Earnings Call Transcript - ITUB Q3 2021

Operator, Operator

Good morning, ladies and gentlemen. Welcome to the Itaú Unibanco Holding conference call to discuss the 2021 third quarter results. This conference call is being recorded and broadcast live on the Investor Relations website at www.itau.com.br/investor-relations. A slide presentation is also available on this site. I would like to remind everyone that forward-looking statements will be made under the safe harbor of the Securities Litigation Reform Act of 1995. Actual results could differ significantly from those anticipated in any forward-looking comments due to macroeconomic conditions, market risks, and other factors. Joining us today in this conference call from São Paulo are Mr. Milton Filho, CEO; Alexsandro Broedel, CFO; and Renato Lulia Jacob, Group Head of Investor Relations and Marketing Intelligence. First, Mr. Milton Maluhy will comment on the 2021 third quarter results. Afterwards, management will be available for a question-and-answer session. It is now my pleasure to turn the call over to Mr. Milton Maluhy.

Milton Filho, CEO

Thank you. Good morning, everyone, and thank you for joining our third quarter 2021 earnings conference call. I would like to discuss our financial results. Our managerial result was BRL 6.8 billion with a growth of 3.6% in the quarter, and we saw a 38.8% year-on-year increase in profit. Our consolidated managerial return on equity stands at 19.7%, and in Brazil, we achieved 20.5%, which is an increase of 1.1 percentage points. Highlighting our credit portfolio, we experienced a growth of 5.9% in the quarter, particularly in credit cards, which grew by 9.8%. Individual mortgages increased by 12.2%, and SMEs saw a growth of 10.3%. This strong performance contributed to a solid margin with client growth of 4.7%, reaching BRL 17.6 billion. In terms of issued cards, we reached 4.7 million credit cards, marking a significant increase compared to the previous quarter. Our commissions and insurance grew by 2.1%, totaling BRL 11.6 billion, and we achieved an efficiency ratio of more than 42.1% in Brazil, which is the best in the segment among comparable banks. Regarding our digital bank, iti, we reached 10 million clients in September 2021, and we aim to reach 15 million by year-end. In this last quarter, we added 2.2 million new clients, with 85% being new account holders. Additionally, credit card sales grew by 109% quarter-on-quarter. We acquired 5.7 million clients digitally in the third quarter of 2021, maintaining positive momentum with a 21% increase in what we call O2O, which stands for online to offline. We achieved BRL 14 billion in volume over the first nine months of this year, aligning with our investment strategy in phygital and omnichannel services. For digital sales, we have seen a significant share in our digital channels, achieving 62% market share, growing 2.8 times since the third quarter of 2019. Our monthly engagement and user activity on digital channels have also increased by 30% over the past two years. In terms of digital channel sales for credit, we grew 2.5 times, for insurance and premium bonds, we grew 2.6 times, for investments, 2.8 times, and for cards, 5.2 times. Looking ahead, we anticipate having 100% of our products available on mobile by the end of 2021. We believe in a phygital approach, combining physical branches with digital channels to offer a modern experience to our clients. We provide a single point of contact for all product and service access at branches, emphasizing convenience and a tech-forward environment. Clients can transition from digital channels to human assistance seamlessly. Currently, 75% of our products are available in an omnichannel experience, with notable reductions in action time for managers and quicker launch times for new offerings. Turning to Itaú BBA, we support 20,000 clients across four primary segments: corporate investment banking, large corporate, middle market, and agribusiness, including industries such as real estate and tech. Our bottom line grew by 50% over the first nine months of 2021 compared to 2020. We also saw an important 35% growth in cash management volumes and an 11.9% increase in our credit portfolio, with agribusiness growing by 27.5%. In investment banking, we have been leaders in equity capital markets, mergers, and acquisitions, and local fixed income. Our customer satisfaction continues to improve, achieving 77 points on the NPS, which is 10 points higher than the same period last year. In the next slide, talking a little bit more about our credit portfolio. We have an important group in individuals. As you can see, credit cards, personal loans, payrolls, and more relevant still in auto loans and mortgage and this is important for the way we manage our portfolio. When you look only at the total of Brazil, we had a 6.6% growth. And when you take out the foreign exchange rate variation, we had a 4.8% and 15.7% growth. It’s important to mention that our reprofiled portfolio that used to be BRL 53.5 billion up in September '20 had an important reduction, 34%, throughout this year, and 57% of the portfolio are collateralized. We had a quarter reduction of 13.2%, which is very good, knowing the reason why we made this portfolio that had a pandemic connection. When we look at the grace period, we had only 1.2% in grace period. So it’s basically all the credits are due, and we have the delinquency ratio of 15-90 days of 4.4% and over 90 days at 8.3%. When we look now on the right-hand side, we have the loans average balance. It’s important to mention that the personalized credit has to do with this reprofiled portfolio as well. There is an important decrease of 7.7. When we look to 2019, it’s still above the figures we used to have, but this has a relation to all the programs that we put in place last year to help our clients go through the crisis. On the other hand, the overdraft and unsecured loans are growing, even though the overdraft is still behind the average balance that we had in 2019. But on the other hand, the unsecured loans are now above what we had in 2019. So there is a new dynamic in terms of growing the portfolio as you can see here. In the next slide, it’s important to say that we believe this is a very sustainable growth in the individual portfolios. When we compare the third quarter of 2021 to the third quarter of 2020, you can see on the credit card, there was a 25.1% growth, with 20% growth in payroll. But as you can see, in all of them, we are growing the portfolio and increasing our NPS, the Net Promoter Score, the way the clients evaluate our service or our journey. So on the credit card, we increased 6 points. On the payroll, we increased 5 points. In personnel loans, 16 points, and we grew 80%. In auto loans, we increased 12 points, and we grew 30.8%. The overdraft, we grew 13.2%, and the NPS increased by 15 points. In mortgages, we grew 4 points. In the NPS, we increased, with a growth of 54.2% in the portfolio. It’s important to say, it’s worth mentioning that when you look at the down payment in the auto loans, we’re still working with a very small but relevant down payment; it used to be 37, now it’s 41. The average term is still the same, 45 to 46 months. And the loan to value is showing how healthy our portfolio is. When we look at the vintage, the average LTV of 55 now used to be 61 one year ago. And also on the portfolio basis, we have 46% now. It used to be 39%. So they are very good figures when we look this way. And also on the individual portfolio, this major growth that we had in the secured portfolio made us increase the secured portion of our portfolio to 56% from 49% two years ago. The unsecured in consequence is 44%. But as you can see, we are growing the portfolio as a whole. So this is our portfolio way of managing the secure and then unsecured. And you can see the NPL, the delinquency over 90 days in a very good figure of 3.6%. On this next slide, it's important to highlight the margin with clients. As you can see on an annualized basis, we are pretty much flat in respect to the other quarter. But when we look at the NII, you can see an important growth here of BRL 800 million, as you can see, most related to the average volume that I just showed to you. And also we have a small growth, and this should increase in the next quarters, which comes from the working capital. This has relation with the interest rate hike and also with the accumulated capital that we have throughout this period. On the next slide, I’m talking here about the financial margin with the market. As you can see, we have 3 very strong quarters when we look at the average that we had in 2020 and 2019. We still had a few changes in the mix when we look at LatAm and also Brazil. But as you can see, Brazil is delivering 3 quarters of very strong pace, much higher than we used to have looking to the previous quarters. The last quarter, it's more difficult, and we still have 2 months ahead, but I have been seeing more volatility in the market. So maybe we should have not so relevant quarter in margin with marketing, the last one as we’ve been seeing here in these last 3 quarters. Moving to the next slide, we highlight our credit card portfolio. We have seen a growth of 17% in credit cards and 4.7% in debit cards compared to September 2020. Additionally, we issued 4.7 million cards in the third quarter of 2021, marking an 18% increase year-to-date and a quarter-on-quarter increase of 138. Our global Net Promoter Score reached 70 points, improving by 6 points since September 2020, reflecting significant quality and client focus. In terms of volume, we observe substantial growth in our credit card segment, with increases of 11.7% quarter-on-quarter and 26.6% year-over-year for the third quarter of 2021 versus 2020. The credit card portfolio reached BRL 97 billion, with 85% of this amount not accruing interest. The portion with interest, which includes installment and revolving credit, comprises 15% of the portfolio, showcasing the dynamics within the Brazilian market. We have also increased our issuing income by 17% year-over-year, albeit with a different mix. Interchange revenue grew by 31%, while annual fees decreased by 22.4%, aligning with our strategy to emphasize interchange growth. Recently, we made important changes to our portfolio, aiming to reduce annual fees in the medium to long term while focusing on interchange, which we believe will enhance the lifetime value of our clients and reduce client churn. On the next slide, talking about hedge, it’s very important to say that we believe we have a unique position to deliver value from hedge the acquiring business as well as the banking business, current accounts, credit, payments, cards. So this combo is very relevant for us, and we are working in this direction. We do believe that on one side, we have a very good acquiring business to deliver, but also we have all the capabilities, especially on the credit side, to deliver a very strong combo to this segment, knowing models, experience in the segment, it's very important for credit. On the growth side, what we show here is that we have a 25% reduction in churn, more than 100 software houses in the partners we have in Conexão Rede. We've been delivering more than 3,000 smart POS machines per month. We've been leading the prepayment of receivables in the third quarter. We achieved BRL 50 billion, 55% one-off retail prepayment. The penetration of prepayment of sales in installments, we had an increase of 10 percentage points and 35 percentage points in new clients, which is very relevant. In satisfaction, we see 80% of the POS machines delivering in up to D+1. 49%, we are delivering D+0. 80% of the eligible customers are taking advantage of the D+2 that we’ve been delivering to our account holders, whether it be Itaú or others. We have the best market approval rate in e-commerce, which is very important, knowing that we have 30% of the market share on the issuing side combined with our acquired platform in the e-commerce. We have the most relevant approval, and it’s very important for the client to convert sales. We are the acquirer now with the lowest number of complaints per active base in Reclame Aqui. On the efficiency side, we have a 14 percentage point growth in the customer using digital channels, and we had a reduction of 17% of the cost of acquisition of new customers at the 110 hubs that we have distributed throughout Brazil as well. The next chart highlights our transformation in the investment journey. We currently have around 53 regional offices and expect to reach about 90 by the end of the year, staffed with specialists dedicated to assisting our clients in making better investment decisions. This is a new area for us; previously, we only had managers caring for clients, but now we have both managers and specialists. By the end of 2022, we anticipate having around 2,000 people responsible for serving our approximately 500,000 clients with this dedicated service. Since the recent launch of the ion app, we have achieved over 400,000 downloads and aggregated 20,000 portfolios within just two months. We have received feedback from 5,000 clients, and our goal is for the app to not only serve as a consultation tool but also enable all transactions within it. Starting in early 2022, we will offer transactional fixed income to non-account holders. This represents a new journey for us, and we are pleased with our accomplishments thus far. We have been enhancing our journalistic content platform, primarily focused on investments, through a partnership with Editora Globo in Brazil. We are operating under three fundamental pillars: first, we have an exclusive newsroom for journalists producing independent content with Grupo Globo; second, we are collaborating with a network of diverse digital influencers who engage in investment discussions; and third, we are ensuring widespread dissemination and distribution of content. This will appear not only across Grupo Globo's channels, including Valor Econômico, O Globo, and G1, but also on social media platforms such as Facebook, Instagram, Twitter, LinkedIn, and YouTube, along with commercial breaks during global news broadcasts on television. This approach marks a new method of delivering content to our clients and aims to expand the audience of ion by providing valuable content within this platform. In the next page, I comment here on commission and insurance. We had a very good quarter as well. As you can see here, we grew 2.1% in the quarter, 4% year-on-year. But when we take out the XP, remember that the spinoff was made on accounted based on May 31. That means that we had, in the last quarter, 2 months with XP and 1 month without XP. That explains the BRL 300 million that you can see here on the second quarter of 2021 when you look at the result of investment in XP. In this quarter, we didn’t have XP, even though we grew in the quarter. But when we exclude XP, we grew 4.8% and 8.3% year-on-year. So we're having a very strong year in the office. On the insurance side, the good news is that we start to see a relevant change here in the dynamic. We believe we still have a lot of room to increase our business in insurance. We had a 6.2% increase in earned premiums, 21.5% in underwriting margin, 8.4% decline in the combined ratio, which is good news and an 8.9 percentage points in claims ratio as well. It's important to mention that the financial margin from insurance was lower than what we experienced in the last quarter. This indicates that the operational margin for insurance is increasing, which is positive news, and we believe there is still ample opportunity for growth. On the next page, let's discuss credit quality. First, I want to highlight that our cost of credit stands at 2.2%, which is quite favorable and aligns with the expectations I've shared in previous quarters. A rise in this cost is natural and is related to the growth in our portfolio, as I previously mentioned. There has been a slight increase in the average balance of delinquencies, which means a marginally higher cost of credit; however, compared to the overall portfolio, it remains healthy. Additionally, I need to clarify the coverage ratio for non-performing loans at 90 days. In Brazil's retail sector, our coverage remains fairly stable. When we analyze this further, we see that we are maintaining a coverage ratio of 176, which is commendable. The two main impacts affecting Latin America are linked to one specific client, as I have mentioned in previous quarters. This client is one we are actively engaged with and for whom we hold shares as collateral. We have made provisions for this client in prior quarters. Consequently, similar to what we see in wholesale, we have anticipated provisions according to our expected loss model. Any delinquency can affect our coverage ratio, as illustrated here. The issue in Latin America is confined to this one client, which is recorded in our Cayman branch and is not affecting our entities outside Brazil. Importantly, this is fully provisioned within the clean credit part, so there is no impact on our profit and loss from this provision. In wholesale in Brazil, we have three clients fully provisioned within the clean credit segment, and we feel confident about our provision levels. However, these clients have become delinquent for over 90 days, which affects our coverage ratio. Turning to short-term delinquencies, the encouraging news is that we've seen a decrease in individual delinquencies. Notably, we haven't sold off any active portfolios, so this trend reflects organic performance. We have also observed reductions among very small and medium-sized enterprises. These are two positive developments concerning short-term delinquencies. In terms of long-term delinquency, individual accounts are performing well, and for very small and medium-sized companies, we remain steady at 2.6%, which is also positive. It's worth noting that if we exclude the specific client in Latin America, our overall delinquency at 90 days would drop to 2.4%. In Latin America specifically, the figure would be 1.2% instead of 2%, indicating that this single case is the driver of the impact. However, as I mentioned before, there is no profit and loss effect since this client has been provisioned for some time. On the next slide about noninterest expenses, I have a few points to share. For total Brazil, comparing the first nine months of 2021 to the same period in 2020, we recorded only a 1.1% growth, which is nearly flat. However, it’s important to note we dealt with a salary adjustment, reflecting an inflation rate of 10.2%, and another inflation index, IGPM, of 24.9%, even as we managed to achieve that 1.1% growth. When we examine our efficiency ratio, the 42.1% stands out as the strongest indicator in the industry compared to similar banks. This figure accurately reflects our reality as it includes all expenses without any adjustments to present a more favorable number. It is crucial to highlight this metric. Additionally, concerning our investment and costs, we present our figures this way because we are making significant investments for the future. Our investment in technology and business has grown by BRL 1.2 billion. This is essential for transforming into a much better, more efficient, and digital bank. Furthermore, our efficiency program has allowed us to create room for investment by reducing costs by BRL 1.4 billion. The transactional aspect, which I refer to as the good cholesterol, shows strong volume growth compared to the same period last year. While we remain mindful of the unit cost, we are seeing more volume growth than an increase in unit costs, which is encouraging. Our strong efficiency ratio reflects our commitment to investing in the bank's future. On the capital front, we have seen a 0.4% increase in net income for the quarter after dividends, along with a 0.4% decrease in risk-weighted assets in our portfolio. This indicates that we are generating enough capital to support business growth. We also acquired Minas Gerais Payroll, an important investment of BRL 2.6 billion, which we expect to recoup in five years, alongside the revenues from this portfolio that encompasses over 600,000 employees and numerous suppliers. Additionally, there has been a 0.3% decrease in capital, mainly due to foreign exchange fluctuations. This has two primary effects: one is the tax cost of our credits resulting from our overhead strategy, which will reach runoff by year-end, and the other is the impact on risk-weighted assets in our foreign currency portfolio due to currency variations. Consequently, our capital core equity Tier 1 stands at 11.3%, with Level 1 at a solid 12.9%. Moving on, regarding Itaú Net Zero, we have recently committed to reducing total emissions by 50% by 2030 and achieving carbon neutrality by 2050. Our emission targets will be certified by the Science-Based Targets initiative, known as SBTi. It's essential to note that we are already carbon neutral for Scope 1 and 2 emissions, while Scope 3 accounts for 99% of total emissions. We acknowledge various measurement approaches, but our strategy emphasizes inclusivity for our clients. Thus, we will assist our clients in their transition processes by promoting climate action plans and developing new products, including a dedicated team to support transitions in agribusiness, pasture recovery, ecological restoration, and biofuel production, along with encouraging voluntary carbon markets. We're addressing 35% of emissions across economic groups, with 25 of them committing to decarbonization, signifying a significant movement not just within our bank but across the entire industry. This shift is beneficial for the world and aligns with our sustainability goals. In the next slide, I want to discuss the cultural transformation, which I think is very important for our work here. The iceberg can be viewed in two ways. What is visible above the water represents the results of this cultural change. We now have a 62% market share in sales through digital channels for individuals. The Net Promoter Score, or NPS, for 81% of our products for both individuals and companies has improved, which are significant figures. We were recognized as the Best Bank to Work for in Brazil by Great Place to Work, ranking second across all industries in the country. We take pride in this achievement. I previously noted the O2O, with over BRL 14 billion in our omnichannel and phygital strategy, and we aim to have all our products available on mobile by year-end, achieving a 99.6% availability on our digital channels. Beneath the surface, we are highly focused on customers and improving the bank's ways of working. By the end of 2022, we plan to have 10,000 people involved in communities, working towards 21,000 in total, with a more integrated structure that reduces hierarchy and increases agility. The titles previously used in the bank, like Executive Vice President and Executive Director, have been replaced; now everyone is simply a Director, with an executive committee comprising 12 members being the only exception. We have also adopted a new risk management approach, leveraging our installed capabilities as competitive advantages while still seeking opportunities for innovation in product development through methods such as MVPs, quick testing, and rapid learning, which are critical for our ongoing digital transformation. We've revamped our incentives, linking them more closely to stock price performance, while also expanding our partnership program from 195 partners to 450. During the last quarter, we discussed our technology transformation and want to highlight that we are modernizing our legacy systems with a state-of-the-art full-stack infrastructure. We have upgraded over 3,800 bank services and expect to transition 50% of them to the cloud by year-end. Additionally, we are reformulating our approach to mergers and acquisitions and integration with a more agile and flexible model, expecting results from these initiatives in the coming months. We also want to highlight the Cubo Network, which has over 350 high-growth startups becoming clients of the bank, presenting us with collaboration opportunities to work together. This is part of our focused approach to the bank's digital transformation. With this, I conclude the presentation and will now open the floor for Q&A. Thank you very much.

Operator, Operator

Our first question comes from Mario Pierry with Bank of America.

Mario Pierry, Analyst

Let me ask you two questions, Milton. First one is, we're getting some concerns from some investors about your strategy, right, to be accelerating loan growth now, especially in non-collateralized products when the outlook for the economy is deteriorating, right? I think your economists have one of the most bearish outlooks for Brazil next year. So we're getting some concerns from investors about the outlook for asset quality in the next year and for provision charges. So if you can discuss them a little bit the strategy, what are you seeing that makes you comfortable to accelerate growth in non-collateralized products at this time of the cycle? And then the second question I have is related to your net interest income. You showed that the bulk of the growth in net interest income of clients is coming from volumes. The credit spread is still stable. So I wanted to understand from you is your ability to improve credit spreads going forward, especially in a rising rate environment, where some of your competitors, I would assume, are going to be having a bigger challenge with funding costs. So if you can talk a little bit about how do you see the competitive environment and your ability to increase our spreads as rates rise?

Milton Filho, CEO

Thank you, Mario, for your questions. Firstly, regarding the growth of our portfolio, it's important to note that we experienced a significant loss in production and market share due to the pandemic. At one point, we held about 11% to 12% of the market share for specific products, but that dropped to 6% to 7%. While the market overall continued to grow, our production fell behind at 7% to 8%, leading to a loss in market share. Our goal isn't simply to expand our portfolio for growth's sake; we have been closely assessing our clients and their needs while maintaining our risk appetite. We aim to regain our fair share in various segments. Over the last four to five quarters, we saw our margins decrease and our growth lag behind the overall market. However, we've been able to reclaim the space we lost last year with clients we've had for over two years, particularly those with mid to high income. We are forecasting potential economic conditions for 2022, and while we anticipate the economy may remain flat or decline slightly, our outlook hasn't shifted significantly in the past few months. Thus, we are optimistic about our growth, which we believe is healthy given the types of clients and our long-standing relationships with them. Now, concerning margins and net interest income, we don't foresee much room for significant increases in spreads due to stiff competition. We anticipate a natural reduction in growth compared to 2021, affected by rising Selic rates impacting certain portfolios. For example, with payroll and INSS lending, we face regulatory constraints on rates, while funding costs are on the rise. In the mortgage sector, new accounts are currently paying 70% of the Selic.

Mario Pierry, Analyst

Yes. We're here. We're here. Yes.

Milton Filho, CEO

Sorry about that. So we see some pressure here on the funding side. But whenever we are able, we make the reprice of those credits to the client. So I don't believe there is going to be a lot of room to increase the spread by next year. So this is my view now.

Operator, Operator

Our next question comes from Jorge Kuri with Morgan Stanley.

Jorge Kuri, Analyst

Congratulations on the quarter's results. I hope everyone is doing well. I wanted to dive a bit deeper into the previous question. Your credit portfolio is expected to slow down in 2022 compared to 2021. While this may not be a significant slowdown, it is still a slowdown. On the other hand, you might see improved net interest margins due to the doubling of the average Selic rate next year compared to this year. I'm interested in how these two factors might affect your net interest income, which is likely to grow around 10% this year. Given the lower growth next year but also the improved Selic rate and potentially better margins, how do you envision your net interest income performing next year compared to this year? The second related question deals with expenses. From what I've read in news articles regarding your comments on the Portuguese call, it seems you expect expenses to remain flat for next year. If you can achieve low double-digit growth in net interest income and expenses are flat, would it be reasonable to expect your operating profits to rise into the high teens? That's the clarification I would like from you.

Milton Filho, CEO

Thank you, Jorge, for your question. I believe you are largely correct on several points. We expect a decline in the portfolio growth compared to previous levels, but we will still see growth in the portfolio next year. Additionally, the Selic will affect our working capital, which in turn will impact our financial margin with clients. The average balance of our portfolio will also be different in 2022, which will positively influence the margin. It's important to note that I cannot share specific guidance at this time, but I anticipate that the margin with clients will grow for the reasons mentioned: the Selic and the average balance. Considering the significant acceleration we experienced last quarter, we will have at least a year of those portfolios created in the last two quarters, which is crucial for client margins. We expect a rise in the cost of credit, which is reasonable to anticipate, but we should remember that we made provisions last year for COVID that haven't been fully utilized yet. This means that if there is an increase in delinquency, we still have a solid level of provisions for 2022. Regarding costs, when I mention flat, I'm referring primarily to the core costs of the bank. In Brazil, we have seen a growth of 1.1, but when examining core costs, there was a significant reduction of BRL 700 million over the first nine months of 2021, while we continue to invest in the bank. Despite inflationary pressures, we aim to maintain flat or possibly reduce our core costs next year, which should offset a significant portion of our investments. I'm not implying that costs will be zero, but we plan to achieve a consolidated cost growth below inflation next year. I remain positive about these factors. However, we will be navigating a different and challenging macroeconomic environment. We've been in Brazil for many years, and although it’s an election year which may introduce more market volatility, we are preparing for potential economic downturns and their impacts. Overall, I hold a more positive outlook than negative.

Jorge Kuri, Analyst

Milton, congrats again.

Operator, Operator

Our next question comes from an analyst with UBS.

Unidentified Analyst, Analyst

I would like to hear more from you about iti because the digital bank had about 3 million clients at the end of last year, and the current expectations detailed in your presentations for reaching at 50 million clients at the end of the next month. So it is basically a net addition of 12 million clients this year. Remember that it was launched at the beginning of 2019, if I'm not wrong. So could you please share more information of what has been done during these 9 months to record this remarkable expansion? If it was related to investing the cash back, the launch of a large variety of products, more marketing expenses. What can you share with us about this expansion during this period?

Milton Filho, CEO

There has been a significant shift in the value proposition over the period. Initially, we focused on a payment account, but we evolved towards being a digital bank, going beyond just payments. We've been dedicated to strengthening the fundamentals of this new business, particularly in technology, client experience, and user experience, with substantial investments in these areas. Additionally, we began to invest in performance marketing and new marketing strategies to enhance awareness of our offerings and their value. Iti plays a crucial role within Itaú Unibanco; it's not just a way to attract low-income or young clients, but it also serves as a cost-effective solution for our branch segments. This approach allows us to serve clients in a more affordable manner, particularly those at the lower end of the income spectrum. Our strategy includes introducing new functions and products to iti, which is vital. We've also been focusing on client acquisition, maintaining a low cost of acquisition compared to competitors, which is encouraging. Our member-get-member strategy is proving effective, and we've made significant progress in growing this new product and business. We are targeting 50 million clients by year-end, which presents a challenge. While I am uncertain if we will hit that exact number, it remains a goal we strive towards without compromising on our principles. We continuously evaluate acquisition costs, activation, client loyalty, and the new features we provide, all of which contribute to long-term customer engagement. So far, we are pleased with our progress, although there is still much work ahead to enhance our platform not only for new clients—85% of whom are new customers to the bank—but also for our existing client base.

Unidentified Analyst, Analyst

This was very, very helpful, especially to understand the transformation considering 2019 and 2020 in terms of payment plan to digital wallet then to digital bank at once. Just to make a follow-up on the digital transformation of the bank, but now shifting the topic to ion, the investment platform. As seeing the slides of the bank, there is large potential in regards to this platform, especially considering the increase in the guidance for specialists because in the last quarter, I believe that you guys mentioned about 1,500 specialists into the next year. And during this presentation increased to 2,000 specialists into the next year. So I have 2 aspects to understand here about ion. The first, would you like to share with us the goal of customers with dedicated service for the next year and confirm to me, if I'm not wrong, but in this quarter, there were more than 500,000 customers using the app? And my follow-up question on this is about the market positioning of the app within the scenario with a bunch of investment providers for apps. Where do you believe, Milton, there are peaks on this landscape, thinking about the customers' profile or market share in terms of volumes or other metrics that you think are strategic?

Milton Filho, CEO

We decided to shift our value proposition for clients investing with us. Previously, our relationship managers handled all client interactions across banking, credit, and investment. However, given the changes in the investment landscape, we believe clients require specialized investment consultants. That's why we've brought in many specialists to the bank. We currently have 53 regional offices with dedicated assessment and investment teams. We anticipate around 500,000 customers will utilize this service and investment strategy. While it's not a pilot program, as we are experiencing significant growth, we are still learning about the optimal number of clients we should serve in this area. We also recognize the need for a self-service platform for clients who don’t require specialized services due to their specific investment needs. Ultimately, our goal is to expand the platform to serve more than the current 500,000 clients. While we have 500,000 clients working with specialists, we will evaluate in the near future whether to scale up further. Instead of focusing on market share in terms of autonomy compared to the industry, we prioritize tracking the KPIs and OKRs that we have set to ensure we are meeting our objectives. If we see positive outcomes, we will consider scaling the model and the business. We are pleased with our current progress, which is why we’re continuing to expand our offices and grow this area.

Operator, Operator

Our next question comes from Tito Labarta with Goldman Sachs.

Tito Labarta, Analyst

I have a follow-up on expenses. If we look at expense growth, noninterest expenses are up 2% on the quarter, but personnel expenses were up 6%. Admin, up 8%. And you had a big decline in provisions from lawsuits and labor claims. To think about this growth for next year, you mentioned you want to keep expense growth below inflation, but you can get the full impact of the salary adjustment, which you only saw one month in this quarter? So how do you think you'll be able to keep costs growth below expenses next year? Is it cutting back on these third-party and marketing expenses that picked up a bit in the quarter? Do you expect those provisions to fall a lot more again? What levers can you pull? Just to understand what's going to drive that reduction in cost growth next year or keeping the cost under inflation. And then I have a second question after that.

Milton Filho, CEO

Thank you for your question, Tito. In the third quarter, we experienced some seasonal events, and the salary adjustments have had an impact. We are only making provisions that have been finalized and judged, so there is no risk there. We are being quite conservative regarding reversions of those provisions, and when a process is finalized, we see no reason to change the level of provisions previously established. Regarding efficiency programs, we have 1,300 initiatives ongoing. There isn't a single solution; it's a comprehensive effort throughout the bank, ranging from small tactical actions to more structural changes. For instance, we've restructured our retail operations by integrating the separate branches' operational and commercial teams, leading to a significant reduction in our workforce. During the pandemic, we made strategic decisions about our physical footprint, reducing the number of locations and buildings we maintain. Broedel is heavily focused on these initiatives, which encompass a wide range of improvements. Despite the inflation pressures, we aim to achieve at least a 0% growth in core costs next year, even considering the investments we continue to make in technology and business development. These investments began not in January, which means we'll see their full-year impact on costs. We believe there are abundant opportunities for growth in both retail and wholesale sectors while maintaining a firm commitment to managing our core costs effectively. Broedel is here to ensure that this remains a priority.

Tito Labarta, Analyst

Okay. Great. That's helpful. If I can ask a follow-up question. Somewhat related, maybe a little bit more conceptual, though. Given sort of the competitive landscape and all the investments in IT and becoming more digital, if you were to start from scratch and you got the opportunity to build the bank starting today, how would you go about doing that? I mean would it be fully digital? Would you still do branches? Are there certain products that you will go into or not go into? Just to think about the sort of evolving competitive landscape and how you kind of see that sort of how you would do it?

Milton Filho, CEO

Yes, that's a great question. Our approach would remain consistent with what we are currently doing. We begin with a strong digital platform and a unique customer experience, then scale from there. In the past, having a physical footprint was significant for our business when digital channels weren't as prevalent. It's challenging for others to replicate our model. Nevertheless, we've noticed a trend where many digital companies are expanding their physical presence, not just in Brazil but worldwide. We see this as a competitive edge. Our results support this belief. When we compare clients who open accounts at a physical branch to those who do so through digital channels, even with the added costs of maintaining a branch, we see better outcomes from clients who start with us in-person. The results are more than double, which illustrates a distinct way of engaging with clients. It would be extremely difficult for a new digital bank to establish a physical presence due to the significant investment required, but we already have that in place and can optimize it effectively. If we need to adjust the number of branches, we will, but they will still hold importance. Our branches provide us with greater cross-selling opportunities compared to not having them. While iti serves clients and segments that may not need to visit a branch, when they require assistance with more complex products, our established footprint allows us to provide excellent support. Thus, I think our digital strategy is particularly effective. The profitability we see in our digital platform, along with the bank's overall profitability, ties back to our ability to cross-sell and foster deeper relationships with clients.

Tito Labarta, Analyst

Okay. Great, Milton. So if I understood, you would start digitally, but then eventually, sort of maybe having branches. You do see some benefit to that?

Milton Filho, CEO

Yes. It depends on how much you can invest. But if you can invest, I do believe that the physical branches will still be relevant in the long term. We have that capability already. So I think this is an advantage at the end of the day.

Operator, Operator

Our next question comes from Yuri Fernandes with JPMorgan.

Yuri Fernandes, Analyst

I have a question regarding deposits outlook. If we look at this quarter, deposits are growing about half of loan growth, right? Like 7 versus 14, more or less. And I know you had very good funding in 2020, you and the entire system. But looking ahead for 2022, how do you see funding growth? I guess you still have an advantage on brick-and-mortar, the relationship with companies, but have Selic moving up. And I guess the message you are providing that maybe loans will accelerate a little bit, but given inflation, we may continue to see strong loan growth in nominal terms. So my question is, I guess, is it more like a topic for the industry as a whole? How do you see funding in Brazil? Disposable income coming down with higher inflation, higher rates. And I don't know, everybody is growing. So what should we see for funding in 2022?

Milton Filho, CEO

Thank you for your question, Yuri. In 2020, we indeed experienced a significant increase in deposits, primarily from the wholesale sector. Many companies sought credit lines but did not fully utilize them. Ultimately, they secured the credit but chose to invest it in the bank. This strategy allowed them to have accessible funds for future needs by redeeming those investments as working capital when necessary. This trend was quite pronounced in 2020. In 2021, especially on the retail side, the low-interest rates prompted a notable shift in portfolios towards funds and equities, as people searched for better yields. Currently, we are observing a shift back from equities into riskier funds and towards fixed-income products. Our liquidity position remains strong, as reflected in our liquidity coverage ratio (LCR) and net stable funding ratio (NSFR), both of which are comfortably above the minimum regulatory requirements. As interest rates are expected to rise in the coming months, we anticipate more movement towards fixed-income products. With an upcoming election bringing additional uncertainty and volatility, clients are likely to adopt a more cautious approach. On the corporate side, I do not foresee a substantial increase in investment, although companies may not completely redeem their existing investments. We expect the portfolio growth to be somewhat slower than we saw in 2021, and the ratios will align more closely with historical trends.

Yuri Fernandes, Analyst

Super clear. But do you think this applies to the entire industry? As a major bank, you may have certain advantages that others might not. Do you believe this situation will be the same for everyone? Or do you anticipate that funding costs, alongside the increasing Selic rate, will play a role?

Milton Filho, CEO

I think it will largely depend on the growth of the portfolio. I expect there will be an overall decrease in the portfolio for the system, which might ease the pressure on funding costs. Additionally, there will be migrations, either natural or forced, as you will have to pay more when shifting from equities and other funds. As I anticipate a general reduction in credit, I believe this natural migration will not significantly impact funding costs for the next year. This is my current perspective.

Operator, Operator

Our next question comes from Carlos Gomez with HSBC.

Carlos Gomez, Analyst

Two very separate questions. One is, if you could comment on your relationship with the Corp Group in Chile. If you currently have exposure? If it is provisioned? And how you see your investment in CorpBanca evolving in the future? We know you have made a large capital contribution. Do you expect to have more of the company in the future than you have to? And do you expect to continue to have the partnership with Corp? The second refers to your loan growth and what do you expect for the next 3, 4 years? I mean, it's a little bit of a contradiction that we have seen so much growth over 20% and 28% in individuals if you are really expecting a slowdown next year. And how do you see Brazil evolving? Is it time for you to expand the portfolio? Or this is a one-off and you will have less loan growth in the next 3, 4 years?

Milton Filho, CEO

Thank you for your question, Carlos. Regarding the first part, I can't disclose specific clients or the details of our relationship with Corp Group, but I can confirm that we are partners. We operate a bank together, and everything is going well. There is currently a Chapter 11 process involving Corp Group, and they will share public information as it becomes available, but I can't provide details on that right now. Concerning Itaú CorpBanca, we have a positive outlook for the bank and are supportive of the capital increase. We have announced our commitment to subscribing to our shares, which is about 40%, and we also acquired an additional 16.5% in shares that we have in guarantee for the bank. We have subscribed to that 16.5% as well. We'll have a Board of Directors meeting today, where I will get updated information about our participation in Itaú CorpBanca. Once we have that information, we will release it to the market. There are ongoing discussions at the local level, and I expect to have more details by the end of the day. Overall, we are optimistic; the bank is performing well, and the team is focused. This year has been good, and while there are challenges in the Chilean economy, similar to other parts of Latin America, we are seeing the benefits of our transformation efforts in Chile. Regarding the credit portfolio, there are many factors at play. I anticipate a general slowdown next year, as Fibra has indicated, due to economic conditions, including an election year. The outlook for 2023 and 2024 will depend on the new government and its economic agenda. It's essential to remain cautious, as we believe in long-term growth but must be attentive to economic cycles, which will influence the bank's growth pace in the upcoming year. It's challenging to provide guidance for the next three years, but I believe our outlook is more positive than negative, though we'll need to see how developments unfold in the coming months.

Operator, Operator

This concludes today's question-and-answer session. Mr. Milton Maluhy, at this time, you may proceed with your closing statements.

Milton Filho, CEO

Okay. Gentlemen, thank you very much. I'm very happy here to do this call with you today. We are positive. I think we delivered a very good quarter. A solid quarter, I would say. And for the coming quarters, we'll be meeting individually or in the next quarter, and I hope to be talking more about our cultural transformation, the digital transformation of the bank, but a good level of energy here and everybody very positive about the future and the challenges we have. So thank you very much for coming.

Operator, Operator

That does conclude our Itaú Unibanco holding earnings conference for today. Thank you very much for your participation. You may now disconnect.