Hello. Good morning, everyone. My name is Gustavo, and it is a pleasure to have you joining us for our first quarter 2026 earnings video conference. As always, Milton will walk you through our performance, and afterwards we will have our traditional Q&A session, in which analysts and investors will be able to interact directly with us. Before handing the floor over to Milton, I would like to share a few instructions to help you make the most of today's event. For those accessing the webcast through our website, there are three audio options available: the entire content in Portuguese, the entire content in English, or the original audio. The first two options offer simultaneous translation. To select your preferred option, simply click on the flag icon located in the upper left corner of your screen. Questions can also be submitted via WhatsApp.
Today's presentation is available for download on the hot site screen and, as always, on our investor relations website. With that, I will now hand over to Milton, and we will reconvene later for the Q&A session. Milton, over to you.
Good morning, everyone. Welcome to another earnings release. We will now discuss the results for the first quarter of 2026. This is a very executive presentation with a strong focus on the numbers in order to leave ample time for our Q&A session at the end. The central point this quarter is that I will place somewhat greater emphasis on the credit quality of our portfolio. This is a topic of interest given tighter macroeconomic conditions, interest rates, and the economy as a whole. Therefore, I believe it is worth taking an additional deep dive into this topic. By doing so, I believe we will be able to share with you much of the management approach that is guiding us here at Itaú Unibanco. I will start with our traditional overview covering key indicators such as results, profitability, loan portfolio, non-interest expenses, and delinquency.
Beginning with results, we delivered a very strong managerial result of BRL 12.3 billion in the first quarter, representing a 10% increase year-over-year. It is important to recall that exceptionally, this quarter did not include the additional dividend distribution we typically make. That distribution took place at the end of last year in the fourth quarter, with BRL 20 billion distributed in dividends. If we were to normalize for this effect, net income would have been BRL 12.7 billion, which would be more comparable to the first quarters of previous years. This is the first adjustment I would like to highlight. Moving on to profitability, we recorded ROE of 24.8% on a consolidated basis and 26.4% in Brazil.
We saw an expansion in profitability adjusted for 11.5% capital, which is the current industry average and the lower bound of our capital appetite. Consolidated ROE reached 25.8% and ROE in Brazil reached 27.6%. These are very strong figures. For comparability purposes, we believe these are the most appropriate metrics to consider. Looking at the loan portfolio, despite a seasonally weaker quarter driven by fourth quarter dynamics, we were able to grow the portfolio by 1.2%. I'll provide more details shortly. We achieved solid year-over-year growth of 9%, excluding FX effects. Turning to non-interest expenses, we saw a 5% decline compared to the fourth quarter and growth of nearly 5% versus the first quarter of 2025.
This is fully aligned with the work we have been carrying out under our efficiency program and the targets that were set. Results are fully consistent with those objectives. When we look at delinquency, you may recall that the first quarter is always more pressured. It's a quarter in which household commitments increase, expenses are higher, and in addition, spending incurred in the fourth quarter is typically settled in the first quarter of the following year. Despite this, short-term delinquency indicators remain very well behaved. NPL 15 to 90 increased by 10 basis points during the quarter and declined by 10 basis points compared to last year. I'll provide further detail by portfolio shortly where this will become more evident. Long-term delinquency remains absolutely stable, which reinforces the resilience and quality of our portfolio. I'll come back to this topic in more detail later.
Turning again to the loan portfolio, we would like to highlight growth in Brazil of 7.8% year-over-year and 0.3% quarter-over-quarter. When excluding FX effects, the portfolio as a whole grew 1.2% in the quarter. I would like to emphasize the quality and the dynamics through which we have been building this portfolio over time. First, we refer to the card's target clients portfolio. Target clients are those that, under our portfolio management framework, we consider resilient across longer credit cycles. More than 90% of new originations today come from these clients. As this dynamic continues, the existing portfolio is now approaching 80% target clients. This clearly reflects portfolio quality that is fully aligned with our strategy.
From this perspective, Uniclass and Personnalité portfolios declined by only 0.5% in a quarter when the overall portfolio contracted by more than 2% and posted growth of 20% year-over-year. This reflects both the natural dynamics of this segment and our ability to cross-sell under the One Itaú client model, which we successfully migrated into a full bank experience. The results are clearly shown here. Moving on to payroll loans, we continue to emphasize private payroll lending, which grew 19% in the quarter and 63% year-over-year. As I've always mentioned, when this product was launched. The overall market was expected to grow, and it has grown meaningfully. At that time, we held approximately 30% market share in the former product, and I stated that our share would likely decline, but within a much larger market.
We were able to grow, expand the market, and be the market leader in private payroll loans after all these changes. We are growing with strong quality, targeting the right clients with appropriate pricing, adequate profitability, and a long-term perspective. In micro, small, and medium-sized enterprises, government-backed programs once again stood out, growing 4% in the quarter and 52% year-over-year. These programs also significantly support credit quality indicators. There is a mechanical effect on delinquency, which I'll explain shortly. In cost of credit, these dynamics are very positive for margins and profitability in this segment as well. Why am I showing average balances across portfolios? Average balances are what truly matter for margin performance, not end-of-period balances. This breakdown is intended to help you understand how this picture connects to margin evolution on the next slide.
Average balances in the individual's portfolio increased 2.2% compared to the fourth quarter. In SMEs, growth was 4.6%; in corporate, 1.6%; and in Latin America, 3.6%. This framework will help explain part of the margin dynamics. There's a lot of information here, so I'll walk through it carefully. We begin with the fourth quarter of 2025, where margin totaled BRL 31.7 billion. The first adjustment we make is the exclusion of BRL 4 billion, corresponding to the return of shareholders' equity invested in the bank. In other words, this represents bank equity invested at interest rates, which we remove to arrive at what we call core margin. This brings margin to BRL 27.7 billion. The first major effect is average volume, which you saw on the previous slide.
This is why the average balance breakdown was important, as it shows how volume contributed approximately BRL 400 million to margin growth this quarter. Next, we have product mix. We grew in products that are more favorable to margins, generating an additional BRL 500 million, reflecting dynamics across multiple portfolios. Next, spreads and liabilities margin were largely flat, with a modest negative impact of BRL 100 million, not particularly relevant in the broader context. Calendar effects, however, were very significant, with fewer business and calendar days affecting assets and liabilities differently, resulting in a meaningful reduction in margin. Therefore, calendar effects were one of the main headwinds to margin this quarter. Finally, Latin America and other effects were largely flat with no material impact.
As a result, core margin would have reached BRL 27.8 billion, representing growth of 0.3%, with the calendar effect being the main drag as core performance remains very positive. Next, we calculated what working capital margin would have been had we not distributed dividends early in the fourth quarter of last year. This adjustment amounts to BRL 4.2 billion. With this normalization, margin would have reached BRL 32.1 billion, which is more comparable to the BRL 31.7 billion reported in fourth quarter 2025. This would represent growth of 1.1% or BRL 400 million considering all these effects. However, due to the early dividend distribution, margin was negatively impacted. Shareholders benefited, so it was positive from a shareholder perspective.
For the company, however, the effect was a BRL 600 million reduction in margin, bringing net interest margin with clients to BRL 31.5 billion, which is the figure I mentioned earlier. As a result, margin declined by BRL 200 million compared to the fourth quarter. I believe this captures the key message. We had two main effects on margin this quarter, the early dividend payment and the calendar effect. Core margin performance remains very strong with portfolio growth, increasing average balances, and a favorable mix. Now translating these figures into margin metrics, as we typically do, on a consolidated basis, margin remains stable. When we look at risk-adjusted margin, which is how we monitor performance for management purposes, we see a modest decline of 10 basis points at the consolidated level.
Adjusting for the BRL 600 million dividend impact working capital effect I mentioned earlier, consolidated risk-adjusted margin would have been flat. In Brazil, this line shows a decline of 20 basis points. Adjusting for the same dividend effect, the decline would be 10 basis points, which is immaterial overall. Let us now move on to market margin. This was a quarter marked by significant volatility, with many developments in both the local and global environments as you have been following. Every month we reset the odometer for trading, positioning, and risk, as well as for the structural component of market margin. The most important message is that in Brazil, we delivered a solid performance this quarter despite all the challenges. Latin America also performed well. Brazil, in fact, performed better than in the previous quarter.
The capital index hedge cost remains a headwind as it has historically due to interest rate differentials. In the first quarter, the negative impact totaled BRL 700 million. Even considering all these effects, we delivered a positive market margin result of BRL 800 million, demonstrating our consistency and ability to deliver results despite more challenging scenarios. Moving on to commissions, fees, and result from insurance, the main highlight is that this quarter clearly reflects seasonality. The fourth quarter is typically much stronger for several of these lines. Card issuance is a good example. We observed declines in the first quarter. In current account for individuals, we chose to disclose this line item to reinforce the clear directional trend. The bank is becoming increasingly less dependent on these fees, redesigning packages and offering more benefits to clients. Our objective is to increase lifetime value and client centricity.
Therefore, the direction is very clear, and you've been observing this over time. When we look at payments and collections, this was indeed a quarter affected by several factors. There are multiple explanations here, seasonality effects, mix, particularly on the collection side, and repricing of funding within the receivables of the acquiring business. It is worth remembering that we've captured all these impacts within this line. Therefore, this reflects the complete payments and collections corporate flow. The most important thing here is the client perspective. We are not managing the business through isolated lines, but rather with a strong focus on being the primary bank for our clients on long-term relationships and on customer lifetime value. As a result, some degree of volatility is in fact expected. A positive highlight was brokerage, which delivered a quarter somewhat stronger than the fourth quarter.
In asset management, this was a quarter without performance fees. As a reminder, under our approach, performance fees are typically recognized in the second and fourth quarters of the year. Therefore, we moved from a fourth quarter with performance fees to a first quarter without this revenue, which explains this effect on asset management results. Finally, the main highlight is insurance, where we had already delivered a very strong previous quarter and were able to sustain this performance with 17% growth year-over-year. As a result, services and insurance revenues increased 5.3% year-over-year. It's evident that a significant portion of these revenue lines is highly correlated with the level of economic activity. Therefore, performance will depend very much on the dynamics ahead, on how economic activity evolves, on capital markets conditions, and on the investment banking environment overall.
The same comment applies to the other lines as well. I will now begin to go deeper into credit quality, starting with some information that I believe is highly relevant. Here, we show NPL performance. In short-term delinquency at the consolidated level, we observed an increase of 10 basis points, as I mentioned earlier, with Latin America remaining essentially flat. While in Brazil, there was an increase of 20 basis points. When we break down Brazil, the dynamics become much clearer. First, in individuals, we observe the seasonal first quarter effect. When we compare it with the historical series, excluding the first quarter short-term NPL from 2023 to 2024, this represents the lowest increase we have seen.
While we are rounding this figure to 30 basis points on the slide, the actual increase was 23 basis points, meaning a smaller increase compared to other first quarters that share the same seasonal effect. Therefore, this is a first quarter that came fully in line with expectations and with very well-behaved short-term delinquency. In SMEs, we see an increase that was already expected. I have been discussing this with you for quite some time, and I'll reinforce it again when we talk about over 90-day delinquency. This is a portfolio that experienced strong growth in guaranteed credit, especially government-backed loans. A relevant portion of this portfolio previously carried grace periods, which are now gradually ending. Today, less than 5% of the portfolio remains under a grace period. As a result, we'll mechanically start to observe delinquency from this client base, but always covered by government guarantees.
Therefore, despite the observed increase, which was fully expected, delinquency levels remain significantly below those seen in prior years, with expected losses and profitability fully in line with our expectations. Moving to long-term delinquency, both at the consolidated level and in Brazil and Latin America, indicators remain well-behaved. In Brazil, individual portfolios were stable during the quarter. In SMEs, we saw an increase of 10 basis points, and we expect that the indicator could still rise by an additional 10 basis points-20 basis points. Running close to 2.1% would be a reasonable level, which is still below where we were just a few quarters ago when this indicator was closer to 2.4%, already reflecting portfolio adjustments under Resolution 4966, which includes securities.
I would like to remind you that these indicators already include securities consistent with the Resolution 4966 framework. No adjustments are being made here. Our expectation is for a mild and expected increase, which is mechanical in nature and does not raise any concern regarding cost of credit. In large corporates, the indicator remains stable. These are data points that we do not typically disclose, but I believe it's worth taking the time to discuss them. As I mentioned earlier, target clients currently represent close to 80% of our outstanding portfolio, and in the origination, they tend to be close to 100%. What I want to show you is how client indebtedness has evolved, excluding mortgage lending. This is because mortgage dynamics are somewhat different. That said, the footnote includes the calculation, including mortgages as well.
In many cases, clients replace a more expensive rent with a mortgage installment. Mortgage lending is collateralized with solid loan-to-value ratios and down payments, so we believe the dynamics are different for this product. Excluding mortgages, the indebtedness of our target clients, starting from a base of 100 in December 2019, reached 105 in January 2026. When we look at the broader market data, including our own clients, this index reached 123 in January 2026. This highlights a very significant difference relative to the client base we have been working with, reflecting responsible credit, a credit cycle perspective, portfolio management, and resilience. This is the client base on which we have built our reference portfolio. The market, in a broad sense, considering all other client segments, experienced a much stronger increase in indebtedness over the same period.
When we analyze our total client base, and here you can clearly see how relevant target clients are for us, the index moves from 100- 106. In other words, the difference is not material, and when compared to the market, by definition, the index is the same. This demonstrates the predominance and relevance of target clients in our client base and in the way we operate. This is the first information to show good client quality from an indebtedness perspective. Now, let's move on to the breakdown of delinquency. This is information we have never shared before. I felt it was important to present comparative series across selected products. Today, over 90-day delinquency in our personal loan portfolio stands at 5.1%. This reflects delinquency among our clients in this product.
In the market, delinquency in personal loans stands at 9.3%. More important than the snapshot is the trend. From December 2019 through today, we reduced this delinquency indicator by 21% among our clients, whereas the market increased by 18% over the same period. We observe not only a meaningful difference in delinquency level, but also a clearly opposite trend. In credit cards, the logic is the same. We report 5.1% over 90-day NPLs, which is roughly half of what we observe in the market. Over the period, we reduced delinquency by 8% following the de-risking process in the portfolio that we've discussed extensively, while the market increased delinquency in this segment by 56%. Once again, both the level and the trend are significantly different when we analyze the full picture.
In auto loans, our over 90-day delinquency stands at 3.5% compared to 6.2% in the market. While our indicator increased by 17%, market delinquency increased by 82% over the same period. Finally, in private payroll lending, a portfolio where we've been growing meaningfully, we do not have a comparable long historical series due to changes in the product's dynamics. Even so, we can show that our delinquency level has been running at 4.2% with pricing that is coherent, competitive, and responsible for clients. By comparison, market delinquency in private payroll lending stands at 7.1%. This once again highlights the discipline of our risk management across the bank's balance sheet and how we operate across our individual portfolios. Moving on to SMEs, we see information pointing in the same direction.
The first metric is the share of guaranteed lending across portfolios. From December 2019 to March 2025, our guaranteed portfolio increased from 36%- 55%. Looking at the same period only for micro and small enterprises, guaranteed lending increased from 37%- 70%. On one hand, we look at SMEs as a whole, including middle-market companies. On the other, we isolate micro and small enterprises. In this latter group, we see guaranteed lending growing from 37%- 70% in a client segment that is typically more volatile with higher failure rates. We have materially changed the profile of this portfolio by operating with significantly more collateral. In large corporates, we also have an important message following the same logic of portfolio management, long-term perspective, capital allocation, and risk management. First, the portfolio nearly doubled between December 2019 and March 2026.
We effectively doubled the portfolio size. What about client quality? First, we reduced concentration. The bank's 10 largest clients represented 20% of the portfolio in December 2019, and after doubling the portfolio, they represented 15% as of March 2026. We achieved growth in a much more granular way, avoiding concentration risk. Most importantly, we not only grew, but we grew with high quality. According to our internal investment grade assessment framework, where we monitor, measure, manage, and qualify corporate ratings, we achieved a substantial improvement in mix and quality, reaching nearly 80% of the portfolio in investment-grade credits. Across both individuals and corporate banking, including micro, small, medium, and large companies, what we see is clear evidence of our management discipline.
This reflects our view of an infinite game in which we must continuously build a sustainable and consistent portfolio that generates value, serves our clients well, and does so with much lower volatility than we observe in the market. Agribusiness is also a very important portfolio for us. There has been a great deal of discussion about the more challenging environment for the sector with pressure from commodity prices, foreign exchange, fertilizer costs, farmers operating with tighter margins, higher leverage, and higher interest rates. How have we built our agribusiness portfolio? Out of the total agribusiness portfolio, 31% is allocated to farmers. When we analyze this portfolio, nearly 80% of it is backed by strong collateral structures and robust legal instruments, which provide a high level of security in terms of credit quality and recovery potential.
Our market share in agribusiness is estimated. There is no official market share data for agro lending. Based on the proxies we use, we estimate our market share at approximately 20%. We then applied the same market share estimation to all Chapter 11 cases observed in the market in order to assess our participation in those cases. Despite holding an estimated 20% market share in agribusiness, we account for only about 4% of the total volume under Chapter 11. We highlight this 4% comprises products with strong collateral, and we can negotiate guarantees with clients much more effectively. As a result, our recovery rates and loss given default tend to be significantly lower, given the way these portfolios have been structured. This once again reinforces the reliability and security of our portfolio.
Regarding the portfolio by stage, when we look at total coverage ratios and loan portfolios for stages two and three, we observe only small variations with no significant impact. In corporate, we do see somewhat greater volatility in coverage for stage two and stage three portfolios, and the primary reason for this is mechanical. Every time we remove a client from stage three, typically through write-off, and the restructured portfolio is a good example, which I will show shortly, or when a client with a very high level of provisions exits the balance sheet through write-off, that client usually carries higher coverage. Meanwhile, new clients entering these stages typically do so with lower coverage ratios. This explains why we see some volatility in coverage indicators for stage two and stage three portfolios, which is entirely related to portfolio dynamics.
I would also like to remind you that we operate under an expected loss model. If we identify any sign of deterioration, we proactively build provisions. We do not manage our balance sheet through provisioning decisions. At the core, our models are robust, accurate, and reliable. Whenever there is an event or a forward-looking change in expectations or outlook, we typically recognize provisions accordingly, which reinforces overall portfolio quality. As for the delinquency indicators that I showed you earlier, they also reinforce a message I have been making for quite some time. There has been no change in our write-off criteria. Although Resolution 4966 allows for some flexibility in extending write-off time frames, doing so actually worsens delinquency indicators as it keeps clients classified as over 90 days delinquent for longer than appropriate.
Another consequence, particularly when you consider the incurred loss framework for provisioning, is that you end up with lower provisions initially. This creates a temporary benefit in credit cost, but results in worse delinquency indicators. We did not change our criteria despite the additional flexibility granted by the regulator. Our view is that recovery expectations have not changed. Therefore, we continue to apply write-off timelines based on our best estimate of recoverability, which is the same approach we used prior to the regulatory change coming into effect. Turning to credit cost, which ultimately consolidates all these dynamics, we do observe a nominal increase as previously noted. However, credit portfolio is expanding and therefore nominal credit costs are expected to increase. What truly matters is the annualized credit cost ratio over the portfolio, which has remained remarkably stable over the past several quarters.
This stability reinforces all the points I have been making throughout the previous slides. When looking at the restructured portfolio, as you can observe from what I mentioned earlier, whenever a large client moves to write-off, that client typically carries a very high provisioning balance, which also affects these indicators. This effect is usually visible between the third and fourth quarters. Still, this portfolio continues to decline. Overall, restructured and renegotiated portfolios also declined further and are moving in the right direction. Most importantly, the ratio of renegotiated loans to total loans remains very well behaved. We do not expect significant nominal reductions to happen very quickly. This process unfolds over the cycle, but levels remain fully acceptable and appropriate for the bank's portfolio. Now turning to expenses, I would like to highlight the main points. It is important to remember that the first quarter is always affected by seasonality.
Even so, when we look at expenses in Brazil, we recorded a 5.6% reduction compared to the fourth quarter of last year. On a year-over-year basis, expenses increased by 5.2%. We maintain our commitment to reaching our efficiency targets. If you want a reference, we continue to aim for the midpoint of our guidance, which implies annual expense growth of 3.5%. This is supported by a series of structural initiatives with a long-term perspective. This clearly reinforces what we have seen in previous quarters, a year-over-year downward trend driven by significant and structural changes across the bank. This is the key message here. Our efficiency ratio reached 34.9% in Brazil, once again setting a record at our lowest level for this metric.
If we adjust for the early dividend payment effect I mentioned at the beginning of the presentation, this figure would have been 34.4% in Brazil, representing a very significant improvement. Regardless of the adjustment, the reported figure is 34.9%, and for the first time, we have broken the barrier below 35%. The same trend is observed at the consolidated level. This is the efficiency ratio of a universal bank like Itaú Unibanco operating across all segments and regions. We are the most international bank in Brazil. This clearly demonstrates our discipline in cost management and revenue generation, building business models that deliver adequate profitability and are sustainable over the long term. Turning now to capital, we ended the fourth quarter with a CET1 ratio of 12.3% and AT1 capital of 1.5%.
During the first quarter, we delivered strong results, generating 0.8% in capital. Capital consumption related to dividends, interest on capital, and share buybacks amounted to 0.4%, while risk-weighted assets consumed 0.5%. We can therefore see that our core capital generation is sufficient to fund both capital uses and the growth of risk-weighted assets. We also show the impact of the 4-year phase-in, currently in its 2nd year, related to operational risk and certain credit risk exposures, resulting in capital consumption of 0.3%. I would also like to remind you that there is a phase-in, also in its 2nd year, related to compliance with Resolution 4966. In Itaú's case, there was zero capital impact from this transition.
We did not incur any capital cost from migrating to Resolution 4966 because we already operated with provisions for securities and expected loss provisions across all portfolios. The regulatory change had no accounting impact on the bank's capital. Finally, even after the significant dividend distribution in the fourth quarter, our objective was to start the first quarter with a CT1 ratio of 12%, which is the level we use as our reference for dividend distribution. This is above the board-defined capital appetite floor of 11.5%, and 12% is the level we consider appropriate for dividends. We also reached 1.4% in AT1. We ended the quarter with a very solid capital base despite all the impacts, allowing us to continue growing and paying a meaningful level of dividends with high profitability.
To conclude, I would like to promote our reports. We have made available our 2025 integrated annual report and our ESG report. This is an invitation for you to access these materials. They contain a significant amount of high-quality information that can address many questions directly. The level of detail is much greater than what we can share during earnings calls and Q&A sessions. I encourage you to review these reports. With that, I conclude the presentation of our first quarter 2026 results. As I mentioned at the beginning, this was a solid quarter with very strong profitability. Naturally, the environment requires attention. We must remain highly disciplined in managing our credit portfolio, monitoring conditions on a daily basis.
Most importantly, we have been able to continue expanding the bank, investing and advancing our digital and cultural transformation while maintaining a strong client-centric approach and delivering very solid and robust numbers, all in a sustainable manner. Consistency, lower volatility, and execution discipline, especially capital allocation discipline, continue to be core to the bank's decision-making process. This is why we have been consistently able to deliver strong results. I would like to thank you all once again for your trust and for your time. I will now join Gustavo and Gabriel for our traditional Q&A session. Thank you very much once again, and above all, for your support. See you shortly.
Hi, welcome. We are right back at the studio for the Q&A session. Before we start, we would like to remind you that this is a two-language session, so we will answer the questions in the language that are asked. If you need any support with the translation, our platform has the options in English and Portuguese or original audio. You can submit your questions via WhatsApp. The first question is Thiago Batista from UBS. Floor is yours.
Good morning, Milton, Gabriel, Gustavo. Congratulations on the predictability of your results. Very constant, very predictable. Question is about, well, the focus of Itaú Unibanco, the main banks, is the one that is less exposed with the client, with products. I wanted to hear your initial impressions on the program, Desenrola. Also Rede. Of course, there is the capture of payouts.
What are the next steps at Rede as well?
Welcome once again. Thank you for asking your question. Let me start by Desenrola, the program. Desenrola is building. The Febraban and banks and the ministry worked with the debate since the first date to understand what are the conditions that we would be comfortable to find the best product, the best deadline, the best discount, everything within a reasonability that would make sense for the client, for the system, for the market. Of course, it's a pro-program that is very concentrated in five minimum salaries. That's the range, up until two years with a discount that is predefined and with a guarantee of FGO for the limited 50% stop loss, so to speak. In our case, we are working actively.
Since yesterday, we are operating in the new program. It's evident that you just mentioned. Well proportionately, the public of the market that is eligible for this program in regards to our portfolio is less relevant in the portfolio of the bank, proportionately speaking. Without a shadow of a doubt, we're going to work in the best way possible. We're gonna try to get the best offerings for the eligible clients. In terms of materiality in the results, I wouldn't say that it's material given the size of the credit line and the recovery line of the bank. We're gonna try and service the clients well in this transitional process, given the level of indebtedness, the interest rate, the delays. We think that working alongside with the sector is good to service these clients well. This is the first thing.
Well, about Rede, it's important to make sure that you understand that the integration that we've done in the past was well done. The results are there. You can see. We fitted in the offering. We do not talk about Rede, we talk about receivables and payments. The integrated offering, we service the clients and their needs regardless of the product. The pricing is on the vision client, not the product. In the past, several companies were listed in the sector, everybody would work with a mono product and pricing. That doesn't make sense for Itaú Unibanco for a long time. It's another product, another offering to service well the needs of our clients. In the market share, in fact, we've had the results of the quarter. It's an effect of the mix that is important.
We had a higher volume of wholesale than retail. What guides the market share is the big accounts. The retail has more profitability in the business, but the one that directs the market share 2/3 is the big accounts. When you have big contracts, that moves the needle naturally. The most important news is that we are leaders in the sector for a long time. We are leaders in the market of the wholesale and also the retail markets. That's the main message. Market share, that's not our objective. It's a consequence of our actions. If it's well resolved, if it's well fitted in the journey, and we're servicing the clients well with a competitive value proposition, the share is a consequence.
In the big accounts, we avoid that discussion of renting the market share because you can get it with aggressive pricing below the exchange fee and the flag, and you receive that market share, it's costly to carry it over. We've seen that. In this quarter, specifically in the line of flows of payouts and receivables that we have in the revenues and services line, we had an effect, two main. The first was the mix that I just commented. Second, the structure of hedge that we use, because we do the hedge of the anticipations that are done because most of them are automatic, so we will work the transfer and the liabilities through time, and that generates volatility. It's not a 100% perfect hedge. It's impossible. Any change in the interest rate structure is the main impact in this line.
The part of the result of Rede is still in the margin with the clients. I would say that 97% of the 98% of the result is in the service line. In the next quarter, we are going to do the adjustment that is missing, which is bringing part of the result that is positive in this quarter so that all the result of Rede is in the lines of services and insurance, which would attenuate the numbers that you're seeing. Our strategy is best, offering vision of the client, price of the client, and vision of the payments and receivables. Amongst acquirement, it plays an important role.
Let's go to the second question with Bernardo Guttmann from XP. The floor is yours.
Good morning, Gustavo, Milton, Gabriel. Thank you for the opportunity.
Congratulations on the results. I wanted to understand the trajectory of the ROE of the bank. Itaú delivered 25% of ROE recurrent, very high threshold, even in a seasonably weaker quarter. When you see that profitability, the natural question is: how many levers do you still have to maintain or even expand this ROE through the year? In your opinion, the sustainability will come from margin of the client efficiency, mix of credit, revenues of services, capital. Is there any point that you think that the market is still not capturing well the capacity of Itaú in keeping that ROE structurally above the system? Thank you.
Thank you, Bernardo. Thank you for the question. Thank you for your initial words. Great to see you again.
Well, the issue of the ROE, as we always mention, and I'm gonna answer your question, but I'm gonna do it with a disclaimer. We avoid giving guidance of ROE because there is a lot of variables at the end of the day that affect accountability. Accounting, sorry. We like to talk about value creation, and that depends on the cost of equity, the cost of capital. In our opinion, the cost of capital is 14.5%. That's the best information that we have in our models, and we look instruments, perpetual instruments in the market. We have the modeling that is proprietary. The spread between profitability and cost of equity, in fact, is where we are focusing.
All the incentives of the bank are placed in value creation, so that's a relevant metric for management. That brings discipline, long-term vision, and always focused in the creation of value. In the guidance that we gave at the beginning of the year, there is a profitability above 20%, and we are delivering this ROE recurrently. If you ask me, do I foresee any problems in regards to profitability, if we work with the operations that we have right now? No, we're still gonna deliver a profitability that is important all throughout the next quarters. Of course, there's gonna be some volatility because there is an X amount of variables that compose the ROE of the bank. It's not just Brazil. Latin America, there is all the lines.
Speaking of the guidance, the best answer that I can give you, we are comfortable with the guidance that is there. We reaffirm the guidance. I think that the challenge is looking at the future, and we've seen with the service line, with the insurance, they're very much connected with the activity. That's where we're gonna see the biggest challenge at the end of the year because it depends on the activities of capital markets. It depends of TPV and credit cards. It depends on our capacity to continue to grow with insurance and, you know, it seems that we're gonna be growing the bottom line all years throughout the years. We double the insurance results. There is a dynamic of activities that is gonna be important in the future, the capital markets. We see volumes amongst 30%-40% weaker.
A lot of people saw that in the past. The dynamic in this line is that we're gonna have to observe closer in the next quarters. In the margin with the client, you saw the effects that I highlighted. The, the working days and non-working days, we have the working capital, so the margin core grows. Grows importantly. There is a guidance of portfolio that we are still comfortable with what was published. Cost of credit, which is also an important lever for the profitability, we reaffirm the guidance. Looking at everything else that we just published, we are still comfortable that we're gonna try and deliver the results that are implicit in the guidance.
Of course, the challenges are big, as you've seen, all the points that I've just mentioned, but we are still very disciplined and focused to deliver the results. I think the profitability long term depends on this variability of the cost of equity. If structurally the interest rate will drop in Brazil, assuming that the war ends, that the exchange rate is in the threshold that is current, that inflation subsides, the Central Bank can do a relevant monetary adjustment that will open more activity, will improve the COE. It's not just the interest rate here in Brazil. It's the interest rate, the environment, institutional environment that makes the price and the cost of equity and legal security.
If we can work well with that, it's expected that part of that spread between the COE and the ROE will go to the client, so we can be more competitive and the efficiency agenda is vital, so we can have more conditions to compete and more pricing power, and maintain a part of that efficiency that goes to the client. That's not a conclusive answer, but an answer that is general and we are very comfortable with the profitability. We will deliver the profitability above 20% without giving any guidance with the ROE. Okay, let's go to the third question, Marcelo Mizrahi, BBI.
Hello, everyone. Thank you for the opportunity. Thank you for getting my name right. Question about delinquency.
The macro data that we've seen, the delinquency has been intensifying, and that slide that you just mentioned is great, we can see the difference of how the bank is performing in regards to the market. The bank doesn't run alone. I wanted to understand, looking at the perspectives of the year and the portfolio, you said that you're at ease with the guidance. The dynamic of the beginning of the year, the first quarter, in regards to the dynamic of the guidance, the quality of credit of the market itself, is it better, is it worse than what Itaú expected when you assembled the guidance?
From the standpoint of macro, of delinquency, the issue worries enough so you can be more cautious and have more difficulty getting to the guidance of the growth of credit. How do you see specifically delinquency of the natural persons in the beginning of the year? As Well, we see that the numbers of the bank are doing well, but the growth of the portfolio in the next quarters. Thank you.
Thank you, Marcelo, for the questions. Well, objectively speaking, the conditions from the past to now are worse than the beginning of the year. Objectively speaking, before we talk about the portfolio itself, macroeconomics are worse, specifically because of the geopolitical events. January, February were months that were very much aligned with the guidance and right at the beginning of February. From then on, there is a war in the Middle East, volatility in the price of oil, more uncertainties in regards to inflation, in regards to the price of energy. Transportation, all the issue of fertilizers in agricultural manufacturing chain, deceleration of global growth, which impacts Brazil naturally. There is a series of new factors that didn't exist at the beginning of the year when we did the guidance.
On the other side of the same coin is this, the discipline of doing the provisions tempestively. Of the cases that we've provisioned throughout time, these are cases that we know and we've planned to have done advances and provisions, depending, of course, on situations and new information, new situations throughout the year. Number one. Number two, our portfolio by definition was built with a more resilient public to the cycles that we're seeing right now. Evidently, the interest rates, with restricted interest rates, they generate effects in all segments. As you said, we're not isolated from the world. We have a credit portfolio of BRL 1.5 trillion, BRL 1.3 trillion in Brazil, it's evident that any worsening can have an impact in our portfolios.
Having said that, the portfolio was built in such a way that is so resilient, so well managed from the standpoint of allocation segments, public, sectors, volatility clients, that we understand that even so, with this information, the best information that we have now, the guidance is reaffirmed. Our indications of delays are well behaved. The first quarter, which is a relevant indicator for the natural persons or individuals portfolio, is important. Well, you talked about the opening of the short term. It gives you a good visibility on how we are doing and the performance, so we expect that with the expected loss is fundamental, and the expected loss is impacted by the short delays, delinquencies. In the first quarter, we had a better second quarter of the, of the series. It wasn't better from 2023 to 2024.
23 basis points in what we say a pressured quarter because of the commitments of the family at the beginning of the year. Our expectation is that the long delay, specifically in the individuals, is stable throughout the year. We do not see materiality 10 months, nothing too relevant. In small SMEs, the portfolio is performing very well. The data given the characteristics that I just described, we expect that it can be 210, 190, something reasonable to imagine we're not seeing a worsening that is not the mechanical effect of the government programs and the big companies are event. Here is more difficult for you to foresee. We try to foresee as best as we can because we look at the balance sheets we discuss with the companies. The management of provisions is super tempestuous, but events take place.
Rarely the client leaves from stage one to three. Rarely it occurs, but it occurs. We've seen in this quarter it happened. The most important thing is to be tempestuous in doing the adequate provisions and migrations and having a solid balance so we can face the waves up ahead. Besides the DRE, which is looking at the results, the patrimony accounts, provisions, and the balance is very well robust to face the challenges for the future. The scenario from then to now is worse than at the beginning of the year. We are here with all the radars turned on and operating in the best way possible. Next question, Gustavo Schroden, Citibank. Gustavo?
Good morning, Milton and Gabriel. Thank you for the opportunity.
Congratulations once again on the solid results and the predictability. Wanted to explore the growth of the credit portfolio in two specific products, Milton. The private consignado and payroll loan and SMEs that you're growing. In our reading, there are two things, two points that we would like to think. In the payroll loan, consignado, the private, there is the creation of caps. Last week, we had a specific point about the cost effectiveness. See the issue of appetite in the private payroll loan and in the small, medium, micro companies. The issue of the support to the government programs has, we know that that has helped in the delinquency in that sector. Even so, as you highlighted, we expect a worsening 10, 20 basis points in the portfolio.
Do you foresee sustainability in the government programs another 1, 2 years? That would be my two questions about the two points on the credit portfolio.
Thank you, Gustavo. Great to see you again. Let me start by the order of your questions, the payroll loan. First point that we'd like to highlight, in way back when the product was launched, I had co- talks to investors. I talked in the, in the call itself, I talked to investors of how the bank sees the evolution of the payroll loan as CLT. First, Itaú was a leader, 30% of the market. It was a market of BRL 40 billion. We understood that there would be an expansion of that market.
It would be natural that we would lose share through the cycles, but we would still be more relevant in the co- payroll loan private, not from the standpoint of share, but volume of the portfolio. In fact, that happened. When I look, if you look at the records, we are the leaders of the payroll loan private with a large advantage in regards to the competition, and we assumed the market share today, which is above 20% with a portfolio of approximately BRL 20 billion, a portfolio of BRL 12 billion when the program was launched. We had a growth of BRL 8 billion approximately of portfolio with important productions throughout the period. The strategy since the inception was important for us to get here. First, be able to launch with the launch.
The cost of modernized platforms technology, we had an advantage comparative of starting right at the beginning. It wasn't necessarily in this way for the system as a whole. Of course, that generates a comparative advantage, but that is not the main advantage. Historically, we always evaluated very well. We've had harsh learnings in the past and the company's portfolio as a whole, we had difficult cycles in the retail and wholesale and this logic and risk matrix, which is the risk of the companies with the risk of the private. This combination is very important to define what is the equity play, where we want to work and where our strategy is gonna be built. It's in this strategy that we designed the portfolio from then on. Two important commentaries.
Well, delinquency, I just talked about over 90. It's substantially below what we observed in the market. Two, we have a strategy that is very focused in the clients that have bank accounts in the bank. We know them, we are the main one, we can manage the risk management in a different way. Growth was given there. If you see the average rates practiced, you can see that in the list of the banks, ours is the second to last. Second cheapest rate that is offered to the bank, to the clients. Two issues. First, focusing on the client, which is what we are defending. If this is the best product, I can service the client in the best way possible, and I can have the lowest price, why am I not offering this product beforehand?
That's the first decision that we've had. If I can work with a level of guarantees that is a combination of the individuals and companies, I have to operate with competitive rates because delinquency is gonna be lower and the value creation and return is gonna be very adequate. Lastly, we have to understand the full offering of the client. I don't see this product in an isolated way. I look at this product, and I look at all the offering of credit that client has, all the products, so we can do a pricing and a risk management with the vision of the client. I do not ignore.
Lastly, there is always a risk because if I don't do this with my good clients or the clients that we justify that we need to grow, all of the targeted ones, somebody does it, I'm gonna be subordinate. We look at the total risk exposure, but we look at subordination that is very important. The issue of the cap, which is your question, the impact is irrelevant. Regardless, while being very transparent, we do not think there is adequate caps, to have caps in credit operations. We know that that produces something artificial, and you remove products of the market. This is a product that is more adequate for competitive prices.
Having said that, for the mechanic of the cap that is established in our portfolio, so with the data that we operate with the lowest rates of the market, our rates, average rates are below the average rates practiced by the market. There's gonna be some convergence, and it's gonna be the calculation of one standard deviation. I think that that calibration is gonna be fundamental because the risk, we rather calibrate lower getting the cap as we work with the other products that, you know, remove the other products from the market, the INSS. This is the more competitive credit. I have that issue in regards to cap for our portfolio. In the way that we are growing, we're very comfortable with the current conditions. That's one of the questions. On the payroll loan. The second question was SMEs.
We talk about the government programs. The programs were very well successful. PRONAF, FGI, Procred, we worked once again focusing on the client. If I need to service the client well, I need to get them to access, give them access to more competitive products with the best prices so they can have capacity to prosper in the longer cycle. We are leaders, the availability of those government programs, all the clients in all the programs. This year, last year, there was a return of the FGI because we proposed at the time for BNDES, for the government, a higher utilization of the first laws that were established, we can do a leverage that is even bigger. The government is aware that we have opportunity, we have a preponderant role in this.
Especially Aloizio Mercadante, and others understand this dynamic, and they propose the relevant volumes for the FGI. We applied resources. The thermal sensation is lower, but however, recently with talks with the Ministry of Economy, they understood the difficulty of this program. They had an additional investment, BRL 2 billion within FGI that brings to the market another BRL 25 billion of lines. This is the first of many that can happen throughout the year because of the programs. Government programs, the most efficient were PRONAF and FGI. With the information nowadays, we don't see any stoppage, abrupt one. We are gonna keep sustainability, but at some point, they're gonna have to do a transition of the portfolio, and it depends on the appetite of this government. The plans that are up ahead.
We are gonna have to follow closely and it's difficult to see for the future, but at least for the current year and the next one, these programs are gonna be relevant with the service, with the clients and delinquency. The mechanic delay that you commented, it has that effect of the 10, 20 bips. It doesn't generate that effect with the expected loss because the guarantees are very strong. It doesn't affect the cost of credit.
Well, next question. Renato Meloni, Autonomous Research, the floor is yours.
Good morning. Congratulations on the resilience of the results. The scenario is difficult. I wanted to focus on the individuals portfolio. In additional information, I'm looking at the graph that you're seeing of leverage of individuals.
What is your expectation within the cycle in terms of increased reduction maintenance of this indicator, which is important? I am thinking, given the focus that you are doing with the selected public, at one point do you get to a limitation of growth of these portfolios? If you can also expand on your comment about the SMEs thinking about the cycle. Another one, two years, these programs can sustain a similar level of growth, but when that extends or extinguishes, do you think that the cycle of credit can be at a moment that is more prolific and even leveraging? Can you expand more on the universe of small companies that you are lending money? Thank you.
Thank you, Renato. Good to see you. Thank you for your question.
First, in the credit portfolios of the individuals, we still see the capacity of growth. We've grown two digits. We've managed to get into the clients that we wanted, that we had the opportunity of growth. Always getting into this logic of target clients, long-term view, we are very comfortable with the strength, the capacity of growing in this resilient public, n umber one. Number two, I think that the migration that we've done of One Itaú brought opportunities that are gigantic. 50 million clients. There we didn't have a full bank relationship with the clients.
We've seen a great deal of this growth that we've observed, Uniclass and mainly Personnalité come from this public that didn't have one product with us, and now over 60% of the base has three products with the bank, which shows that we are starting to operate with the client that are monoline. They didn't have a full bank experience. Now they have a full bank experience. That is a lot of volume of clients and opportunities for us to continue to grow with. We are growing well in the market. As part of our strategy, we are growing in the segments that we are giving focus. We've grown with our products. Now, let's talk about the vision of the payroll loan.
The mix of funding, if you look how much do we have in the savings and the real estate, the structure of funding growing with the prices, imagining that the full market practices the same one, the marginal cost of capture gives more volume of the savings and less allocation in the map. It brings competitiveness in the price. In the same price, our return is higher by definition, and that strengthens obviously the franchise and the relationship with the client. We will naturally continue to operate with the products that we operated. Clean, the payroll loan is an important lever. The real estate as well. Some products that we've been cautious. Vehicles, for example, we've seen volatility. We are servicing the clients, and this is a more volatility segment.
The credit cards, regardless of the de-risking that we've done, we've grown in a relevant way with a target public's transitionality that is very relevant. I see opportunities to be able to grow. I don't see any limitation. There is an additional fact that I'd like to state. At the individuals, we see nominal reductions in the cost with an inflationary pressure that is enormous. Just with the tying with the cost is an extraordinary result with all the pressure that we have with negotiations, the banking inflation, which is higher than the IPCA rate, even though with that, we've worked very strongly. Why am I saying that?
Itaú Digital, which is where we work with the client, where the digital service is preponderant, it starts to work with an efficiency level that is ever more competitive, and that generates options to work with publics that I couldn't serve as well because my efficiency level didn't allow me to assume additional losses. As we evolve in this agenda, I can work with publics that I didn't work before with the same appetite and competitiveness. Opportunity to grow in the private persons is enormous. We still see Opportunities, and I am very happy with all the investments, refreshments, and the strategic vision on individuals. We are working along with the plan, but this is a year that is important for the execution. I am very optimistic about our capacity to deliver and long-term view.
SMEs, which is the second point of your second question, it's very difficult to foresee where these programs end. The program is definitive, so we don't have that discussion of the commitment of resources. FGO depends on the appetite and the conditions of the market. If in one or two years we have a situation where the small and medium are going to need support with the government programs, it doesn't matter. I know that they're going to understand the effectiveness of the program, the cost of elevation of the public resources. It's very difficult to say where and if these programs are going to decelerate. With the information that we have now, they're going to continue to exist in a relevant way because they've been very effective, specifically for the SMEs. Well, in the segment of middle, outside of that, we grow with less dependency on these programs.
The participation in the portfolio is a fraction of SMEs. SMEs, we know that these programs are key for the growth with quality, competitive pricing, adequate deadlines for the needs of these clients and with risk portfolio that is well-defended. The next question, Daniel Vaz, Safra.
Thank you, Milton, Gustavo, Gabriel. Thank you. Congratulations on the resilience of the bank, and thank you for sharing new data on the credit. It's important to see a bit of how you're working with the capital, quality of credit. I wanted to explore two themes that we usually do not mention, which are vehicles and the payroll loan, INSS, and vehicle loans. Vehicles, the hiring of the bank, they dropped 13% year-over-year.
In the market, if you look at the level of BNDES, the disbursement grew 25%. It's very big in terms of financial activity. I wanted you to make me understand better the vehicle loans. Is there any opportunity of attack? How do you wanna position from now on? If the product has some gaps that you don't like, guidance, you know, if you can explore in the call. Second, in the payroll loan, yeah, INSS, we had important changes with this Desenrola 1.0. Well, with the new margin of the payroll loan, at least 35.5, which is 45 with credit cards now to 30 in five years when you're gonna have the phase-in of this new regulation.
The credit card losing importance, and it does that opens more space to play with more or less with this product in this new regulation. Thanks.
Thank you, Daniel. Thank you for the question. It's great to see you. Vehicles, as I commented very quickly in the last question, this is a segment that we work a lot. The bank was a leader in the past with relevant volumes. In the past, we've had the portfolio of BRL 60 billion with nominal values. If you mention the values today, over BRL 100 billion, if we've just did the correction of the revenue in the past. Well, this is a segment that is very volatile. When you see the commitment compromise of the income of the families, we've seen restrictive interest rates, the financing of vehicles naturally becomes more risky.
Second, recovery of the guarantees. There is a new legal framework, but there are still stages to be fulfilled, the legal proceedings. It's not operating in full power under the best conditions thus far. I always say that the vehicle is a real guarantee with wheels, so you need to find the vehicle, and the recovery rate is not so high. The market, secondary, it changed the dynamic of the prices. In the past, what was the strength? The market was practicing high prices. We see a convergence in the prices, and the spreads are very tight.
At the end of the day, our logic for the value creation and capital allocation and risk management, we think that this is a business that is less promising, so to speak, from what we see in other businesses and we see opportunities. Having said that, we wanna service the clients very well. Our client that has a good risk, that wants to do the vehicle finance, we need to be present. We need to service the client with a one-stop shop. I need to offer the client all the products that the bank has. Financing is one of them, of vehicles. Getting the first or second place with a reseller, with a competitive market, assembly lines getting into the used, banks increasing the deadlines with the used vehicles, very strong competition. We rather lose share than lose money.
That's our strategy, in the end, to be very disciplined in the risk allocation, even though that produces the effects that you commented, reduction of share risk. This is something that we're very comfortable because we think that the risk-return relationship is not adequate, so we rather reduce the portfolio. That's the first point. Second point about the INSS payroll loan. That decision was made with Bacen. It's in the best interest of the families to try and get the level of commitment, compromise of the income through time. It's a transition. These are new information 48 hours ago that we received this information, so we need to understand the impact in our portfolio. It's early to say because this is a transition that is long. You do it at the beginning, the reduction of the 45-40.
You bring the five plus five, the 10 to the credit card to the limit, but then you have the reduction of 2 percentage points in a year getting to 30 in five years. That's the end game that you mentioned. Let's try and understand how that can be, and this is an opportunity because we do not operate with the payroll loan credit card. The INSS is important for us. We practically just produce at rate. We do not produce with the others because of the caps, the commissions, the financial balance. If the return on capital was below, then what it should be, we see players aggressive with the conditions. It's more focusing in generation of revenue than return of capital, and we are very disciplined in regards to that.
The caps have removed publics from the market. With the reduction, structurally of the interest rates, it depends on the evolution, the reduction of the caps. We can maybe or not, depending on the decision on the cap, to bring new publics for the market. There is a review of the blockage of benefits, the review of processes. We are working strongly with the clients to facilitate this process. We managed to lead in terms of production the INSS market, through the network of the bank.
Next question, we have Mario Pierry from BofA. The floor is yours.
Good morning. Great. Thank you. Congratulations on the result. We understand that this scenario in Brazil, not just Brazil, but is of uncertainty. It's interesting to say that the bank can see, the thresholds that are stable.
The question is regarding the efficiency level. You showed in Brazil there is an efficiency level of 35%, and you've seen I think that you reduced the number of branches in 15% in the last year. The headcount just dropped 5%. I'm thinking here, in terms of still being able to see improvements in the efficiency level, the bank should do a more, should reduce more people or more employees. Do you see that, or is there still a space to improve efficiency with operational improvements, reviews of contracts, et cetera? Getting your perspective, what is the threshold that you can bring this efficiency level and to have improvements, should you have more focus in the reduction of personnel?
Thank you, Mario. Great to see you again. Thank you for the initial words.
I always do the disclaimer that this efficiency level is really in a consolidated. We need to look at the breakdown between wholesale and retail. Wholesale, wholesale with LATAM working with an efficiency level lower. I would say in the world of wholesale, to simplify, we run benchmark, global benchmark. We are first quartile, first tenth in efficiency level. Without opportunity, we are very disciplined to understand the highlighted by artificial intelligence, how can we advance more. This is a constant agenda. In the retail, it's a game changer, the efficiency level. Every plan, I always say that even though the cost of the bank grows, and let's get the middle point of the guidance this year.
Even though we grow 13.5%, if we look in the inside, the thermal sensation between the several businesses is very different. In the, in the individuals where it's important that we reduce the efficiency level, and we got to 40%. That was an important reduction quarter-over-quarter, 40% of the efficiency level. When I look at individuals, I can observe that that's where we need. Well, I'm talking about, you know, retail as a whole, 40%, and then there is companies and individuals. Individuals is where we need more competitiveness. We see cost in this quarter. There is nominal reductions of costs in individuals, and this is very important news. We still believe, and there is important space to do the assessments.
This goes through a revision of a value proposition, business model, Itaú Digital, more, more focus. Adjustment of footprint, 98% of our transactions are digital, 97%. The flow of visitation to the branch has reduced from the pre-pandemic to now 70%. That's the reduction of the monthly visits to the branches. It's where the client is going that we are analyzing. It's not simply making a decision of reduction of branches. It is how adjusting our model to best service our clients and having a more digital service specifically with these publics where the efficiency level makes all the difference in the service is fundamental, so we can open the options here. This review of the model is being done as we speak.
It's natural that it happens, and this is highlighted by all the technologies and so on. We should see an efficiency level of the retail dropping through time. We expect, obviously, the revenues are different than while there is a cap with the interest rate, with the. This is where we're going. Gabriel has been the leader of this process with all the executive committee, with all the areas dedicated, so we can take that efficiency level to the place that it should be. Of course. The rest is a consequence of the strategy. What is the model if it's full digital, if there is a remote service? How do we service the high income, middle income? Every segment is gonna have its position.
In the last quarter, I brought you a slide that shows the segment that we are reference in efficiency segments where we need to gain operational scalability. We are very excited with the advances, and this is where we're gonna go. With quality, with a digital structure that is ever more powerful, high NPS, the eNPS of the workers and higher thresholds. Absorbing the turnover with good quality and the communication is fundamental so we can go through this bridge, and I'm very optimistic that we're gonna get there very strongly on the other side. Next question. Yuri Fernandes, JP Morgan.
Good morning, everyone. Congratulations on the execution of the strategy. Let's go back to the point of ROE. The question is ROE against growth. We know that there is a growth. There is a choice to keep an ROE that is high.
There is rewards. We've seen that in your lines. The bank has kept that ROE. We talked about the good capital allocation rationality. I wanted to ask you about the balance because when we see the most negative point on the quarter, well, the most negative point is the FII's lines. The FIIs, they seem transitory. You know, checking account, it should be normalized, or even the fee of issuing the credit cards, very pressured because of rewards. If you can comment, Milton, on how we should think about the bank in terms of ROE against the growth. Because to me, 2026 is a year of transition. Different pressures of fees with an ROE that is very high, but at one point, with the cost of service can accelerate the growth.
I don't know if the ROE is gonna decrease eventually and the bank is gonna gain market share or gain market share in other products outside of the opportunities that we're discussing. Generic question, structural, I wanted to hear from you to balance this high profitability against growth.
Thank you, Yuri. Great to see you. Thank you for the question. Our logic here is to grow. That is the dynamic of the bank. My objective is not having a smaller bank with more profitability. The combination of both on the long term is what we seek every day. Think that BRL 1.5 trillion in credit card portfolio, BRL 1.3 trillion in Brazil, we have testing and the capacity of testing and understanding how we're gonna pilot our growth and where the opportunities inlay.
Even in the cluster that we close of risk, we still have a percentage open to test and be careful that we're not making a type two mistake, which is not approving a good credit because we think that from the standpoint of risk, it wouldn't be worth it. We have testing happening as we speak in all the places of the bank. Number two, profitability certainly is very relevant for us, and we haven't seen opportunities of growth that are not being used, are not growing to increase the ROE. Cost of capital is there. You can see it. We operate. Restriction of profitability is not that. What restricts the growth is risk. That's the main factor, specifically for credit. To grow a portfolio is very quick when you open the credit.
You spend two, three years explaining the delays, paying the provisions, and having to decelerate in a publish that you want to decelerate and consuming the capital in an adequate way. That discipline is key, is a strong balance with discipline. It's a balance that wants to grow, but wants to grow within the opportunities that we understand that are sustainable in long cycles. We do not see any restrictions or growth. When we talk about the line of services of business and insurance, I commented, this is a line that what we've seen in activities, specifically the capital markets, there are challenges. Consumption will have its challenges. The TPV of credit cards in the quarter has a seasonability because the fourth quarter is very strong. It pushes for the exchange. The first quarter, there's an adjustment of seasonality.
The indebted families are paying the Black Friday and Christmas, and you have a natural trend of less usage in the first quarter than the fourth quarter. This is important in the credit card. On the other hand, the rewards, we still have the yearly payments. We are reducing them. Today, the rewards program costs more than what we had the results, and this is by design. This is a decision that we made many years. We're still gonna go this. We're gonna reduce clearly what we call the risky revenues that generate an attrition with the client and reduce the lifetime value. Because if I defend these tariffs, on the short term, this transition is soft, but in the long term, I'm gonna lose a client. Doesn't make sense. We don't want to lose a client.
We want to increase the time of relationship and the being the main ones for the client. We open the credit card, the checking account with the individuals to show the direction. I'm now discussing with the regulator the re-signification of 339 tariffs. This is not the discussion. The debate is to find new ways of taking packages for our clients that generate value, that are perceived as value and not cost, doesn't generate attrition. The packages that are being developed for all clients have this logic of taking. We buy in the wholesale, we deliver solutions, streaming, restaurants, a series of other benefits. The advantage programs that we've been working for a long time, you end up rewarding the relationship with the client and the engagement on the long term.
We're very comfortable with this growth and the rewards program that we have. In all the segments, they have a good penetration with relevant results, very well managed, so we can have an adequate balance. Those revenues of yearly tariffs and tariff on the checking account, individuals paying for the Pix in the companies, this is our tariffs that we are doing the transition for a long time. It's a negative force, but it brings an X amount of benefits on the long term, mainly the reciprocity and the relationship with the clients. That's the service line. Insurance, on the other hand, the penetration has grown over the last years. This year is not different.
Whether if it's life insurance, or others integrated offerings for our clients, increasing the penetration, we've seen a lot of opportunities in other publics that are not explored. Insurance is growth above 10%, 15%. Easy looking at the future, we still want to grow the result and the bottom line. Services depend on activity. The capital market's 34% weaker. Of course, they're gonna affect this line. On the other hand, the advantage of being a full bank is that you have another complete portfolio that helps you manage these types of situation. You're not doing well in one line, but you have a better one with the margin with the client, but you have a cost of credit that is very adequate, or you can get levers of cost where you can work with better efficiency.
This is where we're working with, but there are pressures, and we need to deal with it.
Ninth question. Eduardo Rosman from BTG Pactual.
Good morning. I wanted to ask about artificial intelligence. Very difficult from us from the outside to see how tangible, who's gonna be the winners or losers. In thesis, those that are doing a good digital transformation, such as you, should have a big advantage in the implementation of AI. I wanted to ask Milton. Milton, what would you recommend for us, the analysts? What should we ask or observe for the executives and the numbers of the banks throughout time to have a good reading of who is moving ahead?
Great to see you, Rosman. Thank you for the questions. I read your report. Thank you for the points that were done.
First, we didn't agree on this, but I'm gonna use this question for marketing and the official launch. We, in the next weeks, in the next days, we're gonna launch the first acquiring machine, the orange one powered by AI, with an AI integrated system in the machine, a conversation with the tenant. The first one powered by AI with NPS above 90, adoption above 90. This can be a game changer in this world of payments. The inception is integrated AI. It evolves for the conversational. For a series of other points. I tested it myself. I have a great appreciation of Rede because I was a CEO of Redecard in the past. I talked to the machine, I tested it, saw it.
It's impressive how you simplify the experience of the salesman, the tenant, the restaurant, and it facilitates the transaction. It's quicker. I'm very excited about the launch. Briefly, you're going to have news. We're going to do the press release. Thank you for the question. Let me tell you what I think. What you need to get in the end of the day is get the results. On our side, instead of being the race for the biggest number of models under production, this is not translated into concrete relevant structural results. I think that the organization of the bank has been given in terms of these are the levels of the organization, starting with the executive commissioner.
The bank needed the clear definition of what are the layers, the enablers, what are the levels of clients, how do we do this cross? It doesn't matter that one area advances quickly if the other corporate areas do not work with the same speed. We proposed ourselves to do Itaú, the foundation of the intelligence of Itaú in the bank. We assembled the guardrail, internal guardrail, so we can guarantee that we can take the model, in the vision of the client without having hallucinations at the end with these models of AI. Other management to guarantee the adoption and knowledge of the bank was done. More and more, the employees have access to information. We define clearly what are the big projects and what are the most structuring and relevant for the bank.
It's impressive how the applications have brought results. From the standpoint of the customer experience, they asked me about the NPS. Help with the answer. The app has a fundamental role in the digital strategy of the companies. It was born out of a limited scope, so we can do testing and evolve the solution. It's a relevant pillar of the of the companies where we're gonna leverage in a digital way the great part of the basis powered by AI. Specialist in investment, we are launching where we are gonna have access. I know that you don't have a checking account in Itaú. I imagine that you have it at BTG.
I recommend that you open an account in Itaú, and then you test it, and then you're gonna have your DNA fully analyzed, and you have a conversational analysis with the bank. This is game changer for the bank. You're not a transactional, and you have a consultative, hyper-personalized bank. In all the areas, going through finance, IR, analysis, legal, HR, all the areas powered by AI and several processes. What you need to discuss with the banks and understand first is the result. This has to be translated into bigger efficiency, more capacity for the generation of top line, more productivity, naturally, of the teams because you bring solutions to the teams, and it's with, not or. It's a combination of the human with being able to provide more consultiveness with more quality, and it's gonna make a difference.
In the credit models, we've done with a partnership that is relevant, and we have an investment with a company that has created models for LDM, which are the large data models, not the large language models. Here we worked in relevant fronts. Modeling of credit fraud is one of them. CRM is the other. All of that will bring more productivity, more accuracy, more tempestiveness, more efficiency. That will be translated with numbers at the end of the day. If I tell you everything that we are doing and the results are moving along, these are structuring or there are improvements that are less relevant. In the medium to long term, the changes can be transformative. We need to be able to communicate this to the market so you can make it tangible in what we are doing.
I mentioned a series of initiatives, the Pix, with WhatsApp. There are game changers that are relevant being done at the bank, and I am certain that we will be able to show this with time. Rede is a clear case of what we can do with artificial intelligence, changing the experience of payment with our clients.
Now we switch to English as we have Tito Labarta from Goldman Sachs with us. Tito, the floor is yours.
Great. Thanks, Gustavo, Milton, Gabriel. Thank you for the long call and taking my question here. Following up a little bit on Yuri's question on growth, looking at your guidance here, and I know you had some seasonality in the quarter and the payment of the dividend impacting particularly financial margin with clients, and fees. How do you You know, your guidance 5%-9% growth for the year. You're at the low end or a little bit below that on the fees. Insurance I know was a bit more resilient. How, how should we think about the rest of the year and your ability to deliver, say, maybe a bit above the low end of the guidance, particularly with some of the increased concerns on credit quality? Appreciate the charts you gave.
Certainly, you're in a much better position than the system. Just given those concerns, how do you think about your ability to perhaps accelerate growth through the year and maybe have these revenue trends be a little bit above that, the lower end of that guidance? Thank you.
Yeah. Hi, Tito. Good to see you. Thank you for joining us in the call. It's always a pleasure to have you here. Let me give you a little bit more details on the guidance. I think it's still the first quarter, but of course, we do have our forward look to make estimations in how should we end up the year. We're still comfortable with the overall guidance. I think in portfolio growth, we are comfortable, even though we still have challenges ahead. Let's see how it works out in the coming quarters. Financial margin with clients, we think we've been delivering.
It's possible for us to get to where we want due to the level of our portfolio growth, spread. On the liability side as well, investments, we've been performing very well. Recent figures coming from the market, we've been gaining market share. All in all, I think in financial margins, despite the event that we had only in the first quarter, and we had some calendar effects as well, I don't think we should have any issue. Cost of credit, it's always I always knock on wood 3 x here just to be sure that we will be able to deliver. With the informations we have today, we are comfortable with the guidance in cost of credit.
The only one that I see more on the lower end, it's on the service and our results with insurance. This one I mentioned now a few times. I think this is more challenge for the year. Okay? On the insurance side, very positive. On the fees in general, the market and the activity has not been as what we expected, especially in the DCM side, which is very relevant for us due to the level of market share we have. We're still dominant in the market, we still have a relevant market share, but it's not related to our performance, but more related to the market performance. This is an over-overall impact. Also, it's important to highlight, we have the performance fees on the asset management.
In a year with much more volatility, as we have been seeing, this is more challenge. As is challenge for, the financial market, with in the treasury side, but we've been able to deliver, although, despite of the volatility we have. In the asset management, perf fee is relevant. Second quarter and fourth quarter, it will depend in our market performance. It will depend on the volatility, it will depend on geopolitics, it will depend on interest rates, so, all the markets where we, take position. I think those are the lines, where we have to keep an eye on. TPV, has to do with, consumption, with the capability of the families to consume, and this will be relevant for the issuer, this will be relevant for the acquiring company.
It will depend on activity at the end of the day. If you ask me if I still confident with the guidance, the answer is yes. If we believe that we can achieve the level of profitability that we expected at the very beginning, yes. If we can achieve the bottom line that we are looking, and of course, the geography may change in lines, but we're still working hard to deliver the profit as we expected. The lines in terms of geography, I think, the profit, the results coming from services and insurance, they will be much more to the lower end than the other ones. This is the one that I think it's in risk. I'm not changing the guidance.
If I have new information in the coming quarters, and we believe it's the time to make an assessment on adjustment in the guidance, as we always do, we'll be transparent and upfront if there's any change needed. We're still comfortable with what we have here.
Great. No, that's very helpful. Thank you, Milton.
Let's go back to Portuguese and Henrique Navarro, Santander. The floor is yours. Navarro, your microphone is not Okay. Okay.
Hi, everyone. Sorry. Thank you for your time and for the opportunity. My question is about delinquency. The market has been very worried about the cycles. Actually, two questions. The first one, from what I can understand, correct me if I'm wrong. From what I understand, you are seeing the peak of delinquency coming maybe in the second and third quarter, we're gonna see the peak of delinquency at Itaú. This number shouldn't be a number that is frightening. Maybe deterioration of another 20, 30 basis points in delinquency. That's the first question. If really we are close to the peak, and that peak might come in the second, third quarter, and it's not a number that will frighten you.
Second question, thank you for the information that you just gave on slide eight, was very useful for us. It's clear that Itaú has an advantage in comparison to the sector. My question is, where does this come from? The explanation can be the products, but even if we get the segmentation and products, it's still in the math of Itaú that you're doing a good service in the management of risk. My question is, where does these numbers come from? The digital and, you know, the question of Rosman, is it AI, data lake, the way that you're managing that data lake? Is it really digital or AI with an advancement in the AI becoming a commodity? Do you foresee a risk of a competitor getting to you in this excellency?
Do you have more to gain with the evolution of AI because there's still a lot of things to be done in terms of improvement and image of that risk adjustment?
Thank you, Henrique. Great to see you. Well, about delinquency, I'm gonna try with all the caveats that things can change. We are in a very dynamic market. I would say that my expectation for the delinquency rates for the next quarter is our stability, are very stable. I'm not even anticipating the peak. I am saying that we are structurally in thresholds of delay over 90 that I am confident and, you know, 10 basis points up or down, stability. So delay over 90 with the private persons, with the information that I have today in regards to stability. Of course, if changes come, if the market is more challenging, we're gonna warn you. We are gonna have stability with the private, with the individuals.
It's five or plus 10 is very stable, given the thresholds very much lower than what the bank worked below in the past. The generation of top line has changed. We cannot imagine that you're gonna work with the same level of cost of credit that you operated in the past where you could extract more value. There were caps, there were other products. There weren't those. Here you have more dependency on the credit than you had in the past, so you need to deal with delays, with lower thresholds to have the profitability level that is adequate, and we see the line adjusted to risk.
Combination of both. We grow the financial margin of Not financial margin of PDD. We cannot deliver the top line and deliver with the cost of credit the return adjusted to the risk that is not adequate. This is the discipline. Where I still think that there's gonna be an increase in a mechanical normalization, which is key, SMEs. The effect on the whole is non-material for the bank. In the line of SME, there can be another 10 or 20 basis points. I wouldn't even say that it's material, but to be precise, the best expectation is that it should run around 210 in the next two quarters. Remembering that in the same mechanical criteria we run, we ran at 240 not so long ago in the same logic.
When we published a delay over 90, we're not even bringing the vision below. SMEs where you still have titles specifically in the middle, here it's a delay that you're gonna have in this portfolio. Why SMEs is gonna work? A great deal of the government programs are not, you know, with the deadlines, and the client has a payment, they may choose not to pay, but since there is a delay for the call of guarantees, which is 90 days for one, 180 for the other, there is a time delay. There is a delay. The provision not necessarily happens because you have a good guarantee, and then you regularize the delay with an honor delay. There is that accounting time mismatch that can produce this effect.
You might have a provision, but it resolves in a short cycle. With the guarantees with the government, you can get this client with the adequate rating, and it avoids you making provisions. Very important because you have guarantees of Treasury, FGO, whatever the guarantee is. I would say that looking up ahead, there is a stability in the delay indicators. Now, going back to the second question, how. We don't have a silver bullet. There is a series of element. First, the strategy that is well-defined, a portfolio management that is well-structured, discussed. Very important to give credit is not giving credit. The best thing that you can do for the client is not giving the credit because they don't have the conditions, they don't have the financial education necessary.
There is an expansion in the credit, in the market with the Fintechs that was very relevant. A client had 1.4 credit cards, now they have six because there is no annual fees. They get online and they can get credit cards as many as they get. You know, when they have problems, they stop transactioning and they avoid to stop paying the bank where they have the salary. Being the main bank makes a difference. We have a relevance that is strong in the segments of middle to high income. We have clients that are target. The definition of a target client not necessarily goes through income. It's not just income that discriminates. We also operate 10 million target clients in Itaú Digital, which is the basis of the pyramid, the massified segment.
We can see the profile of the client, what are the conditions of the client. We have target clients in all segments. We have non-target in all segments. Income is not the sole factor for risk discrimination. A lot of modeling, a lot of testing, a lot of humility because credit makes you humble. Every day you have feedbacks. Creation of value, capital allocation, fundamental, so you can see if the decisions that you're making at the margin are creating value. It's not just. It's the vision to see the corrections that are necessary. A lot of artificial intelligence that is applied, but still it's a lot of hype in that aspect. There are concrete benefits, but it's not so structuring as a whole. We think that it's gonna be more in the future.
There is relevant modules for production with changes, high changes, with the performance of the models changing but still under testing and some under production. The expectation is that there's gonna be a relevant advance. There is no silver bullet. Franchising is important. Being the main one is very important for delinquency as well. Building a resilient portfolio, having the discipline to allocate the right clients for the right segment, and having the discipline of not doing so. This is the important. That relationship of risk-return well-balanced on the long term brings value, removes the volatility from the balance sheet, and increases the value creation and brings consistency on the long term. This is what we believe, and we continue. We made mistakes in the past. We've learned with those. We commit new mistakes. We learn again. There is a lot of learning.
For that to work, all the modernization that we've done on the platform and data architecture was key. We could have a data mesh architecture, centralized data, modernization of platform. That was a game changer because today the data is democratic in a bank. It's tempestuous. Everybody can use it quickly. You can react with the modernization of online platforms and doing the adjustments for management. The human capital, to conclude, I have to recognize having the right people, competent teams, motivated, engaged with quality of management, attitude, and with a long-term view that is with the adequate incentive. It goes through incentives. If you make mistakes with the incentives, you see that in the industry, this is where you lose the result in the long term. Having aligned incentives with the shareholders is fundamental.
Now for the final question of the day, we have Carlos Gomez-Lopez from HSBC. Carlos, please go ahead. Carlos, we cannot hear you. You're on mute.
I was. Sorry for that.
Okay. Brilliant.
Again, thank you very much for the generosity with your time. Two minor questions. The first one is about your tax rate, which is a little bit lower than the guidance that you have given us for the year. Typically, it is higher in the first quarter, so I wonder if there was any particular reason or if you think that you may actually outperform in terms of your effective tax rate. The second one is about the agricultural portfolio. You mentioned you have about a 20% market share. Have any of the support programs from the government, you know, are they adequate to your portfolio? Is that something that you are using, and do you have a view about how that market is starting to evolve? Thank you.
Sure. Well, Carlos, good to see you. Thank you for your question. Coming from the second one, no, there is those programs coming from the government, they are not specific for the agriculture. Of course, if there is any similarity with the clients that are eligible for the program, you might have a coincidence, but they are not designed to the agriculture. This is the answer. I think this is something that should be in government awareness, that if there is something that could be developed for the agriculture market and business, this would be relevant for the market as a whole, but there is no discussions on that.
On the effective in tax, I will ask Gabriel to go there, but we are still comfortable with the guidance, and you will see there is specific effects in the first quarter, but you will see the effective tax rate converging throughout the year. Gabriel, if you want to give more details.
Hi, Carlos. As mentioned, as Milton mentioned, we are very comfortable with the guidance that we have. If you think about the bank in terms of tax rate, effective tax rate, I think there are two main components to that. As you know, the first one and the major impact that we have is interest on capital. If you remember, the interest on capital that we have on this trimester is larger than we had last year on the first quarter, and also larger than we had on the fourth quarter of 2025. The second major impact that we have is the distribution of the results within the bank. The geography among the different companies that we have, financial, non-financials. There are seasonalities around those two specific factors.
If you take a look at what happened in the first quarter, exactly, they lead to a lower effective tax rate, but they tend to normalize during the year and go according to the guidance that we have so far.
Well, with that, we will close the earnings call. Thank you, Milton. Thank you, Gabriel. Thank everyone that took part. We're gonna close our Q&A session and our video conference of 26. I'll give the floor to you, Milton, for the closing arguments.
Thank you, Gustavo. Thank you, Gabriel. It's always an honor to have you here in this meeting, in this results meeting. Well, it's a long term for debate. It's always enriching debate, enriching questions, always important to work with transparency and proximity to the investors. Challenges are there. Everybody has their feet on the ground, as I say. Good results, they do not generate a future accommodation. This is what we discussed. It's an infinite game. We're never satisfied. We're always raising the bar every quarter, and we try to do the best for the client. Resources, agenda, the result will see this evolution on the long term. We are happy with the results. Evidently, these are the challenges. I think that the macro, there is an election year, and today the news is peace. They change a lot.
The important thing is discipline, looking outside. We have good, competent people, competition that is competent, and our work is to evolve every day. Thank you for your time. Thank you for your feedback. Next week, we have the conference in New York. We're gonna be there with the biggest audience of a conference for the participation of CEOs in the history. Another year that we're gonna focus all the events of our conference, and we're gonna have the group of sports. They're gonna be New York in one year. Keynote speakers that are spectacular and then the conference itself. I'm gonna be myself there. I should see a great deal of the local investors and analysts. We're gonna be there to respond to questions. See you next time.