Earnings Call Transcript - BBD Q2 2025

Marcelo de Araujo Noronha, CEO

Good morning, everyone. I am Marcelo Noronha, and I'm speaking from the headquarters of Bradesco at Cidade de Deus to share our earnings results for the second quarter of 2025. We are live, and it's currently 10:31 a.m. in Brazil. Thank you all for joining us for another earnings conference call. To get straight to the point, we announced our earnings yesterday. We achieved a recurring net income of BRL 6.1 billion, reflecting a substantial 28.6% year-over-year increase, with a ROAE of 14.6%, up 3.2 percentage points compared to last year. In summary, our operating results showed consistency across all line items, particularly in our main revenue streams such as net interest income after provisions, fee and commission income, and another strong quarterly performance from our Insurance group. We have our operating expenses under control. Our loan book is stable, with over 90-day non-performing loans and 15-day non-performing loans both well managed. The organization is making great strides, aligning with the plan we presented in February last year. We have effectively transformed the bank and are efficiently managing operations, leveraging numerous intersections between the two while utilizing Generative AI to enhance productivity and efficiency. We aim to demonstrate the cause and effect relationship: our net income and operating results stem from all the initiatives we've implemented within the organization. Our total revenue reached BRL 34 billion, which is a 15.1% increase year-over-year and a 5.2% increase quarter-on-quarter. The first quarter is typically less active in our industry; however, we are witnessing consistent, long-term growth. We committed to a step-by-step approach since presenting our plan, and total net interest income is increasing significantly both quarter-on-quarter and year-on-year. Fee and commission income has grown over 10% year-over-year and more than 5% quarter-on-quarter. Our insurance, pension plans, and saving bonds segment has seen growth of 6.5% quarter-on-quarter and 21.7% year-on-year, driven by our strong activities across the organization and related companies. Regarding our expanded loan book, which contributes to financial revenue, our portfolio has reached BRL 1.018 trillion, growing 1.3% quarter-on-quarter and 11.3% year-on-year. Notably, in large corporates, we have not seen growth for two reasons. We can increase BRL 10 billion in one quarter and settle the same amount in the next. Some settlements were made due to the IOF in May and June. We have been utilizing our origination for distribution and retaining part of it for secondary market investments to enhance our adjusted returns. We are experiencing growth in nearly all segments this quarter and significant annual growth, especially in Individuals, micro, and SMEs. The notable growth here is among Individuals, which saw an almost 16% year-over-year increase. Additionally, micro, small, and medium-sized enterprises have reported a 25.2% growth. This growth is reflected in net interest income and fee income, stemming from our strategic decisions in segmenting our operations for individuals, enterprises, and corporations. Consequently, we observe credit traction leading to net interest income growth of nearly 16% year-on-year and 4.7% quarter-on-quarter, with credit provisions increasing NII net of provisions to BRL 9.9 billion. Examining expenses with loan loss provisions, they remain flat. Our market NII reached BRL 300 million; we anticipated it to be flat or negative, but this is due to our high levels of activity in our client desks alongside loan origination in wholesale banking. Client NII is growing to nearly BRL 18 billion, with an 8.8% spread. Client NII net of provisions has increased 20.7% year-on-year, amounting to BRL 9.6 billion, which is significant for us. Moreover, there's a notable decline in the restructured portfolio, which decreased by BRL 4.5 billion last year. We observe the evolution of the secured portfolio rising to 58.5%, up from 57%. Fee and commission income has grown by 10.6% year-on-year and 5.5% quarter-on-quarter. We are optimistic about our investment banking and global market operations. Operating expenses totaled BRL 15.9 billion, with personnel and administrative expenses increasing by 4.9%. Administrative expenses have seen negative growth due to our efficiency efforts. In spite of cuts, we have increased our client base by over 1 million, with enhanced delivery capacity across all channels supported by technology, resulting in robust revenues and solid performance in our Insurance segment. We have been monitoring stable capital since late last year. Looking ahead to our guidance, we anticipate that the economy will slow in the second half, affecting demand as we reach peak interest rates. The Insurance group performed well in Q3 and Q4 of 2024, and we expect growth to continue, though some indicators may increase more sharply. These adjustments have been made. In summary, we will also address technology; we continue hiring while integrating Generative AI into our customer interactions to improve efficiency. We are observing enhancements across the organization, employing machine learning and AI in our operations. Our team has delivered consistent operating results with a strong balance sheet and growth exceeding our net income. Our operating results have grown more than 30% year-over-year, and we remain confident that delinquency will remain under control as we continue to expand.

Andre Costa Carvalho, Investor Relations Officer

Thank you, Marcelo and Cassiano. Good morning, everyone. I'd like to let you know that Ivan Gontijo, CEO of the Insurance Group is joining us from offline. Questions can be sent in Portuguese or English. You can send your questions via email to investidores@bradesco.com.br using a WhatsApp channel (11) 97443-8238 or just scanning the QR code that is on your screen.

Thiago Bovolenta Batista, Analyst

Congratulations on the results. You have strong points in the top line, which is a positive highlight. My question is regarding the positioning of the bank regarding the low-income segment or mass market. When we look at that sector, it is perhaps the only one operating well below the cost of capital of the bank. Looking at the midterm, do you think this segment will be able to be profitable even if it's served by the branches? Do you need to implement a more structural change to provide more digital service? And how will digital next be positioned? How will they be used in this segment?

Andre Rodrigues Cano, CRO

Thank you for the question. The answer is yes. This is what we believe in, and we have been working strongly in the mass market with the transformation of the bank. I mean digital mass market. We have several million clients being served remotely and having different experiences with high personalization. Eventually, we will be talking more about that. Our digital offer is on its own track, continuing to enhance our service. This segment can be profitable. A strategic channel for these clients for service and for client acquisition is called Bradesco Expresso. Remember that we only have variable costs. Now we offer a much better experience connected to CRM and the intelligence behind the offering for the clients through the banking correspondents. This is a strategic important channel. In due time, we will give you detailed information of everything we are doing on that channel. But we are convinced that we are accelerating and will get to very different levels with us combinations reviewing the footprint, reducing some points of service, growing in principal, in corporate, and SMEs, and also in banking correspondence.

Daniel Vaz, Analyst

Congrats on the results. I'd like to explore two points about your presentation, Marcelo. You mentioned signs of the slowdown in economic activity and demand. Looking at the business segment, there's new segmentation. Could you elaborate on the slowdown of economic activity in this segment? Would it be reasonable to think that these SMEs would be the first impacted by this economic slowdown?

Marcelo de Araujo Noronha, CEO

Thank you for the kind words and thank you for joining us. Here in this segment up to BRL 3 million a year, we recognize that these small businesses have a significant mortality rate and remain very competitive. However, we have been managing these clients as they bring us interesting profitability. They require contact and service by a human while making use of digital channels. What we've been doing with the credit BU is implementing enhanced models and portfolio management monitoring to address potential losses and maximize profitability. We believe the economic slowdown can actually create opportunities for these small businesses to grow, which will be important for our future market positioning.

Pedro Leduc, Analyst

Congratulations on the deliveries. Now two brief questions. One, I've noticed that operating expenses have an increase in the line named 'other.' When you look at administrative and that cost, that is under control. It drew my attention that this line item has all the increase in expense. So my first question is, what adjustments are expected? And the second question revolves around net interest income net of provisions. If we compare that to the midpoint of guidance, it seems the loan loss provision will remain the same in the second half of the year. Is that right?

Cassiano Ricardo Scarpelli, CFO

Thank you for participating. Yes, the increase in the line item 'other' is helping us accommodate to make the changes we have in the change the bank initiative. Regarding loan loss provisions, we have a lot of strategies in place to manage that sector. Our guidance remains steady, and we will be cautious as we build our portfolio with full collaterals.

Gustavo Schroden, Analyst

I will agree with my colleagues and give you congratulations on the earnings. You noted high numbers and operational efficiency improvement, but remains concerned as the efficiency improvement appears lagged. Are we to expect continued improvement in efficiency or a slowdown? This is also critical to calculate the ROI.

Marcelo de Araujo Noronha, CEO

Thank you, Gustavo. Your background looks great. Our guidance remains from BRL 700 million to BRL 1 billion. We will maintain our expectations for a strong efficiency ratio while controlling expenses as part of the equation.

Mario Pierry, Analyst

Congratulations on the results. I see that Bradesco is tracking to deliver beyond your cost of capital, anticipating a slowdown in the portfolio growth. I would like to understand in what line items you see this slowdown, but also what metrics give you comfort that delinquency will remain under control?

Marcelo de Araujo Noronha, CEO

Thank you, Mario. There were certainly variables linked to demand for credit influence by high real interest rates. However, we have maintained control over our metrics through strong risk management policies and ensuring products align with risk-adjusted returns. We are monitoring line-item performance closely, including vintage by vintage analysis to maintain delinquency expectations.

Jorge Kuri, Analyst

Congrats on the results. I wanted to ask about net interest margin. Your margins were close to around 5% in the past. They're now below 4%. How do you think about the trajectory of normalizing net interest margins, and also how your balance sheet sensitivity to rates affects that?

Andre Costa Carvalho, Investor Relations Officer

The expectation for NIM is that it will grow, focusing on risk-adjusted return. We will continue to expand our portfolio seeking opportunities with appropriate risks and rewards, which will contribute positively over time. NIM is contingent upon our actions in managing those opportunities and adapting to economic conditions.

Henrique Navarro, Analyst

Congratulations on the earnings. Thinking about 2026, how do you envision the possible expansion in terms of quality and profitability? Can we aim for 17% or 18% ROE?

Marcelo de Araujo Noronha, CEO

While we have strong visions for profitability, we cannot promise exact numbers. We are determined to grow and enhance operational effectiveness. Our focus remains maintaining profitability, which we will strive to achieve step by step.

Eduardo Rosman, Analyst

I'd like to hear more about collateralized portfolios, especially those backed by government programs. Can we expect higher returns growing these portfolios? How will this market evolve?

Marcelo de Araujo Noronha, CEO

This portfolio has grown significantly this year. Our focus is on maintaining risk-adjusted returns while evolving relationships with clients, building long-term partnerships. We are also reviewing our strategies for used vehicle loans to enhance our profitability in that area.

Ivan Luiz Gontijo, CEO of Insurance Group

What I can tell you is that we are very optimistic regarding the new guidance of the insurance group as a whole. We have been seeing a consolidation trend in the private health insurance segment and are prepared to support continued growth.

Carlos Gomez-Lopez, Analyst

I wanted to ask you about the evolution in health care profitability. Is the current level of health care income sustainable?

Ivan Luiz Gontijo, CEO of Insurance Group

We can’t provide precise numbers now regarding sustainability, but we believe in a positive outlook for private health insurance market expansion. We plan to continue investing to strengthen our position in this market.

Bernardo Guttmann, Analyst

I'd like to understand your agribusiness portfolio growth. What underlies the resilience in performance? Can we maintain the expansion given the current climate?

Marcelo de Araujo Noronha, CEO

It is indeed several factors contributing to our resilience in the agribusiness segment. With strong models, a dedicated team, and underwriting practices at the forefront, we feel confident about the continued growth of the agribusiness loan portfolio, ensuring we're managing risks effectively.

Eduardo Nishio, Analyst

In addition to reducing your footprint, what other initiatives are you pursuing that will release value in the next few months?

Marcelo de Araujo Noronha, CEO

We have seen consistent operating results, committing to our outlined plans for transformation. This momentum continues to enable growth, efficiencies, and expanded services as we work towards reaching multiple goals simultaneously.

Renato Meloni, Analyst

I have a question about payroll deductible loans for private companies. Are you beginning to grow with this product now? What about agribusiness loans?

Marcelo de Araujo Noronha, CEO

Yes, we have prepared for this growth and will begin to accelerate as the market stabilizes. Agribusiness is a winning industry and we expect to continue growing there as long as we manage risk appropriately, ensuring high-quality customer relationships.

Yuri Fernandes, Analyst

I would like to understand why there was an increase in DTAs this quarter?

Cassiano Ricardo Scarpelli, CFO

In this quarter, there was an increase in DTA related to the provision we made to neutralize gains coming from the comprehensive transaction program because that generated more DTAs. It was a specific case and not related to credit origination itself.

Daer Labarta, Analyst

My question is on your capital base. What should we think is the sustainable core Tier 1?

Marcelo de Araujo Noronha, CEO

Our core Tier 1 has remained stable and we believe that it will remain well above the minimum regulatory requirement. As we grow and navigate through opportunities, we will be looking at optimizing our internal organization to absorb changing dynamics.

Andre Costa Carvalho, Investor Relations Officer

We now close the Q&A session. The questions that were not answered today will be tackled by our Investor Relations team immediately after the meeting. Thank you for your participation.

Marcelo de Araujo Noronha, CEO

Thank you, Andre. Thank you, Cassiano. Thank you all for joining us this morning. Thank you to all the analysts and investors who contributed with your questions. You can come and talk to us if you have questions about our quarterly balance sheet. Thank you all very much. Have a great week.