Earnings Call Transcript - BBD Q3 2025

Marcelo de Noronha, CEO

Good morning, everyone. I am Marcelo speaking from Bradesco's headquarters to share some insights on the results for the third quarter of 2025. I believe you have had the chance to review the results published last night. Our recurring net income this quarter was BRL 6.2 billion, reflecting a year-on-year increase of 2.3% or an uptick of 0.1 percentage points, resulting in a total of 14.7%. These results indicate that we have achieved consistent performance over the past seven quarters following our transformation plan. Overall, our profitability shows gradual and secure growth, supported by strong operating consistency. Looking closely at the specifics, revenues have increased across almost all categories, including net interest income, fee and commission income, the insurance group, and other related areas, particularly client net interest income. Delinquency rates are well managed, and the restructured portfolio is declining, while our secured portfolio has grown quarter-on-quarter to nearly 60%. Operating expenses align with expectations and remain well controlled. We have also expedited our footprint adjustments, resulting in numbers that exceeded our expectations. Additionally, our insurance group delivered a strong performance with a return on average equity exceeding 21%. Our total revenue amounted to BRL 30 billion, a 13.1% year-on-year increase. Net interest income saw nearly 4% growth, fee income almost 7% growth, and the insurance group experienced 13% growth year-on-year, indicating ongoing expansion. This growth can be attributed to our increased penetration within our customer base. I will revisit this topic later, but without significant penetration into our individual and corporate segments and continuous improvement in customer experience across all business areas, we would not have achieved this consistent growth in revenue lines. Now turning to our loan portfolio, which stood at BRL 1.34 billion, reflecting a 9.6% year-on-year growth. While I won't delve into too many details now, further specifics will be provided. The growth in both individual and corporate loans is primarily linked to secured lines, and notably, the micro and SME segments saw an impressive year-on-year growth of nearly 25%. This portfolio is well-managed with substantial collateral, which positions us for consistent, long-term growth. The next slide focuses on specific credit lines, which are key drivers of growth. We have demonstrated strong commercial traction across all lines. Our solid customer base and deep penetration within that base have enabled this growth. Additionally, we've improved credit modeling in our business units, including portfolio management, which incorporates advanced machine learning techniques. We have added over 200 personnel to our credit business unit and implemented upskilling initiatives. We're observing continuous improvement across all segments, including individuals, SMEs, and both retail and wholesale banking, each requiring varying balances. I want to point out some key statistics: Bradesco's payroll loan portfolio ended the quarter at nearly BRL 102 billion, capturing about 14.2% market share, making us the largest among private banks. Although we faced competition from public banks and our public portfolio holds a 15.4% share, we remain conservative with private loan approvals. We developed a more restrictive credit policy from the outset to mitigate risks, focusing on companies we’ve historically worked with and their employees, provided they have been employed for at least a year. The delinquency rate for non-payment has been at 12%, but that figure is improving. Operationally, the market is functioning well, with an average delinquency rate of around 11% for new cohorts across the market, while ours stands at 3%. We have not expanded our private portfolio year-on-year or year-to-date, but with the recent release of Central Bank figures for September, there is more data to consider. So security, public and private and look at our share. So we don't have anything to lose. We always have to gain more. So this is the outlook. And credit cards, if you look at the numbers, we grew substantially in the high income line. In terms of real estate, our share is about 20%. There are 3 or 4 banks whose market share is slightly higher. But in the last quarter, I mean this entire year, in general, we preserved margins. Now we see opportunities with also some modifications to accelerate real estate again. And rural portfolio, the portfolio of the bank loan grew 25% very collateralized or secured. SMEs, we are growing consistently quarter-on-quarter and year-on-year, almost 25% year-on-year and when we released the plan we anticipate that we would struggle to remain in that leadership position. I'm talking about companies that have revenue or banks that have revenues up to BRL 200 million a year, and we gained share with SMEs as well. This is just to say that we will continue to grow. We will continue to grow our loan portfolio. And as a reminder, last year, we had a write-off of the restructured portfolio of almost BRL 10 billion and large corporate growth. And large corporate, we didn't have that growth. And if everything were to remain stable, if there were no write-offs and if large corporate portfolio had not declined, our loan portfolio would have grown even more... Now speaking about expenses related to the LLP, we recently held a press conference where journalists inquired about this. There was a variation of BRL 500 million in the cost of credit quarter-on-quarter, which can be attributed to two main factors. First, there was a one-time occurrence in our wholesale banking sector due to provisions we made. While I cannot disclose specific names, the full publication reflects our cost of credit for both mass retail and wholesale banking. In wholesale banking, this typically ranges from BRL 200 million to BRL 300 million each quarter, and the variation this time rose from BRL 200 million to approximately BRL 500 million, indicating it was indeed a one-time situation. Additionally, we also facilitated credit within wholesale banking, which requires us to account for provisions in advance. This aligns with natural seasonality. However, if we disregard that and consider the additional provisions for the John Deere Bank, we would still be in a very favorable position.

Andre Carvalho, Investor Relations Director

Thank you, Marcelo, Cassiano. It's a pleasure to be here with you. Good morning, everyone. I’d like to remind you that our CEO of the insurance group, Ivan Gontijo, is participating remotely. First question, Daniel Vaz. Daniel, please go ahead.

Daniel Vaz, Analyst

Thank you, Andre. Good morning, Noronha, Cassiano, everyone. I would like to discuss costs and the significant expansion of your footprint over the past two years, which has resulted in the closure of many more service points than initially anticipated for both 2024 and 2025. It seems you have exceeded those targets. My question pertains to 2026. Should we expect a similar pace of closures, or will the focus shift towards enhancing operating efficiency in pursuit of your goal of reducing costs to 40%, down from 48% when the strategic plan was announced? Additionally, regarding costs, you mentioned that Elo and Alelo have experienced a year-on-year growth of 20%, particularly in costs. Should we assume that this level will be sustained moving forward, or are there any one-time factors that might lead to increased costs in these two companies?

Marcelo de Noronha, CEO

So I'll start with your second question. Thank you, Daniel. What I have to say is they do not grow in personnel expenses. So it was on the other way around. I only mentioned that to say we have different dynamics. But they have been growing in terms of volume, revenue, earnings, and they have been investing. So naturally, when you increase the customer base, you also increase the cost of processing and this type of cost, it's natural to see an increase. The expectation is that it will grow indefinitely at a level of 20%. I don't see that. But they are doing well. They're balanced. They're bringing returns. But when you show the transformation plan, what I mentioned was that we have a plan to reach that level of efficiency that's very important, and we're pursuing that and having a very strong control of expenses with a fine-tuned execution and a lot of discipline, Daniel. But now if I tell you that I have an opportunity to spend BRL 1 billion to make BRL 2 billion, we will not flinch. We'll not hesitate to move forward and make adjustments because life is dynamic. So the opportunities came up, and that's how we do it. That's not what we expect. We expect to have very well-controlled expenses. But once you consolidate, you may look and see, but shouldn't it be going down or you may see a deviation here and there. But as for the footprint, we talk about 1.6 if we review in the last 12 months, the expectation going forward, if you look at 12 months, would be to a smaller adjustment, Daniel. We're closing this number according to our transformation plan, but it should be below 1,000. That's the expectation for the next year.

Andre Carvalho, Investor Relations Director

So just to add to what Marcelo said, once we anticipated the footprint adjustment. Of course, we have more provisions for labor, and that shows up in our OpEx line. When we actually reduce the footprint adjustment, we should see a slowdown of the labor provisions, and that should be clear from now on. I would also like to add to Daniel, we can't have to remember investments that's there for the depreciation, strong investments we've been making naturally in technology for the bank overall as a whole and depreciation on the side. So there's a little bit of that. In theory, they are offenders, but actually, they are what boosts the new level of efficiency at the bank. Of course, also competitiveness, right, Cassiano, what we're saying, and we have a more conservative guidance at the end of last year, but we will make it a point to make any investments required in terms of competitiveness. So thank you, Daniel.

Pedro Leduc, Analyst

The first, I think you've already answered actually in this high level of labor provisions that we see this year is like building inventory that may be normalized next year. So I think this is already clear. That was a big offender of the results. But the other question would be in the credit quality. We see a slight increase in over 90 NPL for individuals. So I'd like to get some explanation about this a little bit, maybe the John Deere side, if that's been done or if there's more to come on provisions and also SME NPL, that's quite curious. It's been going down. So congratulations, but I would also like to understand this a little bit more, maybe the relevance of government lines going up. If you can give us an order of magnitude, if it's 10%, 20%, 30% of the SME portfolios, how is the performance of these government lines as they come out of the grace period and if there's any major concentration that we should look at. And at the end, what I'm trying to understand is if this increase in the cost of risk that we saw in this quarter is a trend going forward or not?

Marcelo de Noronha, CEO

Thank you, Pedro. Good questions. So thank you. It's a pleasure to see you. So first, so individuals, delinquency, it was driven by John Deere. So we don't see any other issues. Our portfolio is very safe and good vintages, and you will see a good quarter on the fourth quarter in this aspect. Now for the wholesale bank, that's the case that we had. So going back actually to John Deere that you asked. Look, the capillarity is a lot greater and have smaller or larger funding depending on the size of the deal and the agribusiness side. So it's natural. It's not breaking with any history of what we've seen, and there's recovery that comes over time. That's what we saw there. So that affected a little bit because of the consolidation, but it doesn't keep us up at night, and it doesn't discourage us. With the John Deere business and our growth in agribusiness, both in the wholesale bank and directly at the retail companies and individuals as well. We are excited with this industry. Of course, we're very cautious. We've been working with collateral always here in this type of line. We do not have any deviation in our portfolio for rural credit. About the wholesale bank now, that provision that I mentioned, there's irregularity there in a specific case, one-off that was a little bit outside of the market rationale because the market is there. So we decided to provision for that with a good coverage ratio now. I don't see any other issues here. So I see the cost of risk being very well balanced. If you were to remove that case of the wholesale bank and the deviation that we had from John Deere, it would have been flat, Leduc, it would be flat. So the order of magnitude for you about this case, I can't give you the specific number, but it's around BRL 200 million more or less, BRL 200 million that we had. So we are very comfortable with our portfolio. As for SMEs, why did it go down? Obviously, we have numerator denominator here that we are warming up well, but we're growing well with collateral...

Mario Pierry, Analyst

Congrats on the results. I have 2 questions as well. My first question, is mainly a provocation. You're saying that credit cohorts are performing well. NPL is under control. But at the same time, we are expecting a decrease in credit. I would just like to understand why you were so cautious about credit because if you anticipate that things are performing well, why are you making that move? The second question has to do with your market margin and the increase in the Selic rate. How do you expect NII performing once you expect Selic rates to go down?

Cassiano Scarpelli, CFO

Good morning, Okay. Market NII, we did some very important work. I think it's the first time we acknowledge this year an important work done from our treasury and the balance. I think we still maintain that BRL 1 billion of soft margin. And I think we refer to that in previous occasions. So we do acknowledge that work, and we understand that this will be globalized until the end of the year, making up that a total of BRL 1 billion. Well, certainly, with a lower rate next year, we should see an improvement. And so right now, we are looking at the budget, and we may bring you some news next year. But certainly, this is a good possibility of an improvement in the market NII for next year. Well, thank you, Mario, for your question and your provocation.

Marcelo de Noronha, CEO

I will ask Cassiano to begin addressing your question, and then I will discuss that acceleration.

Thiago Batista, Analyst

I have two questions. First, regarding the strategic plan released in 2024, which is now nearly 1.5 years old. At that time, you mentioned a few key performance indicators, one related to achieving an efficiency of 2 to 2.5 over 200 basis points, and you also discussed the cost of equity. Considering some time has passed, how do you assess the market now based on your initial diagnostics? Is it more challenging or less so in terms of cost of capital and equity? Will you be able to meet the anticipated numbers for these metrics? I think you touched on the cost of capital and return on equity, but it seems like you may not have achieved the efficiency target yet. What aspects are proving more challenging, and which are more manageable in relation to your strategic plan? On the topic of real estate, given that Bradesco currently has approximately BRL 112 billion in mortgages and BRL 120 billion in savings and LCI, do you foresee the possibility of issuing more LCI after the transition?

Marcelo de Noronha, CEO

I will begin with your second question about mortgage loans. Our portfolio exceeds BRL 140 billion when including the corporate side. The change has been positive and presents an opportunity because reducing the savings account reserve requirement makes sense. We maintained our margins, as I highlighted during my presentation, which is why we eased off a bit. However, we have the capacity to resume growth, and we will do so. This growth will be more apparent by the end of the year since we have sufficient capacity to expand further.

Cassiano Scarpelli, CFO

I would like to add a bit regarding the footprint and its relation to the impact on demand deposits and savings. We believe it does not have a connection because most of our customers are primarily digital. Fourteen million are already working remotely, and we continue to evaluate both demand deposits and savings. There was no decline in relation to the footprint reduction; in fact, we see more opportunities to work on the new business offerings for those customers to provide the best options for low, medium, and high-income clients.

Ivan Gontijo, CEO of the Insurance Group

Thank you, Marcelo. In terms of the sustainability of the insurance group's results, a retrospective view over the last three quarters shows consistent and linear growth in both operations and results. There has been no fluctuation, which gives us confidence to look ahead with optimism.

Marcelo de Noronha, CEO

Thank you, Ivan. That's well noted. Bradesco Saúde is a premium insurance.

Eduardo Nishio, Analyst

My question is about the credit cycle, focusing on SMEs and individuals. I'd like to hear your comments on these two areas. We've observed strong performance in SMEs, with improvements in non-performing loans and growth, indicating a beneficial relationship between the two. So, do you still see potential for further reductions in SME delinquency? Additionally, in the individual segment, while there have been improvements compared to your peers, your non-performing loans are still higher. Is there potential for further improvement in this area? At what stage of addressing these issues do you find yourselves, and do you believe you're moving towards growth?

Marcelo de Noronha, CEO

Nishio, thank you for your questions. I would like to add to what Andre said. I still view SME as a sector that will experience a decrease in non-performing loans. Everything is manageable. However, if I consider individuals and look ahead to 2026, it really depends on your mix. Earlier this year, the market grew more than in vehicles, but in this quarter, we grew more than the market. If you adjust the mix, you might see a higher non-performing loan rate. While I'm not stating that it's guaranteed, changing the mix, such as increasing auto loans while growing less in payroll loans, could balance things out by 2026. However, returns will always be adjusted based on risk, leading to risk-adjusted returns.

Tito Labarta, Analyst

My question is about your growth. You mentioned that you're expanding in certain segments where you feel more comfortable, specifically in secured loans, while not showing growth in other areas. However, you might consider increasing your risk appetite moving forward. Marcelo, since you took over as CEO, part of your strategic plan was to potentially raise your market share in loans from 14% to a range of 15% to 19%. Your market share has remained relatively stable since then. How crucial do you believe it will be to boost your market share to enhance profitability? Or should the focus shift to more profitable segments where overall market share might be less significant?

Marcelo de Noronha, CEO

I would just like to add something else, Tito. Thank you for your question. Looking ahead, our mission remains focused on gaining share in the interval I showed you in the plan. In the shorter term, we experienced good growth. If we hadn't encountered an issue in the large corporate portfolio, we would have seen over 10% year-on-year growth. However, we do have more traction in other areas, specifically payroll loans for individuals, which make up about 15% of our total portfolio, and we will be gaining share there. First of all, I want to express my gratitude to Andre, Cassiano, and all my colleagues who are always here with us in our studio. I want to thank the entire Bradesco team, all of our employees, and those who are consistently engaged every day, focusing on customer interaction and everything that occurs within the bank, including our insurance company, consortia, and consumer finance sectors. Most importantly, I want to thank the sell-side analysts for your continuous interest in participating in this event. We have a very dedicated IR team ready to discuss the results and outlook with you, as well as our buy-side clients joining us today. Once again, thank you very much. I want to reinforce the trust we have in our initiatives. I apologize for the avatar issue as we were working with [Ferbia] to make adjustments that resulted in my avatar appearing. I assure you that next time, it will not happen again. Let's move forward. We are confident that in the next quarter, we will achieve impressive results. Thank you all, and I hope you have a wonderful week.