otherwise, we wouldn't reach level of net income. So it's not only about that. So we shut down the stores. I mean I would rather say that we readjust our footprint because the dynamics of the customers have changed.

I mean, of course, depending on how you make the cuts in your year-on-year view. I mean, the number of people who visit us, visit the stores is down by almost 70%. So the visit is much more concentrated on the ATMs rather than activities in the stores. So I don't need large spaces or even space per se, just to serve clients.

And since lower-income clients are the ones that do not have a lot of elasticity or they don't have such a big purchasing power or pay the banks or the platform. So we have to be very efficient. And do it in such a way that customers don't even have to go to the store so frequently. We are still inaugurating new stores, but the focus have been on having 2 types of stores, what we call branch format store. This would be a traditional store, but much more modern, with a high table, good circulation, almost similar to stores that you see on shopping malls or out of the street, which are also earmarked to serve low income, but they are different stores when compared to mass income.

And the word cafes, they are like experienced places. I mean there's coffee, of course. And coffee is really good, I would say. And there is a lot of room to do business for clients and nonclients. Therefore, the bank is focusing on having less stores. I mean they have to be situated in some places because part of the channel is the physical channel and the experience stores, which are very cool places, and we will grow the number of these spaces even more. So the store has a role to play, but it's no longer a focal place because now this is digital.

And then we have chat. The chat channel because we want to include AI in the chat segment because there is also the element of the human being, but I have to have more humans in high income and AI for low income.

Still speaking about profitability, and I've been talking about the mass income segment for quite some time. And -- but it still are a detractor in terms of profitability. This year, we will give an important step towards recovering profitability. But still, this will take probably 2, 3 years until we reach the level we desire.

Why does it take so long? That's a legit question because from all of the portfolios, this is our longest portfolio. The average duration of this portfolio is longer when compared to other portfolios. So it takes some time until you do the definite derisking of the legacy or the older part, which is the most expensive part of the portfolio. It's in runoff. I mean we are looking at losses with sales of portfolios. But certainly, this requires demand, tax management and a series of things, but the derisking takes sometimes.

So we are still in the midst of this journey. It will take a few years until we accomplish we get to what we want. I mean, if not 20%, close enough to 20% and all of the rest should be way above that. We have a blend of Santander Brasil. And certainly, we will have ROTE of 20%. And recurring, I'm sure that certainly, this will not happen in 2026. I already tell you that, it's obvious, but it shouldn't be any time longer than that.

[Interpreted] Next question is from Mario Pierry with Bank of America.

[Interpreted] Congrats on your results. You cannot hear me? Can't you hear me? I'm sorry.

Mario, congrats on your results. Mario, I would like to revisit one of the slides you showed that says that your tech expenses are growing 16%, whereas the other expenses are flat. I mean how much more investment in technology we should expect going forward? And how do you think the bank is positioned vis-a-vis its peers in terms of tech investments? And I would also like to have a better understanding because when we talk to some of your peers, they talk a lot about deployment, putting AI in the credit models and how this is allowing them to expand credit with lower delinquency?

During your comments, you said that you could use AI both for growth, but also to gain efficiency. I mean how are you deploying AI in your credit models and whether you see a potential to improve the models to help accelerate credit growth?

[Interpreted] Great, Mario. Thank you. I will start with the first part of your question, and then I'll ask Gustavo to answer the second part, and certainly, I can comment later on.

I mean as for expenses, that number 16% against 0. I mean that means growth and technology, it's not only technology alone. Technology is certainly an important part of it, but that also includes expansion. So the term I used in the presentation is expansion. And what is that? Most of the time it's people.

When I talk about SMEs and the leap in small companies in terms of micro regions, national coverage and getting people out of the stores, I increase by 27%, the number of people in charge of covering small companies, the S of the acronym. And that includes expansion. So whenever I invest -- it's our AAA, with [2,000] people, small companies. I have more than 3, 3 or 4. So I have dozens of people and this headcount increased in the last few years. And this is part of expansion. Technology is certainly relevant chunk of it is not 10% is much more, but we also have the expansion of the franchise. I mean, the compound effect comes up to 16%.

So we should see -- I mean the ratio should be different. But we should see the same dynamic going forward because I will continue to invest in the transformation. I will continue to invest in the franchise, where it needs to be invested. It's not that I will have to grow 27% every year for SMEs. But whatever I see that there is opportunity to improve the service model and whatever I see profitability opportunities, I will invest unproportionately. I may have to flat out some investments so that the combined effect would be that mindset of having a bank, not just to fight inflation, but we will fight inflation so much that we will reach a convergence point very close to 0.

We will look for that, even though we will continue to invest a lot in technology. You ask how much more we will invest. We still have to do a lot. We have to modernize legacy systems, the core systems, the system I mentioned is just the material evolution but not a definite evolution of the way we process the bank. So we want to remove the bank processing out of mainframe because they consume expensive MIPS. I mean there is also a monopoly in terms of the supply. We want to have a cheaper processing system, more based on platforms, which is much more dynamic and simple. I think we will be able to deploy that until the end of the year. And so little by little, we will be migrating the core systems.

Of course, everything is already in the cloud. AI data is in the cloud. But we still have to do the second phase, which is migrating the legacy system that will be in the platform. We will migrate to the new systems. And this will involve heavy technology investments. But before GenAI was a buzzword all over the place, we were using it already, machine learning and AI in our risk model. So what we are doing, we are perfecting machine learning, something we always had with GenAI and with additional technologies that comes with it.

[Interpreted] Well, Mario, we have a very clear agenda that focuses on evolving. And evolving with AI and GenAI. Not only in terms of loan granting models, but we've been using AI in our recovery models as well. We connect all the models and we are making good progress. We have a very clear agenda of how we can advance GenAI in our models. But everything has its own risk appetite. We will have our models and our models will deliver according to the risk appetite and LLP that we want.

Sometimes it's hard to compare. But we are making good progress. We just reinforce our teams. We have highly qualified people to help accelerate that, particularly in the risk area. And this will also lead to other progress in the operations -- on the operations side. And this is a process that is moving on quite well. It's important to separate what are the risk assets of every entity. I mean we do have the capacity. We are enhancing this capacity, while at the same time, we have our own risk appetite. And we are monitoring LLP for every segment. Okay? Thank you very much.

[Interpreted]

Next question from Eduardo Rosman with BTG Pactual.

[Interpreted] I would like to go back to the theme of low income. We saw a worsening of delinquency. I'd like to understand, do you envision a more generalized worsening? Or is this linked to Santander itself because you're reducing the portfolio. That might give you a worsening effect. We have seen the incumbent banks with a more cautious speech regarding low income. So do you have any information about a lower income statement for this segment? If you can speak about low income performance, I would appreciate it.

[Interpreted] Well, there are some points to be mentioned. With a lower income statement, we haven't seen anything so far because it's just getting started. We imagine so Rosman, but we can't see it yet. A second point to put things into context. And I talked about this during my presentation is that we have a very clear and kind of strict policy regarding recoveries.

We did not change the renegotiation policy because we believe that this is the best format in terms of the expected portfolio's performance. So when you don't change the policy and when you do have a little more pressure in the low income segment, you start seeing this impact. So this is on our end of the equation. Since we're not changing the renegotiation policy, this happens. In low income, we see more pressure. Like I said, we still see room for a better recovery of the agribusiness segment, individuals and agribusiness.

We'll have to see how the next vintages will perform. Perhaps, we'll have more volume and the average price will not necessarily be higher. It really depends on the crop. But we feel more pressure in low income, but we did not change our policy. And we are in this derisking process. So we'll let this flow because there's a part of the portfolio that we will reduce or will recycle or we might recycle in low income clusters, which we believe have a profitability potential. So basically, this is what's happening.

[Interpreted] Next question from Daniel Vaz with Safra Bank.

[Interpreted] I'll stick to this theme. We heard you speaking about the dynamic of the low-income segment. I would just like to point out how difficult it is to play this game now? Is it because you expected it to have higher losses or the cost to serve the business is not adequate because I'm really trying to understand what is the biggest weight because perhaps you think that you're not willing to play this game now or you want to adjust the cost to serve so that in 2 years' time, say, you would be attacking the segments in a more strongly manner.

Because there are some origination product, not necessarily very low income, but in the private payroll deductible loans, and we are not seeing Santander being very enthusiastic about that. So if you could comment on the product because with the average banks, we see a different stance. They are being more aggressive and with a rate that looks like a clean credit to try to protect from the operational risk and the cost of risk. So if you could comment on that, it would be great.

[Interpreted] Thank you, Daniel. I'll start and then Gustavo will complement. From a macro standpoint because your question is really good. What is more relevant in our approach to low income? Breaking it down into short term and mid- to long term. In mid- to long-term, undoubtedly, we need to have the cost of serve -- the cost to serve at a different level. In 2 years, we'll have a 43% reduction. Cool, but will 43% make the cost to serve viable because we have learned and everyone in the market that there is a certain limit. So in our base is 100.

Let's say, we can speak about the nominal numbers, but we have to reduce the cost to serve by another 30-plus percent, and this will happen because we want to have the low income segment. We have to have it viable. But we know that the way to make it viable will be by reducing the cost to serve. That has dropped 43% and we'll have to reduce another 30-odd percent. So in a couple of years, we expect to get to a cost to serve that will be even lower.

And I will grow financially the base of clients. If you change the denominator, it's all good. But it will be potentially bringing in some clients that I would like to have on board and others that I would not like to have on board. We want to grow the client base, but we have to reduce the numerator, which is the cost to serve and improving the cost to serve. So in the mid- to long term, that's a fundamental period.

Does it sort the problem of the quarter? No. In 2026, we will improve, but we won't be seeing the whole evolution. But in the short term, the context of performance affects more the result of the quarter. So Q4 is more individually affected by the performance of some rollovers of some portfolios. Of course, we grew a lot our Cards business. Together with that, there is some minor adjustments, not only in low income, also in high income because we've had a significant growth in the Cards business. Sometimes there are some delays, and we have to do more work in recoveries. That's only natural. We are not going to stop growing in Cards because of that. And I've been saying this over and over.

For years now, we have decided that checking accounts and cards are the pillars for our transactionality with our clients. We are delivering that. You can look at the data. We are one of the players growing the most, our checking account and, of course, volume, which derivates in the transactional liabilities are growing a lot in low income, although credit is shrinking. So that equation is working well. And given the macroeconomic context that there is some higher delinquency. And that's what the fine tuning, the weekly fine-tuning that we do. We calibrate it weekly, and it's more for the short term. And then we have to continue to manage well the new portfolio, which we do every day and a material reduction in the cost to serve. Gustavo?

[Interpreted] As regards to lower income, there are some other variables in the equation. Every player has a different risk predisposition. It's the cost of risk. We believe that we have a cost of risk that makes sense to us versus the evolution of the cost to serve. So that's number one. This cost to serve generates a certain amount of LLP. So it's not about increasing the cost of risk. We just have to continue to operate and adjust the cost of risk to a level that we believe is adequate.

The other part of the equation that explains profitability is the loan-to-deposit ratio. So this needs to be verified. Every bank has a different view of this business to get to the profitability levels which are positive. For the bank, Santander Brasil, we basically trigger these 3 variables in the composition of the portfolio of assets. This is what we are working on. We are at levels adjusting the cost of risk, and we have to improve our cost to serve, and that's when the equation will be fine.

But our cost of risk will not potentially increase, but it will not be reduced radically. It will be at a level that will make sense in terms of total profitability of the segment. And you asked about private payroll deductible loans. Good question. And if we don't answer that now the next question will be exactly this. We believe in the product. We participated in designing it. I've mentioned this. We were in Brasilia for a meeting. The administration hurdle. So the direction is okay.

We know the product really well. We were one of the 2 leaders with kind of 30% market share in the previous version, which was the closed circuit version. Now we have more of an open circuit version, which is very good, makes the pie growth for the whole market as we've seen.

But in our view, this is naturally a curve. We are studying the market, we're doing some tests. If you get a quarterly average, we've been growing our origination. But we're not imposing ourselves a pressure that I have to be the incumbent of growing the most, I have to get banker's share. But we are doing this, learning as we go with the market. We see some fintechs and other platforms growing disproportionately. We respect them. We hope that everything will work out for them. But on our end, which is what we control, we are doing it more gradually, I acknowledge that, but with a direction of, yes, we believe in the product and in the business. But we want to test more before we expand in the proportion that we know how to do, that we've done in the past, and we believe that there is a market potential.

So we should expect an ascending curve along 2026. But yes, it was more moderate in the first 2 quarters of last year because we were testing, learning, seeing the first payment default. We know that there is a "grace period" and it takes some months for you to test the first payment default. So we're being more cautious in making the curve more steep. But the direction is where we'll -- but the answer is, we will be producing at a much higher level throughout 2026.

[Interpreted] Next question Marcelo Mizrahi with Banco Bradesco BBI.

[Interpreted]

And Gustavo, thanks for this partnership, all of these years, my side and our sell side as well. My question is about payroll deductible loans. I think in the last quarters, particularly that portfolio is coming down. I mean -- and we've seen a lot of new things related to INSS, origination, et cetera. There's still some room to go back to previous levels, maybe in early 2025 and in 2024. I have 2 questions about payroll loans.

How is the composition of your portfolio? I mean, between INSS and public? And how do you see the outlook for the portfolio going forward? 2026 is a year when we assume there will be a drop in interest rates. So this should be a portfolio that maybe the bank could see some growth going forward, probably with a more favorable perspective. So what is your view in terms of the payroll deductible loan portfolio?

[Interpreted] Well, I will start and then Gustavo will add up. Before I talk about payroll loans, I would just like to emphasize something that we've been telling you for quite some time. We are talking about the disciplined management of capital, choosing a loan product as a mechanism to increase transactionality. But loans as a means, not an end. And the very strong directioning that we are giving to transactional credit products that generate cross-selling. We are delivering that quite well. Of course, every bank have to make its adjustments. But the credit card, the overdraft -- the overdraft limit, I mean we are evolving quite well.

In detriment of products that in our track record brings a much lower cross-selling and transactional relation. And together with that, market or regulation parameters that escape our control lead to marginal credit profitability being below what we expected.

With the ceilings that have been imposed by the government or the INSS with the ceilings, the profitability equation is very low. So I can choose to do that with low profitability or I can choose not to do it, and I choose the latter because profitability is lower. I mean, we've tested that in the bank. So my capacity to do cross-selling based on their credit is also very low. I could probably have loans at 20%, 30% of profitability, whatever the target is because I can recover the rest through cross-selling. This works. I mean this is banking, but we haven't seen that historically.

On the public side, cross-selling is slightly better, but not so much that would lead me to do some outside investments. And there is a cap there too with some agreements. There is no exclusivity. But we see that the dynamic -- the pricing dynamic is cold and the capacity to expand the credit in cross-selling and with a view of primary relationship is not convenient. Well, we grew in 2023 and 2024, much better than the market. We had organic origination, et cetera, because the profitability equation was quite different.

But now the equation changed. And our discipline is very much focused on where we allocate capital. And since capital is finite, we chose to go to other products. I mean despite the fact that the payroll has more risk, despite the new architectures, as Daniel reminded us is not fully implemented. But there is more cost of risk on the public side than INSS. So we will certainly grow there, too, but it will take a bit more time when compared to others because we're testing continually, doing a lot of exercises. We are working with a better company portfolio. We are working with more high income of that company and less lower income.

We are still running many tests, but this is a business that we're very knowledgeable about. But the platform is new. So I think that's it. I don't know whether Gustavo would like to add anything here.

[Interpreted] We have a vision that, that goes product profitability and client products. Of course, the payroll loans, it's a longer-term portfolio. Therefore, we have to be very assertive when we grant credit because it's a longer-term portfolio. But we are less concerned with products per se, but rather, we are more concerned in pursuing our profitability objectives per segment and then a combination among specific segments. This is very important. We do not define target per product, Marcelo, maybe other banks do it so.

But in our case, we first define how much we want to get in every segment. Of course, this involves a combination that brings cost of risk and profitability of that segment to an adequate level. And then we look at combination between segments that give me the profitability and cost of risk that I desire. So the product is just a means to reach the goal. But I don't say it has to be as x in mortgage, et cetera, with RWA that has to be specific. But we look at the customer view as a whole.

And thank you, Marcelo for the partnership that we have throughout the years.

[Interpreted] Now we have a question from Brian Flores with Citibank.

[Interpreted] I would like to congratulate you as well because the ROE has improved quite significantly, showing higher sustainability. But Mario, you said that we should see you gradually improving 20% ROE and sometimes maybe even more. In this journey, you also said that in 2026, we should see quite an improvement. So my question is, in your view, what would be the main levers that will lead to this improvement? And as you said, your risk appetite is still cautious. I mean it still requires caution. So how do you see the combination of all these factors?

[Interpreted] Thank you, Brian, and thank you for your comment. We are very happy to find ourselves in this profitability level with a macro scenario, which is much worse. Our ROE level, I mean, given the context makes us happy, but we know that we have to improve that even further.

How are we going to get there? I'm just very careful with my use of words. I'm not suggesting that the ROE evolution in 2026 will be significant, but we will try to follow ROE's volume growing. Every time we look at it, we are getting closer to 20%. That should not be the ceiling. I mean, I'm just saying that we are in the right direction. We are getting closer. It's not going to happen in 2026. But we are getting very close. So it's very clear that not only we can reach 20%, but we will be able to build the franchise that we will have 20% some of ROE.

How are you going to get there? By expanding credit disproportionately? No. We are not going to expand credit disproportionately, but we will grow in credit disproportionately in segments that will allow us to reach a profitability level that we desire.

So what I'm saying is that we have a very profitable portfolio. But I'm saying this growth is not going to be linear because we still have challenges like losses in the small company. So I'm not going to put full load of growth right there, but I will be more selective. I will look for government lines. But in the mid and large companies, we see a lot of room to grow more. So we may grow more, a lot more there in high income. So there is a part which is growing margin in the segments that I chose to grow. And if I decided to grow everything indistinctively, it wouldn't be good.

And in addition to that, I will use capital more intelligently. So you should demand us that we will grow fees more than the growth of the portfolio because I bring the efficiency of my fee management above the growth of the portfolio. So okay, I am growing fees more than the portfolio, and I'm taking care of the margin via the mix. So this should lead me to have a positive top line evolution. I cannot tell you what number that we have in mind. But certainly, we will grow the top line. And since top line is a line of [indiscernible] plus every growth point is BRL 800 million.

If I do that well with a very low LLP and with the expense base that we'll try to maintain. This is almost everything it will be net income. So my operating leverage is quite relevant, growing top line and maintaining the other lines. What do I mean by other lines? I will try to pursue expense management. I mean we are not giving guidance again, but the mindset of the management, so this is the term I would like to use, the mindset is to pursue a nominal expense like close to 0. It's possible to do that.

We are showing a gain of many points vis-a-vis the inflation. The last quarter was very positive in that regard, and we will try to -- we'll continue to manage the bank in that direction. And you should try to monitor that very closely. Provisions, of course, there is a macro challenge. But through the mix, we will try to have a very healthy mix and with that having provisions that do not have to grow proportionally vis-a-vis the portfolio as a whole or even more, but we will continue to do all the provisions that we need to do. Of course, that we do not control, I mean, some one-off things in the whole market. And we will continue to look to monitor our contingency line.

And with that, again, we will create operating leverage where revenue grows and the other lines will be flat ideally dropping. And with that, we will certainly improve things even faster our earnings before taxes. This is what we did in 2025. And with that, we will increase our base of DTAs, which is something that will lead us to, after all, and in the bottom line, increase our profitability. It's a summation of many lines. But every quarter, this becomes clear and clear. And that's why we are so firm when we talk to you.

Next question from Eduardo Nishio with Genial.

[Interpreted] Gustavo, I'd like to second everything that everyone has said. I have a question again on the quality of assets. Looking at 90-day NPL, it is getting worse. 15 to 90-day got a little worse, but at least we start with a higher level than last year. And Q1 is normally a heavier quarter in the 15- to 90-day NPL.

On the other hand, your cost of risk has been dropping quarter after quarter. So I'd like to understand this dynamic. How do you see this for 2026? And how to improve the cost of risk if it's going to be via the mix, how do you see this dynamic throughout 2026?

[Interpreted] Well, Nishio, well, again, thank you for the kind words, and thank you for the partnership. Well, the evolution is kind of what we said before. We are working with the composition of the mix also for 2026. Every quarter, the mix is evolving. You will remember the relative share of SMEs portfolio and Consumer Finance and high income, all of that increased over the years. So there was a shift.

On the other hand, we reduced the low-income segment. In our numbers, we also see a reduction of some agribusiness portfolios. So that is advancing well. And there is a very clear road map for 2026, and that is the point that is important.

In Q1, like I said, it is only more natural to have more pressure on the NPL. But what matters to us is how we evolve throughout the year. We don't focus so much on the quarter, but rather on the full year. In terms of portfolio composition, [Technical Difficulty] track. We continue to have the same credit [discipline].

Some exogenous factors such as events like court reorganizations. And this has to do with the behavior of the company. And also, we are starting the fifth year with a high Selic interest rate. So we have a very controlled cost of risk. And I believe that, that is the most important thing. And the mix will evolve. By the end of 2026, you will see changes in the mix. Some will be quite clear, some percentage points in relative share and others that will become clearer in the segment of individuals. So that's kind of the composition.

Of course, this is the road map. Some portfolios depend on the demand. Customer Finance is doing really well, performing well. We'll have to see the demand. If we maintain our credit appetite, we'll see what kind of growth level we'll have in the share of Consumer Finance and the same for all portfolios. So the road map is clear. The mix is changing, but these are big portfolios. Each portfolio with some billion BRLs and we have to do this in the most correct way.

[Interpreted] Next question from Matheus Guimaraes with XP.

[Interpreted] Congratulations on the results. I think that many of the questions have been asked. But if you could elaborate about the FGC. You talked about this in your conversation with the press. So perhaps you could speak about the settlement guarantee fund, FGC. What can we expect regarding 2026, if this topic has evolved?

[Interpreted] Thank you for the question and for the kind words. Yes, I talked about this with the journalist some minutes -- a while ago. We cannot really say what is not being designed by the banks. We have to design the replenishment or the FGC in coordination with the Central Bank and the National Monetary Council.

And also, the rules for the FGC will have to be approved by the National Monetary Council and the Central Bank. Of course, the banks are important players, incumbent banks, particularly the ones with a big base of deposits, Santander being one of them. We have about 10% of the FGC which is rather material. So this is relevant for the banks.

The banks are trying to provide inputs and take part of the conversation, but the banks are totally aware that this is a conversation between FGC and the regulators that I mentioned. Second, really know what's coming, what I can say, and it's just a feeling, given the conversations is that, given that a good part of the FGC will be used for the clients of Banco Master, which was the big event that happened in the market. Well, there are potential derivatives, the World Bank, for example, and who knows, perhaps others.

So this volume has exited the FGC. So we'll have to replenish that. And we believe that this will happen in the short term. Short term being defined as, I imagine, perhaps, this month of February. And it is correct that this will happen because the funding needs to be replenished. It will be a one-to-one replenishment, linear replenishment. Of course, you will respect the proportions of deposits that every bank has in the FGC. This should not change. I don't think that it will be one-to-one. It will be some kind of design to replenish it with a short-term approach in a relevant volume. I'm not giving you any news here. This has been mentioned perhaps in anticipation of future flow, perhaps a discussion regarding marginal contribution, but these are pieces of a puzzle that is being still finalized. And over this month, we'll have a final decision.

To me, and I said this to the press, the most important point is that we should not just accept society as a whole. FGC regulators, we should not accept that such a case could happen again. This is in "one condition." We have to solve the problem, the issue now, and the banks will participate, although most of them had absolutely nothing to do with the case, but we have to follow the rules and replenish the fund.

But we have to improve the rules so that FGC and the whole system of deposits and FGC will not allow another case like this to happen. Central Bank has this in a clear agenda. The FGC has taken measures last year, but with a lagged execution and implementation, and there might be a broader scope of measures. This is what we are sitting down to discuss with the regulator. These are themes brought along by [ BBC, Federal Bank ]. This aims to have a positive evolution of the market, the competitiveness of the market. Although in the short term, we have to replenish the fund and decide how this will happen, but we expect that the fund replenishment will happen naturally organically, in a way that will not impact the depositing banks.

But this will depend on how the final phase will be decided by the FGC and the regulator. Thank you for the question. I'm sorry, I cannot give you more.

Now switch to English to our last question here with Carlos Gomez from HSBC.

The main reason to call is to thank Alejo for all these years. It's been great to be with you, and I wish you the best in whatever next road. Thank you very much for being with us.

If I have to ask a question, the parent company, announced a very large acquisition in the U.S., also buyback recently, they did another one. So they clearly show a willingness to reinforce their key markets. Obviously, Brazil is one of them. I kind of know the answer, but still I have trust, is M&A at all in consideration where you are laying out the strategy or it is exclusively an organic management of the bank that you already have?

Well, thank you, Carlos, and I'll let Gustavo thank you for the very kind words, which are well deserved by the way. But just starting with your question, Carlos, which is it's a very good one. I mean M&A is always an option to accelerate growth within the segments where we want to be disproportionately higher. So we don't rule out as a, for sure, know in the next x number of years.

But it's unlikely we're going to endeavor a larger M&A within Brazil, as we believe our franchise has grown and has become more mature or enough mature to conquer organically the growth we want to achieve within the segments which I've been sharing very transparently with the market where we want to grow disproportionately. So it's not impossible, but it's unlikely. We welcome and applaud the movement that the group made in the U.S., which is certainly a market where we were smaller than we should be. Again, directionally speaking, U.S. is a very large market with thousands of banks. You are there, you know well.

But the fact that we are now a top 10 player within the U.S. with a very solid franchise we're bringing in, with a very solid franchise we've been working on organically over the past few years. I believe it's a very, very nice movement, which will benefit the U.S. for sure, benefit the group as a whole. And as we have a stronger franchise in the U.S. as a third derivative, it ends up benefiting the whole ecosystem and therefore Brazil. So I understand why the group is doing that in the U.S. It's a large sum, but it makes total sense, like they did last year in the U.K. to reinforce the U.K. realm, if you will.

And now we have, I would say, solid and complete operations in the major markets we chose to be in. Brazil is one of them, like you pointed. But I don't believe we need M&A to foster the plans we've been sharing for the past 1.5 hours with you, which you know well, which is growth with discipline, with resilience and focusing on return and then obviously, on the number on the profit per se and doing that systematically with a very large sum of discipline and technicalities so that we deliver to shareholders, to sell sides and to obviously, Santander Group, the best possible results over the years. So thank you for the question again, and for participating.

[Interpreted] I would like to thank you very much for joining us this morning. Later on, myself and our entire IR team will be available to clarify any pending questions. Thank you very much, and have a wonderful day.

[Interpreted] Thank you all very much.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

[Interpreted] Good evening, everyone. Thank you for joining us today for our third quarter 2025 earnings conference call. We are live from our headquarters in Sao Paulo in our new studio, and we will divide this event into three parts.

First, Mario Leao, our CEO, will talk about the main highlights of the quarter and about the directions for our growth in the coming periods. Next, Gustavo Alejo, our CFO, will provide a detailed analysis of our performance. Lastly, we will have a question-and-answer session.

When the time comes for questions, you will see three audio options on the screen, Portuguese, English or original audio. [Operator Instructions] The presentation we are about to give is now available for download on our IR website.

With that, I will now hand over to Mario to begin the presentation.

[Interpreted] Thank you, Camila. Good morning, everyone. We're sorry for some minutes of delay. I would like to start highlighting the big numbers. You probably had access to what we disclosed.

Starting with net profit, we achieved BRL 4 billion in the quarter. And I have to point out that after 3 years and 3 months, we are back to this level. This is not a destination in itself, but it is a level we pursue. And we are again posting this kind of net income with a very organic result that will have an opportunity to explain in a moment. Almost 10% increase quarter-on-quarter and year-on-year. Again, our profitability is back to 17.5%. This is not the final destination for net income, as I mentioned, but it is a relevant step in the correct direction and with a very healthy composition of results.

Let's start with some of the highlights, and we can detail those more. Net interest income dropped quarter-on-quarter, particularly because of market NII, and we'll explain that in more detail. But the strength of our franchise is measured by client NII, net interest income, and fees. And in both cases, we had a very positive evolution called NII increasing 2.7% and year-on-year, 11.1% increase.

And talking about fees, we've posted a powerful growth, 6.7% up quarter-on-quarter and with a very good diversification among the different fees line items, no big outlier. In cost of risk, stable, although the portfolio increased more strongly in this quarter than in the previous ones, portfolio growth in the right direction, in the right segments. We'll speak more about that as well.

And expense management, once again, very efficient in the quarter, expenses growing 0.2%, practically flat. And year-on-year, it is down 0.5%. We had a slight increase of virtually 0, which reinforces our OpEx agenda. Quite strong and we'll speak more about that in the Q&A.

Efficiency ratio increased a little bit, because of the composition of NII against expenses, still at a better level. Year-on-year, 140 basis points, and this is a focus for us to continue to improve.

As the big strategic drivers. As we have said before, we are disciplined to build a more solid and resilient operation. Santander Brazil will be more diversified, more predictable with a more powerful customer franchise with a diversification of revenue streams, so that we will post an even higher profitability than we have today. And we believe we are on the right track. We continue with our obsession to transform customer journey, our digital journey. I'll speak more about our new app, and we are evolving well in our pursuit of a primary relationship with our customers.

As for customer centricity, we continue to increase our customer base or total customers. In October has exceeded 73 million, relevant growth, 7% up year-on-year. We continue to grow the active customers base of those that have a practically daily transaction with us. Growing our customer with -- customers with primacy, individual NPS at a record level of 61 points. In companies NPS, we achieved an all-time high. Our internal NPS that we measure with hundreds of thousands of interactions every day. So, companies NPS, 52 points for the very first time.

Two important points here, I'm not going to get into the nitty-gritty, so we can speak more during the Q&A. We have a hyper-personalization journey that goes on. And we'll give you some data to show that this is becoming more and more relevant in our agenda with our customers.

We grew our ability of having hyper-personalized interactions in a relevant amount comparing the end of 2023 or even the end of 2024 with now, more than half of our digital interactions with customers are personalized. This is bringing us a much broader top of the funnel, a much greater bottom of the funnel. Some examples, client acquisition, 2x greater interest than we had before in the old CRM interaction format, 30% more accounts opened in cards, the numbers are even more powerful, 4x greater interest at 3x higher conversion. And in salary portability, which is a super relevant point for transactionality, 2x higher conversion.

AI first, again, AI is important for the whole financial industry. It's not different for Santander. We are embracing AI more and more trying to transform our customer journeys and our internal processes, focusing on AI first.

I bring you two points here. We are evolving in our loyalty agenda with Esfera with AI-driven personalized rewards journey. We can have a seamless experience, point optimization and engaged clients. And in our renegotiation and the vehicle recovery agenda, we have used AI for renegotiation. And with that, we offer friendly delivery and a better experience for customers and the bank.

In this quarter, I'd like to focus on our app. I have mentioned that we were evolving in the agenda of what we call our One App. It is going to be an app that will channel all digital interactions for individuals and eventually for companies as well.

Speaking about One App, it is important to highlight that we've built this app over the few years with a lot of interactions with customers. Never did we have a development listening to customers that much. We like to say that this is not a Santander app. It is a customer app.

So, we had more than 50 customers heard in over 90 surveys conducted. In this rollout journey, we had very powerful feedback from our customers. Typically, when we exchange an app, this is not a new version. It is a brand new app. Customers are used with the old app over their journey. Even if we are offering something better, there tends to be some friction, but the result is better than expected. Almost 80% of customers rating the new app is excellent. 74% prefer the new app, that has been running for just a few months. This makes us very excited with what's coming ahead.

This app was built based on a multibank solution. It's open finance embedded in it. So, customers experience regarding Santander Bank and other banks accounts, is exactly the same. So, we have this comprehensive solution for our customers' financial lives and everything centralized in the Santander app. And the first time that this is done without Santander Group. This is the fact that Brazil is starting to benefit from being part of a group. We developed this One App with people from Brazil, from our technology team and channels team with people from Spain.

And this app that Brazil is rolling out is going to be the app used around the world with small tweaks in the different geographies, but the core of the app is going to be exactly the same. So, now Santander has platforms, global platforms launched for the whole group. With that, we gain agility and cut costs. We had a public beta version with more than 100,000 users. I was one of them.

Just get to see the evolution. We have 2.3 million customers already using the new app. And we also have card customers inclusion coming to this app. And by year-end, we expect to have the rollout of the entire customer base. And this was going to be a very powerful onboarding.

Here, in a nutshell, we are organizing our strategic agenda, just like the whole Santander Group mentioned to the market, we're bringing this to Brazil, basically the main messages in terms of pursuit of management. The three main pillars that Santander Group and Santander Brazil are continuously focused one are: Think Value, Think Customer, Think Global.

Think Value, is value creation through disciplined capital management, credit portfolio diversification of the portfolio predictability and an efficiency and productivity agenda and modernization agenda.

Think Customer is the agenda geared to customers. Last year, we had a live call with 40,000 people. The whole personnel talking about Think customer. And we have a hyper-personalization agenda, more and more AI geared, an agenda to offer seamless and integrated customer journey across channels, digital channel as much as possible AI embedded.

And in Think Global is what I mentioned. The One App is an example. It means, starting developing things with the group bringing technologies that exist in other geographies and perhaps not in Brazil, and we can share all that. And Brazil is going to be one of the main innovation hubs for the group, given our innovation here. So, Brazil is going to be exporting innovation and technology for the whole group.

And again, stressing the message that you're all aware, we are the global bank with the largest presence in Brazil. We are part of the biggest group in market cap in Continental Europe, and we have a growing performance over the years. And Brazil is a fundamental part of that. We want to extract more and more value of the fact that we are a global franchise.

And to end my introduction, I'd like to mention some strategic businesses. So, we'll speak about consumer finance. Repeatedly, we talk about consumer finance, because it makes us proud in our portfolio. Consumer finance continues to grow at 2 digits annually. And more than the loan portfolio itself, we are attracting more customers to the bank based on the consumer finance, considering consumption and other loans. We brought 1 million new clients that did not have a relationship with Santander and which are now part of the bank.

This is with a material growth of fees. Consumer finance leads to more fees, particularly insurance. We have a 43% year-on-year growth and always with a high NPS of 90, one of the highest we have across our businesses.

On the right, we have SMEs, the SMEs business. That has been a recurrent focus of our narrative to the market and our management. We have been growing revenues and diversification of revenue sources. We have grown the number of visits. And this comes together with our new commercial model, as a reminder, we no longer have managers or specialists at the branches waiting for customers to arrive, per day, and having on average one visitor a day. Now we have all of these experts are in the field calling on people, and we are growing almost 30% the experts base.

We have thousands of people in all of the regions in Brazil closer to customers with a better credit management and focusing on principality. And talking about payments and transactional activity, we have -- we want to have our customers choosing Santander, and that entails payments. I haven't got the data on the slide. But the take-home message is that we are evolving over the last 12 to 18 months to offer a PIX and payment experience, which is flawless, impeccable and one of the simplest one in the market.

We have the agenda of Trazer dinheiro, Bring Money. We can offer an extremely simple journey for individuals and companies alike. We also offer PIX via credit card. This is something we have been developing and we are launching this quarter with an initial performance, which is very positive. We're very excited to join both journeys, the PIX journey in the credit card limits, in addition to automatic PIX and Tap-to-pay PIX.

On the bottom right, I bring you relevant data on our mass income segment. We have done a fine management of the portfolio. We have been talking about this recently. In this mass income segment, we are looking for sub-portfolios, subclusters we want to work with. With that, we are reducing the portfolio of this subsegment in 100 base. We are at 94. And this brings the individual's portfolio to a growth challenge. But we are not concerned about growth as a whole. We are focused on growing and managing the subsegments correctly.

And even reducing the loan book, by 6%, we were able to increase by 14% the deposits volume. So, we're bringing more transactionality from these customers and improving the quality of the of the loan book with more collateralized loan portfolio.

Now based on this introduction -- after this introduction, I would like to invite Gustavo to speak about the finance, and I'll be back for the Q&A. Thank you very much.

[Interpreted] Thank you, Mario. Good morning, everyone. We'll talk about -- first of all, the portfolio.

We had a satisfying performance in all business lines according to our dynamic management of the portfolio, our efforts to increase profitability, always risk-weighted for all of our operations. We've been very judicious in granting credit, as Mario mentioned, which translates into a disproportionate growth in some lines compared to others, always prioritizing transactionality as well. It is important to highlight the positive evolution of cards year-on-year with an increase of 14.5% of financing to consumption of 12.6% and small and medium-sized enterprises at 12.4%.

Good progress year-on-year. We're on the right path. In individuals mass income segment, the portfolio remained stable, growing significantly in the composition of product mix and a reduction in exposure to higher risk profiles. We evolved positively in corporate in the third quarter. What was not happening in previous quarters, but maintaining price discipline with the greater revolution in supply of risk and foreign trade operations, for example. So, looking on the right for the funding, composition is in line with our plans to increase the participation of retail and funding, promoting greater loyalty and consequently greater transactionality with all of our customers.

Time deposits and individuals, we had a very favorable performance showing growth at a faster pace than in the other segments, which reflects the evolution of our principality as well.

In demand deposits, we absorbed the effect of migration of part of the funds to time deposits. Client NII grew 2.7% in the quarter, and most of this growth is in the funding results benefited from a greater number of business days in addition to an increase in the effort CDI, which also generated positive effects, but of lesser intensity.

Credit NII evolves, although it does not reap the full benefit of the portfolio growth, which occurred mostly in September. So, there was an evolution in portfolio growth.

Compared to the previous year, NII growth was considerably higher than credit volume, demonstrating our pricing discipline and the optimization of our portfolio, as we've been talking about. With the improvement in the mix of assets and liabilities and the increase in the CDI, the spread posted an increase of almost 100 basis points in the 12 months, very positive.

As for market NII in this quarter, in addition to a higher average Selic rates than we expected, that was expected. Actually, the higher number of business days also influenced the ALM results. Both movements were expected and within our planning.

In market making, the result in the quarter was slightly higher than the previous quarter. And in fees, we had a more positive dynamic in the period, with an evolution pretty much in all of the lines with a better performance in credit-related lines.

In cards, we have another positive quarter, which comes from the greater transactionality of our customers. And this higher transactionality has an effect on the current account line since customers, both individuals and companies obtained greater benefits from exemptions by working with us more and more.

In insurance, I highlight here better performance in the quarter, driven by new products and a strong focus from our sales force. In brokerage and securities placement, we see significant growth in the quarter with an improved performance in debt issuance. Therefore, we have a quarter with important growth in practically all fee lines.

So, in provisions, we had a better performance compared to the previous quarter, a result of the better performance of the vintages as well as one-off effects that impacted Q2 such as the early loss write-off discussed at that time. We have noted a better performance of the vintages in virtually all portfolios, except for smaller companies where there's a little bit more pressure.

Due to the performance of the vintages, the percentage of portfolio in arrears from 15 to 90 days decreased 3.9% compared to 4% in the second quarter. We note that part of the short-term deterioration that was recorded in the first half of the year reflected the 90-day NPL rate, resulting in a delinquency percentage of 3.4% at the end of the third quarter. This increase was also impacted both by the individual segments, where there is a greater concentration in renegotiation lines, due to our more restrictive stance and by cases in the agribusiness and company sectors.

On the next slide, we briefly present the evolution of our expenses. In this quarter we saw a partial impact of the collective bargaining agreement of 5.7%. And then, for yet another country quarter, we presented the result of our effective management of expenses growing below inflation and all that, considering the growth in expenses with business and technology expansion evolving and with the reduction in recurring expenses, which is very important.

The result is better performance in the efficiency ratio compared to the previous year with about 140 basis points, ending at 37.5% in the period.

To conclude, I'd like to share our P&L. We ended the third quarter with a profit of BRL 4 billion, which represents an increase of 10% compared to the previous quarter and a growth of 120 basis points in ROE with CET1 at 11.7%.

Our loan portfolio demonstrates a better risk-return ratio with an evolution in customer mix supported by funding that combines instruments, customers and prices in an effective, balanced way. This performance, considering the current macroeconomic scenario demonstrates that the discipline with which we have managed our balance sheet in recent years, makes us better prepared to face short-term volatilities, confirming our trajectory of an increasingly sound and sustainable profitability.

Thank you. I'll turn to Mario for his closing remarks.

[Interpreted] Thank you, Gustavo. So, just to wrap up and jump to the Q&A, the messages that I'd like to reinforce to be very clear to everyone. Starting with the customer, this is a very strong word, but that's how we work in our customer view. It's the obsession of raising our customer satisfaction with a higher level. We want to strengthen our principal relations -- primacy relationship. We will continue to have incumbent competitors and new competitors, and we need to continuously raise our bar to gain this primacy relationship.

Hyper-personalization and AI are two important levers for that, along with all the technology that we'll develop with the support of the Santander Group, and we support the group with the innovation in our model.

Technology plays a very important role in our transformation. And of the expenses we are seeking, as we've been saying for a number of quarters, not only to beat inflation, but to beat inflation significantly seeking to be a bank with a expense increase virtually 0 nominal and through technology for us to be able to do that with strength, not only technology, but technology is an important lever for us to have an efficient Santander even in the country with the inflation rate and FX aspects.

And with all that to focus our operation on more and more profitable operation with an active portfolio management and delivering what's it the next country getting closer to the 22% and not stop there. We are confident that we have an operation that can continue to evolve and will continue evolving in coming quarters with the management of profitability and growth.

And with that, I'll turn to Camila, and we will be in the Q&A shortly. Thank you.

[Interpreted] We will now go on to the Q&A session, where you'll be able to interact with -- directly with us. See you in a minute.

So, we concluded the presentations from Mario and Gustavo. I apologize. We have an issue with our video conference platform. So, we will not be able to connect the analysts to ask the questions. We have the questions. I already have those that have been sent, and I apologize that you will not be able to appear on the screen due to technical issues.

The first question comes from Thiago Batista, UBS, asking the expected effects with the implementation of the One App here at bank, whether we can imagine the biggest impact being in cost reduction or consumer experience or cross-selling?

And then, he also asked if we could talk a little bit more about the impact expected from the regulatory changes, such as the funding change in real estate credit and the change in the regulation of the advance of FGTS?

[Interpreted] Thank you, Camila. So, continuing with the Q&A, I would also like to apologize for this platform issue. It's things that are out of our control.

So, Thiago, I'll start answering about the One App and then regulatory aspects. And Gustavo can add to any aspect.

We believe that One App is a big leap in our customer obsession and what I mentioned just now. And the main driver is to improve customer experience and allow customers. So, it's not only a new version of an app. It's a completely redesigned app that has not a lot to do with the previous version or the previous app we had. So, we are seeking a fluid experience that's personalized. I mentioned that we like to say that our app is the customer's app, it's Mario's app, Gustavo's app, Camila's app, all of our millions of clients. It's not a Santander app as a monolith. That is the same for everyone.

So, what we'll be able to get with these better journeys in addition to hyper-personalization of the app itself is to have conversations with this customer in a streamlined way. So this app is anchored, Thiago, on that concept.

Of the continuous conversation we want to have with our customers, with a personalized interaction, obviously, if I want to talk to a customer, I must do it in a specific personalized, contextualized way. So, the driver is UX, CX and through that to have more and more conversations with the customers, increase the transaction level of each customer and bring those customers that today are called mono-product customers, card customers or real estate financing customers, customers of the consumer finance unit, all of these many millions of customers for them to be able to be Santander customers in a single app that will deal or treat each customer in a very specific conversational way. We'll reduce costs with One App, virtually, yes.

Because in practice, having a more digital fluid experience, we will be able to have digital interactions, AI based more and more with the customers. And that with time will reduce our need for other points of service such as stores or even our phone service, having more and more chat interactions.

About the regulatory topics, I'll be brief. The evolution of this new project of using part of the demand deposits and using subsectors of that. We see the real estate as one of the highlights of our performance in the last quarters. We believe that we know how to do this, and it will remain so in the coming quarters. We have one of the best journeys for real estate credit in the market, and it's important for also having cross-selling with a very low cost of risk.

In the market, we look at home equity. That's a product here that we can lever even for individuals and companies. We have a market share close to 30%. And we continue to grow with a strong appetite for home equity. So, real estate, we see these measures as a positive thing. It's a strong product that we believe will continue to grow.

The FGTS topic and the evolution of the capacity to hire or to take loans, we respect it. It's a government decision. It's a policy decision, a political decision overall that will reduce the share of FGTS for Santander and all of the markets.

So, it is quite significant. In practice, we will need to direct our appetite and credit parties' appetite to other products such as the workers, payrolls, the loans and has our support and all of the industry support and something that has been growing significantly in that, this third quarter. Considering we see evolution in the operational performance on the company side and the system overall, even though there are still some aspects to be determined and implemented. But we believe this will continue to grow significantly in coming quarters.

[Interpreted] We now have a question from Pedro Leduc. I think that we were able to connect Pedro.

[Interpreted] Hello, Camila. I have one question. Regarding cost of risk, the write-off was about BRL 5 billion. It dropped a lot over the previous quarter because there was an anticipation of write-offs. And I would like to ask you, in Q3, any other changes in the timeline? There was no acceleration. And was it a onetime off effect of the previous quarter? And what can we expect looking forward? Also in terms of credit quality, when we talk about Stage 2, 3, coverage, it dropped a little. Perhaps you could help us understand what's driving that? Is it more related to mix or perception of expected loss. These are my two questions.

[Interpreted] First part of the question. Well, let me start with the end, actually. We do not have any change. And this is valid for both questions. So, we did not have any change in the policy or in management. We did not change anything that what we are doing. Actually in Q2, we had an anticipation of loss. And this change in policies, I mean, the result of the coverage is the result of the mix that we are originating. We had no actions to change that. This is a reflection of our loan originations, the mix and performance.

There are no changes to criteria or policies, both for question one and question two. So, no changes in our day-to-day in terms of expected loss, what we provisioned for and what we're going to write-off. And nothing regarding the types.

And if I add, Pedro, by the way, welcome. I'll be a bit redundant, because your questions are important. Since last year, and of course, we have been evolving our agenda in terms of how we deal with recoveries, agreements, renegotiations. It's part of BAU. Last year, we raised the bar definitely in terms of how we accept to renegotiate past due loans. And we've been putting this into practice for over a year. We only renegotiate if we have some cash component, no exceptions.

If can you renegotiation with a company or an individual, we don't get some cash. We write it off. And then we work on recovery with a base of 100%. And when we have a cash component, of course, we give them more time to pay, but we have renegotiated with last time to pay, so the quality of our renegotiation -- or renegotiation is getting better. And of course, when we realized there was an opportunity to anticipate losses as we did in Q2, we'll continue to do so.

It is possible we'll make more of such moves, because we're interested in purging the portfolio, derisking the portfolio, focusing on the new cohorts, because as Gustavo mentioned in his presentation, they have been performing as we wish. We're very safe, that we are originating new loans like a clean water. And we have to continue with a disciplined approach to our portfolio, eliminating the last clean water, which has more to do with past portfolios, and we will continue to clean up the portfolio.

[Interpreted] Now, Mario Pierry with Bank of America.

[Interpreted] Good morning, everyone. Congrats on the results. Mario, I'd like to ask you about risk appetite or credit appetite. You showed that the performance of the new cohorts have come better than expected. You have capital ratio that is high, good expectations for the next 6 months. So, what would lead the bank to have a more aggressive position in the loan book? Is it the political uncertainty? Next year, we are going to have elections. So, I just want to get a sense. Because the portfolio growth remains low. There is no actual portfolio growth. So, I'd like to understand your expectations for the next 12 months.

[Interpreted] Thank you, Mario, for the question. Well, we will continue to try to grow disproportionately more in those subsegments and products, but we see that we can bring cohorts with high profitability. Of course, our profitability bar for the new cohorts is way higher than our cost of risk, greater than 20%. So, we are trying to originate credit, rolling out credit or expanding credit in the portfolios and the clients where we can have this perennial level of profitability.

So, we have been focusing our risk appetite on products that will bring transactionality of customers. It's just true we grow a lot in mortgage, but these are much long-term relationships with considering checking accounts and credit cards, we have been growing a lot in the customers where we want to grow. We have been gaining in deposits and transactions.

So, I would summarize our appetite for the next 12 to 18 months as we'll continue to have a disciplined and technical approach of the portfolios, we'll continue to reshuffle, reallocate risk-weighted assets from portfolios that, in some cases, have a higher gross margin, but a lower net margin and the low-income segment represents that. We'll continue to derisk these portfolios and put the risk in those portfolios where we can perhaps give up some growth margin, but have net revenues that are more perennial.

Of course, we want to grow the portfolio. But first, we want to focus on profitability in base 100 and make the 100 become 102, 106, and 110 over time. This is a quarter in which with a super disciplined management, we were able to grow, perhaps not as exuberant in the eyes of the sell side. But in annualized growth, we are close to 2 digits.

And this is then exactly the way we wanted to do it, with flat growth in individuals, 0.2% practically flat, reduction in mass retail and increase in high income, which is exactly what we want. A very powerful growth in SMEs, slightly less growth in consumer finance after many quarters of growing along and again, growing in wholesale. Because we continue with the same disciplined management of marginal profitability. But we were able to do some important operations in September, as Gustavo said, the carryover effect in Q4 will be greater.

So, good growth in wholesale. The way we grew is exactly how we wanted to grow. If we continue to see opportunities, we will pursue growth over the coming quarters. And you talked about reduction in interest rates and macroeconomic context will remain challenging. If the interest rates declined to 13 or 12 next year, it will continue to be a high interest rate. It will continue to put pressure on companies they get funding.

So, the macroeconomic context will continue. We don't think that the macro -- the macro scenario will change that much. The effect will not that obvious. It's not obvious that 2026 will be much better than 2025. We'll continue to be very disciplined in our capital allocation.

[Interpreted] Next analyst, it's Gustavo Schroden from BBI.

[Interpreted] Good morning, everyone. So, now I'm at Citi.

[Interpreted] Thank you. I'm sorry. So, I had my notes are not updated, but Mario noted right away. Yes, it's up here, actually.

[Interpreted] Good morning, everyone. Thank you for this opportunity. I'd like to discuss with you a little bit about the PIX in installments. I think that the Central Bank will probably come with a new regulation where we read in the press and some stories that there may be a change to remove the link to the credit card that it could be a line separate from credit cards. So, I'd like to hear from you your strategy for this PIX in installments. And what do you think will come if you think there's going to be disconnected from the credit card? Or how do you read on the PIX finance?

And quickly, I was reading a note from the Santander Spain earnings, correct me if I'm wrong, but it seems to me -- but when they talked about Brazil, we saw something that there could be an implementation to reduce sensitivity of NII to interest rates. So, I'd like to take this opportunity to see if the bank is thinking about any hedging policy to reduce the sensitivity of NII.

[Interpreted] Okay. So, I'll start from the second question, Gustavo. We've been talking to the market, the group maybe gave more of a highlight to this in this release, but we've been talking to the market for about a year now when we evolved our hedging or non-hedging policy with the marginal production of the loan portfolio. Since the second -- third quarter of last year, we started talking about this in September last year, just over a year now that we start to hedge the marginal origination of the fixed portfolio. That's not 100% every day.

We have dynamic management. According to the fluctuations of the market, our market fluctuates a lot. But we've been originating a lot more in the credit portfolio than we did in the past. We still have inventory in September last year. We didn't take loans to hedge the entire inventory that would have obviously impacted the market. But on NII, we've been getting to 50% to 100%, depending on the day of this hedging of the margin of originations. So, it's not a new policy. It's something we've been implementing for more than a year.

But it started to have its effect felt more now. We have a bigger impact of the increase of the Selic rate, that's something important to happen this moment, this year. It would have been more relevant if we had not done that. So, every bank has the sensitivity. Every bank carries different portfolios of securities that are based on the current interest rates. So, some sensitivity, we will have, but it will not be as high.

[Interpreted] And now about the PIX finance that you asked. So, [Foreign Language] Funding that with the Central Bank and PIX on credit cards should not have been separate tracks and separate journeys, that had been potentially debated.

We have appetite for credit with that customer and practicing that credit limit in the account or credit card by paying consumption in installments or making transfers in a very fluid journey. It seems to be a very obvious for the industry, we've been proposing to the regulators so that each bank should be able to design the journey that we should not have that division of the track. And there is a trail for an appetite for the card, and there is a trail for the PIX finance. It should be defined by the industry, and it's not something that should differentiate the journey per product. The customer is interested, not in different journeys but a fluid streamline journey in a limit that they can understand and communicate with the bank about.

[Interpreted] We now go to Daniel Vaz' question from Safra.

[Interpreted] I would like to go back to 2026 to a point to sensitize the bank's vision. You've been more selective for some time for the portfolio and this carry that Mario mentioned in the previous question, it shouldn't be such an expressive improvement due to the spread and PIX. It should be a carryover improving due to a better portfolio origination, I think. So, the bank starts with a level of close to 0% in the end of total NII.

If we work with this more conservative origination scenario and the revenue that accelerates slowly with very well-controlled costs, I think that the surprising profit in 2026 and the level of provisions. So I'd like to understand from you how you're projecting provision and asset quality, how you're working with the liquidity going down for next year, cost of risk dropping for next year. So how we should work in this scenario of cost of risk and for 2026 to understand the bank's vision?

I'll start here, and I'll ask for Gustavo to add. But the way I'm not a sell-side analyst, but if I may, how would I think about Santander Brazil over the next quarters and years, including 2026. What are we seeking in terms of management? We're seeking to build positive jaw lines and positive, making the most of the jaws ratio. We have better revenues and provisions, expenses, contingencies, and we need to work on these lines that are already naturally levered. All banks are like that, and work all of the lines in the positive sense.

We will work to be able to increase revenues or Ingreso as they say in Spanish. We will seek revenues to increase. The composition may be slightly different from what we had this year, maybe, but it will not be significantly different in the sense that I will no longer grow client NII or fees. Obviously, market NII will have its own specific evolution. It was part of the results, but it's even less relevant for the whole franchise.

If we look at materiality, obviously, it makes sense to discuss market NII. But the significance of market NII, we want it to be less and less expressive compared to the whole. So, there's a message that we will work to increase revenues. But I will not raffle the overall results and sustained profitability to grow revenues disproportionately in segments that will not bring the profitability and the value that I want. So, we'll be more interested in this net revenue, that's the composition of the revenue with allowance for loan losses rather than just growing, for the sake of growing. But we will seek to grow revenue. We're not designing a portfolio to be flat.

And fees are also an important part of that. But we don't want to grow only through fees to grow the top line next year. And then very rigorous management of the other lines, the middle line. You mentioned provisions, I'll take a focus here that we're working very focused on new vintages, as we talked about earlier on Pedro's question.

We're focusing on reducing more and more and faster the legacy portfolio that we carry. It still exists. It's still relevant, but its relevance is maybe a single digit to the size of the portfolio. It should be on the half single digits here in another 1 year, 1.5 years. So, we want this portfolio, the legacy portfolio, the runoff portfolio that we call managerial terms for it to be reduced faster as we've been able to do this year, and we want to continue doing next year.

Of course, this brings cost to the cost of risk. But it's almost a necessary cost, and we prefer to remove it as soon as possible. But we prefer overall to evolve positively, so that the cost of risk goes down, not up. And the level of provisions will be in part be comparable to the growth of portfolio, because we want to continue growing portfolio. And part of this is almost a later phase of our derisking. We expect the revenue to go up, ALL be reduced in cost of risk, ideally towards being more stable. So, that means that ALL on the Stage 1 for portfolio growth will come in, but it's "healthy."

And the Stage 3 ALM that cost more, will be progressively reduced. And expenses agenda that is very obsessive as well. We've been showing strong consistency here, and it's not a short shot. We're not focused on delivering in the quarter only, we want to have something that is targeted and powerful and expenses management. So, we believe we can do that. We manage this line more compared to how we manage others, and we believe we can do continuous work on expenses.

I'm not giving you a guidance but the idea is to have nominal expenses management that will not grow year-on-year in conceptual terms. We believe we can do that while we invest disproportionately where we must invest in moving AI and new platforms, digitalization of the bank, but we finance that with the legacy banks and the traditional bank being more and more streamlined. So that, we can self-fund our growth as we showed this quarter with close to 0 growth in expenses.

So, 2026 should be an year where we work in the jaws ratio with discipline, consistently growing revenues and maintaining expenses and provisions at a level close to what we have now, so that we can have profitability of profit before tax and profit after tax as well. So, in conceptual terms, that's what I would think for the bank, not only for '26, but for the next years. And it's from there that we can have a clear view of getting back to the 20% profitability level that I mentioned a lot of times.

[Interpreted] Excellent. Yuri Fernandes with JPMorgan.

[Interpreted] My question is about market NII, which was weaker. You mentioned fewer business days and high interest rates, and we know that this line item is very sensitive to interest rates. Could you give us some more color on why it practically doubled in the quarter? What could we expect in the short term? What is your expectation for the medium run? Hopefully, it is a contracted improvement for next year. So, if you could speak about that?

And the main point of the call, expense efficiency, nominal expenses close to 0. Could you elaborate? Because I was looking at the revenue numbers, and it can improve. But with 0 expenses, we should see some improvement over the year. So, what would be the expected number for efficiency? Thank you very much.

[Interpreted] You're asking for kind of a guidance. So, I'll not give you a guidance. I'll start with the second question. Again, I'll talk about directions. I will not say when it will happen. And I won't say when we'll get to 20%. But every quarter, we're moving in that direction. I think it is totally feasible. The way we calculate it, there is a slight difference in how banks calculate efficiency.

But in our baseline, we have full conditions to get to an efficiency ratio of 30%, over the next few years, I should say. There's a consequence of that, jaws ratio management. We think it is feasible, absolutely. And it will be a challenge. You might be wondering how we get to 20%, 21%, 22% by managing both line items, but with management, very much focused on the delta between the two lines.

In quarter of magnitude of 30 of efficiency is viable, slightly more than 26. For the next 3 years, we're thinking about a jaw a compounded jaw, because it's all a compounded effect. In 3 years, we think that we can get to many, many percentage points below what we have today. And the market NII question will be answered by Gustavo.

Once look in the presentation and Mario kind of mentioned it in the Q&A. Q3, we had the number of business days and a higher Selic rate. And so, we knew about those two factors. It didn't really change anything compared to what was planned. And indeed, our negative sensitivity was reduced. So, a risk portfolio for the whole portfolio, and for everything, we are exposed to interest rates and the banks reduced. And you will remember when we disclosed Q3 and we talked about the change in the policy, we said it was an 18-month policy. So, we are at 2/3 of the way in the process. So 2/3 of the way. We knew there was a script.

We could have higher or lower Selic rate along the way. It was higher. So, in terms of what we planned, everything is okay. And since it's a timeline on the 18th month, there will be a big change. The 18th month will be next year. Next year, under this logic will be different than in 2025.

And in Q3, another important point is that the Selic rate impacts market NII, but it also benefits client NII. A part of the client NII is benefited by the Selic rate. The other part is not. It is higher in the quarter given the carry for the long-term positions we carry at the bank. So, this carry exists with a higher Selic interest rate. For any institution that has long-term securities. Since the curve is inverted, we're going to have a negative carry, and this negative carry is created for all banks that have a long-term position.

Take-home messages, we continue with our plan. There was an important change in the portfolio. It will take 18 months. We have a much better risk profile, less exposure to interest rates today. In the end of the process, we are going to have a much more stable market NII. We'll still have long-term positions that we have in our proprietary portfolio that can have more or less positive or negative carry, but it will exist because we have long-term positions. So for 2026, overall, we have this whole process finalized. This process that we talked about.

But in 2025, we knew that second quarter -- that second half would be different than first half with higher average interest rates and with Q3 with more business days. It was all planned for. It was all clear. It was all in the plan. What changes is that when we get to month 18 will be at a different level in this line item, with the stability that we have been talking about and with much less risk in the portfolio related to interest rates.

[Interpreted] Next question from Eduardo Nishio.

[Interpreted] I have two questions. The first is related to expenses. You have been evolving really well. You achieved a 0 nominal cost target. So, can you -- well, the 0 nominal cost has been talked about theoretically, it would take some quarters. So, you kind of brought it forward. You achieved that, and you're evolving really well in this item. So, what are the next steps? What can we expect in terms of the final footprint, number of branches? Where are you in this process? And are you expecting a further reduction in your footprint?

And my second question is actually a follow-up question related to market NII. Should we expect some time next year a positive result? You spoke a little about the process, but in absolute terms in the figures, should we expect a positive market NII result in any of the quarters next year?

I'll speak about expenses. And I'll add to what we've said before in a recent question. Again, what I mentioned about our mindset of 0 nominal expenses. This is not a guidance. It's more a direction. Please don't pressure us in terms of that, because there are seasonalities in Q4, there's the effect of the collective bargaining agreement.

Typically, we have investments that are greater in marketing and other more seasonal things. So, I'm not giving you a guidance for Q4. I'm talking about directions. We will pursue this in a time horizon, not quarter-by-quarter, but more for the coming years. And you asked about, since we have shown in the last 3 quarters and year-over-year, our Q3 is negative. We will try to bring forward everything we can, Nishio, in terms of managing expenditures and expenses without hurting the growth of the operation.

The agenda continues to be one of growth. This, like I described at the jaws ratio, we'll try to increase revenues and at the same time, keep the other line items stable. So we want to grow, grow the results and grow profitability. Obviously, we focus first on profitability and then on the earnings. Whatever we can bring forward, we'll do it. We have a number of initiatives running at the same time. All of these initiatives with a big order of magnitude. You can imagine the kind of spending a company like ours has. So, despite what we've done so far, we can still look for more funding for growth.

So, even with the exchange rate, the collective bargaining agreements that will continue to come and with expected growth, we want to have this funding, so that we can keep that mindset of 0 nominal or nominal 0 expenses. But we should never give up the growth of this organization. The mid and long term depends on our investment and investing well in the segments, journeys and products that meet investing.

And Gustavo will talk about mindset without giving you guidance. It could provoking us, but let's try to elaborate and answer about market NII.

[Interpreted] Okay. Our market NII has three components. First is market making. The second is the book. And third is the long-term positions that we have.

So, the answer to your question is it depends on a couple of things. It depends on the average Selic interest rate in 2026, and it depends on the future cuts of interest. If future interest curves decline in a good level, we'll have the possibility of having results given our positions. Likewise, if Selic is reduced in a more accelerated fashion than the market expects for 2026, the process can be accelerated. But we are not counting on this acceleration of process.

The combination of the three factors will tell us whether market NII will be positive, neutral or negative. The fact is from the logic of ALM, we had banking book and our proprietary positions, given everything that we've done, everything we've disclosed, we just need to finalize the process, and it will be definitely better than in 2025.

How the rest? Well, the rest is some exogenous factors and some endogenous factors. Market making, for example, can perform well and outperform other things in our proprietary balance sheet. So, you have a good question, but the answer is very complex.

Again, we don't bring guidance on that, but those are the variables you have to keep in mind when you study and model what we have in our market NII.

[Interpreted] By the way, Nishio, Gustavo was very diegetic in explaining all three blocks that make up market NII. And we commit to be transparent with you over the quarters regarding how each one, each element is progressing. This is no secret. It's always a mathematical approach. Sometimes it's hard for you to project. We know, but we commit with you all to be more diegetic, transparent, give you the numbers for these three big blocks, so that you can visualize this evolution that will happen in 2026 compared to 2025. So that you can see each one of the blocks performing along the quarters.

Again, I'm not interested in the client NII. I don't want to disregard market NII. It is a drag in the calculation, and that's why we had an underperformance. That's fine. That's okay. I accept it, but it should be less relevant in time if we can grow our market and our client NII, and keeping market NII as stable as possible. Thank you very much for the question.

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

I wanted to ask about your tax rate. It was 4% this quarter, which is evidently very low in absolute terms. Your net income grew 10% sequentially, 9% year-on-year, but it was all taxes. At the pretax level, you were basically flat on a quarter-on-quarter or year-on-year basis. Your effective tax rate for the first 9 months of the year is 11%, which again is very low relative to the statutory tax rate. So, can you explain what's behind this very low level of taxes? How sustainable that is? What is the right expectation for the effective tax rate going forward?

And I guess the second question is, if I tax your pretax profits at the average of the private sector peers, which is around 25%, your ROE so far this year is 13.5%, which is lower than Selic, I'm guessing lower than your cost of capital. And so, how do you think about that underlying profitability? And what does it -- what do you need to do? What does it need to happen on the macro side in order for you to move that underlying profitability to better, higher levels?

Thanks, Jorge. Well, I'll kick off, and I'll speak here with Gustavo. So, it's obviously -- yes, it's a low tax rate, no dispute about that. We get there via, I would say, a combination of the interest on own capital, [Foreign Language] as we say, which proportionately, given the higher rates, given our capital base, it had a proportionately higher impact this quarter than in previous quarters. That obviously will continue, provided that interest on capital continues, which we hope is the case, not for our own P&L, but for all companies that have larger capital base such as banks.

So, interest on capital was a big contributor to this lower tax rate. And the other aspects were -- and I'll let Gustavo complement, of course, tax -- the legitimate tax planning as all companies do, some tax except bonds, et cetera, which allowed us to manage our tax line even better this quarter than we had already in the first semester or previous years.

And as we think this line going forward, again, without giving guidance, but not necessarily -- we are not counting on such a low tax rate for the coming quarters to continue to produce the increasing profitability we delivered this quarter. So, we're not reliant on paying effectively 4%, 5%, even 10% tax rate going forward on average. So, we are very focused, like I said in the other questions. We are very focused on producing a sustainable and diversified, therefore, consistent profit before taxes so that we generate a higher taxable base, eventually pay more taxes, obviously, and have even with higher taxes, higher PAT and higher profitability without counting on such a low tax rate.

So, directionally speaking, we obviously agree we've got to grow our profit before taxes. I shared some thoughts as to how we're going to do it, the jaws idea, growing revenues, maintaining costs stable, maintaining provisions stable. We didn't talk much about the others, but obviously, working on the others so that the others become less and less relevant. All those lines combined have a very powerful compounding effect, Jorge, which we believe directionally will bring us higher and considerably higher PBT. We're going to pay more taxes, and we're going to still have higher PAT and profitability.

Conceptually speaking, those are my main lines, but Gustavo, please feel free to address.

That's it. That's what we are talking about the portfolio, spreads, how the markets NII will progress, costs and asset quality and provisions going forward. So, it will be a combination. The combination will bring more PBT and consequently, we'll have a higher tax rate. So, it's a consequence -- it will be a consequence of everything that we are doing, but it's a process. It's a process to rebuilding our profitability.

[Interpreted] Going back to Portuguese with Marcelo Mizrahi from Bradesco BBI.

[Interpreted] I think, I have a few points here. Most of them have already been asked. But some points to understand the dynamic, for example, of expenses was a positive surprise. If we combine the other operational expenses, it was very positive. I'd like to understand, you mentioned that for 2,000 -- the reduction of total 2,000 employees, there was 1,300, there was a migration to a company, SSD, that's a platform.

Mario talked about at the beginning using the bank's global platform. So, I was thinking about that. This is the bank's global back-office platform, something like that, if you can explain. And there was no impact on expenses, of these employees. It was just a migration. And I remember there were more adjustments to be made in this structure. So that would offset this reduction of expenses.

And another point I wanted to understand in provisions. I understood the movement of NPL from last quarter to this one. But looking forward, we started to see some cases of corporate that brings some concern for the corporate -- the business companies dynamics, especially corporate. So how do you see that? You don't think there will be a big impact in the level of cost of risk to Santander in this line. We saw that large corporate portfolio being a constant in the quarter. So, I think that's why there was a question whether there's a change in appetite. So, I'd like to understand a little bit about provisions and expenses and the adjust in the migration of those employees.

Marcelo, I'll mention about the first question, and then I'll let Gustavo talk about provisions appetite and so on. So it is true. We wanted to be transparent -- we had this migration and wanted to be transparent with the market that part of the reduction of personnel has relation to that. But there was a reduction of some significance in that [ Pao, ] not thinking about producing stores only. And I don't know, I think it was Nishio's question that we mentioned.

We continue to seek to optimize our stores, but it's not an increase in expenses. It's a consequence of this management. What we're doing is converging our service model to what the customers ask of us. And since we are being very successful in digitalization and One App will bring another leap, we are bringing Santander's consumption to a more digital agenda, more chat-based, not so many phone calls. So our classical service model that has 10,000 people. The remote channel is all internal, as we say. So, we're redefining the profile of that service model to get more and more chat-based.

And over time, we need fewer stores. We need a smaller headcount in this remote channel, because we are seeking to serve customers in digital channels. So the expense agenda has different pillars. There's no silver bullet, and there's no button that's easy to press. I mean, when we talk about the structural agenda with the different initiatives, all of them take time for us to go deeper and for us to move to execution. But we are doing that. And going back to that question of how much we can accelerate, we are doing that as fast as possible.

Now specifically about the migration, what it is? It's the migration of all of our employees, technology employees who manage the infrastructure, mainframe, cloud and the telecom, it's a base of people that we migrate to the bank -- from the bank. So, there's no labor cost because it's a migration. It's a carve-out. It's the same team.

Why is this good to the bank? Because when Santander creates this unit and creates from Brazil, the same people who use today -- who used to work only for Brazil, this is a real case. We'll work for Mexico, Brazil, Argentina, Uruguay. So how much they cost may go down in a significant percentage. So we have a headcount reduction. That's kind of an even game, but not because the group is seeking on these verticals that we're building to bring efficiency to each of the operations, also bringing efficiency to Uruguay, Chile, Argentina, but without a doubt to Brazil. So in the expenses line, we'll see a swap maybe of lines, but there will be an absolute reduction quarter-on-quarter from now on, because of this type of move.

And this is related to that idea of being -- Brazil being a source of talent of technology for the whole group. So this will be separate from the bank. And there will be other cases where the bank will be developing things that other units of the group will pay royalties to Brazil. So, this global technology agenda starting from Brazil is an important agenda.

[Interpreted] And the topic of appetite, we already mentioned the appetite changed. You mentioned, you talked about that corporate cases -- large corporate cases are well known. They all have their own processes. Some of them have more potential and recoverable assets and other less. So, we'll continue whenever we have, we'll continue or follow the processes for discussion. We do not see new cases coming up in addition to the ones we've mapped and the ones we mapped, some of them we already lapped. So, this is the BAU management. But what we've been seeing in some performance deviation, we've been adjusting it. So, the portfolio -- smaller portfolios, as I mentioned in the release for very small companies, we are adjusting we say B1, that's our smaller companies. We made adjustments. We had a portfolio for individuals. But overall, we have not seen any movement in terms of us reducing our credit appetite, but also at the same time to increase the credit appetite.

And these cases, again, are known. Each one will have their own discussion, their history, and their potential of recovery. And the logic or the rationale of what we're doing nothing stands out. And we are pleased with all the performance management, and we have the back of all of them, not in this only on the credit performance, but also profitability. So, it's not only the clients performing well, but we also need to have an evolution of the ARPAC. And it has to be consistent.

And so far, we haven't seen any motivation to make adjustments. But on the other hand, there's nothing to make us increase the credit appetite and the customer portfolios that we define to move forward. We have been able to move forward correctly in my view and without increasing risk.

[Interpreted] Do you have any reading of this acceleration that we saw with a better economy?

[Interpreted] I mean, I wonder why there was so much acceleration of the portfolio in the third quarter in SMEs and large corporate. SMEs, I think, have a good evolution as the market evolution and the products of FTI and Pronampe were products that become material in the portfolios now and they started, but now there are products that are part of the company's day-to-day. So, we've been evolving quite well there. It's the products with secured, good guarantees, good collateral. So, this goes well.

And other large corporate cases, we considered that we could have more exposure and very good customers. So, we challenged ourselves to see where we could have more share of risk of customers who perform well in any scenario. And that's how we were evolving the portfolio. So, that was a combination in the directional of growing the portfolio. It was after a lot of study, a lot of portfolios or portfolios with secured -- more or less secured products, and we've been able to grow.

The objective was not to grow for the sake of growing. It was to find ways to grow in a healthy way, and we were able to do that in those cases. There was a little bit of recovery as well from the second quarter of the supplier risk in large corporates. Yes, there was also an evolution of the supplier risk that was paused all those events. That's true.

We will turn back to English with Carlos Gomez from HSBC.

So I have two. One is specifically about two portfolios, the payroll portfolio, which continues to decline double digits and the agricultural portfolio, which is not large for you, but we wanted to see your view about that one.

And second, we understand that the government intends to be tougher in the use of deferred tax assets. Is that something that you believe will affect -- you will believe the banking industry in particular?

Well, I'll begin, Carlos, and then Gustavo can complement. So, as we've been talking consistently over the last year, 1.5 years, using the same mindset of disciplined capital allocation, capital rotation among the portfolios and subsegments, yes, we've been decreasing from a, I would say, accelerated growth between '23 and '24 towards the payroll loan portfolio. Last year, we already started decreasing our new origination due to macro and/or, let's say, government-related topics. So, INSS, which is the retirees portfolio, which used to be a very healthy portfolio, and we grew a lot over the years up until sometime third quarter last year.

But with the caps on interest rates imposed by the government, compared to the medium-term rates that had raised a lot last -- second half of last year, and they kept high throughout this year, although with some moderation. The net -- the gross spread, the net spread post provisions didn't make much sense. So, on the INSS portfolio, it's as simple as that. And when you add the cor bond, the bank correspondent layer, it made even less sense. So, we've decreased more than 90% our origination in the cor bank channel, correspondent bank channel.

We keep doing some origination in the bank owned channels, which are more profitable on a relative basis. But these are not the portfolios. And then the public, somewhat the same, some have caps, some have not, but some are the same construct. And then the private payroll loans, where, as you know, we were one of the incumbents, we had 30% market share, up until the new model. But with the new implementation, which again, we supported, we believe it makes total sense directionally speaking. But there was a, let's say, learning phase, learning curve for all the players, and we took a more cautious tone towards that in the first few months.

But like I said, we've been growing if you look at the month-by-month during the third quarter, which we didn't release that way. But if you look at it, you see a clear acceleration between June/July, July/August, August/September, and we continue to believe this product will succeed, but we will be niche players. We're not going to be broadly granting to all tech customers, all clients with the payroll under any jobs with any companies as payroll providers. So, we're going to be selective like we've been. But the pie is bigger now. So, we're going to be selective with a bigger pie.

So directionally speaking, this is not a portfolio where we believe on aggregate, we're going to be growing. I believe we're going to be growing in the private payroll loans for sure. And then on INSS and public, it's going to depend on whether the caps are -- whether the caps grow again or medium-term rates, they decrease much more than they already are in the inverted curve we have, so that the marginal spread makes sense. Otherwise, we're going to be allocating our risk appetite towards the clients in more transactional products such as cards, accounts, now PIX in the credit card, then in products that do not give me that much cross-sell and the margins are small.

Any...

And then the DTAs, I mean -- so next year, we -- the whole system starts to amortize flow through the P&L, the legacy DTAs, the legacy credit DTAs, which for all banks is relevant. And for us, obviously, it's relevant as well. So, there's a challenge as to -- and by the way, this year, we are already flowing through the P&L, the marginal provisions differently from what we did up until last year. So, we are already flowing the marginal net credit losses, and we're going to be flowing a percentage throughout 10 years in practice in our case of the historical DTAs we have.

So, there's going to be a double challenge in our pretax profits on a fiscal basis, which is the marginal NPL, which is already happening and this amortization, although through 10 years, it's a large sum. And it's a public number. And we're going to be flowing that obviously through the P&L as well. So our management is -- well, we know that. So, our management is anticipating that flow and that movement, Carlos, so that we manage that amortization of the historic DTAs the best possible way so that we manage the P&L and the taxable base and the taxable income so that we can absorb those DTAs.

And that's a work in progress. But it's a clear focus of all management, including the two of us and some others. And we're looking at it on a very prospective and proactive way so that we can manage as efficiently as we can throughout time, not only '26, but beyond. But it's an important topic for sure, and we're going to be talking more about it in the coming quarters.

If I may ask, I mean, that would mean that next year, you will be using more DTAs, not less, which seems to be the intention of the authorities. There seems to be a conflict there between the industry and what the public policy goal is, right?

Well, given that we all have to begin to amortize those legacy DTAs, as I'm calling it, the taxable income of Santander and all our competitors, which have obviously their own taxable incomes will be affected by this additional DTAs on top of the marginal, the flow DTAs or the flow net credit losses, which we're already bringing to the taxable income. So, yes, there's going to be more pressure on the taxable income of all the system, which will probably cause the effective tax paid to be challenged by that for sure. It's a mathematical question. So you're right on that.

Thank you, Carlos. We will go to the last question with Tito Labarta from Goldman Sachs.

Two questions also, if I may. Just on your funding on the deposit base, where we saw deposits fall about 12% this quarter, a slight pickup in time deposits. Although over the last year, time deposits have been kind of flattish, and we see savings deposits continue to decline where most of the funding is coming from the LCAs, LCIs and the financial bills. So, I just want to think what's impacting the deposit growth there? How do you see this evolution going forward? And how would that impact your funding costs?

And then second question, and I don't know if you have a good answer for this one, but a lot of -- we often get this from investors about whether Santander would buy out their remaining stake, even if you do, you probably couldn't tell us. But just in your conversations with the holding in Spain, how do you -- any comments you can give about how they view the holding in Brazil, maintaining sort of the stub piece that's publicly traded in Brazil. Just any comments on the relationship with Spain and how that could evolve from here?

Well, thanks, Tito. I'll kick off on the funding, and I'll hand it to Gustavo. But my main takeaway, my main headline here would be, we are evolving our deposits, our liabilities mix, product mix, segment mix, exactly the way we want it. We incentivize you and the other sell side not to look at the cold number, which is the quarter-on-quarter. By the way, we grew quarter-on-quarter, but we are much more focused on the quality of our liabilities vis-a-vis the volume. We could be growing 10% per quarter throughout x number of years.

We have the franchise to bring much more deposits than we currently have. So we've been very disciplined over the last, I would say, at least 2 years in executing the strategy, which we already shared with you. It's one of the main aspects of our golden rules, which is changing the mix from a wholesale-based or wholesale dependent mix, 60-40 versus retail towards exactly the opposite.

We are basically -- we're almost halfway through that movement. So, it's not insignificant what we did over the years. Obviously, we need to keep pressing. This is not a sprint. It's more like a ultra marathon. But we're very, very disciplined, not on the overall size, but how the mix behaves. We are bringing this quarter alone much more deposits from retail than wholesale. We're actually decreasing wholesale deposits while we increase retail.

I would say we are funding our loan growth via our retail deposits and particularly more and more our transactional deposits, which are almost no non-interest-bearing, that's DDA and our product, which is essentially a very low interest-bearing deposit. So, more and more, we're gaining those transactional deposits from individuals and SMEs. Obviously, they are welcome as well in the wholesale piece of the portfolio, but the quality is much more important than the number.

And when we're issuing cartas financieras, the financial letters, those are very tactical issuances because we had very low volumes historically and the market early this year was extremely pro issuers, and we managed to issue at very, very tight spreads over CDI. And we got that funding we decreased even further our wholesale costs -- our wholesale volume and cost. And therefore, the evolution of our overall liability cost is very positive and shall continue to be independently of the CDI level.

I don't know, Gustavo, if you want to comment.

This is -- our plan is to change the funding mix. So, our medium-term plan is to change the funding mix. And in changing the funding mix, our overall cost of funding will be lower. We are focusing on quality, as Mario said. So, our liquidity levels are in good levels in order to give room to manage the liability side in a better way. So, that's why we are reducing the overall cost in terms of the time deposits. We are increasing the transactional deposits in publics like the mass market as we shown in our presentation. So, the mass market, we are reducing the loan portfolio and increasing the transactional deposits. So, it's a very good movement. So, the loan to deposit is better even in the mass market, which is very good.

So, it's everything according to the plan. We are not concerned in short-term variances of deposits, for instance, because they have some volatility, because it depends on the liquidity of clients. So, we are really concerned and being stick to the plan and delivering what we are -- we present to the market for the last quarter. So, we are in a good pace, and we'll get there in the medium term.

So, this will change dramatically our balance sheet composition. And obviously, it will bring some points of ROE, very stable and some very good points of ROE in the near future.

And to your second question, Tito, obviously, we can't share any guidance here. Even if there was a discussion, we wouldn't be able to talk about it. The way I suggest to answer your question is, one, the group already has close to 90% of Santander Brazil. So, all our focus is justifying the 90% they own of Santander Brazil so that it becomes a bigger 90% that the dividends, interest on capital we distribute get larger over the years, and we're obviously very focused on that, which is extremely aligned with all minority shareholders that buy our stock.

Obviously, our ratios are very low. And frankly, I'm not negotiating here, but our -- the levels we are trading, I believe, are quite low compared to the ROTE we're already delivering and the prospective ROTE, we've been telling the market we are going to get. But obviously, it's a matter of time that our stock converge. We're obviously not pitching the stock here. But we believe that there's a lot of upside given the execution we're delivering to the market. The group sees that obviously as well.

So, at some point, they may have a debate on that. Conceptually, yes, they can have a debate on that. But that's not something we're going to be talking more about here because, obviously, we can't and the discussions are group level and not Brazil level. So, our role is deliver the best Santander Brazil we've ever had. And I'm extremely confident we're one quarter ahead, and we are taking all the steps in that direction, and we will deliver. It's a matter of time.

So, our role is to deliver the best Santander Brazil, and we're working on that steadily and aggressively. And again, we're going to have the chance to follow up with you and the others over the quarters and take the challenges you post us every time. So, thank you very much.

[Interpreted] Thank you. That concludes the Q&A session. I would like to thank everyone for joining us this morning. After this video conference call, myself and all the Investor Relations team of Santander will be available to answer any questions you may still have. Thank you very much. Have a great day, and see you next time. Thank you all.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]