Banco Santander Brasil SA (BSBR) 2025 Q4 法說會逐字稿

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 three 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. (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.

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 BRL4.1 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% 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 three 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 you 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 transformational 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 two levers and one being hyper personalization and the other one being AI.

I mean as for high 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 to integrate all of the information about the client, market information, while at the same time, we personalized 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 to make the bank more efficient, to improve processes, to reduce manual processes and operating costs. And we have ambient and fraud fraud in these two 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 in a much more direct manner.

Instead of taking half hour to recover e-mails and to look at the systems, 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 million. 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 is -- 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 (spoken in foreign language) Bring Money, in open finance. This is a very simple journey, I would say that is one of the simplest in the market 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 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 two 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 two 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 [increases all] 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 do more. It won't be linear.

It will be in all segments. Micro 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 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 -- 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 zooming into the subject. Since this is a topic that we've been delivering quite well, and we will certainly be focused on doing so this doing the same thing throughout this year, and I'm referring to our efficiency journey. In two years, and again, if you go a little bit further down the journey, in two 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 -- let's leave actual evolution on the side by now. Growing 70% 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 two 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 to 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 feeble, of course, the portfolio of the credit mix mix has to be very healthy, and we are working in both directions. But we see a 43% reduction in two years. But obviously, we can do more, productivity also increase.

And on the right-hand side, I mentioned a few pillars. I mean at the list to 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 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.

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 brand credit, which translates into selective growth of our products, who is 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 it increases the relative shares of small and medium-sized enterprises, consumer finance in 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 line 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 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 net 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 three effects combined account for more than 80% spread variation in the quarter, as we can see.

In terms of market NII, and we observed a slight improvement in asset management, combined with a 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 two 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 the present income statement, we ended the year with a 12.6% growth in profit and ROE 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.

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

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.

Thank you, Yuri, for the partnership. It's always got to pivot Well, the pressure we saw in small- and medium-sized enterprises is basically the 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.

And here, I can add Yuri. And thank you for the nice words. I will 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 semis.

It can be even bigger. I spoke about this in the Board meeting, and I'll say that lot today. we have an obligation to have the ambition to double this business. To double the bank's share is hard because we don't control the other players and no one is going to sit still. There are no falls in the market. But we would have a business which is proportionately bigger than it is today.

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 -- 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, but 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.

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

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 our thesis 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 ROTCE 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 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 PLO will evolve in a more compatible way with the portfolio, although segments have different behavior patterns.

So now we move on to Thiago Batista with UBS.

I have -- I mean, my question has to do with the answer you gave out 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 you 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%?

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 by that. 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 that 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 has been on having two 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 in 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 experience 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 two, three 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 RoET (sic - 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.

Next question is from Mario Pierry with Bank of America.

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 banned 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?

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 in small companies in terms of micro regions, national coverage and getting people out of the stores. I increased 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 is our AAA with 2,000 people, small companies, I have more than three, three or four. So I have dozens of people and this head count increase in the last few years. And this is part of expansion technology is certainly irrelevant. Chunk of it is not 10% as much more, but we also have the expansion of the franchise. I mean, the 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 bank's information. 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.

And proportionately, 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 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 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 Gen AI 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.

Well, Mario, we have a very clear agenda that focuses on evolving and evolving with AI and Gen AI, 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 Gen AI 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.

Next question from Eduardo Rosman with BTG Pact.

I would like to go back to the team of low income. We saw a worsening of delinquency 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.

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 will 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 not this flow because there's a part of the portfolio that we will reduce or will recycle or we might recycle in income cultures, which we believe have a profitability potential. So basically, this is what's happening.

Next question from Daniel Vaz with Safra Bank.

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 if 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 two 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.

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 two 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 basis 100.

Let's say, we can speak about the nominal numbers, but we have to reduce the cost to serve by another 30%-plus, 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. So in a couple of years, we expect to get to a cost disruptive will be even lower.

And (inaudible) 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 our (inaudible), there is some minor adjustments, not only in low income, also 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 and 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?

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 very vital. Every bank has a different view of this business to get to the profitability levels which are positive. For the the bank, Santander Brazil basically river these three 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 they will be reduced radically. It will be at a level that will make sense in terms of total profitability of the segment. And it was 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 meeting the administration hurdle. So the direction is okay. We know the product really well.

We were one of the two 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, doing some tests. If you get a quarterly average, we've been growing our origination. But until now, we impose ourselves a pressure that I have to be the incumbent of growing the most, I have to get bankers share. And 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. Well, 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 there is a market potential.

So we should expect an ascending curve along 2026. But yes, it was more moderate in the first two 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 of default toward 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.

Next question Marcelo Mizrahi with Banco Bradesco BBI.

And Gustavo, thanks for this partnership, all of these years. my side and I'll 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 two questions about payroll loans. How is the composition of your portfolio? I mean, between INSS and public?

And how -- 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?

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 is it means, not an end. And the very strong direction that we are giving to transactional credit products 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, 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 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.

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 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 are 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.

Yes, we have a vision that there goes product profitability and client products. Of course, the payroll loans is 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 caution in pursuing our profitability objectives for 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 -- we first define on which 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 x in mortgage, et cetera, with RWA that has to be specific.

But we look at the customer view as a whole.

Now we have a question from Brian Flores with Citibank.

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 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?

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 contacts 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 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 the mid and large companies, we see a lot of room to grow more.

So we may grow more, a lot more there and 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 in distinctively, 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 meet 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 this top line is a line of ADB plus every growth point is BRL800 million.

If I do that well with a very low 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 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 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 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 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. Thank you.

Next question from Eduardo Nishio with Genial.

Gustavo, I'd like to second everything that everyone has said, and good morning, Mariana. I have a question again on the quality of assets. Looking at 90-day NPL, it is cutting on 15 to 90 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?

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 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 neutral and natural to have more pressure on the NPL. But what that is 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, I think that we are on the right track.

We continue to have the same credit discipline. And there are also exogenous factors such as events like court reorganization. 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.

So we'll 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 really well performing well. We'll have to see the demand -- if we maintain our credit appetite, we'll see what kind of growth global will 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.

Next question from Matheus Guimaraes with XP.

Congratulations on the results and to ask questions. 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?

Thank you for the question and for the kind words, Yes, I talked about this with the journalist submitted a while ago. We cannot really say what is not being designed by the banks. We have to design the replenishment of the FGC in coordination with the Central Bank and the National Monetary Council. And also, the 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 or linear replenishment. Of course, we 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 designed to replenish it with a short-term approach in a relevant volume, and is -- 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. (inaudible) We have to solve the problem. Central Bank has this in a (inaudible) 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 BDC, FEBRABAN 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 role you have. Thank you very much for being with us. If I have to ask a question, the parent company, announced a very large section acquisition in the US. Also buyback recently, they did another one. They clearly show will invest to reinforce their key markets. Obviously, Brazil is one of them.

I cannot (inaudible) the answer, but still I have passed this 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 side 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 deliver 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 at the group base in the US, which is certainly a market where we were smaller than we should be. Again, directionally speaking, US 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 US 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 US for sure, benefit the group as a whole. And as we have a stronger franchise in the US, 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 US. It's a large thumb, it makes total sense, like they did last year in the UK to reinforce the UK 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 sites, and to office Santander Group the best possible results over the years.

So thank you for the question again, and for participating.

Thank you, Carlos. 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 (inaudible)

Statements in English on this transcript were spoken by an interpreter present on the live call. The interpreter was provided by the company sponsoring this event.