Banco Bradesco S.A. (BBD) Q4 2024 Earnings Report, Transcript and Summary

Hello. Good morning. I am Marcelo Noronha. I'm here live from Cidade de Deus to present the results for the Fourth Quarter of 2024 of Bradesco. And certainly this also contemplates the full year results for 2024. I would like to say that we will split our presentation in three parts with three initial messages for all of you. First, the results for the fourth quarter reinstate our profitability improvement, just the same way as I presented a year ago here when we presented the plan in the same month of last year when we started our growth plan and I showed you what was going to happen step-by-step, quarter-on-quarter. The second message is that our guidance for 2025 is a more cautious guidance in terms of risk appetite, and this also includes the effects of 4,966 and higher stake at Cielo. And it is cautious vis-a-vis the macro scenario and at the same time it's very optimistic in terms of what we are delivering and what we are currently doing. And also there is our transformation plan. So it is my duty to present to you a small summary of what we did in 2024. We continue to expedite our transformation and we made a decision based on a better macro scenario, more cautious scenario. We decided to invest in our transformation without stopping anything else. Because here we have efficiency gains, increase of the activities and everything else that we are about to see. Now, it's precisely 10:32, I will start our presentation with the results that have been posted earlier on this morning. Our net income was BRL5.4 billion growth of 37% and BRL19.6 billion in 2024, meaning 20% growth. And how did we achieve this net income and this result? This net income was boosted by our revenues mostly, but also due to the fact that we are very cautious with our expenses despite the investments we've made. So now I'll show you our position and our status in terms of credit, fee income, the insurance company and so on and so forth. I have here some highlights. These are operating highlights and this summarizes our balance sheet. But before I begin, I'd like to say that our recurring net income allowed us to make a non-recurring provision and the net effect is about BRL440 million. And this is precisely because we wanted to boost our footprint review for 2025. So what are the highlights? Well, our total loan portfolio grew, and despite the review of our footprint in a 1,233 points way beyond what we anticipated our customer base grew by more than 2 million clients, 99% of our transactions are occurring through the digital channels. That was the case in 2024. And this helps us throughout our transformation in terms of the cost to search, I would like to highlight our Bradesco Expresso platform. Last year we delivered two new platforms and the outcome of that was better customer experience. A better customer experience of those clients that use Bradesco Expresso. And secondly, there was also an improved experience from our correspondents. And this is the outcome. We grew payroll, we increase 49% insurance sales, we also increase our base of correspondents by almost a 1,000 reaching 39,100 bank correspondents. Our BRAM grew AUM assets under management reaching BRL122 billion. We were the recipient of two awards by Infomoney. We are the best provide the best customer experience in our business process. This is what I said in terms of the wholesale and retail bank. I already talked about our net income and transformation is occurring at a very accelerated pace. So I'll elaborate more on that. And we also had two inorganic events. We concluded the closing of Cielo's capital. And we also had the acquisition of 50% of John Deere after we got the approval from the Central Bank and CADE. And this is a picture of our Bradesco Expresso aisle. And this is just a picture I have for you because this is another test that we are testing new models with our Bradesco Expresso. And this is occurring in several different municipalities of the country. And then we go to total revenue, which boosted the growth of our net income. Our revenue was over BRL32 billion, we grew 7.9% year-on-year in almost all lines of revenues. NII was up by 5.4% year-on-year, fee and commissions income grew by 7.9% year-on-year. And our insurance companies grew more than 16%, 16.6% year-on-year with a recurring net income that was quite relevant in another full quarter. So from the third quarter our total revenue was BRL30.6 billion, reaching BRL32.3 billion, growing by 5.4% in the quarter in terms of revenues. And this is happening thanks to the traction we have the bank in all of our business lines and associated companies. Another important lever that boosts revenue even in a presentation. I think we should do the opposite. We should start with the leverages and then arrive at the final number. But we started with the net income. So our total loan portfolio reach more than BRL980 billion, growing almost 12% year-on-year. And the average daily production posted impressive growth. I highlighted here the growth of individuals with 13.3% and I will give you more details in a few moments of some of the lines. And also we grew micro, small, and medium sized companies and this portfolio grew 28% during the period. And the highlight goes not only to middle market, but also small business. And I will elaborate further on the risk part of it. So if we break down the portfolio, we see here individuals on the left hand side, companies incorporated on the right hand side. If you look at all the segments in every period, very seldom we will find a period with no growth. And now I would like to draw your attention to a few items that matter to us in the case of credit cards. Our year-on-year growth was 5.1%. But the major growth lever to reach that 5% was high income, because high income posted growth of 14.5%. So I would like to highlight how cautious we are in terms of risk adjusted returns. And we were very mindful in terms of the quality and generation of our assets with new credit models, new policies, and also process organization. And our payroll loans grew by 5.8%. It could have grown more with the cap, this doesn't help, but I would like to say that anyhow our traction is quite relevant in this regard. Both banks that have government control, they are market leaders in payroll deductible loans with 15% or 20% market share. But being a private bank, Bradesco has 14.3% of share in payroll deductible loans for public and private. Payroll deductible loans. On the right hand side we have corporate or companies. We are not growing 28% in high risk portfolio. We have our feet on the ground. So if we look at the total publication, you look at our working capital, we went from BRL130 billion to BRL147 billion. And this is precisely, this coincides with our generation of FGI, FGO, Pronampe both in middle market and also small business. In middle business we are growing slightly above that. This is a combined growth. But in terms of small size companies, our growth reached almost 20%, when it comes to companies. We are very careful in terms of our growth, real estate loan and collateralized loans and in large corporate we are using our origination for distribution portfolio optimizing our capital and our return from clients. So all of these are good news. And if you allow me to say, we need three combinations in order to deliver members like that. The first combination is having a very sound customer base in all customers segment. And high penetration in the base. If we didn't have that, we wouldn't be able to deliver it. And secondly, commercial traction with a very well-orchestrated process in the physical and the digital world. And the third pillar is our credit business unit. It brought us new credit models with a lot of machine learning, improving every day, measuring our risk appetite and our portfolio pricing so that we have the right numbers for every segment and every audience. This has to be very well tuned because if we are totally integrated, we can certainly deliver what we are delivering today with portfolios with controlled risk. Well, here I have another piece of information and that is that we certainly regulate our risk appetite the entire time. And when we saw that we were heading towards a more regulated policy, we look at that in the fourth quarter. We're not thinking about 2025, but we did that beforehand. In this other chart down below shows that 54% of our portfolio is secure in a very dynamic way. We are looking at several other periods, but I'm talking about the portfolio. If we were to show the production or everything that is coming in, this KPI would be much higher. And this really shows the quality of what we are delivering in our margins. And that's why we are not delivering very high margin. We are delivering controlled portfolios. But even then, every quarter we posted growth in absolute terms in terms of client NII. Our NII was 5.4% year-on-year. I can comment on the guidance later on. Our market NII was BRL440 million this quarter. I would like to highlight trading, but the good operation of our treasury team is responsible for that. And then we have the growth of client NII. And this is reflected in this item that we've been talking to you about, which is the client NII net of provisions, which has to do with the bottom line and this impact in our growth of BRL8.7 billion, 77% year-on-year. And when we look at entire year, almost 26%, 25.8%. And we continue on the same pace envisioning growth despite a more cautious scenario. So the message here is that we continue to control our portfolios. We are reducing over 90 delinquencies with a very good coverage ratio in all of the KPIs, all of the indicators, expanded loan loss provisions. I would like to draw your attention that in this fourth quarter was BRL7.5 billion, I mean, increasing by BRL400 million, but the same cost of credit that we are indicating of 3%. And certainly here again you can look at mass market. And this is due to everything I told you before. I mean controlled portfolio, and we are investing in clients that give us an adequate RAR. And I can also give you more details later on about some aspects related to product insure. Another important item has to do with our fee and commissions income. Why is it growing? It grows because of traction, because of the level of activities that we have in the entire organization. BRL10.3 billion year-on-year, 13.7% and 7.6% and these numbers do not consider that additional share from Cielo that we acquired. But here you can maybe draw the same conclusion. We are growing in all aspects and in almost all the periods, as you can tell from the slide. But this is certainly a consequence from the high activity that we are involved. But now here I'm bringing that number that I mentioned at the beginning. When we reviewed our footprint. We did we went way beyond our expectations with 1,385 I would say reviews and the ending of some POSs, but even then we were able to grow our customer base by over 2 million customers. Year-on-year expenses is here. But we have to do some important reconciliations. Well, if I remove like in fee income, the additional share from Cielo, this growth would reach 7.5% year-on-year and 8.1% for the entire period for the entire year. But let's look at another indicator that we have here. I think I've been bringing this for the last three quarters. The total number of expenses, the total amount of expenses of 9.3%. But once we exclude Elopar and Cielo from this number, the growth was 6.9%. I mean, Cielo is delivering new solutions and this will allow us to increase our share at SMEs and large corporate Livelo, Alelo and the Elo banner. We are investing to grow the business even with very good returns. However, we do not have the daily management operation. I mean, we are improving investments and expenses. So when we exclude that expenses, we are absolutely under control, as you can tell from these other indicators. And I would like to remind you of two other details. Number one, we are in this transformation path, which is very robust with a lot of CapEx investment, but there's also OpEx as part of the story. And second of all, not only we're doing that, I mean, we're making things happen, but the insurance company is also investing in CapEx and OpEx and this helps these areas of the bank to grow as well. Therefore, my conclusion is that all of our expenses are under control in all of the lines that we can look at. And now looking at the consolidated numbers, there is one or two deviations. But we can talk about that when we talk about the guidance. Now I'm talking about the insurance business. Another quarter of good results. If you look at total revenue, BRL121 billion. That's why we posted 13.6% growth. Net income was BRL2.5 billion, BRL9.1 billion in the year with an ROAE of 21%. So the insurance business is well in track. When we look at the insurance operation in the guidance, we see the performance quarter-on-quarter posting growth. And I would like to draw your attention to technical provisions that went beyond BRL400 billion with almost 12% growth. And the same thing goes for the insurance company, meaning that the insurance business is well in track with distribution in different lines in all of our customer segments inside the bank and also in our external channels which are operated by the insurance. We had a capital index. We have a mark-to-market. We ended the year of 2024 with 12.4%. And the trend of the year January 1st, we applied 4,966, achieving 12.8% capital, already considering the 20 basis points required by the Central Bank for the system in operating risk. Here we have dividends in IOC and their dynamic. In 2024, we see the number and I'd like to remind you we have a share buyback program which is open and it will stretch until May 7th of 2025. And as part of the program, we had a buyback of about 50 million shares. And we announced we are going to have the cancellation of these stock close to 1% of the bank just for your information. Here we have the guidance for 2024 and we started giving you this complementary information of NII net of provisions almost like an informal guidance. It increased to BRL34 billion. And that's what matters. It's the bottom line, instead of us discussing where I make more of a margin and where I make less of a margin. So here we have total NII minus the cost of risk. And we had a good delivery. In NII net of provisions, we did very well. Expanded loan loss provisions close to the top of the guidance. Fee and commission income close to the top of the guidance. Operating expenses close to the top of the guidance. But with this observations I made regarding consolidations that we have and the result of the insurance operation, just like we said, close to the top of the guidance 7.5%. So now we'll talk about a quick balance about our transformation. I'll try to be brief. Of course, I cannot mention all of the indicators because we have a lot of information. Among the initiatives, I would like to have the organizational highlights. You will remember we reduced layers, reduced span of control. We hired C-levels, made some changes in the leadership team. We put together a transformation office with 800 people or more and it's doing really well. Management culture, we have been working in management and culture. We did some surveys with high level of engagement. And we launched some messages together with our team which is what we want to see in our day-to-day in our business model and management model. So we are talking about much more contemporary management. We have so Bradesco, I am Bradesco. We are here for clients. We are much more focused on in clients with all of the transformation we had in products, adjusting, modifying these departments in the organization. We have an empowered team with the processes of enterprise agility. We have been decentralizing decisions, making our team effectively participate and decide fast so that we have a faster time to market and faster deliverables. We are challenge-oriented. What does this mean? The best example is the transformation. How bold we are to put together this kind of large plan billionaire, a billionaire plan and we are touching all points of the organization. This is a big challenge. But we are short of our deliveries because we have a lot of deliveries already of the several initiatives we've adopted. Digital Retail Service Model Evolution. We delivered a new experience in all segments in our app with increased NPS and you can see that we are following and we will deliver a totally new experience not just for the segment, but for all segments. You will see this. There will be more news along the year. But here in this set of clients we have been working with our GenAI BIA with 90% resolution. I will speak more about this when I talk about technology.So I'll come back to this, okay. Bear with me. So we have BIA with AI and we have a decision tree which is transactional. It is working really well. But now we're implementing GenAI BIA. We have better NBO models with intensive AI use and hyper-personalization with the consequences you can see at the bottom. And we will show you this year because we're already delivering this value proposition. But we are going to show the market what we're building here, what we are delivering. Some other highlights the principle launched in November '24. We have about 50,000 clients and we are starting to expand in payments and synergies, new cash management products and the synergy with Cielo again. Cielo has been investing. So we have the deliverable tap on phone. And up here some important highlights for SMEs. We launched this segment after we presented our plan with 122 branches dedicated to enterprises. We ended the year with 150. We are growing really well. We have big traction here. Middle corporate is doing really well. We have more platforms and more RMs. And the consequences, the increase of market share gain. In Wholesale, we also launched the Agro segment. So that we can take, so we can seize this opportunity with our John Deere bank, big partner. Our credit business unit has been making a huge difference for us with its implementation and with the creation of the portfolio management department. We have intensive use of conglomerate data, improving our modeling. We hired almost 200 professionals over the year. And we improved our credit policy and processes. We have intensive use of machine learning. And here in the red box, we have the consequences. The portfolio grew because we have commercial traction and penetration in our client base. Market share gain in SMEs and individuals over 90 default droppings. And with the new vintages of mass market with much better vintages compared to the pre-pandemic period. Okay. So, now let's speak a little about technology, about tech modernization. Here a team led by Francesco, the executive we hired with an active participation of his colleagues in the management. We have enterprise agility. We ended the year with more another 500 squads and we are scaling up in 2025. We have a dedicated team of more than 10,000 people. We are in a process of strong internalization with very senior people. We continue to migrate several applications to the cloud. That reached 79%. And I spoke about GenAI when I was speaking about digital mass market, right? Well, GenAI BIA. We have been testing with more than 40,000 internal employees, 580 clients using it. In the last few months of 2024, more than 2 million interactions happened with that level of resolution of 90%, as I mentioned. And now, we're going to improve this even further and we are going to scale it up, offering a completely new experience to clients. BIA Tech. It's called BIA Tech, but actually, it is an internal application we have with significant efficiency gain and productivity gain in developing the storage for every new or legacy application we have. So, basically, what's happening? BIA Tech is learning to adjust the stories. BIA does that instead of having humans doing that, it learns. There are some organizations that work really well with this, but BIA also writes the stories. We are one of the most pioneers in the world in the use of multi-agents with generative AI in order to modernize applications, legacy systems and to create models. So what does that mean? In two big models or modules that we are working, and we are working strongly on that. I have a squad which is multidisciplinary, 10 people, developers, UX, for example. So in the place of a developer, you're going to have an AI multi-agents for products for UX and so on and so forth with an ability to scale up significantly our business and to expedite our process of delivering systems and modernization of systems. We acquired 100% of Kunumi. Kunumi is a company from Minas, linked to the academia with more than 50 PhDs. The differentiated team. They have been working a lot to solve problems for problem solving through machine learning, AI with the credit department, with the collection department, with data intelligence and other systems areas. And we gain 90% productivity in addition to the implementation of value assurance to improve our efficiency and to avoid wasting with contracts and duplications. And here we're going to look at the next steps coming to the end of the presentation. In terms of efficiency, we continue to review our footprint, as I mentioned, to evolve our culture. With Principle, we'll get to 500,000 clients in next year. We will complete the expansion with more than 800,000 clients in credit. We have all of these processes that we are investing in strongly. We will continue to internalize technology resources, accelerating enterprise agility. And with all this productivity gain coming from tech. As I mentioned, we are increasing tech deliveries and technical output in 2025 by 50% federal. This is very gratifying because we have this conviction and it is happening. We are very satisfied with what we are delivering. And here's the guidance for 2025. You probably saw in our earnings and in our material fact that we released today. We had a scenario of the favorable survey that would give us 9%, 10% of portfolio growth. But I told the sell side as well as the buy side in the past quarter, that we were working with two scenarios. One scenario that we considered a base scenario of 70% and a more cautious scenario with 30%. And that's what we are working with. We want to be cautious. Because we think that with a contraction as to monetary policy and with interest rates we have today, of course there is an economic impact. But our NII net of provisions is growing even more. Why is it growing more? Because we have the carryover for 2025 and the rest doesn't actually require a lot of comments regarding the rest of the guidance. Candidly speaking, I am very much optimistic regarding everything we are doing more and less optimistic about the macroeconomic scenario. But we might have surprises. I'm more optimistic in our guidance from the middle top than from the middle down. I can envision a more positive scenario. And this is a summary, we continue to grow profitability in a solid and safe way given mainly by revenues, given our traction, we continue to be -- to have a lot of traction in around the bank and we will accelerate the change of the bank. I'd like to thank you for your attention, for your time and I'd like now to invite you to the question-and-answer session. We have Andre Carvalho and Cassiano Scarpelli, whom you know, and we are here to start the Q&A.

Thank you, Marcelo. Thank you, Cassiano. It's a pleasure to be here with you. Good morning. I'd like to inform you that Ivan Gontijo, CEO of the Insurance Group, will be joining us remotely online. If you want to ask questions, you can ask questions in Portuguese or English. If you want to send a question, you can send your question to this email on the screen investidores@bradesco.com.br or use a WhatsApp connection 11-974-43-8238 or point your camera to the QR code on the screen. First question from Bernardo Guttmann with XP Investimentos. Bernardo?

Good morning, Andre, Noronha, Cassiano. Thank you for taking my question. I have one question about the market NII had a good performance of your treasury department in Q4, again with arbitration as well. Any specific change in the hedge policy of the bank? How should we think about market NII dynamic for 2025 considering a high interest rate SELIC rate?

Thank you, Bernardo. I'll ask Cassiano to start answering your question and I'll make a comment.

Good morning, Bernardo. Good to see you and Happy New Year. Well, in this quarter, the surprise was the arbitration. The main gain was this. Although we don't have specific hedge operation of ALM, we do a lot of operations for hedging in some circumstances. But indeed, in this quarter Q4, arbitration was super important in some specific operations where we got good movement. I do now think that this is a traditional movement for next year, for 2025, actually. In 2025 we think we should be more cautious. We work with an NII close to neutrality.

Bernardo, I think there are some additional comments to make. In this guidance, we are being indeed more conservative, as Cassiano mentioned. But you see, in some months of 2024 we made money, as was the case of the last quarter with trading. Of course, this is also going to happen in 2025. You might say, oh, but if you gain six and lose six, there's neutrality. Yes. But the scenario might be a little better. We are on the cautious side. I can only have more positive expectations than worse expectations. And my second comment is that we have lessons learned. We have a good team, coordinated by Roberto Paris with Marina, Bruno and now Luis Felipe, who is responsible for trading. So I think that we might have an even better year. Thank you, Bernardo.

Next question from Gustavo Schroden from Citibank.

Good morning, Marcelo, Cassiano, Andrea, it's very nice to talk to you again. Congratulations on your transformation process. I think Marcelo in a very summarized way, conveyed a lot of it. But I would like to talk about the structure part of the bank that refers to capital. When we look at CET1 at 10.9%, slightly below the average among your peers and I understand that it's slightly above the minimum requirement, but we notice some reclassification and transformations that were made. There is an explanatory note that refers to a reclassification of securities available for sale to maintenance and held to maturity. And then when you look at the OCI line or other encompassing results, we see another quarter with negative results. I mean, accumulated losses that do not impact the result, but they do have an impact on the capital part. So, how comfortable the bank is, or what is the bank strategy to have that CET capital return to a higher level? And I just want to understand how comfortable you are vis-a-vis that capital. As you said yourself, Marcelo, your growth guidance is very conservative. It ranges from four to eight, but with a better macro landscape, maybe this portfolio growth range should be more up to the at the top of this range. So this is something interesting for us to hear from you.

Thank you, Gustavo. I would also ask my colleagues to comment as well. We are very comfortable with our capital. You saw that we now reach 12.8% after 4,966. The CET1 has a huge buffer because I think it goes up to 8%, if I'm not mistaken. The fact is we are not concerned with that. And we said that from the very beginning because we ran several projections, stress scenario, optimistic scenario. Therefore, we do have room to grow with stability in terms of our capital. Therefore, I have no concern at all in terms of everything that we can do. And we will continue to increase profitability and increase our net income and our CET will be higher with time.

Well, Gustavo, good morning. It's good to talk to you again. It's very important that we bear in mind that our guidance or our projection has to do with the two ends of the guidance. We are very comfortable in terms of our capital as a whole. I mean, you saw all of the moves. Basically, that reflects the adjustment of our balance sheet to the 4,966 we had 0.4 drop in the quarter to December 31, 2024, which is mark-to-market. And 4,966 on January 1st, brings that capital back to 2.8% meaning being 10.9% at the end of the year. And then that contemplates three important components. We have 0.7% related to adjustments to shareholders equity to adjust to the criteria from the central bank. They have the minimum regulatory aspects as part of the rule. And we are pretty much in line we just adjusted, made adjustments to the central bank and that was 0.27%. But as you know, that was split into four installments. The central bank released a regulation, so we have 0.07%, which is the negative impact. The other negative impact is 0.20%, which refers to operating result, this is the operating result that impacted now, and then on the other hand, we have reversal. But in practice that means the adjustment to the different types of mark-to-market in our balance sheet. I mean available for sale and negotiation levels. And a new criteria of business models. They are classified according to the business model of every security. So once you put everything together, we arrive at 12.8%, which is higher than 12.7% from the previous quarter. But even more than that, when we look at our projection, we look at all the possibilities of our net income. We have enough capital to fit into the range of our guidance. So in terms of capital, it will be stable this year, even with the full payment of IOC and growing the loan portfolio close to the ceiling of our guidance.

So next question is from Daniel Vaz from Safra.

Good morning, Andre. Good morning, Marcelo and Cassiano. And thank you for the opportunity of asking a question. I would like to revisit the guidance aspect because you said that you're being more conservative. In fact, when you look at the portfolio and when we highlight, I mean the NII net of provisions, maybe it doesn't grow so much when we look at the range. But you lower the comparison base when you look at 2024, but 2025 is more conservative at Pronampe and et cetera. So the spread should be lower. So according to our reading, that means that your provisions are probably lower. Is this the way we should look at it? Is there anything you would like to highlight in terms of provisions or whether it's not at the right level today or you think that provisions are more collateralized. So I just want to hear your comments. Thank you.

Thank you, Daniel. And thank you for your question. What I have to say is that we will continue to grow. Also our gross margin will grow as well. As I said, we have the carryover to 2025 of everything we produce. And we piled up, we accumulate it. But if you look at the cost of credit or the cost of risk, our expectation is to keep cost of risk around 3%. This is our expectation. We are very, very comfortable with everything we are doing in relation to credit. But then, if we look at the mixed composition in 2024, let me say the following. I talked about payroll deductible loan market share. If you look at growth on the individual side, we grew incredible loans. We have a higher share with 14.3% among private banks. But this also has to do with NII. And sometimes we don't even look at it. I'm not only referring to Bradesco, but our peers as well. I mean there was an INSS cap, but also in terms of the public companies throughout this period with the increase in interest rates and the long tail, the long curve every month we settle a lot of money that was hired in previous years, previous periods with twice as much margin. And then, you hire new payroll loans at a lower margin. And this puts pressure on the gross margin. But there is a good risk adjusted return or RAR. The second thing for individuals is credit card. We are with our feet in the ground. And the major growth lever came from high income individuals which grew 14.5% year-on-year and combined growth was 5%. The third aspect is that if you look at our publication and look at it in detail, you see that our personal loan also grew. But we grew in two very safe lines is not the most stress personal loan. The first is that we grew with higher income clients. We charge them lower rates. Otherwise the selection would be adverse. So it's a good risk on prime clients. They have specific needs. So the credit line is a bit elongated. And then we have other credit lines with FGTS, secured loans, but the margins are lower in 2024. But then when we look at corporate or companies, our growth is focused on collateralized portfolios, particularly based on programs like FGI where you take several different sizes of companies up to BRL300 million. FGO, FGO contemplates, I mean BRL400 million a year pro credit for companies up to BRL360 million a year. And then what happened here? Just to be totally transparent and you can look at the ranking. You can look at that periodically. I mean, in 2024 Bradesco had the highest traction. Therefore we grew around 70%. I'm talking about production. When compared to 2023, we grew BRL17 billion give or take. Once you combine all the programs and with FGI alone, we were the second largest producer of FGI in the Brazilian market. There was a bank that produced more than us until December 31st, 2024. I'm looking at the full year. On the other hand, when we look at FGO Pronampe pro credit, another organization was not that one was number one. And we came second, very close to number one. And then when we look at the global and total production here, Bradesco had 18.5% share of production in these programs. So the RA error is really phenomenal. And this is very good for clients and companies. It's a very good government program. They are managed in part by BNDES and Banco do Brasil with funds. There are several rules involved. So 18.5% of the production came from Bradesco. There is a bank that was slightly above us. And the third bank has about 5% lower share when compared to us in terms of production. Therefore, we also grew at SMEs, boosted by portfolios. There were secured and collateralized, especially this one, which has smaller spreads. Rural loans also collateralized and secured. Real estate loans or mortgage loans is collateralized and our NTV is about 52% -- 51%, 52%. Therefore, this is a given reality. And that's my conclusion. It will not reduce the spreads. I mean, I expect to see better margins with a control cost of credit. So when I look at the level of activity, because life is very dynamic. It's already in February, so the level of activity is here. I mean therefore I think that our guidance is very cautious because we are looking at the macro scenario. I mean the rates are high, more for companies than individuals. There are group of individuals that have a more difficult time to access credit. But the scenario is here. So I don't see drop in margins. All I see is growth. Thank you.

Daniel, in this guidance, it's already implicit that client NII grows more than the portfolio. The portfolio is end-to-end and client is just an average. So just with this average comparison already give us about 8% of growth for client NII that reaches two-digits once we add the efficiency measures and funding and the funding side. And on top of that, Marcelo just mentioned better spreads, that can also help us to increase client NII throughout 2025. So, yes, cost of risk is about 3%. And this is pretty much around what Marcelo just said. Thank you. Thank you, Daniel. Next question.

Next question by Thiago Batista with UBS.

Good morning. I have a question about the several digital channels or digital trends. Do you have a strategy to address these channels considering the new change the bank is adopting? And the follow-up about capital. Is the bank capital with 10.9% of core capital and is there any kind of restructuring or paying IOC or something like that is this in the radar of the bank when we look at the next 12 months to 18 months looking for it?

Thank you for the question. It is a pleasure to have you with us. Regarding the second topic, we are very comfortable. We don't have any movement in the insurance group in that regard. We see profitability increasing, stable capital, a good buffer. Regarding DGO, and next, very soon we'll bring you this new value proposition of our digital business. We should be integrating next in this new value proposition along the year of 2025 and until the beginning of the second half of the year. But, we'll bring you more on this, more details on this later. We have a strategy for that and we are in the process of executing it. And about capital, I answered about capital.

Thank you, Thiago. Next question from Renato Meloni with Autonomous. We cannot hear you.

Thank you for taking my questions. I'd like to go back to the NII, Marcelo. I'd like to reconcile this movement of moving towards safer portfolios while you're expanding NII. And in Q4, we saw a flat NII compared to the prior quarter. And I think that even if we consider the portfolio effect that you mentioned, there is implicit in NII increase. And if I may ask a quick second question? In the guidance and increase in expenses does not include restructuring costs. Is this a fair statement and can you give us an order of magnitude of what you expect for 2025?

Thank you, Renato. It's a pleasure to have you on board. First, regarding the 8.4% margin, well, in absolute terms we grow. I made a comment about the INSS and public payroll deductible loans. Every month we settle some. But we replenish that with higher margins. We might have a different index, 8.4%, 8.5%, 8.3%. But in absolute terms, we are growing with a cost of risk which is very stable, well-balanced. So we are very certain that we will continue to grow the margin. And I don't worry so much about the NII itself, the index itself, but I focus on absolute volume and it's constant growth and this is what we're going to deliver. So we have confidence that we'll deliver that. The restructuring cost this year. We made a provision to move forward with it and invest and to review our footprint. And I think that I mentioned in the past and our initial expectation for 2024 regarding our footprint review was of about 1,000 points of service, 750 closing agencies and the rest would be restructuring or renewal. And we had almost we had 1,385 even more in effect of BRL440 million approximately has an effect for us. So expenses compared to what we are doing, the transformation, well, it's much better in CapEx as well. So that's what I said, it's BRL1 billion plan. And the payments companies, I mentioned, are making important moves in CapEx and OpEx and the insurance group is also working on OpEx and CapEx. If we isolate net of the payments companies at 6.9%, so we continue to invest. We'll gain efficiency and productivity. And that's why we cannot stop working on the transformation of the bank. I have a lot of confidence in what we're doing. Many deliverables, productivity gain. One of them is we're going to deliver 50% more technology output than we had in 2024. So it is a lot of growth. Thank you, Renato.

Thank you, Renato. Next question from Mario Pierry with Bank of America.

Good morning. Congratulations on the results, Marcelo Noronha, my question is, well, listening to the results of all of the banks so far, everyone is focused on more cautious loan granting, more high income clients and products that are secured. So it seems that there's going to be intense competition in this segment and we see everyone very cautious with the mass market. So wouldn't this be a timely moment for you to grow your mass market given that everyone is being very cautious? Theoretically, you would have room to price this risk better. My question is, what would make you take on a little bit more risk and focus more on the mass market on retail? Thank you.

That's a good question. It's a provocative question. When I spoke about mass market and digital, we talked about 1 million clients. With this new value proposition, we are testing some models and we continue to intensify our penetration here. We grew 2 million clients, man. So, I mean, we are growing account holders. We are growing in different fronts. And I also mentioned some more information. With the new platforms, we gained a lot of efficiency, productivity and client experience with Bradesco Expresso. It's a correspondent bank. We grew more than 100% in granting payroll deductible loans. So, you see, we have a risk appetite. It's not that we're not working with mass market, we are, but we are choosing the risks adequetly because nothing can replace a good quality of assets. And this is something we will not give up. We will not give up on risk-adjusted return, RAR. But we are working in this market. I showed this with Expresso, showed that we increased by 45% of sales with those implementations in mass market for that set of clients. So we are increasing our penetration. But you see good risks and good modalities, payroll deductible loans and products that we can work with, that will bring us adequate risk for our organization. In our case, it's not that we are giving up and growing in our mass market and testing your model with Bradesco Expresso and even with digital, you will see deliverables we'll have this year. We'll be showing you. We didn't give up on that. But the risk appetite needs to be controlled. We need to have return. And this is what's on the table full-time.

I would like to highlight two improvements in risk management. First, we worked with volatility clusters. We have five volatility clusters. The moment we start adjusting risk appetite, we adjust mainly at the highest volatility cluster, the people who are more exposed to the deterioration of the macroeconomy. That's where we start adjusting and we started doing that. The second improvement has to do with repricing. Of course, higher-risk clients have higher spreads. Lower risk, lower spread. And that curve became slightly more tilted in the last few quarters. In other words, we're charging a little more spread where there is a little more risk. We adjusted our offerings and we have demand and we want to have a better priced risk. And risk is better priced in these segments. Mario, thank you for the question.

Next question from Pedro Leduc with Itau.

Good morning and thank you for this opportunity. My question relates to NII. In 2024, NII was below the guidance, of course, that gauged by loan loss provisions. But this has been the most challenging line. But when you look at a 2025 guidance, I mean, saying that, you're saying that it will grow above the portfolio. I would just like your help to -- help me understand it because you talked about the tail effects, but even the spreads of the industry for payroll loans and real estate and mortgage et cetera. I know that the new vintages are accumulating lower spreads in your portfolio and you want also to do the risk. And this will be highly depending on funding adjustments. Is this a correct observation or maybe in terms of pricing you might be more aggressive. I just want to be a bit more comfortable when it comes to client NII given the industry challenges and recent history.

Pedro, thank you for your question. It's a pleasure to see you. Andrea will start answering your questions and then both of us will jump in.

I would like to highlight a few efficiency measures that we adopted when it comes to managing our liability. And this is reducing our cost of funding. When there is increases in the SELIC rate, we make more money. I mean this is a process that is ongoing. So all we have to do is accelerate with the deterioration of the macro scenario. We compensate that with efficiency measures so that our client NII can improve and we gain about two percentage points in the client NII segment. This is a very important point. The second important aspect that was even highlighted in the coupon minutes is that the central bank in terms of banking loans, they see deceleration in lines with lower spreads. And these are lines with longer duration where the effect of the monetary policy has an initial impact. So when you decelerate lines with lower spread, the demand goes to lines with better spread. So naturally there is a change in the mix. This helps to recover spread. So that 8.4% number that you see, that's where we see increases throughout 2025.

Pedro, again, well, good morning and thank you for your question. It's also important, if I comment on your answer. I mean personalization is something that has been our focus and this has to do with repricing. This component in addition to the inventory of 2024, which is quite healthy is what will set the base for higher growth in client NII. And funding is quite important as well. And there are other important aspects. I mean, we are doing some important work in SME, cash management and all of that has brought good results to the bank. So it's just a set of three pillars, hyper personalization, pricing and better retention in terms of principality and the good vintage that we build up in 2024. All of these things combined allow us to reach better client NII levels. I would just like to add one more thing. First of all, we have to carry over, right, for 2025, since there was that accumulation. NIM could fluctuate, but NII will continue to grow as we saw quarter-on-quarter, even for this capacity of production that we have in these different lines. Even if the spreads are lower, but the level of return risk adjusted return is much higher. That was a much better level to be. And portfolios with longer term like these programs FGI, FGO, there is stability and the loss level is low and under control. Second of all, Andre said that our funding cost is coming down. And the third point is that we remunerate some clients that have deposits with us at a level that is nice for the client and very positive for us. So this combination of deposits and demand deposits, they grew a lot this year. And this is a result of what Cassiano just said and also a result of our activities. So we are growing funding at a low cost. And this also helps us in terms of our leverage, the end cost and the NII margin that you talked about. Therefore, we know that we will gradually grow and at the same time the absolute value will be higher. And as a consequence, I mean, this has to do with our bottom line. And the bottom line is NII, net of provisions. I mean NII will come in absolute terms and NIM is just the result of something that we are building, along the months.

So next question is from Yuri Fernandes.

Thank you, Andre. Thank you, everyone. I would like you to elaborate on your expense line. I mean what if something goes wrong? I think other analysts already ask about, cost of credit or cost of risk that could be a bit challenging or maybe not. Maybe the margin will not grow, I just want to understand if your expense line could be a buffer. It could be an adjustment line if you anticipate a more difficult year for some reason, or maybe you would delay some of your investments just to deliver the bottom line or whether the bank is committed to the investments or maybe if something goes wrong in the cost of credit or margin, if you will continue to pursue your expense line is a trade off with long-term.

It's a pleasure to talk to you again, Yuri. Well, the first decision, I mean, you were just laying down a hypothesis and we have to look at it in a very dynamic way. But it certainly depends on, okay, let's say there's a new pandemic coming, it's a new situation, but the macro scenario is slightly worse than what we envision. That's another situation, but our decision, even bringing it to that scenario referred to last quarter it was 70-30. Now we are working with 30 more cautious landscape. But I repeat it again, it's more cautious. But I am not pessimistic. On the contrary, I'm very optimistic. I'm very optimistic with what we are doing here. And obviously, I'm optimistic with the opportunities we see in the market. This payroll deductible loan that the government wants to promote with e-social and other companies already talked about that. And again, I say that this is an opportunity for all of us to grow depending on how they implement that, whether there is or there is no cap, so that we can adjust to that kind of risk. Therefore, I see great opportunities in this market. And then we decided that even with a more cautious scenario to apply a guidance. And coming from this more cautious scenario, we will not stop investing not even BRL0.01. And this will have an important impact in the next coming quarters in 2026 and 2027. And you will see that. You will see for yourself. Thank you. I would just like to add one more thing. I think expenses is something that could be broken down in two parts. One is investment we want to preserve because there is competitiveness gains in the mid and long range. And the other aspect is, there are other expenses, personnel expenses, admin expenses that grew below inflation of 4.8% total control. And here again we could be a bit more cautions, we are just reviewing more companies. Meaning there is always room to be more efficient in our expenses. So regardless of the macro scenario.

Thank you, Yuri. Next from Carlos Gomez-Lopez.

Okay, thank you very much. So, congratulations on the results. So, two questions. First, on the implementation of IFRS, could you revisit the logic why you have such a big impact on securities and why this seems to be quite idiosyncratic to Bradesco. We have not seen it in other institutions. It's a big amount, BRL8 billion. So we want to understand exactly why this happens. And second, earlier last year, you were mentioning 2026 as a year when we reach a normalized return. Is that still the goal that you will get there in 2026? And how would you define a normalized return? Thank you.

Cassiano, I think that you can start answering this question.

Well, thank you, Carlos. I will try to rephrase the previous answer to make it more clear. The movement of the new IFRS brought some differences for the organizations and some competitors even Itau yesterday mentioned that very similar to the move we had here. The first big move was regarding operational risk. We all knew about 0.20% and 4,966 brings us the possibility of adjustment in shareholders equity in terms of credit policies and PLL. What we did was an adjustment to the basic model that the central bank allocates. It's a tropicalization of the Brazilian Central bank in terms of PLL have a total of BRL2,990 million that we considered a debit of our net shareholders' equity. And this would lead to a reduction in our BIS of 0.27%. Given a decision by the central bank, this 0.27% was diluted along four years. So we had minus 0.20% due to reduction of operating risk 0.07% given the reclassification of the credit part BRL2,990 million and we also had a prerogative that other institutions also used which is the possibility of classifying our securities that had three or four classifications available for sale or to maturity or free to be traded to a new concept called amortized cost that adjusts financial instruments to the new categories of classifications according to the business model. In a nutshell, in the Banco, on January 1st 2025 we had a full adaptation to the rule 4,966 in IFRS. There was no change. I think that the other banks, given their explanatory notes used the same instruments that we included in our balance sheet.

And I will complement the answer. We are going to pursue and to deliver an ROE which is a lot better. But this is -- and we want to be under promising and over delivering. And it is probable that this will not be normalized by 2026. It might still be growing.

Next question from Eduardo Nishio, Genial.

Good morning, everyone, Andre, Noronha, Cassiano. I want to have a follow-up question regarding profitability, the scenario has changed a lot since you mentioned this return on shareholders activity, achieving your cost of capital, which has also been growing over time, given the macroeconomic scenario. So this the same idea, cost of capital now is close to perhaps 15%, 16%. So do you think that in 2026 you will achieve this kind of profitability? And my second question is regarding market NII. Market NII, you spoke about neutrality. I think that you mean you want to be closer to zero, not having a negative or positive result in 2025. So I would like to know what is your strategy regarding that line. In the coming years, not in 2025, but in 2026, 2027, would this line go back to a normalized level? And what would be this normalized level, in your opinion, what about your hedge strategy? How is this being implemented? Will you remain neutral to the SELIC rate in the coming years? And do you consider hedging your capital? Because that would be another possibility to help.

Nishio, thank you for the questions. It is a pleasure to see you here. I'll start answering the first part of the question and then I will I ask Cassiano to answer the second question. As regards, ROE higher than the cost of capital. You are correct. When we delivered our plan in February, we had a different horizon, cost of capital, which was lower. We don't say what our cost of capital is, but if we imagine that our cost of capital was around 14%, if we get all of the variables we have today, it is above 15%. Is this a bigger challenge? Yes, but we'll get there. And it is what I said earlier in the previous question. We will not promise anything, but we will deliver. So it's under promising and over delivering at the right time. We are advancing step-by-step, everything we said we were going to do, we delivered. Everything we said in the timeline, we are reaching that. So we'll get there. Cassiano?

Thank you, Marcelo. Thank you, Nishio. I think that you raised an important point. Indeed the market NII is perhaps the most difficult NII for us to forecast and to give a guidance for there are a number of variations. And as regards a neutrality concept, that is it, we see between zero and BRL1 billion. But let's remember Marcelo's inspiration. We have an important work. The trading gave us very significant result in Q3 and Q4. So we are working a lot to pursue gains. This is the essence of trading. We don't have a hedge policy which is open and dedicated and documented, but we do very important work every quarter considering fluctuations. And we do this kind of work in specific operations. So this is under the management of Roberto Paris. So we have clarity on that. We are much more neutral to market fluctuations and interest rates. We are now in a hiking cycle. We know where the hiking cycle is going. So overall, both capital and our ALM is analyzed in that context. We don't have an asset policy of hedge, but we have a policy of working daily in our operations, making some kind of hedge or protection or an operation against some specific flows. So, yes, we understand that zero to one is a good market, NII, in the year of high interest rates, although we want to bring in more. And in the future, we will have to see what is going to be the new normal. We wasted a lot of time, over time we lost. The tax, the tax was a very important instrument, it was the hedge of foreign capital. And we have to have a new neutrality. Last year we had excellent treasury results and that is an indicator of a much more normalized market NII, then in this year when we have an interest rate hiking cycle. So the level of 2024 should be the benchmark for us, Nishio, I think that this is what Cassiano saying. So this would be a reference for you as a bottom in a normalized condition. But thank you for the question.

Now turning to English, the next question comes from Tito Labarta from Goldman Sachs. Tito?

Hi. Good morning, guys. Thank you for the call and taking my question. I guess just more a couple of clarifications just to make sure I understood. One is on the restructuring charges, right? I mean you had BRL443 million this year, BRL570 million in 2023. Do you expect to have any more this year? Just want to understand how non-recurring these are or when do you think these restructuring charges go away. And then second question and sorry to ask again on capital. I just want to make sure that I understood. The 60 bps increase from the Resolution 4,966. I wasn't clear what drove the increase. Was that the reclassification of securities or just if you could just walk me through why there was an increase because I think expectations were it would be a bit more negative. So just to make sure I'm clear. Thank you

Yes, okay, Gomes.

Okay. Thank you. Tito. Good to see you again. To answer your first question, provisions for restructuring like you commented, it's focused. And the review of our footprint, not only there, but particularly there, because investments that we've been doing, as I said, are much higher than that. But how long it will last, I mean, it's a transformation. We said that our transformation will go from 2024 to 2028. It's not that it would start now and it ends in '28. I mean, we've been delivering lots of things and we will continue to deliver. We'll continue to invest. We have a lot of investment. There are a lot of things to do in 2025. We still have a lot to do in 2026. But as you go on that journey, we also capture efficiency. We increase productivity. Just like I said, when I talked about technology, we are increasing productivity and efficiency. And we managed to do that this year through new technologies, new format, a new team. Therefore, we continue to pursue that. And certainly, we will capture further benefits as the years go by '26 and '27 and so on. And I think Cassiano can talk about that 60 basis points when he talked about capital growth with the 4,966.

Thank you. Nice to meet you again. Let me try to clarify. Basically that 0.60 comes from the movement of securities. That's what I said in the previous answer. The reclassification of our securities for our very specific cost model for every operation model, that allowed us to get to that 0.60. But as a reminder, within that number, I have two negatives. From what I said, 0.20 comes from operating risk and 0.07 comes from the legislation of the adjustment and the shareholders equity of loan loss provision. So we had 12.7 in September, 12.4 for December 30 phase. Also according to MTM. So on January 1st, our BIS ratio was adjusted. So this 0.60 from the adjusted adjustment comes from mark-to-market or the cost utilized. This is something that is very regulated according to the 4,966 and the new IFRS. That's where this positive difference comes from.

So now we conclude our Q&A session. The questions that were not answered, our IR team will certainly answer them right after this. The presentation is available in our IR website, this presentation, other earnings releases, and other presentations. So now I turn the floor to Marcelo to conclude this presentation.

Thank you. Andre. Thank you, Cassiano and thank all of you who worked with us. And thank you to analysts that spent time with us and joined us in this earnings release call for the fourth quarter of 2024 and the full year. We are certainly open to talk to sell side, buy side and any other investor that seeks for further clarification. And once again, I must say that we are pursuing a very cautious view, but we remain optimistic in terms of what you're doing and what could be the next prospective scenario for Brazil. So I wish you a very good weekend. Thank you.