Prepared remarks
Good morning, everyone. I am Marcelo Noronha, speaking from the headquarters of Bradesco at Cidade de Deus to present our earnings results for the second quarter of 2025. It is now 10:31 a.m. in Brazil. Thank you all for joining us today. We disclosed our earnings yesterday, achieving a recurring net income of BRL 6.1 billion, reflecting a significant 28.6% growth year-over-year with a return on average equity of 14.6%, which is an increase of 3.2 percentage points compared to last year. In summary, our operating results demonstrated consistency across all line items, particularly in our main revenue streams, including net interest income, fee and commission income, and a strong quarterly performance from our insurance group. Operating expenses are well managed, and our loan book is stable, with key indicators of over 90-day non-performing loans, as well as 15-day non-performing loans, all under control. We have effectively executed the plan we introduced in February of last year, transforming and operating the bank with strong connections between our initiatives, yielding substantial productivity and efficiency improvements through the use of generative AI. We believe we are delivering consistent results, supported by a total revenue of BRL 34 billion, which is up 15.1% year-over-year and 5.2% quarter-on-quarter. Our revenue growth shows coherent and sustained progress, with total net interest income increasing significantly both for the quarter and year-on-year. Furthermore, fee and commission income rose over 10% year-on-year and more than 5% quarter-on-quarter. Our insurance, pension plans, and saving bonds increased by 6.5% quarter-on-quarter and 21.7% year-on-year, reflecting strong activity across the organization. Regarding our expanded loan book, which contributes to our financial revenue, we recorded a portfolio of BRL 1.018 trillion, growing 1.3% quarter-on-quarter and 11.3% year-on-year. In large corporates, we have not seen significant growth due to two primary reasons: transactions are often cyclical, and we have utilized origination for distribution in capital markets, sometimes retaining loans for secondary market sales to enhance adjusted returns. However, across our loan book, we are witnessing growth in nearly all areas, particularly with individuals, micro, and small to medium-sized enterprises. Individuals saw nearly 16% growth year-on-year, with a focus on safer, collateralized portfolios that carry favorable ratings. Our micro, small, and medium-sized enterprises segment is notably strong, growing 25.2%. The impact of this growth translates into increased net interest income and fee income, stemming from the strategic decisions made in our bank's operations. Lastly, by examining the Central Bank of Brazil's segmentation of companies making up to BRL 300 million annually, we recognize Bradesco as a leading bank in this sector, continually expanding our assets within this category. So moving on, we see here the traction of credit, resulting in growth of net interest income, growing almost 16% year-on-year, 4.7% up quarter-on-quarter, with credit provisions growing NII net of provisions, BRL 9.9 billion. And here, I will explain the numbers. I can tell you that we are quite flat here. We integrated John Deere Bank in Q1. And of course, our rural loans have the highest expected loss in the month of May. In June, this is already dropping. So we have a cost here which is slightly higher because of that. If we were not having this consolidation, our cost of risk would be between 3% and 3.1%. Since we've been growing large companies, we have a denominator effect. So I can tell you that we have expenses with LLP are flat. Market NII BRL 300 million, we were expecting it to be 0 or negative, given the pressure of interest rates of almost 15% on ALM. And this is not happening by chance. It's happening because of the level of activity we have in our customers desk combined with loan production, loan origination in the wholesale bank. And all of that results in trading positions and with our new energy desk that also creates revenues. ALM, trading energy operating really well and bringing us the results. And when we look at client NII, growing almost BRL 18 billion, 8.8% spread, a nominal growth superior to the growth that we saw in Q1, BRL 1 billion here and also growing consistently. And more importantly, client NII net of provisions growing 20.7% year-on-year, BRL 9.6 billion. That's really important to us. And the result combined with market NII. And this is important because it has an effect on the bottom line. NII net of provisions, almost BRL 10 billion, 19.4% year-on-year, growing in the quarter as well, but with consistency and balance in several line items and work fronts. Credit quality over 90-day NPL quite balanced and flat. And here, there's a note of 15 to 90 is no longer the indicator. And so 15 to 90-day NPL also flat and representation or share by stage, Stage 3 growing, growing more than 10 basis points in the last quarter at 7.9%. Stage 2 is slightly higher here. It doesn't mean it's a bad portfolio, it's classification by expected loss and consolidated mix with John Deere influenced that indicator. If it weren't for that, this indicator would be flat as well. Important data. Restructured portfolio is dropping. Last year, we reduced by BRL 4.5 billion in this portfolio. If we look at our not cured portfolio, in this year alone, we can see there was a reduction of 5.4 basis points, reaching a total of BRL 30 billion. And here, we see the evolution of the secured portfolio reaching 58.5%, up from 57%. So origination is growing a lot more in secured loans vis-a-vis unsecured portfolio. Fee and commission income, again, speaking about constant effect. Fee and commission income grows because of activity. And we show here with a highlight BRL 10.3 billion growing 10.6% year-on-year, 5.5% quarter-on-quarter. And 3 highlights here in this quarter. Card income, almost 20% growth year-on-year and especially in high income and not in the other markets, open market poses a greater risk, BRL 4.5 billion in the quarter, 3.3% quarter-on-quarter. And also consortium management another strong quarter, almost 21% growth year-on-year, and we regained leadership in movable assets. And our investment banking capital markets surprising with this number. We had strong M&A activity, #1 position on M&A ranking. But what draws my attention is this growth; almost 34% growth year-on-year and almost 76% growth quarter-on-quarter. And this is the result of our activities, a well-balanced pipeline, our team, I'll speak about this in the end of the presentation, good origination and good activity considering wholesale bank, retail bank, treasury, everything gave us traction and led to even more gains in these activities. We are very confident of our investment banking and global markets activities. Operating expenses reached BRL 15.9 billion, this year-over-year growth and quarter-on-quarter growth. Now let's zoom in our operating expenses. When we break it down, personnel and administrative, we see the growth was 4.9%. If you look at the complete earnings, you will see that administrative expenses have a negative growth, and that's the result of several actions to gain efficiency. And these will continue along 2026, '27, '28. One of them is the adjustment in our footprint compared with June 2024, we are talking about more than 1,500 service points reduced until now. And personnel growth is linked to greater result, profit sharing, variable compensation. Even with these adjustments, we grew our client base by more than 1 million. And when we look at an indicator that I showed you in the last 2 quarter calls, all of our payment companies, EloPar, Livelo, Cielo, all of them have been making important investments. Cielo has been going through a strong transformation with good investments. OpEx and CapEx, excluding this in our comparison base, when we look at all operating expenses directly under our control, our year-over-year growth was 5.8%. In other words, expenses are controlled despite our robust transformation plan. We're hiring a lot of technology people, people working with data, and also in our Credit BU, so regardless of the adjustment in our footprint. Individuals group posting another strong quarter with this level of net income, BRL 2.3 billion, 4.4% up year-on-year and ROAE of almost 22%. That's another highlight. So robust revenues and the results of Insurance operations and that's included in our guidance. And we can see that the result is primarily operational, 31.1% growth year-on-year in all line items. Although the Insurance group is very much down to earth in their provisions, they have very balanced provisions, but we see growth in the level of activity. And this is a result of management. This is the result of commercialization through our internal channels, selling to all client segments in the organization and all external channels that work with the Insurance group, resulting in technical provisions that are robust BRL 425 billion in the quarter, growing 11.2% year-on-year, 2.6% quarter-on-quarter. Let's discuss our capital now. We are seeing a lot of consistency. As we mentioned since late last year, we anticipated stable capital. Our Tier 1 capital stands at 13%, with common equity rising to 11.1%, despite having paid all dividends as the market is aware. Regarding our guidance, most indicators are aligning with it due to several reasons. Firstly, the economy typically slows down in the second half of the year, and demand is expected to decrease as we have reached peak interest rates. The National Monetary Council has indicated that while economic activity is stronger, it is still slower compared to last quarter. However, a slowdown does not mean we will cease to grow, and we aim to keep growing in positive areas. Looking at our baseline, the Insurance group delivered solid results in Q3 and Q4 of 2024, establishing a higher baseline. Similarly, our expanded loan portfolio experienced strong growth last year. As we approach the end of 2025, we expect to align with our guidance. Notably, we made two changes because these indicators showed greater potential for growth. Fee and commission income has been adjusted upward to a range of 5% to 9%, and Insurance has been revised from 6% to 10%, now extending to 9% to 13%. These adjustments were necessary.
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. First question from Thiago Batista.
Questions and answers
Congratulations on the results. I think you have strong points in the top line. That is a positive highlight. My question is regarding the positioning of the bank regarding 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 that 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?
Thank you for your question. Yes, we are committed to serving the mass market, particularly in the digital space. We currently have millions of clients receiving remote services that are highly personalized, and we plan to provide more information on this in the future. While the digital operations were initially separate, they are still developing independently, and we will discuss their strategy at the appropriate time. However, we believe that this segment can be profitable. A key channel for service and client acquisition is Bradesco Expresso. As I mentioned earlier, we have experimented with different models, including those with variable costs, and we currently have about 39,000 banking correspondents throughout Brazil. We have shifted from a B2B2C model to a B2C approach, enhancing client experiences through CRM and intelligence linked to our banking correspondents. All transactions are made with merchants who can provide various services and products to clients, making this a strategically significant channel. In time, we will share detailed information about our activities in this area. We are confident that we are making progress and will reach new heights through a combination of strategies, optimizing our service points, and expanding in key areas such as corporate banking, SMEs, and banking correspondence. We are very enthusiastic about the initiatives we are undertaking at the bank.
Second question from Daniel Vaz with Safra.
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. And looking at the Business segment, there's a new segmentation. So exploring this segment, SMEs making up to BRL 3 million in revenue per year. Could you elaborate on the slowdown of economic activity in this segment? It would be reasonable to think that these SMEs would be the first impacted by this economic slowdown. And I'd like to understand the opportunities you're seeing in this segment to understand this new segmentation. What will be the position of Cielo because we have seen some campaigns geared to this segment by Cielo. So I'd like to hear about Cielo's risk and opportunities.
Thank you for the kind words, and thank you for joining us. Here's what I can tell you in this segment up to BRL 3 million a year. And you know about the level of mortality and risk of these companies across Brazil. We have another segment that we call MEI, the micro enterprises. And there are a large number of companies spread all over Brazil that have been in the market for many, many years, and they are really small. And they present a slightly lower risk, but we see an opportunity to manage these clients because they bring us interesting profitability. They still require contact and service by a human. They use a lot of the digital channels. We talked about the app that we delivered. But what have we been doing? I mean this does not apply only to small business. This applies to individuals, legal entities of different sizes in the middle market. The work that we are doing with the credit BU to which we implemented many new models and also portfolio management permanently monitoring and kind of with an early identification of possible losses in some sectors, in some companies, in some ratings. So all of this gives us a different complexity level in our modeling. We have credit policies adjusted by the modeling periodically and all the time. And so we have this ability to execute that we didn't use to have. And all this credit monitoring with solar signs automated by machine learning models. It's all connected to the segment, and we've been doing this very successfully. So we have the Enterprise segment, and this is happening in the business segment. And also, we are choosing the modalities in which we want to operate. We are operating with a mode of secured loans, programs by the government, FGO, FGI of government programs in this half year produced almost the volume that we originated throughout last year for companies. And that's positive for the companies because they have long-term credit with lower spreads, more time to pay. But we have to have the right and well-oiled models so that we can accept the range of losses here the spread is lower, but risk-adjusted return is different. So we're operating with government programs with highly liquid receivables such as card receivables and other receivables wholesale. So we have been prioritizing those modalities that bring us lower margin, but that bring us long-term relationship and service for these companies. So we are seeing core opportunities for growth. We believe that in any economy that will grow in the future, we'll have small businesses growing more than other segments as usual. So we have a 15% interest rate in Brazil. But we are looking at a time horizon of 2028, 2029, and 2030. And we're going to have these small businesses having a greater share in the financial business. And to answer the last part of your question about Cielo, we created a connection via APIs targeted services. We have been increasing the penetration rate and our share mainly in the last few quarters when we delivered in-house solutions and solutions via Cielo. So we see us growing with good combinations and offering better and better services to our clients, micro enterprises, businesses, enterprises, middle market, corporate up to BRL 300 million, and also for large corporates. Thank you, Daniel. One final point Daniel. Very candidly, and I'm speaking about this now, and I spoke about this in the press conference. We are very confident about the quality of our loan book. We are not taking risks here. Andre and his whole team have a clear guidance regarding our risk appetite. My colleagues heading each segment are very well aware, and we are very confident about 2025 in terms of our loan book in all segments, individuals and legal entities.
Now Pedro Leduc from Itau BBA.
Congratulations on the deliveries. You're making solid progress. I have two brief questions. First, as I examine the operating expenses, two-thirds of the increase is from the line labeled other. While the administrative costs are under control, the increase in the line other is noticeable. Have there been adjustments, and considering personnel and administrative expenses, you already have a higher level of efficiency. Should we expect the other category to also be under control next year? My attention was drawn to the fact that this line item accounts for all the increase in expenses. My second question pertains to the guidance you reviewed regarding services and insurance. When we look at the net interest income after provisions and compare it to the midpoint of the guidance, it appears that the loan loss provision will remain unchanged in the second half of the year. Is that the case? I assume you didn't modify the guidance since the upper range already reflects some growth. I would like to understand more about the reasoning behind keeping this guidance the same.
Well, thank you. Thank you for participating. It's a pleasure to see you. I think that maybe Andre could begin.
Yes, the loan loss provision is included, and we currently have a larger amount than we aim for in the future. Additionally, we have seen gains from the reductions we've implemented. Regarding personnel and administrative expenses, we've already made adjustments, so I believe there's a connection there. This line item is assisting us in adapting to the changes necessary for the change-the-bank initiative, and personnel and administrative costs have been optimized.
Andre?
Yes. Let me add that operating expense, as Marcelo said, grew 5.8% in the second quarter of 2025 compared to last year. And the inflation was 5.4% in the same period. So even considering what Cassiano mentioned, operating expenses grew at the same pace as inflation with all the investments we've made in the transformation of the bank. And that shows that cost is under control. And even we are preparing for a slower growth in the second half of the year. Now we can see a growth in the OpEx. And as we already have some of that in the numbers of the last quarter last year, I believe that now the line item other will be adjusted. Yes, about the guidance, yes, the NII guidance remained the same. Our NII net of provisions will be BRL 39 billion, which is the midpoint of our guidance between EUR 37 million and EUR 41 million. So our guidance, as Marcelo mentioned, we are at the top range of the guidance. So our NII net of provisions can still grow in the second half of the year compared to the first half of the year, but always cautiously because we are building our portfolio with full collaterals. But every half year, we have seen a growth.
Let me add to what my colleague said. When we look at all the expenses, personnel, administrative and other expenses under our control because under our management. All of this has been approved, obviously, but we are growing 5.8% in operating expenses, even with all the investments made in consulting, in technology, and we are growing in some important areas of the bank, for example, technology, data scientists, data engineers, developers. We have a bigger team now. And in time, we see that it will trend towards a normalized curve. But in relation to the NII guidance, I mean, this is our target, but always net of provisions. And that is perhaps more important than the net income margin, which could be a bit higher or lower. But I mean, what is really important is the number we see at the bottom line. And that is the number we look at with a lot of discipline and risk-adjusted return. So we will not stop doing business. I mean I hope I will be favorably surprised because I want to do more. And when I say I want to do more, I speak on behalf of my team. We want to do more, but always looking at risk and our current risk appetite that we've imposed to ourselves because we want to grow, but we want to grow perennially, reaching a higher level of both profitability and return.
Thank you, Pedro, for the question. The next question come from Gustavo Schroden from Citibank.
I will agree with my colleagues and give you congratulations on the earnings. We see the bank is back on credit in terms of revenue and the loan book. I'd like to go back to Leduc's question on expenses. We can see, I mean, on the one hand, we see a reduction and adjustment in the bank's footprint initiative to prepare for the future. But still, I mean, it still has not translated into numbers, so to say. I mean you still have high numbers. I mean, so do we believe we can continue to improve efficiency? Or are we going to see a slower efficiency improvement? Is that going to happen this year or next year? Because I think this is important for us to calculate the ROI. I mean, because when we look at revenue, it seems to me that everything is on track. Next, looking at trading and market NII, the soft guidance was BRL 0.8 billion, and it's already at BRL 700 million. So can we exceed BRL 1 billion because we already have 2 quarters ahead of us this year.
Thank you, Gustavo. You have a nice background behind you, great. Cassiano , would you like to answer the question?
Yes, let me start by discussing treasury, which I believe is crucial. Our guidance was set between BRL 0 and BRL 1 billion. Currently, we anticipate a softer guidance of BRL 700 million to BRL 1 billion. We do not foresee a decline in the second half of the year. This is a mix, as Marcelo mentioned, involving our asset and liability management and our trading desk. Additionally, there is significant work we do related to ALM, which is integrated into our structure rather than being viewed as a standalone function of the trading desk. We're aiming for a range of BRL 700 million to BRL 1 billion, which seems reasonable until the year's end. The next two quarters will pose more challenges, but we have a solid strategy in place. Regarding efficiency, we previously indicated a target of 52% by 2025, with further improvements expected in 2026. That still stands. We have achieved a 3 percentage point improvement this year through strict cost control. An operating expense growth of 5.8% is substantial, especially considering the investments in our change-the-bank initiative. For administrative and personnel costs, the growth is at 4.9%. These figures are significant because we are executing our plan effectively, exceeding it by 3 percentage points. We believe we can maintain this guidance, and we expect even better results in 2026 and 2027, which should lead to enhanced efficiency. It's great to see you, Gustavo.
Let me also add, Cassiano. Thanks for the questions, Gustavo. The efficiency ratio is not a guiding principle for us. We have a long-term target, but it's not a strict measure. If we determine we need to increase expenses to enhance our competitiveness, we will do so, as maintaining competitiveness is crucial both in the short and long run. When we provided our year-end guidance for 2024, some considered it conservative; however, we emphasized that we would not halt any investment initiatives. We will continue transforming the bank in agriculture, corporate platforms, and all other initiatives. We are committed to investing in technology and expanding our team. This does contribute to our expenses, which can create pressures on labor, but we are on the right track and executing our plan. Our approach is straightforward—while we may make adjustments, we are following a clear path. We are meeting all the milestones in our plan with satisfactory results. Cassiano noted that we have a more optimistic outlook regarding our origination in the wholesale bank, treasury deals, and other areas like the energy trading desk, where we see significant business opportunities. Sometimes you might wonder if that income is nonrecurring; we continue to originate deals. Once a deal is closed with a customer, we immediately begin thinking about the next one. That is what we mean by recurring net income and progressing step by step. Thank you, Gustavo.
Next question from Mario Pierry with Bank of America.
Again, on my side, congratulations on the results. I'd like to focus on growth that you're talking about you expect a slowdown of the portfolio with the portfolio growing close to 12% and in your guidance, 6% to 8%. I'd like to understand in what line items do you see this kind of slowdown? And why are you so comfortable in terms of delinquency? Nora, you said over and over that you're comfortable that you're not seeing a worsened delinquency. Well, the economy is slowing down, you're becoming more cautious, but at the same time, you're keeping provisions and delinquency under control. What metrics concern you when you look at the economy? And what metrics do you see that give you comfort that delinquency will remain under control?
Thank you, Mario. For starters, there is a second variable here, which is the baseline of the last quarter. It is higher. So variation or relative variation can be lower. In addition, we have a lower demand for credit in the market. This is what we observed in the recent data published by the Brazilian Central Bank. It is only natural. With a high real interest rate and a 15% Selic rate, it is only natural that there will be a lower demand for credit. What makes me comfortable though is what I said during the presentation of our earnings. First, metrics, vintage by vintage, line by line, product by product, modality by modality, with the right pricing, risk-adjusted return, adjustment of the models and dynamic policies and the choice of those segments that present lower spreads, NII but a much higher risk-adjusted return, which is the case of FGO FGI programs and other secured lines such as payroll deductible loans. So let me give you one example, one piece of data. If you look at our payroll deductible loans portfolio, you will see that we grew by 4% quarter-on-quarter, slightly above 5% year-on-year. But please note what happened in payroll loans. The banks have agreements with the companies. And there was a change in the private payroll loan via CTPS. However, we prepared for that. There are some people operating at much higher volumes. But we kind of had a reduction. We did not operate with that change because we had 2 payments here. The first was in May, the second one in June. of the amount of the companies. And secondly, the delinquency rate observed by the market was higher than 16%. So we prefer to be down towards because the bookkeeping was not very robust. So when the payments were made, we had a lot of problems of reconciling the numbers. In our case, with small amounts. And we preferred not to run risks. In our case, it was above 5%. And these cases have been practically solved. And why? Because we operated with a restrictive policy. We only wanted to operate initially with the companies that we knew that had agreements with us. And we only operated with employees who had been with the companies for at least 1 year. Now that we're gaining confidence in the process, the trend in Bradesco is that we'll gain share because we have a lower market share, but with a much safer credit because I have to grant credit looking at large companies and their employees. It's a certain risk. But looking at a small company for an employee who has been with the company for a little time, it's a different risk profile. And that's why we are leaders among the private banks. We have significant high deductible loan, which decelerated in the last quarter because of biometrics, but this is expected to resume growth. So the metrics are risk-adjusted return, monitoring vintage by vintage, choosing those segments with lower risk, but the demand tends to be lower and the baseline is different. So again, we are stacking these loans, FGO FGI, more long-term payroll deductible loans and the secured loans that we trust more.
Thank you, Mario. The next question comes from Jorge Kuri from Morgan Stanley. Jorge, the floor is yours.
Congratulations on the numbers. I wanted to ask about net interest margin. Your margins were previously around 5%, but now they are just below 4%. This appears to be affecting your return on equity. You've done a good job managing expenses, but your efficiency ratio remains high due to the ongoing margin pressure. How do you see the path to normalizing net interest margins back to closer to 5%, so that your return on equity can rise into the high teens? Additionally, how sensitive is your balance sheet to interest rates? If rates are at 12% in 12 to 24 months, how would that impact your margins? Also, how does growth in the lower-income segment, where you can achieve higher spreads, factor into this? Can you outline your expectations for net interest margins over the next 24 months, including the factors involved, and indicate where you think they will normalize?
I'll start answering that. The expectation for NIM is that it will grow safely. Here at Bradesco, we focus on risk-adjusted return of our operations. If we find a good opportunity with low spread and very high RAR, we do grant the loan and we expand our portfolio. NIM is the consequence. RAR is the objective. Our NIM is growing because we are finding good opportunities in those lines with a slightly higher spread but with adequate RAR. That's the first point. Second point is because we are pricing the macro risk that we see coming with a decelerating economy. So there's a macro moment favorable for banking spreads, Central bank data reflect that. And this is reflected in our NIM and in that of the other banks, it is not by coincidence that other banks are also posting increasing NIM. In our NIM, it was 8.8%. It was 8.4% in December. And the trend is that this will gradually get close to 9% by year-end. But we don't have an explicit target for that, but it is though a trend that we are observing in our analysis. It seems to be a trend of recovery. And then you asked about the sensitivity of our earnings to the interest rates. And here, I'm going to focus on 2 aspects. Market NII. Cassano mentioned that our market NII increased from BRL 2.2 billion last year to between BRL 0.7 billion and BRL 0.9 billion this year. So higher interest rates do have a negative impact on our ALM. Next year, if the scenario is confirmed of a declining interest rate we would normally see a recovery of this line item. Our Chief Economist at Bradesco expects the Selic rate to be at 11.75% by the end of next year. So we have to do our best to work internally and see if the scenario will be confirmed. Second aspect about interest rates is the impact it has on the economy. That's what Marcelo mentioned, a gradual slowdown of the economy. What we expect in terms of economic slowdown is a gradual deceleration more than we expected 6 months ago. So the macro risk reduced in the last 6 months, high interest rates, but showing a labor market that is very robust and a very gradual slowdown of the economy, which allows the banks to adjust their NII to face this deceleration with a match being positive or neutral in terms of profitability for the system.
I’d like to add to that. You raised a good question regarding our expectations for net interest income and net interest margin. NIM is something we want to improve, but it's not our top priority. Our main focus is to increase our NII, which is driven by improved liability management and a reduction in funding costs. We are stacking portfolios that provide higher risk-adjusted returns, which helps increase NII with longer maturities. I believe we have the potential to further grow our NII through our client credit operations. Regarding the quality of our portfolio, our loans are well-managed. Auto loans are also under control, and we've been approving more loans for new and heavy vehicles, which have better credit quality and controlled delinquencies. The non-performing loans are also under control. There is potential for used vehicles that meet specific age criteria. Similarly, we expect growth in private payroll loans, provided they are well-structured and allow us to capture market share. I consider the evolution of NII to be crucial and, as mentioned earlier, while we anticipate growth in our efficiency ratio, we are confident in the growth of our NII, supported by a strong efficiency ratio and high-quality portfolio.
Thank you, Marcelo. The next question comes from Henrique Navarro from Santander.
Congratulations on the earnings. Well done, Andre, on the communication; it is very effective in reducing volatility. My question is about the second quarter, which indicates that Bradesco is positioned to deliver returns higher than the cost of capital. I'm considering the next steps, particularly if market conditions improve, with the Selic rate possibly decreasing in January 2026 and delinquency rates under control. Looking at Bradesco's transformation, we should anticipate more positive trends in 2026. What could the potential figures be? Specifically, what kind of expansion in terms of quality and profitability can we expect in 2026? Should we anticipate a return on equity or return on investment of around 17% or 18%? I would appreciate having a number to help the market align with our expectations. What would be the structure of Bradesco's ROI?
Thank you, Navarro, for the question. Well, as we've said, we do not promise what the ROI would be or what the ROE will be. But we will do everything in our reach to deliver higher profitability, higher net income, higher revenue, expense control, higher quality of the loan portfolio, and we'll do that quarter after quarter. I mean, step by step, and that has not changed. So we will keep our promise. Of course, we do have the expectation to be able to continue to evolve. But if we were to now go back to February 8, we expected the interest rate to be 13%. So the cost of capital would be lower. I mean, we would already be delivering the right numbers now. But I mean, we don't promise anything about that. But I believe the balance sheet already has consistent results as I mentioned earlier on, I mean, if you look at the operating result, I think it's the best snapshot we have looking at our balance sheet. Now how much that will be? I mean, we expect to continue to grow with good deliveries, stacking our portfolios. And there's something I didn't mention when I answered your question, but I'll do it now. I mean, in addition to stacking our portfolios and controlling liabilities and having the right segments and good credit policies, I mean, when you have a segment where the delinquency, the expected delinquency is lower, you do face more competition in those segments. Well, we launched a 5-year plan only 18 months ago. So we still have a long time ahead of us to execute the plan. And what we want to do is to improve profitability quarter after quarter, step by step continually. Now talking about the ROE, the idea would be to come to the cost of capital. I mean we have a double target in the short term, the cost of capital. And in the long run, we have to continue to work in the long run. That's why Marcelo said we will continue to invest in the bank transformation because that will ensure competitiveness in the long term. And then I mean, if you want to calculate where we want to get, we have to continue to work to improve efficiency and 40% would be a good number, good ambition.
Let me add, Navarro and tell you. I said the same thing in the interview with the media. We feel highly excited about everything we're doing at the bank. It's a straight line. We just make dynamic adjustments, but we feel highly confident a few deliveries are better and then we make adjustments. I believe we have a lot of traction in the organization, high engagement and all teams in the organization, all areas and in all customer segments. Thanks for the question.
Thank you, Navarro. The next question comes from Eduardo Rosman from BTG. Rosman?
I'd like to hear more about collateralized portfolios, especially those that are backed by the government, either by FGI, FGO, and other government programs. I'd like to understand the magnitude of this market, the size of this market. I mean the impact on RAR has been good. But what about the future? Can we have an even higher return growing these portfolios? Or are we going to have to find new ways to monetize these customers or maybe have less cyclical, less cyclical effects. I'd like to hear more about that from you.
Thank you for the question and for being here. It's great to see you. Regarding our portfolio, while I don’t have the exact figures, I can tell you that the total amount released in government programs this year has matched what we achieved for the entire year of 2024. This indicates a growth in volume. Last year, we ranked second with an 18.3% market share, and I'm pleased to say we've gained more market share since then. However, this portfolio only provides a risk-adjusted return if we adhere to our models, which vary depending on the range and the program providing collateral. Our teams and I frequently discuss this, recognizing that establishing long-term relationships with clients leads to better fees as we get to know them. When it comes to direct credit or personal loans, our margins are indeed lower due to certain restrictions. We mainly offer these loans to higher-income individuals who are willing to accept personal loans, but this means lower returns. If I were to increase the rates, I risk losing these quality customers, so our aim is to attract reliable clients who make their payments on time. Therefore, while our spreads may be lower, it’s essential to find a balance. In terms of growth areas, credit cards have seen about a 20% increase, and our consortium is generating significant activity, fees, and commissions. We’re also expanding in real estate and investment banking, which contributes to our treasury desk’s business. Our insurance group is also experiencing growth through both external and internal distribution channels. Another area with potential for us is increasing our share in used vehicle loans, particularly since the risk-adjusted return is appealing. I believe that maintaining this balance will help us achieve growth and profitability while building enduring relationships with both individual clients and companies, even if the rates are somewhat lower.
Thank you Rosman. The next question comes from Carlos Gomez-Lopez from HSBC. Carlos?
Congratulations on your recent progress. I believe you have completed 6 steps, and since these programs typically consist of 12 steps, you have another 6 to go. I have two questions. The first is for Ivan, who has been with the company from the beginning and oversees nearly 40% of it. The insurance sector continues to perform well, but you suggest there will be lower growth next year. Can you share your expectations for the second half, especially concerning healthcare, which has been quite profitable in my view? How sustainable do you think that profitability is, and what supports your guidance for insurance? Secondly, could you clarify what your cost of equity is?
Okay. I think Ivan is connected.
Carlos, thank you very much for your question. What I can tell you is that we are very optimistic. I just talked to the press, very optimistic regarding the new guidance of the insurance group as a whole. Secondly, regarding health care. we have been seeing in Brazil a consolidation trend in the private health insurance segment, the number of MCOs, the regulatory challenges. They are all components of our interpretation of this consolidation. Well, what you will see is that this market of private health insurance, we see it very positively, particularly with the basic need for protection in this area by the Brazilian middle class, approximately 100 million people, people who need health care protection. At the same time, we do not see nothing very incremental, nothing very different in this segment of public health care, which leads us to believe that private health insurance will be the solution for the Brazilian people. So we have a positive look of the private health insurance and we intend to take part in this growth in the several phases of our chain of action. So we operate with Bradesco Saudi and Odontoprev, which ensure the lives of about 13 million beneficiaries if people look at the 2 operations together. They benefit Brazilians with high-quality solutions all over Brazil. We also execute a robust program of investments investing primarily in our network of hospitals through a recently created arm called Atlantica Hospitals. So we have a very positive approach to this market. We will continue to invest in it, Carlos. And we see this market very positively. I don't know if I answered your question, and I remain available if you need any further information.
Yes, I was going to say you have made about BRL 900 million in health every quarter in the last 2 quarters. Is that a sustainable level? Or is a period and we should go back to something like the historical returns?
Ivan, would you like to answer that?
Of course, we cannot really give you any numbers at this point. In the first half of the year, our company operating in the private health insurance segment published a very robust earnings and this is published in our results. For the second half of the year, we do envision some difficulties, but more related to the indexes. Of course, people will be using the health care services, and we will be prepared for that. The point of attention would be the financial indexers because given the macroeconomics, they might change either because of IPCA index or even the Selic rate. So these are points of attention. But in structural and operational terms, reducing medical loss ratio and in terms of gaining new lives in the several regions of Brazil. Earlier today in the press conference, I mentioned the new product that we just launched in the region follow through in Mato Grosso and Mato Grosso do Sul to bring a new understanding of private health insurance in the Midwest of Brazil. South and Southeast regions of Brazil are very well covered. And we are growing strongly in the Northeast region gives us a lot of potential more recently in private health insurance, bringing new clients, new customers, new lives to our portfolio. The trend in the next 6 months is to increase the balance of under the scope of private health insurance, adding to this number of 13 million beneficiaries that I mentioned earlier. So regarding the cost of equity, Carlos, what we have observed is that cost of equity in the last 18 months has been oscillating between 14% and 16%, depending on market and economic conditions. Our last survey with sell-side analysts indicated a median estimated median by the analysts of 15.6%, already dropping vis-a-vis the previous survey. So it seems that there is a trend for slight reduction looking forward. But of course, we don't control this number. We pursue this number. We monitor it, and we intend to get to that number as quickly as possible preferably. And thank you for the questions.
Thank you, Ivan. The next question comes from Bernardo Guttmann with XP.
Congrats on the results of the bank. My question is about the agribusiness portfolio, which continues to grow significantly with delinquency still under control even in a moment where we have seen clear signs of deterioration in this segment. How can you explain your more resilient performance? Is it a more structural profile of the portfolio concentration in midsized and large clients, greater guarantees, lower exposure to subs is it linked to an active risk management that avoided a worse. And looking forward, does the bank remain comfortable in maintaining this pace of expansion in the agribusiness portfolio?
Thank you, Guttmann. Thank you for joining us. It's always a pleasure to have you on board. Well, it's actually those 3 factors that you mentioned. It's all on the table. Of course, we have models to operate with certain ratings. Look at some crops. For example, we have some traditional clients with us in agribusiness. The bank has an important share of this sector. We're very active in several regions of Brazil, but it is what you also mentioned. There are crops that have a slightly higher risk. There are crops that have had a positive margin over the years. I see the Brazilian agribusiness as centers of wealth. And of course, there are some exceptions, some sectoral exceptions or some exception companies, either geographically speaking or by crop, we do have an effective market share, and we have a dedicated team to analyze that. Those platforms that I mentioned in the presentation, Guttmann, we have specialized teams that we have. Agronomists working together with our managers in the conversations with the clients to understand details about the farms, crops and we have all the technological support to monitor. We have a credit team specialized in agribusiness and specialized in different crops also supporting us. And we have a group that analyzes periodically the risks and this group helps the managers understand the risks. So yes, we are comfortable in expanding this, but expanding for what? Certain crops for which we have a controlled expected loss. And we intend to expand to companies that have acceptable ratings for us. And this is, 100% of what we do in rural loans. All of them are secured loans. Most of them were the trusted, valuable guarantees. You might have strong or weaker guarantees. Yes, that happens, but we are very confident about what we see regarding our NPL. And I'd like to highlight in the month of May, we saw a slightly greater deviation, but then it returned to the expected level even with the John Deere Bank. And year after year, we can see in the month of May, it increases a little bit, then it drops again. So there are some characteristics in the agribusiness that you have to know about. And yes, we are comfortable to continue to expand, but considering our criteria in our business unit, we have a portfolio management. And we sue AI-backed model to monitor together with our economy group to analyze expected loss. And I'm not talking about past due loans, okay, Goodman? I'm talking about the life portfolio. When we see signs of potential expected loss, we do active management. And operationally speaking and actually on a daily basis, we see signs and we observed them for the whole set of companies from small business to middle market. And thank you for the question.
Thank you, Guttmann. Our next question from Eduardo Nishio from Genial Investments. Nishio?
Congratulations on your results. I have a question about strategy. Could you provide an update? There are a few things we can see and a few we don't. In this quarter, you further reduced your footprint, with 14% fewer branches this quarter and a 5% reduction in the total number of branches. Overall, the footprint is down 23% year-on-year when including branches or points of sale. Besides the footprint reduction, what other initiatives do you have that will create value in the coming months? Based on the numbers, guidance update, and other metrics, it seems you are a bit more optimistic about the plan. Can you share what is working well and what isn't? What can you tell us about that?
Yes, Nishio, it is true. We feel optimistic about the outlook for the bank. Of course, we remain cautious regarding the economy, but we do feel optimistic. Maybe Cassiano could begin to answer, and I can add something else in the end.
It's a pleasure to see you. Yes. I think Marcelo spoke about that. And you mentioned the footprint reduction. But I mean, what we're looking at is return and efficiency. So controlling expenses as part of the equation. We are always looking at the cost to serve. And that's really important. Again, productivity, that we've improved using technology. And today, Marcelo provided a few more details. That's one of the foundations of our plan, massive use of Gen AI, upskilling of the whole team, especially in technology and the principal segments growing, we will have 40 new units and a significant number of new customers. Now, further penetration rate in terms of technology, the new app and the Internet banking services for companies, all of these are important business levers. The concentration of the liquidity optimization is again a very important element. We are also reengineering our legal processes. And that's something we do every day as part of our daily activities, looking at labor losses and other losses. And also the new concept of the digital mass market, so having the right resources for the right customers, so we already have a number of customers, a few million customers served by the digital platform. And that is something we're growing. I mean it's a profitable segment when you provide the correct level of service. So these are the pillars. These are the fronts where we will be working in 2025, and you will see the evolution in many of these aspects, especially technology. So we now have a quicker time to market. We've had a 94% efficiency improvement. Marcelo mentioned that today, we're doing 4x more in technology than we used to do in 2023. So these are the levers that will help us accelerate. So Bradesco culture has engaged all employees of the organization to do differently to bring ideas, to bring new solutions so that we can continue to develop the bank. I believe this is our future.
Let me also add, Cassiano and tell you that about what we have been doing, what we have been delivering can be seen in operating numbers. We have consistent operating numbers. But he mentioned a few points that can help us release more value and continue to execute our plan. We'll close the year with more than 50 principal offices and about 400,000 customers, and that will grow even more. Also, our segment of companies will continue to grow, especially now that we have a new segmentation. Small businesses will also grow. I spoke about our initiatives in the wholesale bank, including new cash services for large companies and also for SMEs. We have a large number of initiatives that have come out really strong with a lot of support of technology to improve productivity, always backed by Gen AI. So we will have more news, and we will be talking about that in the next meetings.
Thank you, Nishio. The next question comes from Renato Meloni, Autonomous.
Congratulations on the results. First, about the payroll deductible loans for private companies. You said that in June and July, you would be able to begin to grow with this product, looking at the better collateral conditions. And you also said that you would be growing also outside your customer base. Is that happening? Have the problems been solved? And also, I'd like to understand what we need to do to protect the customer base? And does that have any impact in terms of personal loans? And if I may, talking about agribusiness, I think you have a clear intent to grow there, although the moment is not really very favorable in terms of agribusiness loans, but this is a winning industry. And so I'd like to understand about the capacity to grow agribusiness loans in the next few years.
Thank you, Renato, for being here again. Regarding payroll deductible loans for employees in private companies, we were prepared for the new regulations. Before the new rules, we had agreements with companies to handle transactions directly with them. Now, with the new regulations, we've started using CTPS to sign these loans. This required a lot of paperwork, including loan disbursement and approval from the company before the funds are transferred. The process hasn’t been very smooth; we had two payments recently, and while the second was better than the first, the market is experiencing over 16% delinquency, which is significantly high for this type of loan. To safeguard our customer base, we already offer payroll deductible loans to our business clients and will continue to protect that segment. We’ve been selective in our lending based on our criteria, so we will grow and start to accelerate, aiming to gain more market share given our status as a market leader. When considering public sector payroll deductible loans and private plus FGTS, we rank behind only two public banks. However, our market presence in payroll deductible loans for private companies is limited because we only service clients who use our payroll. With the new regulation in place, our growth can now begin as we address the current 5% delinquency on our side, which is comparatively high for us. But I believe we can manage this as we know our customer base well. You also asked about agribusiness, and perhaps Andre can provide more insight on that.
Yes, as Marcelo mentioned, agribusiness is one of the most vibrant industries in the economy. And we see a favorable outlook for the second half of this year and for the next year as well. And we also have good opportunities to grow our agribusiness portfolio. We just have to find the right customers, the right credit lines and the right collaterals. But yes, of course, it is possible to grow our portfolio in agribusiness, right? With the right crops, the right geographies, the right rates, the right loan rates and the right collaterals according to our criteria, that's what we will do, Renato. Always looking at our risk appetite and still continue to grow, doing good business with our customers, providing loans for equipment purchase, including John Deere transactions. Next question from Yuri Fernandes with JPMorgan.
I am another person congratulating you on good earnings. Most of the questions have been asked. So I'll be more technical in my question. Something regarding the DTAs. Here, we consider the consumption of DTA. There was an increase, slight increase in DTA. So I'd like to understand why DTA is increased? Because if I look at the bank, everything is better. I know it depends on which entity generates credit and I understand that with 4966 something has changed. And you should stop generating so many DTAs. So what happened in this quarter? And what is the trajectory of use of these DTAs? Because it has an impact on your CET1 and it could be a good driver for market NII. So I'd like to understand a little bit about the DTAs.
Good to see you, again. I'd like to ask Cassiano to answer your question.
Good to see you. In this quarter, there was an increase in deferred tax assets related to the provision we made to offset gains from the comprehensive transaction program, which resulted in more deferred tax assets. This was a specific one-time case. As we continue to grow gradually, we will utilize more deferred tax assets, and there has been no deviation from this. This situation is unrelated to 4966 and does not pertain to credit origination itself. It is solely connected to the comprehensive transaction program and the provisions made for labor and fiscal claims. Regarding our expectations for using the deferred tax assets in our economic and financial analysis report, we have outlined a scenario for consuming the deferred tax assets over the next 10 years, taking into account full IOC payment and loan book growth. We anticipate that there will be no capital consumption impacting the taxable base in order to utilize the deferred tax assets. All of this information is included in the report. Thank you, Yuri.
The next question comes from Tito Labarta from Goldman Sachs.
Congratulations on the continued improvements in your results. I have a question about your capital base. Your Core Tier 1 is at 11.1%. It appears that shareholders' equity has started to rise, particularly as ROE improves, and you are maintaining a payout ratio of around 60%. I know you are maximizing interest on capital to benefit from the tax rate. How do you view your capital base? Are you considering increasing it, especially since profitability is expected to improve? What do you see as a sustainable Core Tier 1? If we take the midpoint of your guidance, net income is estimated at BRL 23 billion to BRL 24 billion, suggesting a potential dividend of about BRL 13 billion to BRL 14 billion. Does that seem like the right assumption? Could you consider raising capital in that context, or should we expect to remain around 11.1%?
Our core Tier 1 had an index of 11.1% in Q2, exactly the same as Q1 with an expectation of stability in this indicator until the end of the year. In other words, everything that we need to pay IOC to enjoy to benefit, the most and grow the portfolio, we'll find funding sources internally, organically based on our profit generation, stabilizing this indicator. This is a very adequate level in our opinion, well above the minimum regulatory requirement and according to our internal requirements. So we have a buffer to take advantage of all opportunities that arise without an evident capital restriction. And as I mentioned in the previous question, in our report of economic and financial analysis, we consider a scenario in which we absorb our stock of DTAs without impacting our capital base. So that is a very realistic and stable scenario for our capital base.
We now close the Q&A session. The questions that were not answered today, our Investor Relations team will answer them immediately after the meeting. Before I hand the floor back to Marcelo to close the meeting, let me tell you on our Investor Relations website, we have the full presentation plus more details about our results. Marcelo?
Thank you, Andre. Thank you, Cassiano. Thank you all for joining us this morning. Thank you, all the analysts and investors who contributed with your questions. You can come and talk to us the whole sell side and buy side if you have questions about our quarterly balance sheet. Thank you all very much. Have a great week. Thank you. Bye-bye.