Prepared remarks
For Portuguese, simply click on the flag icon located in the upper left corner of your screen. Questions can also be submitted via WhatsApp to the number displayed on your screen. Today's presentation is available for download on both our hosts and, as always, on our Investor Relations website. With that, I will now hand you over to Milton, and we will reconvene later for the Q&A session. Milton, over to you.
Good morning. Welcome to another earnings release as we discuss our second quarter 2026 results. You will see an executive presentation focused on the key drivers of our results, with the objective of leaving ample time for our traditional Q&A session. We delivered a strong quarter with consistent results, high profitability and excellent credit quality indicators, very much in line with the consistency we have been delivering over recent quarters. Let's move directly to the numbers. This quarter, we delivered recurring net income of BRL 12.4 billion, representing growth of 7.8% compared to the second quarter of last year and of 1% compared to the previous quarter. This was, therefore, another very solid result. How does this translate into profitability? On a consolidated basis, ROE reached 24.3% and, while in Brazil, it reached 25.7%. As always, we also present profitability adjusted to a CET1 capital ratio of 11.5%, which is close to where we believe the market operates and is also our minimum capital appetite threshold.
On this basis, consolidated ROE would have reached 25.1%, while ROE in Brazil would have reached 26.7%. This is perhaps the most comparable metric across earnings releases, and it demonstrates our ability to generate strong returns not only in Brazil, but also on a consolidated basis. Turning to the loan portfolio, we posted healthy growth, reaching BRL 1.522 trillion, up by 2.7% quarter-over-quarter and by nearly 10% year-over-year. This reflects our ability to grow with quality, supported by sound portfolio dynamics and disciplined capital allocation. Moving on to NII with clients, we also delivered a very solid result of BRL 32.6 billion, an increase of 3.3% compared to the first quarter of 2026 and of 5% compared to the second quarter of 2025. It is important to highlight this acceleration; results are very solid, and I will provide more detail shortly. Moving to noninterest expenses, growth remained well under control at 3.1% year-over-year.
It is worth remembering that we have been investing continuously for many years, always with a long-term perspective. These figures demonstrate not only our ability to continue investing in the business with quality but also our ability to pursue efficiency wherever it needs to be found on a daily basis. This reflects strong cost discipline across the organization. All of this has translated into a common equity Tier 1 ratio of 12.3%, once again demonstrating a very solid and high-quality capital base with an increase of 30 basis points compared to March. It is worth remembering that we did an early dividend distribution at the end of last year, which meant that we entered 2026 with a highly optimized capital position. We also had regulatory phase-in effects, which still had an impact during the first quarter, and yet we continue to generate capital with strong quality. I will return to this topic in more detail later in the presentation.
Turning back to the loan portfolio, I will walk through the figures from the bottom up as that may be easier to follow. In Brazil, the portfolio grew by 9.6% year-over-year and 2.6% quarter-over-quarter, which is very healthy growth. Large companies posted growth of 10% year-over-year and 4.4% quarter-over-quarter, once again reflecting strong discipline in capital allocation and expected returns. These are very long-term balance sheet transactions, which makes disciplined capital allocation particularly important. Next, let me provide more details, starting with micro, small and medium-sized companies. We posted healthy growth of 1.5% in the quarter and 11.6% year-over-year. More important than growth itself, however, is the quality and risk profile of this portfolio. The portfolio of government-backed programs grew by 7.2% in the quarter while originations increased by 47.3% over the same period.
Once again, this reflects our discipline in delivering the best products under the best conditions while maintaining strong risk management and capital allocation standards. Payroll lending has continued to be a very important growth driver for us, particularly private payroll loans under the new product. The overall payroll loan portfolio grew by 3.5% in the quarter and 11.7% year-over-year. When we take a closer look at private payroll loans, the portfolio expanded by 14.3% in the quarter and 9.1% year-over-year. From the outset, we were able to capitalize on this opportunity very effectively, delivering value to our clients while generating strong and consistent growth with delinquency remaining fully under control. This also affects the dynamics of our personal lending portfolio. For clients who are eligible for private payroll loans, particularly formerly employed workers, we have increasingly prioritized this product over traditional unsecured personal lending due both to its pricing advantages and its priority in the repayment structure.
Finally, turning to mortgage lending, it is important to remember that our funding structure is differentiated relative to the market, enabling us to remain highly competitive in this segment while serving our clients effectively and allocating resources efficiently. The mortgage portfolio grew by 3.9% in the quarter and by 13.3% year-over-year, reaching BRL 152 billion. In fact, the mortgage portfolio has now surpassed our credit card portfolio, which has historically been one of our most important portfolios at approximately BRL 150 billion. Mortgage lending is a long-term product that fosters strong client loyalty and reciprocity, which is why this strategy is so important for us. Today, we are the largest private sector bank in this segment with BRL 36 billion in originations over the last 12 months and a 55% market share among private banks. Once again, this demonstrates how our funding structure, our clients' investment profile and our funding capacity allow us to sustain a mortgage portfolio at these levels.
Now let me turn to NII with clients and highlight two points. First, total NII increased by BRL 1.1 billion, representing growth of 3.3% in the quarter, including working capital and other effects. We posted growth in the working capital and other categories in addition to the impact of investment rates and we're able to monetize our capital very effectively, reaching BRL 3.9 billion in working capital during the quarter. When we look at core NII, we see growth of BRL 800 million or 2.9% in the quarter, broadly distributed across all components. Average volumes contributed positively. Product mix was broadly neutral for margins. Liability margins and asset spreads were slightly positive. And we also benefited from a calendar effect as this quarter had one additional calendar day, which positively affected liabilities. Latin America and other also contributed positively. So as I mentioned, this was a broadly distributed result, demonstrating our ability to generate core NII alongside an effective strategy for monetizing working capital and supporting the bank's capital generation.
When we translate NII into margin percentages, particularly risk-adjusted NIM, which is the way we manage the balance sheet, we have positive news to share. As I always say, generating a very high margin only to give it back through credit costs is not a sensible capital allocation strategy. What we have shown consistently is our ability to manage margins with discipline and consistency. Risk-adjusted NIM reached 6.2%, representing a slight increase of 10 basis points in the quarter on a consolidated basis. The same dynamic was observed in Brazil, where NIM increased from 6.6% to 6.7%, reflecting our disciplined portfolio management and delivering very solid results. Therefore, this is very positive news on the margin front. Turning to NII with the market, although results may appear stable compared to previous periods, I believe that we are all aware of all the challenges we have been facing in financial markets and the level of volatility we have experienced, both in local and global markets.
Even so, we delivered another solid quarter, supported by consistent risk management. This discipline and the quality of the results we deliver are extremely important. As a result, NII with the market reached BRL 900 million. We also continue to incur costs associated with capital index hedge ratio, but as part of our strategy to protect our capital position and enhance earnings predictability, we continue to believe that this remains the appropriate approach for the bank's balance sheet, even considering this cost. This delivered a very solid performance in NII with the market. Turning to commissions, fees and results from insurance, I will once again comment on the figures from the bottom up. You will see that results from insurance, pension plans and premium bonds increased by 8.7% year-over-year and 12.8% compared to the first half of 2025. Our core insurance operation continues to grow very consistently on both a quarterly and year-over-year basis.
We have delivered many consecutive quarters of growth with results at a substantially different level compared to five years ago, reflecting very strong progress. Moving on to advisory services and brokerage, revenues increased by 32.5% year-over-year and by 25.3% in the first half compared to the same period last year. This line is largely composed of fixed income transactions, and our approach has been one of strict capital allocation and risk discipline. As a result, many of these transactions are ultimately retained on our balance sheet and what we evaluate is the expected return profile, ensuring that returns remain consistent and aligned with our cost of capital while also carefully assessing the type of risk we are retaining over the long term, considering both fixed income market pricing dynamics and credit risk. Therefore, we remain very comfortable with the quality of the assets that have been retained on our balance sheet.
Moving on to Asset Management, revenues grew by 7.3% year-over-year. More importantly, despite not being an exceptional quarter for performance fees, we still achieved 11.0% growth in the first half compared to the same period last year. There are some lines that we deliberately continue to disclose, particularly current accounts for individuals, which declined both in the quarter and year-over-year to demonstrate that this is precisely the direction we expect. We have been redefining our current account packages in an effort to serve clients more effectively while simultaneously increasing customer lifetime value and reducing friction in our customer relationships. This is why we continue to disclose this line separately, providing visibility into the significant transformation taking place in our revenue mix, with revenues becoming increasingly more sustainable, higher quality and supportive of greater customer lifetime value.
Revenues from card issuance are closely linked to the risk profile of the portfolio we have been originating. Over the last years, we carried out a very significant de-risking process. Today, we operate a portfolio with delinquency levels that are substantially below market averages, roughly half of the system levels, while delivering quality growth and double-digit expansion in the target segments where we have chosen to grow. Therefore, we are very satisfied with the quality of the results we have achieved. That said, as I mentioned previously, we have observed some moderation in this line throughout the year as a function of economic activity levels. I will discuss our guidance later on, but this is the line where we are making an adjustment. As I have mentioned in previous quarters, we already saw some risk that performance could trend closer to the lower end of the range. Therefore, we believe it was prudent to revise our full year growth expectations this quarter.
I will provide more details on this adjustment shortly. Turning to credit quality, we delivered another quarter of strong consistency. Looking at Brazil, consolidated NPL 15 to 90 days remained stable and fully in line with the previous quarter. In Brazil, the individuals portfolio also remained stable at approximately 3.0%. In SMEs, we saw a slight increase, fully consistent with what I have been discussing over recent quarters. We continue to expect normalization of this indicator with the gradual stabilization of the grace periods associated with government-backed programs, which, as I previously showed, are highly relevant within our portfolio and are now approaching the end of these grace periods. We should still experience an additional quarter of increases, particularly in NPL over 90 days, which I will discuss in greater detail shortly. Looking at long-term delinquency, the overall indicator remained stable as did Brazil's indicator this quarter.
These are very positive developments for cost of credit, particularly in an environment with household indebtedness increasing, household leverage rising and interest rates remaining restrictive. Even under these conditions, we have been able to navigate the cycle with a high degree of discipline and consistency. Looking specifically at Brazil, delinquency in the individuals portfolio increased slightly by 10 basis points but we have absolutely no concerns regarding this portfolio. I also wanted to provide greater transparency regarding the impact of the special renegotiation program. We had 371,000 clients impacted and BRL 1.1 billion in renegotiated loans but the effect on our indicators was immaterial. To put this into perspective, the impact on cost of credit was BRL 60 million during the quarter, while the impact on the delinquency indicator was only 2 basis points. Why am I highlighting this?
Because we achieved a 12% market share in this program. When the program was launched, our expectation was to operate with approximately 10% market share. We performed somewhat better than expected, although the target customer profile consisting of individuals earning up to five minimum wages is not necessarily the primary focus of our portfolios. The key message, however, is that our risk management framework continues to perform with a very high level of quality regardless of any specific program. In this particular case, the effect on our indicators was immaterial. This is the indicator I mentioned earlier, with SMEs increasing from 1.9% to 2.0%; we are still operating at levels that are significantly below those observed in the past when this indicator ranged between 2.3% and 2.5%, and that is only natural. However, there is a mechanical effect related to the expiration of grace periods as government-backed programs mature.
Previously, we benefited from these grace periods as the denominator grew significantly without any impact on the numerator. As these grace periods begin to expire, we naturally see this increase in the indicator. Our best estimate is that this indicator should increase by another 10 basis points next quarter, reaching approximately 2.1%, which remains well below levels observed not so long ago, such as in September 2024. It is important to remember that the market is dynamic, but our current expectation is for this indicator to stabilize at around 2.1% over the coming quarters. Once again, this reinforces the fact that we are looking at a mechanical effect and not a source of concern despite all the challenges we have been observing in the market. Therefore, delinquency indicators continue to provide very positive news. Regarding the portfolio by stages, I do not have any major highlights here.
Stage 2 and Stage 3 portfolios remain broadly in line with expectations. However, I would like to draw your attention to the Stage 2 coverage ratio, particularly the reduction observed this quarter in the company's portfolio. It is important to note that we do not manage the business by stage classification. Our management approach is based on expected loss. Therefore, if you compare the sum of short-term delinquency (NPL 15 to 90 days) plus NPL over 90 days with the share of the portfolio classified in each stage, you will notice that stage allocations are substantially higher. What happens is that, particularly in wholesale, when there are migrations from Stage 2 to Stage 3 or from Stage 1 to Stage 2, these effects become visible. This quarter, we experienced migrations of clients from Stage 2 to Stage 3. Typically, clients leave Stage 2 with a relatively high level of coverage when they are ready to migrate, and this affects the overall coverage ratio.
Once again, this is essentially a mechanical effect that is fully accounted for in our projections and in our cost of credit, which I will discuss shortly. There is no specific issue behind this movement. In the MD&A, you will find the breakdown by retail and wholesale segments. But this remains a purely mechanical effect with no cause for concern. It simply reflects the natural migration of clients between stages, all of whom already had adequate provisioning levels. Turning to cost of credit, you can see remarkable stability in this series from the first quarter of 2025 through today with cost of credit running at 2.7% of the portfolio throughout the period. This is an impressive level of stability. Naturally, nominal figures increase as the portfolio grows, which is why it is important to compare nominal growth in credit costs against the growth of the portfolio itself. That is exactly what we have observed.
Cost of credit recorded only a slight increase, reaching BRL 10.1 billion. As I mentioned earlier, the impact of the special renegotiation program was immaterial, both overall and during the quarter. Moving on to the renegotiated portfolio, it continues to operate at very comfortable and appropriate levels, although there are some specific effects worth mentioning. I had previously indicated that at some point, the nominal figures would naturally tend to increase. This is expected given the significant de-risking process we have carried out over recent years. However, we also have specific one-off effects such as the inclusion of the disenrolled portfolio, out-of-court restructurings and other restructuring plans that have recently been approved and are also included in the figures, among other items. Therefore, this increase is driven by specific and isolated factors. What matters most is the relative indicator, which remains very well behaved and once again demonstrates the strength of our portfolios.
Turning to noninterest expenses, the news is very positive. Commercial and administrative expenses declined by 0.5% year-over-year and increased 3.2% in the first half of 2026 compared with the first half of 2025, remaining below both inflation and collective bargaining adjustments. Looking at total Brazil expenses, growth reached 3.1% year-over-year and 4.1% in the first half of 2026 compared with the same period last year. This once again demonstrates our cost discipline across the organization and the meaningful progress we have made, particularly in those segments where we needed to improve efficiency in order to become increasingly competitive. This is a direct result of our management strategy, and we can certainly discuss it further during the Q&A session. Overall, I'm very pleased with the progress we have achieved on this agenda. As a result of this strategy, the efficiency ratio reached 35.5% in Brazil in the second quarter and 37.4% on a consolidated basis.
Looking at the first half comparison, we continue to make progress, improving from 35.7% in the first half of 2025 to 35.2% in the first half of 2026 in Brazil and from 37.5% to 37.3% on a consolidated basis. Therefore, I'm very satisfied with the efficiency ratio of the institution as a whole. It is also important to note that all expenses are included in this metric. There are no additional expenses outside the figures presented here, which further reinforces the strength and quality of the results we are delivering. All of this ultimately reflects our capital generation capacity. We generated 0.8% through earnings retention during the period, we had a 0.3% reduction related to dividends and interest on capital provisions and a further 0.1% reduction from risk-weighted assets. As a result, we ended the quarter with a common equity Tier 1 ratio of 12.3% and a very strong and solid capital position with further growth expected, which should allow us to have our traditional discussion regarding additional dividend distributions at the beginning of the following year.
This clearly demonstrates the strength of our capital generation capacity. We also report additional Tier 1 capital at 1.5%. It is worth noting that the actual figure is 1.7% but regulatory limits restrict the amount that can be recognized, which is why we present 1.5% here. This results in a very solid Tier 1 capital ratio and reinforces the strength of our capital generation base. Finally, regarding my comments on guidance, I have two observations to make. We maintained the previously disclosed guidance ranges, including loan portfolio growth, NII with clients, NII with the market, cost of credit and noninterest expenses. The only change we made was to commissions and fees and to results from insurance, which, as I mentioned earlier, is closely linked to the level of economic activity. We revised the expected growth range to between 2% and 5%, whereas at the beginning of the year, we expected growth between 5% and 9%.
We are making this adjustment to better reflect the trends we have been observing. If we see positive surprises in economic activity or attractive market windows, we will naturally seek to capitalize on them in the best possible way. However, we believe that making this adjustment is the most prudent course of action at this point. The second comment I would like to make is not a change in guidance itself, but rather a comment on the position of the guidance. If you recalculate the implied results, I would ask you to consider the effective tax rate at the lower end of the range, which reflects our best current estimate. If you run the math based on those assumptions, you will see that the implied bottom line remains unchanged, despite the revision to fee income and insurance results. Assuming the effective tax rate remains closer to the lower end of the range, the bottom line outlook is effectively the same.
This once again demonstrates our ability to provide visibility and deliver consistent earnings, even if the contribution by line item ends up differing from our original assumptions. We still have two quarters ahead of us with important challenges to navigate. The year is far from over, but we believe that we are very well positioned to deliver on our objectives over the next two quarters. As always, should anything change, I will communicate it to you in a timely manner. Well, everyone, as I stated earlier, these are very solid results. We delivered quality performance across all lines. I believe it is extremely important to look at the bank's balance sheet and, just as importantly, to understand where earnings are being generated. Above all, what matters is discipline and consistency, allocating capital effectively, generating appropriate returns on allocated capital, deepening primary banking relationships with our clients, increasing engagement, strengthening relationships and managing a transformation process that is occurring at a pace we have never experienced before, whether in terms of cultural transformation or digital transformation.
We have been able to execute and coordinate all these changes simultaneously. These are structural changes to our business models carried out with a high degree of discipline, strong execution focus and most importantly, with a realistic understanding of the many challenges ahead. Both the macroeconomic and microeconomic environments require close attention. The level of indebtedness among both companies and households in a restrictive interest rate environment requires caution. Nevertheless, we have been navigating this environment successfully always maintaining a long-term perspective. Thank you once again for your time and continued trust. I will now join Gabriel and Gustavo for our traditional Q&A session. See you shortly.
Once again from our studio, the Q&A session. We're going to start. And before that, this is a two-language session. We're going to answer the questions in the language that they are asked. First question comes from Bernardo Guttmann, XP Investments. The floor is yours.
Questions and answers
Good morning. Good morning, everyone. Thank you for the opportunity to ask a question and congratulations on the results. Question about margin with clients. The quarter was good without the effects of the first quarter, but cumulatively for the semester, the line is a bit below 5% against guidance that starts at 5% and goes to 9%. The guidance was kept, and I want to understand where the acceleration is coming from in the second semester: more volume, mix, margin of liabilities, or any relevant own capital in this account? And the interest rate cycle turning, how do you foresee the behavior of the margin on liabilities from now on?
Thank you, Bernardo. Great to see you and thank you for the question. It's a good topic, so we can start the discussion. Your question is more specific about the guidance, but I want to talk about the specific growth of the margin. We see the portfolio growing about 10%, maybe a bit below. In the next quarters it should have a bit of a reduction, but it's still above the midpoint of the guidance. It should stay there, and due to the dynamics of growth, it should be in a higher threshold. There is a Colombian operation that leaves now in July, BRL 10 billion of credit that allows us to grow in the previous phase, and we're talking about a delta growth. Second effect, the margin, as we see it today, is growing below the portfolio. You asked why the margin is growing below. The explanation is the same one as the next quarters. First, when we look at the portfolio, we see the margin of asset credit growing aligned with our portfolio.
So when we decompose the margin, we have credit assets, we have liabilities, we have working capital, and we have structured operations. First, relevant information for you is that the margin of assets is growing aligned with the average results. In the margin of liabilities, we had in the previous years an important acceleration with the interest rate hike and an increase also in competition. We saw strong activity, so we had relevant growth especially last year in the liability margin and the pricing, which is what we tend to analyze along with the balance. In this quarter, we have a base effect with the assets when we compare it with the first quarter last year—last year we had the full capital and we did an anticipation of dividends. So we got into the first semester with capital at a lower threshold. That's the effect on the working capital. A fourth effect that really explains the volatility of the margin are the structured operations.
LATAM doesn't really bring a lot of volatility. There is an exchange rate effect on the results, but the structure of the wholesale has volatility effects. So when we look at the two quarters, the expectation is that the range still comprises our best opinion of projections. Of course, it depends on activity and a series of factors. Nonetheless, we can see some volatility in the margin in the third and fourth quarter due to the seasonality of the structured operations of the wholesale that tend to be stronger in the fourth quarter. So when we do the projection of the margin, everything else constant, we believe that the current range is a range, not a point, and it comprises that. So when we see the effect of interest rates, it didn't affect the rate itself when we look at the implicit working capital in regards to the previous quarter. But when we normalize the RAP effects, and also in this quarter the working capital had a lower effect—such as selling real estate that stays in the working capital—we see the rate of the working capital being aligned with the previous quarter.
And remember, we do long-term hedges of these operations, the liabilities and the working capital. Even in a cycle of interest rate changes, the pass-through to the margin is not automatic. There is a time gap as the hedges are done for the longer term. So we depend on activity because liability activity works together: we have cash pressure stronger and also individuals, efficiency—they pressure liabilities, they grow the balance and the margin will depend on the dynamic of the interest rates, which depend on internal and external factors. We have everything depending on the scenario—inflation, interest rates in the United States—so we can have a clear vision over time.
Next question: Gustavo Schroden from Citi Bank.
Good morning, everyone. Thank you and congratulations on the results—quite solid. I apologize, but I'm going to insist on Bernardo's issue and try to bring it toward the optics of growing the portfolio. If we analyze the bank, it has a few lines and is focused on private payroll loans and small companies. I wanted to understand what is the sustainability of this level of growth in these three main vectors of growth. The small- and medium-sized companies are exposed to a higher interest rate environment that we should have—even though we are expecting cuts, we are still going to have a higher macro scenario challenging. The private payroll loan product has delinquency pressures and there is a cap in the interest rates, so we need to understand the size of this market. Is it possible to keep this level of growth for the next 12 months? And the real estate—when you have higher interest rates—I really want to understand what is the dynamic of the portfolio from now on to sustain this growth of NII that is more pure of credit, and a follow-up on the structured operations.
Maybe we should expect a contribution for the second half and toward the end of the year. So if you can clarify the dynamics of the dividends that come from the quasi-equity operations that you have—are they linear? Do we have seasonality here because they're more concentrated towards the end of the year? We wanted to understand those nuances.
Thank you, Gustavo. Great to see you. Let me try and bring forth a few relevant points. The SMEs—we managed to grow with quality, healthy dynamics and strong risk management. We have a clear strategy for many quarters to grow in government programs. It's a guaranteed portfolio. We've decreased exposure in government programs in clients with better ratings; we built a portfolio with them throughout the years. It's a portfolio that has performed regardless of the challenging context, and cost of credit and profitability are being delivered very solidly for the segment. Government programs still help to withhold delinquency at a lower threshold, but even clients that are not in government products are growing with quality. I've explained in the presentation about the delay; we've seen stability in these delinquencies in SMEs mainly because of mechanical issues of the grace periods. Since these grace periods end, we will have a mechanical growth of NPL as guarantees are exercised depending on the program—maybe 180 days—so you must wait before executing the guarantee.
So there should be another 10 basis points of growth and then stability, given the information we have right now. The scenario is dynamic; if we have deterioration we will communicate it. Regarding private payroll loans, the previous product had specific agreements in a BRL 40 billion market. We had around 30% of the market with BRL 12 billion of portfolio. It's a product we have learned to manage over the years with developed know-how, focusing on the target public. We are growing with quality and should stabilize delinquencies at indices similar to the previous products; we'll see nominal increases as the portfolio grows. Obviously it won't grow forever; it should stabilize, but we see great opportunities to produce value with appropriate risk dynamics. Most importantly, we are running at about half of the system's delinquency indicator, according to recently published data. So it's an operation that creates value, generates profitability, and services our clients adequately.
Regarding real estate, there was a change in the mechanics of funding—compulsory reserves and free resources mix changed, which generated additional resources and affected real estate credit funding. The model changes gradually next year, with phased releases of compulsories at 1.5% for the next ten years. You have two forces: savings pressure and releases of funding to the market. We still see capacity to grow with correct pricing. If you compare with private banks, our return for every real of margin in credit is the best, given our treasury relationship and real estate credit mix. We are comfortable. Corporates depend on capital markets, which have been erratic over the last months; timing will depend on market windows. Most importantly, we've been very disciplined in capital allocation and returns. It's easy to grow a portfolio with the wrong returns. When we look at the whole portfolio—vehicles, big companies—we see the level of appetite in the market, and when operations don't return the cost of capital, they're destroying shareholder value, which is not our approach.
We see opportunities to increase allocation, but portfolio growth will continue to be with quality. The deceleration is mainly on structured and liability operations. Regarding dividends and quasi-equity, the dynamics are not clear because companies distribute dividends at different times—often at year-end but sometimes extraordinary distributions occur. It's erratic for us, so it's difficult to predict margin behavior from that source. That's why we use a range in our guidance and not a point. We will have more clarity as the year develops.
Next question: Beatrice from UBS.
Thank you for the question. Our question is about efficiency. In the quarter it is a bit higher due to seasonality but we see a trend that is very good. Do you still see space for improvement in this index and if yes, what are the main drivers? Thank you for the continuous improvement.
Thank you, Beatrice. Do you remember that in the previous quarter we brought a view of the efficiency level over time, looking at a few segments of business? We had efficiency indices that were benchmarks and where we saw segments that are still scalable from the standpoint of efficiency. Efficiency depends on revenue, so the focus is both revenue and cost. We see this as a long-term virtuous trend. The second quarter is seasonally stronger for expenses; first semester tends to show less expenses. The levers are the fruits of technology investments and transformation we have made over the years. We believe there is potential ahead given the level of detail and discipline the bank has; scalability is significant and what we expect for the future. I reinforce Gabriel's earlier comments: yes, it's demanding but possible.
Next question: Marcelo Mizrahi from BBI.
Thank you for the opportunity. Congratulations on the results. I want to revisit the services line with the review of the guidance: I wanted to understand more of the dynamics that provoked this revision. What is the strategy of the bank regarding issuance of credit cards, payment lines, acquiring, and even the insurance line? I wanted to understand the services lines ahead. Looking at the dynamic of this activity, the mix of services should have a behavior that is more cautious and lower growth maybe for the fiscal year given the growth of cash that is potentially lower; these lines can be affected. What changed in strategy? Is the strategy maintained? Do you agree with this vision that services will be weaker in the next quarters?
Thank you for your participation, Marcelo. I think it's great that we can talk about this line because there was a change and each component—services and insurance—warrants a small explanation. First, credit cards: specifically individuals, there is a double effect and an intentional strategy. Over the years, we did important de-risking in the portfolio, reducing exposure to less resilient customers. Looking back, we marginally lost revenue but we avoided significant credit losses—so the strategy was correct. We have focused more on high-income customers where we're growing the portfolio. When we grow in these segments, the product economics and rewards are more expensive; we reduce monthly payments frictions and generate a product focused on lifetime value and engagement. Some players use credit cards as a client acquisition cost, making it more expensive; in our view, the public demands better service with better conditions.
Regarding asset management and performance fees, markets have been volatile; some quarters are better, some worse. Fixed income activity was stronger in June but ECM and M&A remain subdued. We look at origination and distribution: we are still leaders and we distribute a lot to the market. We don't do originations only to hold assets; many transactions are priced below the cost of capital so we avoid them. That dynamic means some transactions aren't executed because they destroy value. Insurance: bancassurance core has grown well; premiums issued are relevant and well behaved. So looking forward, each line has a different strategy and their behavior depends on market activity. We continue to aim for client-centric integrated products and reduce friction to increase lifetime value. We'll keep adjusting as market conditions evolve, and we'll finalize budgeting for 2027 post-election with this in mind.
Next question: Yuri Fernandes.
On profitability: portfolio is growing with quality and return on results. I wanted to return to asset quality. In your presentation you commented on the 15 to 90 day metric and I just wanted to know on the individuals and SMEs: there is a seasonal improvement and part of this level you explained relates to government programs, but even individuals shouldn't have a lot of effect there. It's not a vertiginous drop; maybe 10-20 bps and it's fairly flat. I want to understand if you're comfortable with asset quality—do you expect stability or any worsening? I know Itaú has a better balance sheet and you are well prepared, but are we going to see any worsening levels or not? This is a question about comfort and stability, and if you can explain what happened with the 15-90 day delinquencies.
Thank you, Yuri. You captured the message well. First, regarding short-term delinquency: when we look at published products and the market, we see a relevant increase in over-90-day delinquencies in the market. On our side: we didn't change our write-off policies at any point. The rules (Resolution 4,966) give flexibility, but we've kept our expectations and write-off timing unchanged. The de-risking we've executed over recent years has left the portfolio more resilient—both individuals and corporate. If you go back and look at how much short-term delinquency grew from Q4 last year to Q1 the indicators show it grew less for us than for many peers; in the quarter we saw only a modest move of around 23 bps in some series, much less than earlier increases of 50-60 bps in previous cycles. So there isn't a signal of systemic concern for our portfolio. We are comfortable with the indicators and expect stability.
Regarding the renegotiated portfolio that grew this quarter, two important explanations: the rollout of the special renegotiation program and the inclusion of legal proceedings where plans have now been implemented; those are seasonal effects and mechanical in nature. We do not see any cause for alarm. Our best estimate is stability ahead. For SMEs, as I mentioned, there may be another 10 bps increase next quarter due to grace period expirations, after which we expect stabilization. In short, we are very comfortable with our credit indicators and in no way see a signal of a major deterioration.
Next question: Renato Meloni, independent analyst. The floor is yours.
Thank you. Broad question: can you tell us about the credit cycle in the industry in the second semester and going into 2027? How much will interest rates in 2027 help? With a potential deceleration in growth, and for the guidance, where is growth expected to come from? Maybe you will get above the guidance—what are the drivers?
Thank you, Renato. The credit cycle will manifest differently across segments and products. The choice of how to extend credit over the long term and portfolio management is vital. We have advanced in artificial intelligence and other tools for credit management. The cycle will be influenced by several government programs that had various impacts; in our case the special renegotiation was immaterial, but for others it may have been larger depending on market share and customer profile. The cycle could be challenging if U.S. rates rise further—transmission to local rates, exchange rate effects and pressure on the Central Bank complicate the outlook. There is also an excess of credit supply in the market with many new players. As rates normalize, discipline is essential. For 2027, we need to understand the true capacity of the market, but our core principle remains: we will be disciplined. If we must choose between losing market share or taking actions that destroy long-term value, we will prefer to protect value. That discipline brought us to our current position and will guide our actions going forward.
Next question: Daniel Vaz, J. Safra.
Good morning. Congratulations on the stability and predictability. I wanted to go back to efficiency indices. If revenue growth is single digit, how much flexibility do you have on costs to preserve ROE? What limits cost flexibility—is it institutional, regulatory, or deliberate choice about the speed of investment? Specifically on AI: how much have you already applied AI to the business? Are you at 100% AI support or still scaling? Is this being supported and where do you stand?
Thank you, Daniel. Cost is much more in our control than revenue. We decelerated cost growth while continuing to invest for the long term. We will not stop investing in digital experience, new businesses and capabilities. There is no silver bullet—it's a series of initiatives mapped by Gabriel and the Executive Committee. AI is an important lever: AI-related expenses will increase but will generate efficiencies and revenue. The approach is to balance investment and efficiency while preserving innovation and competitive positioning. For retail, digital transformation has closed an NPS gap and allowed us to be more competitive and efficient. We will continue reducing costs where appropriate and scaling the business where it makes sense.
I'll add on predictability and stability: our results reflect disciplined management. Efficiency is an engine of competitiveness and of maximizing value for shareholders. There's no single initiative; AI is a lever among many. We're implementing AI across many processes. AI costs will rise, but it will drive productivity and new revenue. This shift is similar to our earlier migration to cloud: initial costs rise, but benefits follow. We're doing the best we can to make investments sustainable and value-accretive.
We will switch to English now. Next question: Tito (Daer) Labarta from Goldman Sachs.
Great. Thanks, Gustavo. Milton, Gabriel, congrats on the strong results as usual. I want to ask about industry positioning: you're delivering about a 26% ROE in Brazil when many incumbents are struggling to do double digits. Given the credit cycle, growth slowing and high rates, how do you think about competitive dynamics? Could competition become irrational and try to improve positions versus you—putting pressure on fees, for instance? We recently saw an index ranking one of the banks as a top leader in Latin America—typically leaders increase the gap relative to the large ones. Is that scenario happening here? Could competitors close the gap? How do you see your ability to sustain profitability and what are the biggest risks?
Thank you. We have many competitors across segments—wholesale, wealth, asset management, etc. We respect all competitors; they are investing and trying to grow. We have been able to deliver strong ROE in recent years. Our key discipline is capital allocation: we've set a rough cost of equity at 14.75%, and whenever we generate returns above that, we create value. Growing fast without discipline leads to poor long-term returns and potential capital dilution. If competitors act irrationally in certain segments, we'll step back rather than follow if it destroys shareholder value. That discipline, focus on client experience, integrated product offering and strong execution are our advantages. Leaders often widen the gap if they maintain discipline and invest in client experience. We see room to grow and will do so with rigor; that's our strategy to sustain profitability and manage risks.
We will switch back to Portuguese. Next question: Eduardo Rosman, BTG Pactual.
On the credit cycle, how prepared is the system for a potential economic crisis? The market changed: companies have more access to capital markets, and the industry has more players. How do you compare to the previous crisis and how do you see the system's preparedness for a potential crisis?
Thank you. The system has evolved: companies now access capital markets more readily; there are more players and more distribution. This is positive, but in a significant crisis it would raise new challenges. The role of supervision and regulation is crucial. The Central Bank must have adequate resources to effectively supervise a larger and more complex set of players. We support increased Central Bank budget for supervision. Many new entrants distribute risk to funds and other structures, creating shadow banking dynamics that reduce transparency. In a stress scenario, questions arise about who owns the receivables and how risks are allocated. Individual and SME segments are under pressure: household indebtedness and higher rates create challenges. The system is more liquid and diverse today, but that also means stress can propagate differently than in prior crises. We need to monitor spreads and maintain discipline in credit underwriting.
Next question: Mario Pierry from Bank of America.
Congratulations on the results. Back to services: there's a review of guidance. We want to understand if this is related to migration of clients to One Itau, cross-sell, and whether migration benefits are not as strong as expected. How do you see the migration and its benefits for the bank's results?
Thank you. That's not the explanation. We're very positive on the evolution of One Itau migration. We concluded the migration with NPS levels above 80% activation and 99.3% of clients migrated with a strong digital experience; we managed to close an 18-point NPS gap versus the digital leader. Over 20 new products launched with strong activation. We've quadrupled account openings; over 70% of clients have three or more products. So migration is working well and creates cross-sell opportunities. The marginal decline you see is more about portfolio composition and de-risking rather than migration failure. In migrating clients, we also reduced exposure to less resilient segments, which affects some revenue lines but increases lifetime value and lowers risk. Overall, integration is going well and should generate benefits over time.
Back to English: Carlos Gomez-Lopez from HSBC.
Gabriel, Milton, congrats on the consistency of results. One unchangeable in life is taxes. You are probably the bank with the highest effective tax rate. From a policymaker perspective, the system might be paying less than before; with amortization of DTAs possibly more. Are you concerned that in the next administration there could be pressure for industry to pay more taxes? What can you do to protect yourselves—through the industry association or otherwise—and where could pressures come from?
Thank you, Carlos. There is a large stock of DTAs and tax credits in the market. Banks should avoid actions that reduce the taxable base and thus avoid losses in tax credits that would reduce capital. Adjustments that can be made include review of IOC usage and payout policy—banks can reduce payout to retain capital. This is not our base case, but it is a lever available to banks. The banking activity is regulated and requires capital retention; combined with Brazilian corporate tax rates (around 45% including surcharges for certain segments), there is an impact. I don't see an immediate systemic risk from a tax policy change, but banks will manage through tax planning, IOC optimization and payout decisions if needed. Industry dialogue with authorities is also part of the process.
Back to Portuguese: Eduardo Nishio.
Good morning. My question is on efficiency: headcount is down 5.5% year-on-year and branches down 20%. How long will this footprint adjustment continue? Do you see more space for reduction? Regarding revenues: can you share cross-sell numbers and some metrics on the superapp and the GenAI launch—what do you expect from the launch?
On branches and headcount: we review footprint continuously based on client demand and digital adoption. Branch flow is lower due to digitalization; we assess what needs to be in-branch versus digital. We do not provide specific guidance on branch count or headcount but manage natural turnover and redeploy talent where needed to improve efficiency with minimal disruption. Regarding the One Itau migration: about 50 million clients were migrated and we have high engagement—70% of clients have three or more products. Account opening volumes were very large, showing value capture. Integration benefits are not only for migrated clients but for shareholders—better offers, improved product hubs, and fuller client relationships. On AI and the superapp: we have foundational guardrails for responsible AI and privacy, and we're building scalable models that improve first-call resolution and free time for employees to focus on higher-value tasks. The superapp combined with AI will personalize offers, improve client journeys and be a game changer for experience. We're positioning as AI-first where appropriate and are excited about the evolution.
Last question: Henrique Navarro, Santander.
Congratulations on the results. The market has changed, and it's not normal to see a guidance revision. Given changes in guidance for some lines, if there is a need for another review, which lines would be most at risk? Looking into 2027, should we assume credit growth will be softer and fee income may be weaker? How should we think of next year given current trends?
Thank you, Henrique. Our guidance is a range and we believe it still captures our expectations; we don't expect to need to revise it but we are pragmatic and will do so if market conditions warrant it. Regarding the lines at risk, the client margin annualized from first semester could be a challenge for the next two quarters because of liability dynamics and structured operations volatility. Working capital should remain stable and growing but not dramatically. Asset margin is growing and I am not concerned. Cost of credit: our best expectation is to be closer to the midpoint of our guidance; we provision conservatively. If we had a worse quarter due to provisions, we would explain the reasons—our process is to provision then discuss profit, not the opposite. We expect the implicit bottom line to remain close to previous guidance assuming tax rate behavior is at the lower end. For 2027 it's early to be definitive; the scenario is dynamic and we will finalize budgeting post-election. Our discipline of execution and capital allocation will be maintained.
Thank you, Milton. Thank you, Gabriel. Thank you, everyone who took part in our earnings call. We now close the Q&A session and our second quarter earnings call. I will hand the floor back to Milton.
Thank you, Gustavo. Thank you, Gabriel. Thank you very much for your participation. We really value this relationship with investors and stakeholders. We strive to provide high levels of transparency and predictability. If we need to adjust guidance, we will communicate it timely. This was a solid quarter in a very challenging scenario, delivering profitability, efficiency and transformation results with high credit quality. This is the work of many teams across the bank: discipline in capital allocation, value creation and a long-term view. Discipline is key. Thank you very much and we'll see you soon.
This concludes our question-and-answer session. Thank you for participating. You may now disconnect.