Earnings Call Transcript - BBD Q4 2024

Marcelo de Araujo Noronha, CEO

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 into three parts with three initial messages for all of you. First, the results for the fourth quarter reinstated our profitability improvement, just the same way 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 a 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, a more cautious scenario. We decided to invest in our transformation without stopping anything else. Because here we have efficiency gains, an increase of 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 this morning. Our net income was BRL5.4 billion, a 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. 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, 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, with 99% of our transactions occurring through the digital channels. That was the case in 2024. And this helps us throughout our transformation in terms of the cost. 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 for 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 increased 49% insurance sales, we also increased our base of correspondents by almost 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 recognized for providing 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, which is occurring at a very accelerated pace. So I'll elaborate more on that. 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. This is just a representation for you because we are testing new models with our Bradesco Expresso in several municipalities across the country. And then we go to total revenue, which boosted the growth of our net income. Our revenue was over BRL32 billion, growing 7.9% year-on-year in almost all lines of revenue. 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%, specifically 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. This is happening thanks to the traction we have across all our business lines and associated companies, another important lever that boosts revenue. Despite my position here, 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. Our total loan portfolio reached more than BRL980 billion, growing almost 12% year-on-year. 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. The highlight goes not only to the middle market but also to small businesses. 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 do we 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, which posted growth of 14.5%. I would like to highlight how cautious we are in terms of risk-adjusted returns. We were very mindful in terms of the quality and generation of our assets with new credit models, new policies, and also process organization. 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 our traction is quite relevant in this regard. Both banks that have government control are market leaders in payroll deductible loans with 15% or 20% market share. Being a private bank, Bradesco has 14.3% share in payroll deductible loans for public and private payroll loans. On the right-hand side, we have corporate clients. We are not growing 28% in high-risk portfolios. We have our feet on the ground. If we look at the total publication, you will see that our working capital went from BRL130 billion to BRL147 billion. And this coincides with our generation of FGI, FGO, Pronampe in both the middle market and also small business. In the 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%. We are very careful in terms of our growth in real estate loans and collateralized loans, and in the large corporate sector, we are using our origination for distribution portfolio, optimizing our capital and our return from clients. All of these are good news. And if you allow me to say, we need three combinations to deliver numbers like that. The first combination is having a very sound customer base in all customer segments and high penetration in the base. If we didn't have that, we wouldn't be able to deliver it. 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, which 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. Here I have another piece of information: we certainly regulate our risk appetite the entire time. When we saw that we were heading towards a more regulated policy, we evaluated that in the fourth quarter. We're not thinking about 2025, but we did that beforehand. In this other chart, we see that 54% of our portfolio is secured in a very dynamic way. We are looking at several other periods but I mean, I'm talking about the portfolio. If we were to show the production of 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. That's why we are not delivering a 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; the good operation of our treasury team is responsible for that. And we have the growth of client NII, and this is reflected in this item that we've been talking about, which is the client NII net of provisions, which has to do with the bottom line and this impacts our growth of BRL8.7 billion, which is 77% year-on-year. And when we consider the entire year, we see almost 26% growth, or specifically 25.8%. 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 KPIs and all indicators, expanded loan loss provisions. I would like to draw your attention that in this fourth quarter, it reached BRL7.5 billion, increasing by BRL400 million, but the same cost of credit that we are indicating of 3%. Certainly here again you can look at the 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. I can also give you more details later on about some aspects related to product insurance. Another important item has to do with our fee and commission income. Why is it growing? It grows because of traction, because of the level of activities that we have in the entire organization. We reached BRL10.3 billion year-on-year, growing 13.7% and 7.6%, and these numbers do not consider that additional share from Cielo that we acquired. But here you could conclude we are growing in all aspects and in almost all periods, as you can tell from the slide. This is certainly a consequence of the high activity that we are involved in. Now here I'm bringing that number that I mentioned at the beginning. When we reviewed our footprint, we did go way beyond our expectations with 1,385 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 are here. But we have to do some important reconciliations. Well, if I remove, as in fee income, the additional share from Cielo, this growth would reach 7.5% year-on-year and 8.1% for the entire period. Let’s look at another indicator that we have here. I think I've been bringing this for the last three quarters. The total amount of expenses increased by 9.3%. However, once we exclude Elopar and Cielo, the growth was 6.9%. I mean, Cielo is delivering new solutions and this will allow us to increase our share in 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 manage daily operations. I mean, we are improving investments and expenses. So when we exclude those 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 on this transformation path, which is very robust with a lot of CapEx investment, but there's also OpEx as part of the story. Secondly, not only are we 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. Now looking at the consolidated numbers, there are one or two deviations. But we can talk about that when we discuss the guidance. Now I'm talking about the insurance business. Another quarter of good results. If you look at total revenue, we are at BRL121 billion. That’s why we posted a 13.6% growth. Net income was BRL2.5 billion, for BRL9.1 billion in the year with an ROAE of 21%. So the insurance business is well on track. When we look at the insurance operation guidance, we see the performance quarter-on-quarter posted growth. I would like to draw your attention to technical provisions that went beyond BRL400 billion with almost 12% growth. The same applies to the insurance company, meaning that the insurance business is well on track with distribution in different lines in all of our customer segments inside the bank and also in our external channels operated by the insurance. We had a capital index. We have a mark-to-market. We ended the year of 2024 with 12.4%. The trend for January 1st is we applied 4,966, achieving 12.8% capital, considering the 20 basis points required by the Central Bank for the system in operating risk. Here we have dividends in IOC and their dynamics. 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 extend until May 7th of 2025. As part of the program, we had a buyback of about 50 million shares. We announced we are going to have the cancellation of these shares, 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. 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. We have total NII minus the cost of risk. 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 these 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 the indicators because we have a lot of information. Among the initiatives, I would like to highlight 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 set up 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 levels of engagement, and we launched some messages together with our team, which is what we want to see in our day-to-day 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 our clients with all of the transformation we have had in products, adjusting, modifying these departments in the organization. We have an empowered team with enterprise agility. We have been decentralizing decisions, making our team effectively participate and decide fast so that we can 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 create and implement this extensive, billionaire plan that is touching all points of the organization. This is a big challenge. But we are succeeding in our deliveries because we have numerous deliverables already for the several initiatives we've adopted. Digital Retail Service Model Evolution. We delivered a new experience in all segments through our app with increased NPS, and you can see that we are following through and 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. 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 implications you can see at the bottom. We will demonstrate to the market what we're building here, what we are delivering. Some other highlights include the principle that 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 synergies with Cielo again. Cielo has been investing. We have the deliverable tap on phone. Some important highlights for SMEs include a segment we launched 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. Our middle corporate sector is also doing really well. We have more platforms and more RMs, leading to the increase of market share gain. In Wholesale, we also launched the Agro segment so we can seize this opportunity with our John Deere bank, a big partner. Our credit business unit has made a huge difference for us with its implementation and 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 intense use of machine learning. Here in the red box, we see the consequences. The portfolio grew as we achieve commercial traction and penetration in our client base. Market share gains in SMEs and individuals over 90 default dropping and with new vintages of the mass market with much better vintages compared to the pre-pandemic period. Now, let's speak a little about technology, about tech modernization. Here a team led by Francesco, the executive we hired, with active participation from his colleagues in management. We have enterprise agility. We ended the year with 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, reaching 79%. I spoke about GenAI when discussing the digital mass market, right? Well, GenAI BIA. We have been testing with more than 40,000 internal employees, with 580 clients using it. In the last few months of 2024, more than 2 million interactions occurred with a resolution level of 90%, as I mentioned. We're going to improve this further and scale it up, offering a completely new client experience. BIA Tech is called BIA Tech, but it is actually an internal application with significant efficiency and productivity gains in developing storage for every new or existing application. So, basically, what's happening? BIA Tech learns to adjust the stories. BIA does that instead of having humans doing that; it learns. There are some organizations that work very well with this, but BIA also writes the stories. We are one of the pioneers in the world in utilizing multi-agents with generative AI to modernize applications, legacy systems, and create models. So what does that mean? In two significant models or modules that we are working, we have a squad that is multidisciplinary with 10 people, developers, UX, for example. Instead of having a developer, you're going to have an AI multi-agent working for products for UX, and so on, with the ability to expand our business significantly and expedite our process of system deliveries and modernization of systems. We acquired 100% of Kunumi, a company from Minas linked to the academia with more than 50 PhDs. They have been actively involved in problem solving through machine learning, AI, in credit, collection, data intelligence, and other systems areas. We achieved a 90% productivity increase along with implementing value assurance to improve efficiency and avoid wastage with contracts and duplications. Now, let's look at the next steps as we come to the end of this presentation. In terms of efficiency, we continue to review our footprint, as I mentioned, to evolve our culture. With Principle, we're set to reach 500,000 clients next year. We will complete the expansion with more than 800,000 clients in credit. We have all these processes in which we are strongly investing. We will continue to internalize technology resources, accelerating enterprise agility. With all this productivity gain coming from tech, we will increase tech deliveries and technical output in 2025 by 50%. This is very gratifying because we have this conviction, and it is happening. We are very satisfied with what we are delivering. Here’s the guidance for 2025. You probably saw in our earnings and in our material fact released today, we had a favorable scenario that would yield 9 to 10% portfolio growth. But I told the sell side and buy side in the past quarter that we were working with two scenarios. One scenario we considered as a base scenario with 70% and a more cautious scenario at 30%. That is what we are working with. We want to be cautious because we think that with contraction concerning monetary policy and with the current interest rates, of course, there is an economic impact. However, our NII net of provisions is growing even more. Why? Because we have the carryover into 2025”, and the rest doesn't require much commentary regarding the remaining guidance. To be candid, I am very optimistic about everything we are doing, although I am less optimistic about the macroeconomic scenario. However, some surprises may occur. I'm more optimistic in our guidance from the upper mid-range than from the lower mid-range. I can envision a more positive scenario. This is a summary: we continue to grow profitability in a solid and safe way, primarily driven by revenues and given our traction. We continue to have significant traction throughout the bank, and we will accelerate the bank’s transformation. 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.

Operator, Operator

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 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?

Bernardo Guttmann, Analyst

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

Marcelo de Araujo Noronha, CEO

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

Cassiano Ricardo Scarpelli, CFO

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 operations 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 not 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.

Marcelo de Araujo Noronha, CEO

Bernardo, I think there are some additional comments to make. In this guidance, we are 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. 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.

Operator, Operator

Next question from Gustavo Schroden from Citibank.

Gustavo Schroden, Analyst

Good morning, Marcelo, Cassiano, Andre, 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. 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 is the bank 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 towards the top of this range. So this is something interesting for us to hear from you.

Marcelo de Araujo Noronha, CEO

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 scenarios, optimistic scenarios. 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. We will continue to increase profitability and increase our net income and our CET will be higher with time.

Cassiano Ricardo Scarpelli, CFO

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 a 0.4 drop in the quarter to December 31, 2024, which is mark-to-market. 4,966 on January 1st brings that capital back to 12.8%, meaning being 10.9% at the end of the year. That contemplates three important components. We have a 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. 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, while the other negative impact is 0.20%, which refers to an 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.e., available for sale and negotiation levels. A new criteria of business models 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.

Operator, Operator

So next question is from Daniel Vaz from Safra.

Daniel Vaz, Analyst

Good morning, Andre. Good morning, Marcelo and Cassiano. Thank you for the opportunity to ask 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 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. 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.

Marcelo de Araujo Noronha, CEO

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. We piled up that accumulation. 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 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. 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 public companies throughout this period with the increase in interest rates and the long tail, we settle a lot of money that was hired in previous years, with twice as much margin. And then you hire new payroll loans at a lower margin. 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 keeping our feet on the ground. The major growth lever came from high-income individuals, which grew 14.5% year-on-year, while 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. However, we grew in two very secure lines, not the most stressful personal loans. 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 who have specific needs. This credit line is a bit extended. We have other secured lines with FGTS secured loans, but the margins are lower in 2024. When looking at corporate clients, our growth is focused on collateralized portfolios, particularly based on programs like FGI, where you take various different sizes of companies up to BRL300 million. FGO contemplates BRL400 million a year for credit for companies up to BRL360 million a year. And what happened here? Just to be totally transparent, and you can look at the ranking. You can observe that periodically. In 2024, Bradesco had the highest traction. Therefore, we grew around 70%. I'm talking about production. Compared to 2023, we grew around BRL17 billion, give or take. Once you combine all the programs, with FGI alone, we were the second-largest producer of FGI in the Brazilian market. Another bank produced more than us until December 31, 2024. I'm looking at the full year. On the other hand, when we look at FGO Pronampe pro credit, another organization did not rank first; we came in second, very close to number one. When we look at the global and total production here, Bradesco had 18.5% share of production in these programs. So the RAR is exceptional. This is very good for clients and companies. It’s a very good government program managed partly 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 slightly above us, while the third bank has about 5% lower share than us in terms of production. Therefore, we also grew at SMEs, boosted by portfolios that were secured and collateralized, especially this one, which has smaller spreads. Rural loans also have collateral and are secured. Our LTV is about 51%, 52%. This is a concrete reality. That's my conclusion: it will not reduce the spreads. I expect to see better margins with controlled costs of credit. When I look at the level of activity, because life is very dynamic. It's already February, so the level of activity is here. Therefore, I think that our guidance is very cautious because we are looking at the macro scenario. The rates are high, particularly for companies compared to individuals. There are groups of individuals that have a harder time accessing credit. But the scenario is here. So I don't see a drop in margins. All I see is growth. Thank you.

Cassiano Ricardo Scarpelli, CFO

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. Therefore, just by this average comparison, we expect around 8% growth for client NII that can reach double digits once we add efficiency measures and funding. Additionally, about the funding side, Marcelo just mentioned better spreads, which can also help us increase client NII throughout 2025. So yes, the cost of risk is around 3%. This is pretty much around what Marcelo just said. Thank you. Thank you, Daniel. Next question.

Operator, Operator

Next question by Thiago Batista with UBS.

Thiago Batista, Analyst

Good morning. I have a question about the various digital channels or digital trends. Do you have a strategy to address these channels considering the new change the bank is adopting? My follow-up question is 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 on the radar of the bank when we look at the next 12 to 18 months?

Marcelo de Araujo Noronha, CEO

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, with a good buffer. Regarding DGO, very soon we'll bring you this new value proposition of our digital business. We should be integrating 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 later. We have a strategy for that and we are in the process of executing it. The capital I already spoke about.

Operator, Operator

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

Renato Meloni, Analyst

Thank you for taking my questions. I'd like to revisit the NII, Marcelo. I'd like to reconcile this movement of moving towards safer portfolios while expanding NII. We saw a flat NII compared to the prior quarter in Q4. I think that even if we consider the portfolio effect that you mentioned, it’s implicit in the NII increase. If I may ask a quick second question, the guidance 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?

Marcelo de Araujo Noronha, CEO

Thank you, Renato. It's a pleasure to have you on board. First, regarding the 8.4% margin, 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 of 8.4%, 8.5%, or 8.3%. But in absolute terms, we are growing with a cost of risk which is very stable, well-balanced. So we are very confident that we will continue to grow the margin. I don't worry too much about the NII itself, the index itself, but I focus on absolute volume and its constant growth, and this is what we're going to deliver. Therefore, we have confidence that we'll deliver that. Regarding restructuring costs this year, we made a provision to move forward with it and invest, and to review our footprint. I think that I mentioned in the past, and our initial expectation for 2024 regarding our footprint review was about 1,000 points of service — 750 closings of agencies and the rest would be restructuring or renewal. We had almost 1,385, even more, with an effect of BRL440 million approximately. Expenses compared to what we are doing transformation-wise are much better in CapEx as well. So that's what I said; it's a BRL1 billion plan. 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%, we continue to invest. We were gaining efficiency and productivity, and this is why we cannot stop working on the bank's transformation. I have a lot of confidence in what we're doing, with many deliverables and productivity gains. One of them is we will deliver 50% more technology output than we had in 2024. So it is a lot of growth.

Operator, Operator

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

Mario Pierry, Analyst

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 in retail? Thank you.

Marcelo de Araujo Noronha, CEO

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. So, I mean, we are growing account holders. We are growing in different fronts. 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 the mass market; we are, but we are choosing the risks adequately because nothing can replace a good quality of assets. We will not give up on risk-adjusted return, RAR. We are working in this market, as I showed with Expresso where we increased 45% of sales with those implementations in the mass market for clients. We are increasing our penetration. But you see good risks and modalities, payroll deductible loans, and products that we can work with that will provide us adequate risk for our organization. In our case, we are not giving up on growing in the mass market and testing your model with Bradesco Expresso and even digital. You will see deliverables from us this year. We didn’t give up on that. But the risk appetite needs to be controlled. We need to have a return. This is what's on the table full-time.

Cassiano Ricardo Scarpelli, CFO

I'd 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, and lower risk has lower spreads. 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; we want to have better-priced risk. Risk is better priced in these segments. Mario, thank you for the question.

Operator, Operator

Next question from Pedro Leduc with Itau.

Pedro Leduc, Analyst

Good morning and thank you for this opportunity. My question relates to NII. In 2024, NII was below the guidance, of course, gauged by loan loss provisions. But this has been the most challenging line. But when you look at the 2025 guidance, I mean, 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, etc. I know that new vintages are accumulating lower spreads in your portfolio, and you want to do the risk. This will be highly dependent 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.

Marcelo de Araujo Noronha, CEO

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

Andre Carvalho, CFO

I would like to highlight the efficiency measures that we adopted when managing our liability. This is aimed at reducing our cost of funding. When there are increases in the SELIC rate, we can make more money. This is an ongoing process. Therefore, we have to accelerate with the deterioration of the macro scenario. We can compensate for that with efficiency measures so that our client NII can improve, resulting in around a two-percentage point gain in the client NII segment. This is a very important point. The second significant aspect that was even highlighted in the coupon minutes is that the central bank observed deceleration in lines with lower spreads in terms of banking loans. These are lines with longer duration where the effect of monetary policy initially impacts. When you decelerate lines with lower spreads, the demand goes to lines with better spreads. There’s a natural change in the mix. This helps recover spreads. So that 8.4% number you see, that's where we see increases throughout 2025.

Marcelo de Araujo Noronha, CEO

Pedro, again, good morning, and thank you for your question. It’s also important for me to comment on your answer. Personalization is something that has been our focus; 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. Funding is quite important as well; there are other important aspects. We are doing some essential work in SME cash management, and all of that has benefited the bank. This is a set of three pillars: hyper personalization, pricing, and better retention principles. The good vintage we have built up in 2024, all of these combined allow us to reach better client NII levels. I'd like to add one more thing: first, 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, the level of return risk-adjusted return is much better. That was a much better level to be. Portfolios with longer terms like these programs FGI and FGO have stability, and the loss level is low and manageable. Secondly, Andre said that our funding cost is coming down. The third point is that we remunerate some clients that have deposits with us at a level attractive for the client and very favorable for us. This combination of deposits and demand deposits has increased significantly this year. This is a result of what Cassiano just mentioned, and it's also a result of our activities. We are growing funding at a low cost. This also helps us with our leverage and the end cost and the NII margin you discussed. Therefore, we know we will gradually grow, and at the same time, the absolute value will be higher. Consequently, this will impact our bottom line positively, and the bottom line is NII, net of provisions. NII will come in absolute terms, and NIM is just the result of something we are building month by month.

Operator, Operator

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

Tito Labarta, Analyst

Hi. Good morning, guys. Thank you for the call and for taking my question. I guess just a couple of clarifications to ensure I understood correctly. 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 will go away. And then the 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 could you just walk me through why there was an increase since expectations were it would be a bit more negative? I just want to make sure I'm clear. Thank you.

Marcelo de Araujo Noronha, CEO

Yes, okay, Gomes.

Joao Carlos Gomes Da Silva, CFO

Thank you, Tito. Good to see you again. To answer your first question, provisions for restructuring like you commented are focused primarily on the review of our footprint, but particularly there. The way this 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 end by ‘28. We have been delivering lots of things and will continue to deliver. We'll continue investing. We have a lot to do in 2025. We still have plenty of tasks ahead in 2026. However, as you go on that journey, we will also capture efficiency. We will increase productivity. Just like I said before about technology; we are increasing productivity and efficiency. And we managed to do that this year through new technologies, new format, and a new team. Therefore, we continue to pursue that, and we will capture further benefits as the years go by in '26 and '27 and so on. I think Cassiano can talk about that 60 basis points when he talks about capital growth with 4,966.

Cassiano Ricardo Scarpelli, CFO

Thank you. Nice to meet you again. Let me 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 allowed us to reach that 0.60. 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 regarding the adjustment and the shareholders equity of loan loss provisions. We had 12.7 in September, 12.4 for December 30 according to MTM. So on January 1st, our BIS ratio was adjusted. This 0.60 from the 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.

Operator, Operator

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 on our IR website, including this presentation, other earnings releases, and additional presentations. Now I turn the floor to Marcelo to conclude this presentation.

Marcelo de Araujo Noronha, CEO

Thank you. Andre, thank you, Cassiano, and thank all of you who worked with us. Thank you to the 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 talks with the sell side, buy side, and any other investor that seeks further clarification. 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.