AGI (NYSE:AGBK) Q2 2026 Earnings Call

0:01 Good afternoon, everyone, and welcome to AGI's Second Quarter twenty twenty six Earnings Conference Call. Today's conference call is being recorded. At this time, I would like to turn the call over to Felipe Gasparo Rivera, Head of Investor Relations. Please go ahead. Hello, everyone, and welcome to AGI Bank's Second Quarter twenty twenty six Earnings Conference Call. Thank you for joining us. I'm Felipe Gaspar Oliveira, Head of Investor Relations. Joining me today are Marciano Testa, our Founder and Chairman and CEO Marcelo Dube, our Chief Financial Officer and Matteo Girardi, our Chief Client Officer. During today's call, we will discuss our second quarter results and business review, followed by a live Q and A session with our management team.

0:54 Throughout this conference call, we'll be presenting certain non IFRS financial measures. These are important measures for AG Bank's management, but should not be considered in isolation or as a substitute for IFRS measures and may not be comparable to similar type of measures reported by other companies. Reconciliations between non IFRS and IFRS measures are available in our earnings release. Unless otherwise noted, all figures discussed today are presented in Brazilian reals. I'd also like to remind everyone that today's discussion may include forward looking statements, which are based on management's current expectations and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially.

1:41 These statements are not guarantees of future performance. This outlook reflects management's current expectation and assumptions, including, among others, assumptions regarding the territory of Brazil's benchmark interest rate, SELIC, the pace of credit originations, the regulatory environment governing payrolling, the NSS framework, and general macroeconomic conditions in Brazil, and does not guarantee of future performance. The outlook is only effective as of the date given and should not be considered updated or affirmed unless and until we do so publicly. Before I hand the call over to Marciano, let me briefly walk you through today's agenda. We will begin with an overview of how the market environment has evolved over the past several months and why we believe the operating backdrop has become increasingly supportive of sustainable growth.

2:38 Matteo will then introduce AGI plus our new subscription platform and discuss why we believe it represents an important new revenue for customer engagement, recurring revenues and long term value creation. Finally, Marcelo will review our second quarter financial results. With that, I will now turn the call over to Marciano. Marciano, please go ahead. Good afternoon, everyone, and thank you for joining us today. I would like to begin today's call by reinforcing the three key principles that guidance our business long term. First, we leave for the customers, which is mean that we prioritize clients value when we make all of our decisions.

3:24 Second, we win with technology. So, we continuously enhance our technology capabilities to serve and operate in a better way. And third, we promote as entrepreneur culture to innovate and grow while maintain a disciplined focus on the long term returns. I keep these three principles in mind every day, and I want to make sure you understand that, because they shape how we make decisions, allocate capital and view the company for the long term. Next, I want to share some thoughts on the evolution of our performance since the end of the last year. First, walking through the significant disruption we had over the past year. And finally, showing that we are still growing in this scenario, and we see the second quarter twenty six results at inflection point of this trajectory.

4:23 As you know, we are affected by several regulatory changes in the market, which is in fact, the whole sector. And temporarily, there was a growing new client signs and origination in the second half of the last year. Our results for the second and the third quarter are below our normal performance levels, due to the delayed impact of lower origination in 2025. Since mid April, the INSF has changed the full management and implement a series of measures to strengthen governments, improve operational processes and restoring the confidence across the system. These initiatives has increased confidence in the market that the regulatory environment is become more stable, predictable and supportive for the long term sustainable development of the payroll lending market.

5:22 As a result of our three principles and the business model, we are able to adjust these structural changes and the new regulatory requirements very quickly, perhaps faster than others. And I believe we are among the first companies to return the strong growth. Based on this quick adaptation, since the end of the first quarter, we started to see strong growth in the customer base with precipitated. As a result, we grew the business and the credit origination through our hybrid platform, which is digital channels and smart hubs network. As you can see here on this slide, we originate over 7,000,000,000 in gross credit this quarter, while attracting more than 600,000 new customers, reaching 7,600,000 active clients, records for the company.

6:15 As we will see further in this presentation, we have been able to grow at this space while maintaining the assets quality under control. Our private payroll portfolio grew by almost 50% quarter over quarter with new origination doubling versus the previous quarter. And secured personal loan originations also increased by more than 80% demonstrating that growing is returning across multiple products, not just a single business line. And at the same time, we continue to gain market share in the business. We surpassed that as a payroll of the benefits 1,500,000 customers. We left Santander behind us. As a result, we are reaching 9.6% and increasing of 60 basis points in just one quarter.

7:07 We're forcing that even after all the disruption the industry faces last year, we continue to execute well and strengthen our competitive position. Other clear evidence that our operating engine has fully recovered is the fee revenue. Fee revenues reaches over $135,000,000 in the second quarter, an increase from more than 35% quarter over quarter. Unlike credit revenues, this carries no provisions dynamics and are recognizing making them one of the best real time indicator of the business activity. Based on the performance in this current quarter, we are confident in delivering even higher growth in this third quarter.

7:54 Taken together, this method given us the confidence that the business has reached an important operational inflection point. The origination engine is performance at full capacity again, and we expect this momentum to continue following through our financial results over the coming quarters. When you grow at this pace, we observe three costs upfront: Expanded losses provision on every new vintage, the customer acquisition cost, the cost to serve and active them on the platform. The revenues from the same customers, interest, fees, cross sells, accrues over the following quarters and the years. In other words, this quarter, the period allocated the full cost of customer whose earnings belong to the upcoming quarters.

8:44 These improvements will take some time to show with the number during the next few months, because we have a natural lag between operational improvements and income statement. So, I believe our research will begin to drive sequentially higher income starting in the third quarter, and the full recovery in the fourth quarter with even more force. And again, we are in the inflection point. So, the end of the quarter, we launched AGI plus our new subscription product already showing strong engagement and increase the number of the customer. Now, we use the platform daily or weekly, deepening each relationship.

9:29 We will become a subscriber bank. The evidence of which is our over 250,000 subscribers in only forty five days. And we will see this positive impact reflected in our financial statements in the quarter quarter. With that, I will pass over to Matteo to cover AGI plus in detail and Marcelo to present its unit economics. Thank you. Thank you, Marciano. For those of you who I have not met, my name is Matteo Girardio, and I am the Chief Client Officer here at AGI. It is a pleasure to be part of this earnings call to discuss a strategic milestone we are very excited about, the launch of AGI Plus, our new subscription program.

10:17 We see the current challenging macroeconomic environment in Brazil, characterized by high interest rates, elevated household debt and rising consumer credit delinquency. We took on the mission of finding a new way to deliver the solutions our customers truly need. Our clients face daily challenge that go far beyond financial products. A lack of access to private healthcare, unexpected expenses, the high cost of medication, limited Internet access, and daily household responsibilities. This is precisely where we see a clear opportunity for AGI to expand the relationship with the customer beyond financial service, increasing the customer lifetime value with the bank, generating cross selling opportunities, improving retention and boosting engagement through solutions that address real recurring needs.

11:13 This allow us to expand our relationship with the customer, increase customer lifetime value and driving recurring predictable service revenue. AGI plus is designed as a low cost, high value subscription service available in three tiers, ranging from 39.9 to 59.9. The program bundles medical, residential, and dental assistance with mobile phone bonuses, and even extra services such as pet care in our premium tiers. Furthermore, our plans provide monthly credits for daily expense, such as cooking gas, food and groceries, ranging from BRL 100 to BRL 150.

12:01 AGI plus ensures a seamless end to end experience, and this is key to our strategy. It creates a sticky ecosystem that encourages daily engagement. For the customer, the value is immediate and tangible. A subscriber on our entry level plan can save up to 1,500 annually. For AGI, this model is a powerful engine for recurring service revenues, driving higher app open frequency, improved retention and deeper loyalty. This way, we are expanding our value proposition, while also effectively de risking our business model. We're very pleased with the launch of AGI plus and have conviction that this program represents a shift in how we engage with our customers.

12:53 We look forward to seeing AGI plus become a core of some of our long term growth strategy. And we are confident that AGI plus will serve as a significant lever in the evolution of AGI's service revenues, a trend confirmed by our initial adoption rates and early engagement metrics. With that, I would like to turn the call over to Marcelo, who will discuss the product unit economics and this quarter's results. Thank you, Matteo, and good afternoon, everyone. We are very excited about the launch of AGI plus and the revenue stream it has the potential to bring to our business. On Slide 12, we've highlighted a few early sales metrics and unit economics, which we believe are very encouraging, given that the product has been in the market for less than two months.

13:48 As we think about AGI plus we see a clear two phase growth path. The first wave is driven by penetration within our existing customer base. With 7,600,000 active customers, we have a significant opportunity to distribute the product through channels we already own at a very attractive customer acquisition costs. The early results are encouraging. In just forty five days, we reached more than 250,000 active subscriptions, with 67% of new credit originations, including an AGI plus cross sell, and 99% of our sales agents successfully selling at least one subscription.

14:34 The second wave comes from the continued expansion of our customer base. As AGBK continues to add new clients across INSS beneficiaries, private sector workers and public servants, AGI plus becomes another scalable layer of monetization embedded in our ecosystem. Just as importantly, the unit economics are very compelling. We estimate an annual RPUC of approximately BRL600 per customer, against servicing costs of around BRL118, resulting in an expected contribution margin of approximately 80%. We believe this makes AGI plus not only a highly attractive product for our customers, but also a meaningful long term contributor to earnings and revenue diversification.

15:28 With that, let me now turn to our financial results. In the second quarter, we made further progress against our core strategic priorities, growing our customer base in Brazil with a focus on multi product relationships, expanding our marketing leadership in payroll lending through new products and integrations, and maintaining our position among Brazil's most efficient and trusted financial institution. On today's call, I will walk you through our second quarter results in the context of a challenging macro environment and more importantly, the positive inflection we believe is now underway across our business.

16:14 On Slide 14, we outline a few of the key drivers of improvement we are seeing, with material increases in active clients, credit portfolio and INSS market share related to last year, as well as sequential decline in our greater than ninety days NPL. Taking a closer look at customer growth, as seen on Slide 15, total active customer counts increased 36% in the second quarter compared to the prior year period and 7% quarter over quarter, and had 7,600,000 active customers as of the end of the second quarter of twenty twenty six, which we define as those using at least one product at quarter end.

17:01 We believe this growth demonstrates the resilience of our business, as earlier explained by Marciano. Turning to our credit portfolio on Slide 16, total loan balances grew 21% year over year in the second quarter of twenty twenty six to BRL37.1 billion. Our credit portfolio maintains a healthy mix with secured loans representing 88 of total or BRL32.6 billion, and unsecured loans representing 12% or BRL4.4 billion. We believe this mix brings a sustainable balance of profitability, credit quality and focus on long term relationships with our clients.

17:49 And unsecured lending, which is restricted to account holders who maintain primary relationships with AGI to mitigate default exposure while improving margins, was flat year over year at BRL 4,400,000,000 in the second quarter. Quarter over quarter, we see a slight decrease sequentially, reflecting the short term duration of this portfolio. However, we saw in the second quarter an increase in the number of clients with principality reaching 1,500,000 clients. Within INSS payroll credit, we continue to successfully execute against our strategy of being the disruptor of this segment in Brazil, as you can see on Slide 17.

18:34 Based on our strong positioning with the NSS and leveraging our competitive advantages in this segment, our market share in Q2 was 9.6%, an increase of 160 bps year over year. It is worth mentioning that we were able to expand our market share by 60 bps in this quarter despite the recent periods of regulatory volatility. In private payroll credit on Slide 18, our credit portfolio grew to billion, an increase of 48% sequentially and 184% year over year. It is worth mentioning that our appetite for production of this product remains strong after making enhancements to its credit model and observing good evolution in its credit quality.

19:26 With regards to credit quality in the overall portfolio, on Slide 19, non performing loans exceeding ninety days declined in the second quarter to 3.3%, reflecting normalization in defaulting cohorts. At the quarter end, NPLs for the overall portfolio remained comfortably below the average for consumer credit in Brazil, which continues to trend up. The coverage ratio measured by provisions over NPLs over ninety days was 182% at the end of June, a level we consider comfortable to operate the business. On Slide 20, we have aggregated the key financial KPIs across our business, which I will now discuss in greater detail.

20:14 Turning to our revenue on Slide 21. In the second quarter, we delivered total revenue of BRL 3,200,000,000, a slight acceleration in the quarter and an increase of 26% year over year and 6% quarter over quarter, even considering the disruptions in the period. On Slide 22, we see net interest income growth of 11% year over year and 3% quarter over quarter to billion. The slight decline in NIM on an LTM basis is primarily due to the asset mix, with a lower contribution from personal loans in the credit portfolio. Annualized NIM was flattish at 11.9% and after provisions was 6.8%, compressing 50 bps on a quarterly basis, suggesting that the portfolio is in a normalization path after the impacts of the suspensions.

21:12 While persistently high interest rates continue to wait on spreads, we view this compression as transitory and expect margins to recover as higher yielding vintages season and our asset mix normalizes. Moving to efficiency on Slide 23, which highlights the operating leverage embedded in our unique and highly scalable business model. Our operating efficiency ratio, which we calculate as NII plus fee revenues divided by operating and personnel expenses, increased to 48.9% in the second quarter, up five seventy basis points quarter over quarter. This increase mainly reflects the operating expense growth tied to the acceleration in principality clients and in our credit portfolio, costs we incur ahead of the revenue these relationships generate.

22:10 Continue down to income statement and to Slide 24. Recurring net income in the second quarter reached million, an increase of 7% over the previous quarter, indicating that AGI's profitability improved quarter over quarter. Now on to our funding approach on slide 25. As a regular debt issuer, AGI maintains established relationship with Brazil's credit markets, diversifying funding sources to support portfolio expansion. As a result, total deposits reached billion, an increase of 18% from the second quarter twenty twenty five. Institutional counterparties now representing 62% of total funding, while retail sources came down to a share of 38%.

23:03 Recently, AGI also received credit rating upgrades from both Moody's and Fitch Ratings, who raised up a notch the bank's credit rating from AA- to AA. These upgrades are a significant demonstration of confidence in AGI's business model. Moving to equity on Slide '26, it increased by 62% in June 2026 compared to the prior year period, reflecting the receipt of the net proceeds of the IPO. Return on equity over the last twelve months was stable at 21.6%, impacted by the proceeds of the IPO now being accounted for the net equity. On Slide 27, you can see our total assets have grown to BRL51.1 billion, an increase of 33% year over year and representing a 1.7 trailing twelve months increase in ROA, driven by the growth of the credit portfolio.

24:07 Lastly, as you can see on Slide 28, our capital adequacy ratio consolidated at the holding level declined by 60 bps to 18.7% in the second quarter, with a Tier one capital ratio of 17.6%, also reflecting the receipt of the net proceeds from the IPO. These are comfortable levels of capital adequacy, allowing us to continue investing in customer growth and technology, while maintaining disciplined focus on long term returns. As Marciano mentioned, we believe we have compelling evidence of a recovery in the business, both in our credit products and in our fee based revenue. Looking ahead, we are encouraged by improving trends in the business and are confident in AGI's long term investment thesis and our ability to execute towards a full recovery in 2027.

25:06 On behalf of AGI, I would like to thank you all for your interest and support. And now, we would like to open the call for the Q and A session. Thank you very much. Operator? Thank you. We will now begin the Q and A session. The first question comes from George Icuri with Morgan Stanley. Hi, good afternoon, everyone. Thanks for the presentation. I have two questions, if I may. The first one is on your private payroll loans growing 48% quarter on quarter and not coming from a small base anymore. I mean, you've been one of the leaders in that product.

25:54 What gives you comfort that that is the right level of growth and then you're not going to end up with higher NPLs. It is still a relatively untested product. Some of your peers that have gone aggressively into the product have seen first time in default and delinquency levels that are well above expectations. Just want to get some comfort on why a 50% increase in one single quarter is the right level of growth without putting too much risk on the balance sheet? And my second question is if you can address your pretax profits, which was $115,000,000 if I'm correct, down 47% quarter on quarter, missing consensus by, say, 50.

26:52 What exactly happened there? To what extent this is transitory? Is this a new level of underlying profitability? Just help us understand this very surprising decline in pretax profit. Thank you. Thank you, for your question. Good to talk to you. So, this is Marcelo. I will answer both of the questions. So, first of all, in the private payroll loans, we previously mentioned in the first quarter, we had arrived at a quality of credit modeling where we were comfortable in accelerating growth in this product at a level of circa 200,000,000 reais per month of origination.

27:40 That's what we did. So, the 50% comes, you know, a fixed number at a smaller base, but it's kind of the same pace we want to continue to go over in the future, to from 200,000,000 to $150,000,000 net origination per month. And what gives us comfort is that we are seeing the cohorts of we are looking into this product as providing us good quality of first payment depots below teens level. And as we improved using, you know, technology, data, AI in the credit modeling over time, remember, we took a step back in the end of the last year, We used a lot in the production of this product. We tested a lot of the models, and we arrived at a point that we are comfortable in having this pace of growth now at two hundred, two fifty per month in this process.

28:38 And another point is that we look at a product with the loss absorption concept, right? So, we take the cost of credit, and we divide the NII of this product over the cost of credit expected for that product. And if you reach, you know, a number that is 1.4, 1.5 times that, we have appetite to continue growth in that product. And that's what we are getting from this product, and we'll continue to do so. So, this is what we see for the private payroll. And also, that is a product that can bring us cross sell of other services products, as we have in the portfolio, brings us with more relationship with the clients that we originate. So, today, out of the 7,600,000 clients that we have, we have a big portion of those clients that are from the private sector, not only for the private payroll specifically, but the private in general. So, you can have of the clients are from the private sector, and the other half are from the social security system.

29:47 So, we are indeed continue to have appetite and continue growing in this product. Always, we'll have cautious on, you know, taking very seriously the provisioning, as you saw. And then you link to your other question, right, on the earnings before taxes. One of the reasons of the and the transitory name that used, I think, is very appropriate for this number, because we are planting the seeds in the operational side for a much stronger second semester. As we have been saying the whole year, we are in a recovering phase. We were able to grow portfolio across the franchise in the payroll credit, in the private payroll credit. Our unsecured credit also, the origination also grew very strongly. You don't see that in the balance of the portfolio because of two factors, specifically for the unsecured, you know, short term duration of the amortization, and also we have in the second quarter, the amortization of the thirteenth salary in Brazil in May, which in our case is part of our unsecured portfolio as well, and contributes to reduce this portfolio momentarily, but we are in a pace of origination that will bring us to growth again going forward. So

31:18 what happens is, as we grow the operational side very strongly as we did in this quarter, and growing the number of clients, growing the number of clients with principality, reaching 1,500,000 clients. All of that makes us to absorb the costs upfront. As mentioned in his speech, is the expected losses, is the cost to serve these clients, and the transactional cost that is involved in serving all of this increased amount of credit origination and new clients. What we'll see is that all of that will eventually compound month over month. And the escalation in the NII is, as a technical explanation, is mathematically has to happen over time.

32:11 And we have under control the expenses going forward. We think it's in a normal pace of growth. So, transitory is what we really believe for the number in terms of the earnings before taxes. On top of that, we see the fee business as very strongly, not only in this quarter, growing 35%, but if you open the notes, you see that specifically the brokerage fees line grew of almost 80% in the quarter, which means that the business is recovering at a very healthy pace. And on top of that, you might have seen today we launched the AGI plus a product which will add another very stable stream of revenue to our results. So we are very confident with the place where we are now operationally.

33:11 And financially, we are momentarily with these adjustments, but in a very good position for the second half. Thank you, Marcelo. If you don't mind, can I do a follow-up on this last part? Sure. I want to make sure it's clear. So, if I understood correctly, the rapid acceleration in loans, particularly private sector payroll loans required are not from investment that is pressuring your pretax profit more than expected, also because the growth was higher than expected. Now, how do I think about the provisioning? Because if I look at your provisions for the quarter at $562,000,000 that was up 12% quarter on quarter, which is obviously nowhere near these very rapid growth you're seeing in terms of payroll loans. Or am I just not able to look exactly at what the provisioning is for that specific product?

34:18 To what extent do you think that it is really the provisions that show that upfront investment? Or is there anything else on the P and L that you think is not going to be recurrent at this high level going forward because it's related to that growth that we saw in second quarter? Yes. So for the provisions, if you look at the cost of credit in percentage is, you know, a bit higher, but very, very slightly in terms of, you know, the percentage, 5.9%. And that is due to the mix, right? So, when we add more of the product that, you know, it has a higher provisions, like the private payroll, and the pace of growth, it brings us to a higher necessity.

35:12 So we take very seriously the four thousand six ninety nine CMN instruction to provision in our balance sheet. And on top of that, our NPLs went down, as you could see, with the coverage ratio also going up with 180%. So, for us, everything, you know, matches and goes together with the growth that we saw in the mix that we had in this quarter. In terms of expenses, what we saw is, as I said, expenses that are part of the expenses that are variable with the number of clients and originations and the transactional expenses.

36:01 So part of that is due to technology involved, A part of that's due to the cost to serve the new clients with principality. And that will be surpassed by the compounding of the revenues, and the growth of the NII going forward. This is a natural consequence when we grow very fast. The expenses come first, and then the compounding will come in a second stage. But, you know, the size that we see of the income states that expenses in general expenses occupied there, I think it is appropriate for the size of the company. Great. Thank you very much. Thank you, Corey. The next question comes from Chito Labarta with Goldman Sachs.

36:53 Hi, good evening. Thanks for the call and taking my questions. A couple of questions also, if I may. I guess, first on the you mentioned this quarter should be an inflection point, and we're seeing some of that growth. But how do you think about the profitability from here going forward, right? Because you haven't booked additional provisions, given the growth in private payroll. I mean, I guess that could be a short term headwind. You also had a very negative tax rate. So, I mean, half of your earnings were from a tax benefit. How should that evolve going forward? How do we think about the tax rate from here? Just to think about, given that it's really recover profitability, you really need to grow earnings, pretax earnings at a very strong pace, considering a more normalized tax rate.

37:44 And then my second question is maybe to get a little more color on the AGI plus right seems to have a nice uptake with only 45. Can you give some color in terms of where you're seeing? Is it more in the entry, the medium or the premium? Where there's the most interest? And how quickly do you think that that can really expand into your client base, right? If you have 250,000 today, do you have targets or even initial color on how quickly that can penetrate your client base? Thank you. Hi, good to be talking to you. And then so just starting with the last part of the question at AGI Plus, yeah, we're correct. We are, you know, at a very strong pace of penetration in our customer base.

38:36 We see this product, you know, the entry package as the most stronger in terms of selling. But on that, you know, the average ARPAK will be that 600 reais per year with 80% contribution margin. What we see is that it is possible to reach a 1,000,000 number of clients by the end of the year in terms of subscribers. So, it is a very strong, you know, contributor of profitability that we see now that hasn't, you know, contributed a single real in the second quarter in our revenues. So, if today we already have 250,000 subscribers, we do the math, it is going to be a good contributor to the fee revenues in the income statement going forward.

39:28 And, you know, the penetration continues to grow, so it continues to be very strong and improving time over time. So this is one part of your question. The second part is the early before taxes. You are right. So the focus here, of course, we know and we understand that although net profit grew, we understand, you know, the slowdown in the pretax profitability. And all what we are seeing in the operational side will put us in position, or already put us in position. We're already past the point of inflection. I can comment about July operational results already. So July had continued to operate at high pace of origination in all of the products that we work with. So we continue to plant the seeds to have compounding revenues and compounding net interest income to have the operational leverage.

40:28 We need to go back to increasing profitability in the earnings before taxes. So that's why we say we are in a strong position for a second half of the year, and we'll be probably sequentially in terms of how we can demonstrate that over time. So, it's a technical explanation, because we have, you know, the expenses shouldn't move in a very, you know, abruptly way over the quarters. But the NII has the potential, and the fee business has the potential to compound strongly over the course of the next months. And in terms of the provisioning, provisioning we don't see we haven't seen much of, you know, big changes in terms of percentage terms, as I said, so 5.9%.

41:22 We've been saying between that and 6%, or low 6%, and the NPL is from 3.5 to 4%. We are now at 3.3%. The coverage ratio 180%, so we are very comfortable with a large cushion of provisions to go forward. So also, that's something a point of comfort in our numbers. And then I'll talk about the negative effective tax rate. It's a combination of a few components. First, the cash from the IPO proceeds are allocated into eligible instruments offshore, right? And they have separate tax treatment, and they are structural, you know, in our balance sheet the way we manage.

42:13 Then deferred tax assets in the period, including tax losses, are a result of the current organizational structure they have. And third, which is the reason of this magnitude is the lower pretax base. As we had the lower pretax base, it could not, you know, the current tax could not offset the deferred taxes that we saw in the quarter. So I would say, the pretext as the pretext, the earnings before tax recovers, the rates normalizes upwards going forward, If that makes sense to you. Yes, it does. No, that's helpful. Thanks, Marcelo. So just to clarify, I guess, of risk, it sounds like it should remain around the 6%. And on the tax rate, maybe harder to figure out what how should that normalize from here? Like, we should just stay negative in the short term? Does it get back to positive quickly?

43:08 Just any color on how to think at least maybe the full year tax rates are going into next year? Yeah, I mean, we won't say a number here, but it will normalize upwards, you know, probably at some point, going again, in a positive side. In the short term, not probably maximum in the end of the year, the fourth quarter, but eventually still in the third quarter. Still early to determine here, but it will normalize upwards for sure. Okay, sounds good. Thanks, Marcelo. The next question comes from Arnaud Shirazi with Citi. Hi, guys. Thank you for the opportunity of making question.

43:54 My main question here is regarding the core fees, how it's evolving. I see that for this quarter we have a positive effect coming from AGIMAIS, which you explained the addings of two fifty million subscribers with an average fee of BRL50. But besides that, the core, how we can see that the insurance distribution is recovering this quarter? Thank you. Hi, Arnold. Thank you for your question. Yes, so first of all, AGI plus, you know, still haven't had any benefit for the second quarter. We will have that starting and contributing the third quarter, which has the potential to be a very strong contributor, as I said.

44:44 And talking specifically about the core fee business in the second quarter, if you take a look in the fee business note, and you see the line of the brokerage fees, you can see there that we almost got 80% increase in the fees generated in the quarter, which is a consequence of the high growth of the products that have the new clients that we could originate. And it's a phenomenon that we believe continue to, know, improving path in this second part of the year. So we're very comfortable with the core fee business part. There's one part of the fee business, which is the portability fees that we received when the client is ported out from the bank to other bank, which is was smaller this quarter, which was due to the new regulations, the provisional measures that the government issued in May tied to the program, but it's still temporary. We don't know if it will continue or not.

45:55 And that is a small part of the fee business. Got it, thanks. The next question comes from Renato Meloni with Autonomous Research. Hi, everyone. Thank you for the space to ask questions. So first, a bit here on the name and loan mix. You mentioned earlier, well, actually, even before that, last quarter, you said that the expectation was that unsecured loans would again gain more share, and that didn't happen this quarter. And the reason for that, you're saying it's pretty seasonal. So I wonder what went differently given that, like, the advanced payments for 13 salaries should have been embedded in your expectations.

46:48 And then I'd like to know, like, when do you see that mix shifting again towards unsecured lending? Then the second part here is on on the NIM. You're mentioning the NIM compression that happened versus for steel. You were to look at to to the mix. But I'm looking here at your interest expenses also, like, around 6.6, partly in part of your cost of funding seems to be going up. So, I wonder if that was also part of the effect, and if you had some change in your funding structure here. Thank you. Hi, Renato. Thank you for the question. Yes, so starting by the last part of the question. Yes, of course, the high interest rates in Brazil continue to weigh on spreads overall across the industry.

47:34 So, we still have a high interest rate. In terms of funding, we don't have different structure of funding. It's actually getting better, improving every quarter. As you know, quarter, a few weeks ago, we got upgraded by two different credit rating agencies, Moody's and Fitch, or from AA minus to AA. And our average cost of funding on average of the portfolio continues to go down every month a few bps. What happens is, at some point in the calendar, we issued that in different sizes. And specifically this quarter, we issued another FIDIC, which is a very sizable check of 2,000,000,000, 2,500,000,000 reais.

48:28 Yeah, and that's also way on the margins, because it's a funding ahead of the origination before we deploy the capital. So we carry a little bit of time, this cash in the balance sheet when we do that. But it's a very good way to have financial planning and to deploy capital over the years. So, we continue to do this type of funding in our structure. In terms of the overall NIM, well, we advanced it to you in last quarter that the unsecured parts of the credit portfolio was reducing because of the short term duration, and what we needed to do is to increase origination.

49:17 It's exactly what we did in this quarter. We increased origination by 80%. The net origination of unsecured loans increased by 80% in the quarter. And what happened is that on top of the natural amortization, we had also the thirteenth salary. So, what we are set to do is continue to originate in the unsecured part, together with the private payroll loans as well, to bring back this NIM to upward movement instead of being flat as it is in this quarter. So, we believe we have all the conditions, and the operational part of the business demonstrate to us that we can do this in the second half of the year. And do you have any expectations of when the NIM will inflect and start going up?

50:07 Oh, this is a matter of, you know, a few months having more origination of the it's a technical calculation, right? So although we don't have still don't have number, absolute number of our portfolio balances in a secure growing more than the secured part, the name won't bounce back. So, it's a matter of time, but, you know, we won't set here a specific quarter to provide you with the, you know, improving number. Also, we are in an environment that SELEC rate is above the expectation from everyone, you know, six months ago. We were expecting SILIQ to be, you know, at least 100 bps lower than it is now.

50:55 So it depends on what will happen with the base rates as well. Thank you. The next question comes from Marcelo Mizrahi with Bradesco BBI. Hello, guys. Questions regarding the expenses again. So just to understand. So first, looking forward, so you guys believe that the level of expenses on the G and A expenses are enough to sustain the growth of the bank looking forward. So you don't expect any more growth looking forward? And also, can you give us like a breakdown of this growth? What drives this growth on this quarter? You.

51:45 Marcelo here. What growth you were talking about in the end of the question? The G and A expenses, yes. So yes, so in terms of the think your microphone is open. You. So, in terms of the overall size of expenses, we believe is very well in line with the size of number of clients that we have in the portfolio. So, we don't see, you know, big movements going forward. Instead, you know, exactly what happened in this quarter part that is variable, you know, the number of clients that have principality, where we see, you know, have to have the cost to serve per client per month, as we increase the number of clients. And the transactional and technology part that we invest a lot of AI and the usage of AI and tokens.

52:45 So, when we improve, you know, and increase the usage of technology, of course, we use more expenses. But, you know, it is a relative smaller part of the total expenses that is variable. Thank you. With this, we conclude today's presentation. We thank you all for your participation and have a nice evening. Thank you.