Itau Unibanco Q2 2026 Earnings Call Transcript

Quartr
Provided by Quartr
August 5, 2026

Key Takeaways

  • Positive Sentiment: Recurring net income rose 7.8% year over year to BRL 12.4 billion, with consolidated ROE of 24.3% and Brazil ROE of 25.7%, reflecting continued strong profitability.
  • Positive Sentiment: The loan portfolio grew 2.7% quarter over quarter and nearly 10% year over year to BRL 1.522 trillion, led by large companies, private payroll lending and mortgages, while risk-adjusted NIM improved to 6.2%.
  • Positive Sentiment: Credit quality remained broadly stable, with cost of credit holding at 2.7% of the portfolio and management expecting only a mechanical increase in SME nonperforming loans before stabilization near 2.1%.
  • Positive Sentiment: Strong capital generation lifted the CET1 ratio to 12.3%, while disciplined expense management kept non-interest expense growth low and improved the Brazil efficiency ratio to 35.5%.
  • Negative Sentiment: The bank cut its 2026 growth guidance for commissions, fees and insurance revenue to 2%–5% from 5%–9%, citing softer economic activity and moderation in card-related revenue; management said the implied bottom-line outlook remains broadly unchanged.
AI Generated. May Contain Errors.
Earnings Conference Call
Itau Unibanco Q2 2026
00:00 / 00:00

Transcript Sections

Skip to Participants
Gustavo Lopes Rodrigues
Investor Relations Officer and Group Head of Investor Relations and Market Intelligence at Itaú

Good morning, everyone. My name is Gustavo, and it is a pleasure to have you joining us for our Second Quarter 2026 Earnings Video Conference. As always, Milton will walk you through our performance, and afterwards we will have our traditional Q&A session during which analysts and investors will be able to interact directly with us. Before handing the floor over to Milton, I would like to share a few instructions to help you make the most of today's event. For those accessing the webcast through our website, there are three audio options available: the entire content in Portuguese, the entire content in English, or the original audio.

Gustavo Lopes Rodrigues
Investor Relations Officer and Group Head of Investor Relations and Market Intelligence at Itaú

The first two options offer simultaneous translation. To select your preferred option, 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 hot site and, as always, on our investor relations website.

Gustavo Lopes Rodrigues
Investor Relations Officer and Group Head of Investor Relations and Market Intelligence at Itaú

With that, I will now hand you over to Milton, and we will reconvene later for the Q&A session. Milton, over to you.

Milton Maluhy Filho
CEO at Itaú

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?

Milton Maluhy Filho
CEO at Itaú

On a consolidated basis, ROE reached 24.3%, 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.

Milton Maluhy Filho
CEO at Itaú

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 were very solid and I will provide more detail shortly. Moving to non-interest 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.

Milton Maluhy Filho
CEO at Itaú

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 the regulatory phase-in effects, which still had an impact during the first quarter, and yet we continued to generate capital with strong quality. I will return to this topic in more detail later in the presentation. 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.

Milton Maluhy Filho
CEO at Itaú

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. 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. 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.

Milton Maluhy Filho
CEO at Itaú

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 90.1% 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. Since for clients who are eligible for private payroll loans, particularly formally 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.

Milton Maluhy Filho
CEO at Itaú

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.

Milton Maluhy Filho
CEO at Itaú

This demonstrates how our funding structure, our clients' investment profile, and our funding capacity allow us to sustain a mortgage portfolio at these levels. 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 were 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.

Milton Maluhy Filho
CEO at Itaú

Liability margins and asset spreads were slightly positive. 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. 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.

Milton Maluhy Filho
CEO at Itaú

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. 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.

Milton Maluhy Filho
CEO at Itaú

We also continue to incur costs associated with capital index hedge ratio. 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, we 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.

Milton Maluhy Filho
CEO at Itaú

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. 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. 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.

Milton Maluhy Filho
CEO at Itaú

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.

Milton Maluhy Filho
CEO at Itaú

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. 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 believed it was prudent to revise our full-year growth expectations this quarter.

Milton Maluhy Filho
CEO at Itaú

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 15-90 days remained stable and fully in line with the previous quarter. In Brazil, the individual's 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. We 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.

Milton Maluhy Filho
CEO at Itaú

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. We have absolutely no concerns regarding this portfolio. I also wanted to provide greater transparency regarding the impact of the Desenrola 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? We achieved a 12% market share in this program.

Milton Maluhy Filho
CEO at Itaú

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%-2.0%, we are still operating at levels that are significantly below those observed in the past when this indicator ranged between 2.3%-2.5%, and that is only natural. There is a mechanical effect related to the expiration of grace periods as government-backed programs mature.

Milton Maluhy Filho
CEO at Itaú

Previously, we benefited from these grace periods as the denominator grew significantly without any impact on the numerator. 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. Delinquency indicators continue to provide very positive news. Regarding the portfolio by stages, I do not have any major highlights here.

Milton Maluhy Filho
CEO at Itaú

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 15-90 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.

Milton Maluhy Filho
CEO at Itaú

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.

Milton Maluhy Filho
CEO at Itaú

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 Desenrola 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 Desenrola portfolio.

Milton Maluhy Filho
CEO at Itaú

Out-of-court restructurings and older restructuring plans that have recently been approved are also included in these figures, among other items. 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 non-interest 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.

Milton Maluhy Filho
CEO at Itaú

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 am 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%-37.3% on a consolidated basis. Therefore, I am very satisfied with the efficiency ratio of the institution as a whole.

Milton Maluhy Filho
CEO at Itaú

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%, 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%.

Milton Maluhy Filho
CEO at Itaú

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 non-interest 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%-5%, whereas at the beginning of the year, we expected growth between 5%-9%. We are making this adjustment to better reflect the trends we have been observing.

Milton Maluhy Filho
CEO at Itaú

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.

Milton Maluhy Filho
CEO at Itaú

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.

Milton Maluhy Filho
CEO at Itaú

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. We have been navigating this environment successfully, always maintaining a long-term perspective.

Milton Maluhy Filho
CEO at Itaú

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.

Gustavo Lopes Rodrigues
Investor Relations Officer and Group Head of Investor Relations and Market Intelligence at Itaú

[Non-English content]

Translator

Welcome once again from our studio for the Q&A session. We're going to start, and beforehand, this is a two-language session. We're going to answer the questions in the language that they're made. Should you need any support, our platform has the options for the audio in Portuguese, English, or the original audio without translation. You can submit your questions via WhatsApp. First question that comes from Bernardo Guttmann, XP Investimentos. The floor is yours.

Bernardo Guttmann
Head of TMT and Financial Sector at XP Investimentos

[Non-English content]

Translator

Hi, good morning. Good morning, everyone. Thank you for the opportunity for asking a question, and congratulations on the results. Question about the margin with the clients. The quarter was good without the offenders of the first quarter, but in the accumulator of the semester, the line is a bit below 5% against a guidance that starts at 5% and goes to 9%. The guidance was kept. I want to understand where the acceleration is coming from in the second semester. More volume, more mix, margin of liabilities, or any relevant own capital in this account. The Selic rate and the cycle turning, how do you foresee the behavior of the margin of liabilities from now on?

Milton Maluhy Filho
CEO at Itaú

[Non-English content]

Translator

Thank you, Bernardo. Great to see you. Thank you for the initial words. It is a good topic, 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. It should, in the next quarters, have a bit of a reduction, but it is still above the midpoint of the guidance. It should stay there. Due to the dynamics of growth, it should be in a higher threshold.

Translator

There is a Colombia operation that leaves now in July, BRL 10 billion of credit. That allows us to grow in the previous base, we are talking about a delta growth. Second effect, the margin, as we see it today, it is growing below the portfolio. Some ask, why is the margin growing below? The explanation is the same one as the next quarters. First, when we look at the portfolio, we see the margin of assets of credit growing in line with the portfolio. When we open the margin, we have the 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 in line with the average results.

Translator

In the margin of liabilities, we had in the previous years an important acceleration with the interest rates hike and an increase also in the performance. We see a strong activity, we have a relevant growth, especially last year in the liability margin. The price, which is what we tend to analyze along with the balance. In this quarter, we have the base effect with the assets when we compare it with the first quarter. The first quarter of last year, we had the full capital, last year we did an anticipation of the dividend, we got into the first semester with a capital with a lower threshold. That is the effect on the working capital. Fourth effect that really explains the volatility of the margin are these structured operations. LatAm doesn't really bring a lot of volatility.

Translator

There is an exchange rate effect on the results, the structured of the wholesale, they have volatility effects. 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 the activity and a series of factors. Nonetheless, we can see some volatility in the margin in the fourth quarter, due to the seasonality of the structured operations of the wholesale that tend to be stronger in the fourth quarter. When we do the projection of the margin, everything else constant, we believe that the current range comprises. It is a range, it is not a point, it comprises. When we see the effect of the interest rate, it had an effect of rate itself when we look at the implicit working capital in regards to the previous quarter.

Translator

When we normalize the RWA effects and also in this quarter, the working capital had a lower effect, which is selling the real estate that stays in the working capital. We see the rate of the working capital being aligned with the previous quarter. Remember, we do the long-term hedge of these operations, the liability, and the working capital. Even in a cycle of interest rate, the pass-through to the margin is not automatic. There is a temporal gap as the hedges are done for the longer vertices. We depend on the activity because the activity of a liability work together. We have a cash pressure stronger, and also the individuals, the efficiency, they pressure the liabilities, they grow the balance, and the margin will depend on the dynamic of interest rates, which depend on internal, external, and amount of factors.

Translator

We have everything depending on the scenario, inflation, the interest rates on the United States. We can have a clear vision.

Gustavo Lopes Rodrigues
Investor Relations Officer and Group Head of Investor Relations and Market Intelligence at Itaú

[Non-English content]

Translator

Next question, Gustavo Schroden from Citibank. The floor is yours.

Gustavo Schroden
Gustavo Schroden
Equity Research Director at Citibank

[Non-English content]

Translator

Good morning, everyone. Thank you. Congratulations on the results. Quite solid. I apologize, I'm going to insist on the issue of the question of Bernardo, I'm going to try and bring it towards the optics of growing the portfolio. If we analyze the bank, it has a few lines, it's focused on the private payroll loans, 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, always exposed to a higher interest rate that we should have, even though we are expecting cuts, we are still going to have a Selic rate higher, macro scenario challenging. The private payroll loan, consignado, is a product that has delinquency pressures. There is a cap in the interest rates.

Translator

We need to understand the size of this market. Is it possible to keep this level of growth for the next 12 months? The real estate, when you have a higher interest rate. 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 semester, for the end of the year. If you can clarify, what is the dynamic of the dividends that come from the quasi-equity operations that you have? They are linear. Do we have a seasonality herein? It's more concentrated towards the end of the year, we wanted to understand those nuances.

Milton Maluhy Filho
CEO at Itaú

[Non-English content]

Translator

Thank you, Gustavo. Thank you for the question. Great to see you. Let me try and bring forth a few relevant events. SMEs, we managed to grow with quality, with great dynamics, healthy risk management, with a clear strategy for many quarters to grow in the government programs. It's a guaranteed portfolio, we've decreased in the government programs. With the better ratings customers, we build a portfolio with them all throughout the years. It's a portfolio that has performed regardless of the challenging context and the cost of credit and results in a profitability level are being delivered very solidly for a segment. Government still helps to withhold the delinquency at a lower threshold, but even the clients that are not in the government products, we've been growing with quality. I've explained in a presentation about the delays.

Translator

I want to reinforce. We've seen a stability in these delays in SMEs, mainly because of the mechanical issues of the deadlines. Since they are 10-0, we have a mechanical growth of NPL. The guarantees are exercised depending on the program, depending 90 days, maybe 180 days. They go through delays before you execute the guarantee. There should be another 10 bps of growth. Stability, given the information that we have right now, the scenario is dynamic. If we have deterioration, we're going to bring more information. The consignado. In the previous product, you had specific agreements, BRL 40 billion market. We had 30% of the market, BRL 12 billion of portfolio. It's a product that we are learning to work throughout the years.

Translator

By the know-how of giving it to the credit to the companies or the individuals. The private payroll loan consignado is the junction of these two managements. From the inception, we focus on a public that is the target audience for this product. It's a public that most of them have a checking account in the bank. We haven't operated in the open credit because of the delinquency that is very high. The stability of the operation is still relevant issues and some processes that need to evolve. Messages. We are growing with quality. We should stabilize the deadlines, delays, indices similar to the previous product, we're going to see the nominals that are going to grow. The portfolio grows a lot, obviously. It's not going to grow ad aeternum. It should stabilize.

Translator

We see great opportunities to produce with great risks and a dynamic of delinquency that is very adequate. Most importantly, we are running, and I presented that, we're running at about half of the indicator of the delays of the system. The data has been published recently. We're running with an indicator of delays, maybe at the half. It's an operation that creates value, generates profitability, and most importantly, we service our clients with the products that are more adequate. This is the focus. I want to be a bank focused on the client. I want to offer a product that is cheaper. It helps to explain why the individuals, they don't grow. In the employees, we drop in 7%, there is an exchange, so we can avoid the over-indebtedness of our clients.

Translator

I've brought the data that in our portfolio, our clients have performed, and the delay levels has been very well-behaved. There was the comeback of the change of the mechanics of the real estate credit, 65 directed, 20 compulsory, and 15 free resources. Of the 20 of the compulsory, five came back. That generated additional resources, and we have the real estate credit in the client vision. How I service the client in the completeness of their needs in the best way possible. Given the mix that we have between treasury and savings and all the hedges that we do, we grow with quality because we see that portfolio. We need to see it as the funding comes back. The model changes next year. We have gradual releases of compulsory, 1.5% for the next 10 years.

Translator

At the limit, in a time, you have two forces. One is savings more pressured. It just dropped 0.6 in this period, it has a behavior that is stable. You have the other strength, which is the increase to the direction that will release fundings to the market. We still see the capacity to grow pricing correctly. If you compare it to any other banks, and I'm talking about the private ones, our return for every real margin in credit is the best given our relationship of treasury and real estate credit. We are very comfortable. Companies are dependent on the capital market. We have a capital market that is more erratic over the last months, two months weaker, one more active. Up ahead, it depends on the activities which will drive our capacity to grow. Most importantly, we've been very disciplined in the capital allocation and returns.

Translator

Very easy to grow a portfolio with the wrong returns. When we look at the whole portfolios that we have, vehicles, big companies, we've seen the level of appetite in the market that is higher. When we see the operation of the model of return with the allocated capital, we have an accuracy level that is very high, in these models, we see that these operations are destroying the value for the shareholder when they're below capital. This is not the dynamic or vision. We see opportunities of increasing in allocation. The portfolio will continue to grow with quality. We've grown in the companies and individuals and the best clients and the best ratings, resilient publics, we've grown margin of assets in the same level. What decelerated is structured and liabilities.

Translator

Dividends, your question. It doesn't have a very clear dynamic because every company releases their dividends whenever they want. You have to have a fiscal base to be able to operate with these operations. This is a care that we have, the issues of the DTAs, which is very relevant. Secondly, typically, the companies give dividends at the end of the year, the end of the first. Eventually, there's going to be a structuring. The client needs your rescue, and they're going to pay an extraordinary dividend. It's been erratic for us, this portfolio. It's difficult to affirm how the margin will behave because any marginal operation will generate volatility. That's why we are looking at the guidance.

Translator

At the end of the year, since the dividend is going to be paid, we have more surety in our operations.

Gustavo Lopes Rodrigues
Investor Relations Officer and Group Head of Investor Relations and Market Intelligence at Itaú

[Non-English content]

Translator

Next question. Beatriz, UBS. Welcome.

Beatriz Shinye
Beatriz Shinye
Equity Research Associate and Director at UBS

[Non-English content]

Translator

Good morning. Thank you for the question. Our question is about efficiency. In the quarter, it's a bit higher due to seasonality, we see a trend that is very good. Do you still see a space for an improvement in this index? If yes, what are the main drivers? Thank you. For continuous improvement.

Milton Maluhy Filho
CEO at Itaú

[Non-English content]

Translator

Thank you, Beatriz.

Gabriel Amado de Moura
CFO at Itaú

[Non-English content]

Translator

Hi, Beatriz. Yes. Do you remember that in the previous quarter, we brought a bit of a view of the efficiency level and time, looking at a few segments of business. We had efficiency indices that were benchmarks where we saw segments that are still scalable from the standpoint of efficiency indices. The efficiency index depends on the revenue. That's the focus. We see that this is the best second quarter that we had, the best first semester that we had in the efficiency semester. There is a seasonality. First semester is where we see less expenses the levers are what we've seen. The application of technology. A lot of the fruits of the investments that the bank has done throughout the years, they bear fruits, we get to an efficiency level that is very good. It's a virtuous trend.

Translator

It's not from this period. If you have the longer periods of the bank, you're going to see this. We believe that this has the potential, the plans, the level of detail, the discipline that the bank has, and scalability is big, and it's what we expect for the future.

Milton Maluhy Filho
CEO at Itaú

[Non-English content]

Translator

I reinforce the words of Gabriel. Yes, it's very demanding.

Beatriz Shinye
Beatriz Shinye
Equity Research Associate and Director at UBS

[Non-English content]

Translator

Yes. Thank you, guys.

Gustavo Lopes Rodrigues
Investor Relations Officer and Group Head of Investor Relations and Market Intelligence at Itaú

[Non-English content]

Translator

Marcelo Mizrahi, BBI.

Marcelo Mizrahi
Equity Research Analyst at BBI

[Non-English content]

Translator

Thank you for the opportunity. Congratulations on the results. I want to see the service line with a review of the guidance, but I wanted to understand more of the dynamics that provoked this review. What is the strategy of the bank that is about the issuance of credit cards, the lines of payment, the payments of companies, acquirers, and even the insurance line. I wanted to understand the service lines up ahead.

Translator

Looking at the dynamic of this activity, the mix services should have a behavior that is more cautious and lower growth, maybe for next year, given the growth of cash that is potentially lower, these lines can be affected. What is in here, what is the change of strategy, the maintenance of the strategy? Do you agree with this vision? Thinking about the mix of the portfolio, the strategy of the bank, do we think about this weaker line in the next quarters? Thank you.

Milton Maluhy Filho
CEO at Itaú

[Non-English content]

Translator

Thank you for your participation. I think it's great that we can talk about this line because there was a change. For every component of the services and insurance, there should be a small explanation. First, talking about credit cards, specifically individuals, there is a double effect if we can summarize the strategy.

Translator

First, throughout the years, we did a de-risking, important de-risking in the portfolio. In the incomes or the less resilient publics, we did a de-risking that is very relevant. Looking here on the rearview mirror, we lost marginally revenue. We saved important volumes of loss of credit. The strategy was good. Second, we've been ever more focused in the high income, which is where we're growing the portfolio. When we grow in these publics, it's a product that is clearly more expensive. We do a reduction of the monthly payments, so we reduce the friction, and we are generating an operation that is completely dedicated to the vision of lifetime value engagement with the client. It reduced the friction of the yearly rate, but the rewards are more expensive.

Translator

We see the players using the credit card as a cost of acquisition of the client, making it more expensive. In our vision, the public demands better service with best conditions and in the standpoint of the vision of product. We have the exchange in an adequate rhythm. There is a strategy with the services and insurance. A great deal of the growth has been financed with the portfolio, with the interest rates, we are using the product of credit card as a finance for the consumption and not as a product for the client that has a more deteriorated situation and has an overdraft or the payment of the credit card. We're increasing the elasticity for the high income clients, and we're doing this in a very material way.

Translator

This component has to be in the context of the credit card strategy, it's in the margin of the clients. It's not in the revenue of services for the credit card. The administration of resources is very important. The fee, even though there is a more difficult market, we are the second asset that has a good performance relative, it wasn't good for everyone in the end. It means that since fee comes in the second quarter and the fourth quarter, we had a lower performance than the third quarter of last year. It's a risk management dynamic. We hope to be in the correct side, even though with the volatility, it's difficult to generate fee results.

Translator

On the other hand, we are growing the balances and the rates are kept, and that generates resources for administration. Also, the consortium has helped a lot. When we talk about the investment bank, well, when we see ECM, M&A stopped. We have good fixed income is a better month in June. We have to remember, we like to look at the operations of the bonds and real estate, specifically in the rankings, joining what is origination and distribution. As you can see, we are still the leaders with a big advantage in distribution. It shows that a lot of the origination we distributed in the market. We don't do those operations exclusively for balance. We do it by the good dynamic of the capital markets and the operations for the distribution of the markets.

Translator

This is an important component to see, because these operations, when you see the result all in, which is the spread of credit plus the fee that you get, we've seen operations in the market that are very much below the cost of capital. A great deal of the operations that we lost, we lost because of price, because the operation doesn't return cost of capital, and it's been years operating. It's not difficult to do the calculation of capital allocation and return the operations that come with between 1%-2% that destroy value in the vision of the client. There is an important vision that depends on the dynamic of the market, and it depends on the higher risk. These returns that I'm mentioning are considering the fee, which is recognized at the end.

Translator

The risk that you run is big, recognize big risks, and the duration of these portfolios might be seven years. You have that tied down for that time. You have an asset of low profitability because it gives 12% of return, considering 12% on average. We've seen operations below that, considering the fee. That dynamic is bad. You recognize a fee, you do a big result, eventually you might be recognizing the operation with a lower profitability at the long term, which is diluted for the profitability. The other one, we try to be very careful with the credit. Looking at the operations that we lose because of appetite. It goes through any reasons, sometimes we don't do some operations because it affects the market as a whole. When we go to insurance, we've had an important component.

Translator

For growth of the operation of the core, the bank insurance is doing well. What doesn't mean that that line is exclusively for our bank insurance. It brings reps and other effects. You might have some volatility there in the year-over-year and quarter-over-quarter, the patrimony equivalents. We have public data, and that's been displayed, and this is clear. We can grow with a lot of quality. We've grown in the year-over-year. The premiums issued are relevant and with the numbers very well behaved. The Social Security has an important result as well. Looking up ahead, it depends on the activity, but every line has a different strategy. It's important that we have that vision of the client and companies. I didn't talk about the flows and receivables. It's important that we brought Rede in-house.

Translator

In the results of Rede, there is a double effect. First, a mix that we growed more in the wholesale than the retail, which affects the results. Secondly, the integration of the bank to the business. We don't look at the vision of the product. We look at client. The floating in the business of Rede, it's not in the slightest with the margin with the client. It's an adjustment that we should do up ahead, having a clearer view of the whole. The big offender are the packages of companies, tariffs that we are reducing directionally. The objection of this reduction is to remove the friction, increasing the lifetime value, and creating long-term value.

Translator

We see the rates of engagement with the packages. The individuals are dropping. We're generating a result that it's a third of what we generated in the past. When we did the transition, without being the bank more efficient, more focused with the client, therefore the long term is very relevant. For the future, it depends on the activities. Let's see, how can we grow in this. Briefly, we will be budgeting in 2027, post-election, the space of the interest rates, they are going to facilitate the opening of some of these lines. Thank you, Marcelo.

Gustavo Lopes Rodrigues
Investor Relations Officer and Group Head of Investor Relations and Market Intelligence at Itaú

[Non-English content]

Translator

Now we have Yuri Fernandes.

Milton Maluhy Filho
CEO at Itaú

[Non-English content]

Translator

Good morning.

Yuri Fernandes
Yuri Fernandes
Managing Director at J.P. Morgan

[Non-English content]

Translator

Hello. Good morning, Milton. Congratulations. The profitability growing less than portfolio, so quality and creation of results. I wanted to go back to asset quality. This presentation you commented, I just wanted to know, on the 15-90 for the individuals and SME, there is a seasonal improvement and a part of this level you explained, which is with the government programs, even the individuals that shouldn't have a lot of effect on that, it reflects upon it. It's not a vertiginous drop. It's going to be 10, 20 bps, it's flat. I want to understand if you're comfortable with the asset quality. Things are not going to improve a lot. There is a worsening. I know that Itaú has a better balance.

Translator

You're more prepared, we are concerned. Are we going to see any levels of worsening or no? This is a scenario of comfort, stability to understand, if you can explain what happened with the 15-90.

Milton Maluhy Filho
CEO at Itaú

[Non-English content]

Translator

Thank you, Yuri. Great to see you. First, I believe that what you felt that I tried to transmit during the presentation, you capture it very well. Evidently, the scenario, if we look at the previous quarter and the one now, the delays that are published in the products, we see a relevant increase with the over 90-day delays. First information on our side, we didn't change at any point our policies of write-off for any product. The 4966, it gives you liberty, we've kept it as is. Since our expectation to take the client to write off didn't change. We don't do that for provision or using the degrees of freedom for that.

Translator

Number two, the de-risking of the portfolio that is relevant was done. Today with the margin, we've managed to grow in a relevant way with the more resilient portfolios, with the individuals and the companies, wholesale, retail, that has brought a lot of important results. What is the twist for the short-term delay? If you go back and look at how much we've grown. In the first quarter, in regards to the fourth quarter of the last year in the delays, short delays, you're going to see that we grow much less than what we grew originally. You see there, we've grown 23 bps. It was much below to what we've managed to grow. Seasonally, we see a recovery higher with the short-term debt because the first quarter seasonally is higher because of that. We don't expect to see it.

Translator

Since it was lower, only 23 bps, removing 23, 24 is the best indicator of the series, we ran at 50 bps, 60 bps in previous quarters. It goes less in the subsequent quarters. There isn't any signal. It's more difficult. We've worked with the indicators. No signal of concern for our portfolio. Ceteris paribus with the information that we have now, the income that is higher, interest rate that is higher, there is an over offering of credit in the market over the years. We are very disciplined to grow in the correct way, we are very at ease with the indicators. You can expect stability. These are volatilities, variations that are minuscule, no type of concern.

Translator

If you look at the cost of credit, the portfolio is very well. If you see the renegotiated portfolio that grows in this quarter, we have two important explanations. First is there's a Desenrola, the program of the government. Secondly, in the renegotiated portfolio, we have still legal proceedings of last year, and you can only consider renegotiated once the plan has been implemented legally. When you look at the provisions, the creation is stronger now for the second quarter because it's seasonal. If you go back to the previous quarters, its behavior is very similar. From the rollout for the short to the long, it grows in creation. There is a mechanical effect. We don't do provisions with the creation. We do expected loss. When the delay is short, we anticipate the first quarter. In the second quarter, we don't see that effect.

Translator

The coverage over creation that as the wholesale as a whole, since we have guaranteed products, they demand less provisions. Wherever you see, we are very comfortable with the indicators of credit. Don't see in that any type of message. Our best estimation is stability. The best estimation for the individuals and the individuals for the companies, SMEs, we should worsen 10 basis in the next quarter and then stable Onwards. With the information available now, it can worsen, but it's not what we are seeing. In general, with all the delays, and we should bring in the next quarter, which helps to bring the indicators of the market and our indicators. It's clear how we've distanced ourselves from the market.

Translator

The mouth has been very open, and we are consistent with the growth of portfolio that is very adequate and the long-term views. That's the message.

Gustavo Lopes Rodrigues
Investor Relations Officer and Group Head of Investor Relations and Market Intelligence at Itaú

[Non-English content]

Translator

Thank you, Yuri. For the next question, Renato Meloni, Autonomous. The floor is yours.

Renato Meloni
Renato Meloni
Director and Senior Analyst at Autonomous

[Non-English content]

Translator

Thank you for the opportunity. Congratulations on the execution. I wanted to start in a broad question. If you can tell us, Milton, about the cycle of credit in the industry in the second semester and getting into 2027. How much is that helping with the interest rates in 2027? With the previous comment, if you have any deceleration with the growth and the convergence for the guidance, where is that growth coming from? Maybe you're going to get above the guidance.

Milton Maluhy Filho
CEO at Itaú

[Non-English content]

Translator

Thank you, Renato. The cycle of credit, we've had it for many years. It will manifest differently from the different segments and the different products in every segment. The choice of how to give credit in a long term and the management of portfolio is vital for what we are delivering. When we see the portfolio, you look at guidance, you look at macro, you look at the current conditions, you see all the models, and we had great results. We've advanced in artificial intelligence and important results for the credit management. The cycle of credit, we've seen a compromise of income. Government programs that are various of nature, this umbrella, had an important impact. In our portfolio, it's immaterial, but it's BRL 1.5 billion renegotiated. We present at 0.02% with the cost of credit.

Translator

For other players, probably the impact is higher given the share of the program and given the public which is less of our profile, and we also work in that public. The cycle of credit will be challenging because U.S., possibly two hikes on the interest rates, the curves are going to be opening. There's going to be pressure. The premium of the risk for Brazil is short term, is well priced, possibly a cut off of the meeting, which is the base scenario, but it depends on the United States. If the interest rates are higher, then naturally that will pull the exchange rate and that will generate, will difficult actually the work of the central bank. That remains to be seen. We see that these programs are helping, but they're one-offs. They're not forever.

Translator

Nothing substitute the discipline of risk management. What we see today is an excess of credit given to the market, is an excess of regulation that opened the market in a relevant way. There is a lot of players operating. The clients are over in debt. The clients had four or five credit cards. Now we have five, six credit cards per individual. We grow the resilient clients. We help them to do that transition in the best way possible. It's a scenario that inspires care. For 2027, we still need to understand the real capacity. Now your final question is, why don't you seize that you have a better condition? The balance is higher, so you can grow. Then we're going to get the mistakes on the long term.

Translator

We need to have that discipline. That discipline has brought us here. Once you lose that discipline because you think that you need to grow, either to deliver results or to grow the top line, you deliver everything in the PDD thereafter, and that affects the capital and it worsen your capacity to give credit again. You're in defensive, and you decrease the appetite. We always want to be always on giving credit with quality, but with the clients that are more resilient, always looking at the long term. When we see the market growing irrationally, we always need to make a decision. We lose the market share, or if we are going to lose market share or money, we'd rather lose market share. This is the adjustment of the portfolio.

Gustavo Lopes Rodrigues
Investor Relations Officer and Group Head of Investor Relations and Market Intelligence at Itaú

[Non-English content]

Translator

Thank you, Renato. Daniel Vaz, Safra. The floor is yours.

Daniel Vaz
Lead Equity Research Analyst at Safra

[Non-English content]

Translator

Good morning, Gustavo, Milton, Gabriel. Congratulations on the results, the stability, the cost of risk. A bank that is always predictable and stable. I wanted to go back to my question, efficiency indices. We've heard with Milton, I wanted to understand the management of the cost. I hope that is very far away from that, there is a scenario where your revenue grows single digit. How much management could you have a cost contingency to keep the ROI? What limits the cost? Is it more institutional, regulatory, or simply is a deliberate choice of speed of investment crossing with your revenue? Looking at what we are doing now, you have a review of footprint.

Translator

How much up ahead that has AI applied to your business? Thinking about what was done from now on, now you have 100% support of AI, or do you still debate that, or is that being supported? Well, thank you.

Milton Maluhy Filho
CEO at Itaú

[Non-English content]

Translator

Thank you, Daniel. Thank you for the initial comments. Well, I'm going to see the glass half full. The comment that I wanted to do is, the first cost is what is in our hands. Of course, the revenue, we have a production, which is the mechanical, the portfolio. When I look to the future, the revenue is uncertain. It depends on activity, it depends on delinquency, and so on. The cost is under management. We decelerated importantly with the cost of the growth without foregoing the long-term view. We're never going to kill the future.

Translator

We're always going to generate value for the clients, investing in digital experience, and delivering a bank that is ever better for our clients. Opening new businesses, doing new fronts, all of that we're doing. We can do both. We can invest and opening the space for that investment. I don't have a silver bullet. It's a series of initiatives that Gabriel has done with the executive committee and the bank, a deep work, all the levers, mapped initiatives. That's where we're going, certainly. Of course, if we have technology or any other way of accelerating the process, we will do so. We are careful with the discipline of the tokens. We are never inhibiting innovation, how we're going to do the intelligent management, and so on. Efficiency for us is a mantra. It's never as important as it's been now.

Translator

With the segments that we can win competitiveness and we can advance with the market, we have 5 percentage point advances with consistency. We're going to continue to reduce the retail, adjusting the cost of service so we can be more competitive with the digital Itaú, given all the investment that we've done in technology and transformation of journeys, which allows us to service our clients with the best digital experience. Just, I'm going to take a step back. In the last month, we had competitive NPS of 18 points produced by Prisma, which shows the competitive NPS for the market for the winner of the digital experiences. We closed the gap, which was 18 points through these years with the investments and the digital transformation.

Translator

We're ready to capture the benefits of the digital. Gabriel can give you more information.

Gabriel Amado de Moura
CFO at Itaú

[Non-English content]

Translator

I like the answer, starting with your question about the result. About the predictability, about the stability. It shows how we're doing things. At the end of the day, it's not difficult to grow the credit portfolio. The consequences of what's later is part of the decision-making process. Having a cost in a way that is sustainable for the clients with a series of investments that we have to do today to create value in the future. The efficiency level is very important. It's an engine of competitiveness of the bank. At the end of the day, is the maximization of values. This is what we can do better for our shareholders and our clients. There isn't one initiative. AI is a lever that is important. We are implementing. We are bearing the fruits. We have initiatives that we're doing.

Translator

At the same time for you to do this, it goes through expenses. The AI expenses in the bank will increase, but it generates efficiencies, will generate revenues. It's not different from all the transformation we had with cloud before. It's expenses that increase, but you generate the development of the products for the efficiency of the processes in the bank as a whole. The answer, Milton, is very complete. We are doing the best that we can do with the times that is sustainable, and we can generate value for the shareholders.

Daniel Vaz
Lead Equity Research Analyst at Safra

[Non-English content]

Translator

Thank you.

Gustavo Lopes Rodrigues
Investor Relations Officer and Group Head of Investor Relations and Market Intelligence at Itaú

[Non-English content]

Gustavo Lopes Rodrigues
Investor Relations Officer and Group Head of Investor Relations and Market Intelligence at Itaú

Now we are going to switch to English as we have Tito Labarta with us from Goldman Sachs. Tito, the floor is yours.

Tito Labarta
Tito Labarta
VP at Goldman Sachs

Great. Thanks, Gustavo. Milton, Gabriel, thanks for the call and taking my questions, and congrats also on the strong results as usual. I also want to ask you a little bit about the industry, your position in the industry. You are delivering about a 26% ROE in Brazil at a time where a lot of your incumbent competitors are struggling to do double digits, right? There is concerns about a credit cycle, growth slowing, high interest rate environment. How do you think about that competitive dynamics? Because that could create some incentives for some irrationality, perhaps from some of your competitors to try to improve their position relative to yours. We saw maybe some pressure on fees, maybe that is related to competition.

Tito Labarta
Tito Labarta
VP at Goldman Sachs

How do you think about the competitive dynamics? We also recently saw there was an index that ranked you as one of the top two banks in Latin America in terms of AI. On the one hand, I think the leaders globally typically increase the gap relative to the laggards, right? Is that a scenario that we are seeing, or could competitive dynamics change right now, and could they close the gap to some extent? How do you see, given where we are in the cycle, given your position and given where your competitors are today, your ability to sustain these levels of profitability and maybe some of the risks to that? Thank you.

Milton Maluhy Filho
CEO at Itaú

Thank you, Tito. Good to see you. Thank you for your initial comments. It is important to state at the very beginning that we have many competitors in all the segments that we operate. If you go to the wholesale business, you have Itaú BBA. You have incumbent competitors, other competitors for all the rankings and competitors for credit, for cash management, for derivatives, for FX, for everything. You go to the wealth management. You have other competitors for investments, for asset management, so on and so forth. This is the same rule that applies for all the other segments. Okay? When we talk about competitors, I think the first comment I would like to say is that we have a huge respect for all of them.

Milton Maluhy Filho
CEO at Itaú

I think all of them are doing their homework, everybody trying to compete to be more competitive in the long term, making their investments, trying to grow. Everybody has a budget. Everybody has a board. Everybody has incentives. This is life as it always was. We have to segment a little bit to understand, I would say, competitors' behavior. First of all, you are right. We have been able, fortunately, to deliver two digits and a strong 20+ return on equity in the last years. We are always trying to deliver the best value creation for our shareholders. It depends a lot of cost of equity that today we pretty much set at 1475. This is where we believe our cost of equity is set. Okay? Whenever we are generating at 1475+, we are creating value to the shareholders.

Milton Maluhy Filho
CEO at Itaú

If we are operating there and less than that, we are deploying capital in the wrong way. This is the discipline we have. It's true that whenever you need to show some results, you try to grow fast and grow in portfolios and to underwrite credit in a rational way. We wouldn't be doing that because I believe this is not sustainable. Whenever we see some irrationality, and it's happening in some segments, we give one step behind and say, "That's okay because it's not sustainable." You know that for a few months you will see that more clear, then after that, you will see the market being disciplined again. Why is that? Because then you will show your profits or your revenue growing, but your profit will grow, but your return on equity will be low.

Milton Maluhy Filho
CEO at Itaú

The stock will be, at the end of the day, looking for the capability you have to create value to the shareholders. This is very, very important for your price book and also for your price earnings. The other thing that market will be looking at is the tangible equity of every institution, because the level of leverage you get when you have a small tangible equity, it's a huge leverage. It's not made for make mistakes, because if you make mistakes in credit, you have just a small portion of your equity really capable to absorb losses. That's why we believe it's not sustainable. Otherwise, you have to raise capital in the market more and more.

Milton Maluhy Filho
CEO at Itaú

What we are seeing is that there is irrationality in some segments. This is not enabling us or preventing us to grow. We are growing and growing with discipline. When we see that, we give one step behind and keep doing the way we believe for the long term. This discipline is key for the long term. When people ask me, "What is advantage different that you see when you look to your market?" It's the discipline in allocating capital. I think this is for many years and will be for the coming years, key. We see room to grow, we see room to grow our portfolio. The strategy, the experience, it's not only a matter of price.

Milton Maluhy Filho
CEO at Itaú

Clients are looking for better experience. Clients are looking for a full bank that offer you all the products. That is competitive, of course, but has a digital journey that is excellent. This is the way we are offering the bank to our clients, the discipline will be always here. Let's see in the coming quarters, time is time, let's wait and see how sustainable are those approaches.

Tito Labarta
Tito Labarta
VP at Goldman Sachs

Makes sense. Thanks.

Gustavo Lopes Rodrigues
Investor Relations Officer and Group Head of Investor Relations and Market Intelligence at Itaú

Thank you, Tito. Now we are going to move back to Portuguese. [Non-English content]

Translator

Because we have Eduardo Rosman with BTG Pactual.

Eduardo Rosman
Eduardo Rosman
Analyst at BTG Pactual

[Non-English content]

Translator

Thank you for the opportunity. Let's go with the credit cycle and see your opinion. How do you see the system being prepared for a crisis, economic one? The market changed a lot. The companies, the capital markets, they multiplied. For example, the FIDCs industry, there is BRL 100 million. That dilutes risk on one side, it causes changes, and we don't see how the capital markets would react to a crisis, if they would go to the same direction. The individuals, they've lost a lot of shares. We have platforms. Everybody wants to be a bank every two days. How do you compare with the previous crises, and how do you see the system for a potential crisis?

Milton Maluhy Filho
CEO at Itaú

[Non-English content]

Translator

Thank you, Rosman. Thank you for the question. When we see the current scenario, there is a lot of changes. We have the volume of credit with the financial system. We have to look at the banking LF. The volumes are very relevant. Today, we have at least two Itaús in credit, corporate credit in the system. We've never had capital markets that is so relevant. This is great because the companies, they have access to market, to bank, to credit, long-term operations that in the past were public banks. The market can absorb. We're going to see, if we see a relevant crisis of credit, there's going to be relevant challenges than in the past. Last banks and capital markets discussing. We've had a few cases. We've managed to somehow negotiate in a rational way with all the participants, it's always a challenge.

Translator

Second point. Regulation is key, today, the amount of players is very high. You have a market that is supervision. The central bank does their work. They also have their budgets. We are in favor of increasing the budget for the central bank because it's the same thing as giving credit, we don't have the structure of. You open the market, you don't have a supervision that can follow up on the evolution of the market, not by the speed, the quality and the limitations, the physical limitations, in fact. That's an important theme that we've discussed. We defend the increase of the budget for the central bank so they can supervision. Then is the unsupervised. The neobanks, the newcomers, they bring the operations to the balance, they distribute to the funds.

Translator

A great deal of the risk goes back there. These are capital markets, it's a risk. It's almost a shadow bank that we have low visibility to what is inside the FIDCs. When you have a situation of stress, who is the owner of the receivables? These are situations that come up, we are going to have to deal with that. The compromise of revenue is very high. The indicators of delays above 90 are going up. We have to see the data of the market, the level of credit that was distributed in the market is much higher than the market could absorb. Today, it's very easy to have a credit card.

Translator

There is no annual fee. You can have six credit cards. You're not going to pay the fee. You create the effect of the sudden death, you go from one to the next, you leave the bank that is the main one. The scenario in the individuals, SMEs are very pressured. The level of interest rate is very concerning, and there's difficult capacity of the companies of investing and paying. The agribusiness has its challenges, perfect storm, the price of commodities, the price of fertilizer, logistics with the war, several signs that the situation worsened at the margin.

Translator

Market is liquid, several actors operating, internal usage coming to the funds, the first market into the market relevant and can generate an impact, and we go through the dynamic of prices. There is volatility and the spreads of credit, but there is important thresholds that are competitive. The market has absorbed. Those that use the window have used it well. If you need to sell it because of a cash flow, there's going to be a hit that is very big.

Translator

That's where we're going to have to follow. The scenario worsened at the margin, and we're going to have to see the unfolding of the structural interest rates and the economic activity. We cannot depend on the transference and the public expenses. We need to bring private investments in. In these levels of interest rates, it's more difficult.

Gustavo Lopes Rodrigues
Investor Relations Officer and Group Head of Investor Relations and Market Intelligence at Itaú

[Non-English content]

Translator

Thank you, Rosman. Mario Pierry from Bank of America, the floor is yours.

Mario Pierry
Mario Pierry
Managing Director at Bank of America

[Non-English content]

Translator

Good morning, everyone. Thank you for the opportunity. Congratulations on the results. Milton, going back to services. As you explained a lot, there is the review of the guidance. I wanted to understand what that has to do with the migration. You've talked about the migration of the clients for the One Itaú. In the revenue, we're going to have the cross-sell of products, we have that review of the revenue that we see that the migration occurred, but the benefits are not as good as we expected. How do you see that migration and the benefits for the results of the bank? Thank you.

Milton Maluhy Filho
CEO at Itaú

[Non-English content]

Translator

Thank you for the initial comments, no, that's not the explanation. We're very positive with the evolution of the migration of One Itaú that we've done throughout the quarter. First, we concluded the migration. Second, the NPS levels above 80, very strong with a small friction, 99.3% of the clients migrated with a digital experience that is very solid, and we managed to get 18 points of NPS in regards to the leader of the digital bank.

Translator

The new products, more than 20 products launched in the period with a level of activation that is very strong. Transference of limits, the management of expenses. There is an adjustment of limit of the credit cards. There is a lot of products that has important results. We quadrupled the volume of accounts in the bank. Over 70% of the clients have three products of the bank. We've managed this. The checking account is relevant, here there are opportunities to grow in credit with a client that you knew there is a relationship with a credit card, but you didn't explore full bank.

Translator

With the private payroll loan or whatever, that is in the margin with the client. It's in the growth of the portfolio. It's not in the margin of services. Credit card is there of this product, of this public. In this public that we migrated, we did the de-risking, and it affects negatively, and we are reducing the big reductionism, but it doesn't grow. It's the one that affects marginally this effect with a portfolio of services. One Itaú is doing well. Opportunities for growth in the individual, it's growing very well.

Translator

The transformation of this BU, when I do an analysis of the last seven months, it's great work with solid results, quality growth. Everything that we discussed in Itaú Day, and we've communicated, has been executed in an impeccable way, and the results are following. We see the profitability generating value, segments that were more deficit. The difficult Itaú Digital is the capacity of growing in the niches with the segments with quality. We have to get in practice, 67% of the initiatives that were mapped are going to be executed until the end of the year. We should do it.

Translator

The growth should come in the subsequent years. We're very excited about the evolution of the real estate, and the natural and the individuals and where we had structural programs that were very relevant, we've managed to execute it very well. I'm very excited for the future.

Gustavo Lopes Rodrigues
Investor Relations Officer and Group Head of Investor Relations and Market Intelligence at Itaú

Thank you, Mario. Now we're getting back to English, as we have Carlos Gomez-Lopez from HSBC with us. Carlos, please go ahead.

Carlos Gomez-Lopez
Carlos Gomez-Lopez
Head of LatAm Financial Institutions at HSBC

Hello, good morning. Gabriel, Milton, Gustavo. Once again, congratulations on the result and the consistency of the result, which is so difficult. I wanted to ask about one of those things that are unchangeable in life, which is taxes. You differentiate yourselves not only for the higher profitability, but also for being the bank with probably the highest effective tax rate. When you think about it from the policymaker point of view, the system as a whole probably is paying less taxes today than they were before, and with the amortization of the DTAs, possibly even more. Are you concerned that in the next administration, there could be a pressure for the industry to pay more? In that sense, what can you do to protect yourselves, either through fair ban or something else, and where could you see pressures coming for a higher taxation? Thank you.

Milton Maluhy Filho
CEO at Itaú

Yeah. Thank you. Thank you, Carlos. I think first answer of your question is that there is a huge stock in the market of DTAs and tax credit. The DTA and the tax credit is a tax that was paid at a certain moment, or you have to deal with that when you go and you move for the coming year. This is relevant. I think at the end of the day, whenever a bank has a situation of tax credit to avoid having losses in the tax credit that will reduce from your capital base, the first thing that a bank should do is, well, to avoid doing operations that reduce your tax base. This is one thing.

Milton Maluhy Filho
CEO at Itaú

The second one is to reduce the IoC, so you're not obliged to do 100% of the IoC. You can do up to, but you need to have a positive tax situation to make it happen. I believe banks will need, in a certain moment, to adjust the IoC. The third one is the payout. I think banks have the capability to reduce payout as well to retain more capital if for any reason they will face difficulties with the tax credit. The IoC is there. I don't see any discussion about it. It's not only for banks, but it's for the whole industry. It's true that our system, our industry retains a huge amount of capital in the balance sheet. Why is that? Because it's regulated activity.

Milton Maluhy Filho
CEO at Itaú

The Central Bank requires that for you to make the credit and to have a portfolio the size we have, you need to retain capital. This capital that you retain, at the end of the day, has the benefit of the IoC. You have, in the other hand, a very high level of corporate tax rate for banks in Brazil, which is 45%, and there is an increase for financial companies in the consumer finance and also for IPs in the recent years. I think there is no risk of this discussion because it has to do with the level of capital, and I think banks at a certain point, they will have to reduce the IoC.

Milton Maluhy Filho
CEO at Itaú

It's not our base case. We don't have any issue with that, but I think the market might need to reduce IoC in order to avoid having losses in their tax credit that will reduce capital. I think this is something that we might see, and this will necessarily increase their effective rate.

Carlos Gomez-Lopez
Carlos Gomez-Lopez
Head of LatAm Financial Institutions at HSBC

You don't see any public discussion.

Gustavo Lopes Rodrigues
Investor Relations Officer and Group Head of Investor Relations and Market Intelligence at Itaú

[Non-English content]

Translator

Now we go back to Portuguese and Eduardo Nishio from Genial.

Eduardo Nishio
Equity Research, Banking, and Financial Services Analyst at Genial

[Non-English content]

Translator

Good morning. I have a question that is for the efficiency level. I wanted to hear from you, from your standpoint of cost and revenues, if the number of employees is dropping very high, 5.5% in the year, and in the branches, we have a drop of 90%. I wanted to know until when this process, where are you in this stage of making your footprint adequate, which is 2,000. Do you see more space for reduction? In the part of revenues, which is difficult to make it tangible, the super app, if you can share with us a few numbers of cross-selling. Do you have those numbers to tell us?

Translator

The launching of the generative AI with the super app. What is the proposal that you expect from this launch?

Milton Maluhy Filho
CEO at Itaú

[Non-English content]

Translator

Thank you, Nishio. About the first part of your question, when we look at the number of branches, we always do a review of the footprint from the client onwards. A demand by the branches is dropping. The flow is a fourth of what it was. The pandemic came, there is a digitalization, and we are always reviewing our business model. Our value proposition sees how we're going to service a client. What is digital, what is remote, what is in the digital branch, what is in the remote, what is the physical? That is a part of the process. We don't give guidance on the amount of branches or headcount.

Translator

Naturally, the natural turnover of the bank, as we understand that we can absorb being more efficient and at the same time adjusting the value proposition and the business model for the clients. We're going in the first month we did a review, we have a review of the proposal of the value and all of that is being discussed. We have a commitment with the client and the business model, we have to adjust it as necessary. This is what we are trying to do, generating the minimum friction and with the most care. About efficiency, we talked about the super app. The migrated clients, 50 million, are migrated.

Translator

We have 70% of clients with 50% of products, and the opening of the volume of accounts is gigantic, which shows our capacity of delivering value depending on the profile of the client. There is a one-size-fits-all. The benefit of integration is not only for the migrated clients, but for the shareholders, because the dedicated apps, we have a better experience than the super app. When we integrated, when they are in a super app, they have a hub of credit cards that is much better than what we had before.

Translator

Now these clients are part of our ecosystem. They're part of the life cycle. They're part of allowing the client to understand the full bank, and it's not mono bank, and we have solutions for the client as they have needs, so that this growth is done, obviously, naturally. We're very excited with the results, certainly an important growth of the individuals is servicing these clients better.

Translator

First, we did the foundation of creating the guardrails, the foundation of how we're doing the artificial intelligence to interact with the clients. We have a responsibility. We cannot have the model without the protections. We have scalable models at the right price. How can we take the results of the client in their own benefit? We have to individualize the experience, and we can do that taking into consideration the DNA of the client. Here with the degree of privacy that the client wants, having a model without having the knowledge bases.

Translator

Well defined, we have the instructions and our policies and our culture. The agent at the end has to have the culture of the bank, and they need to have clear guardrails. How do we train these models so they can understand the clients and all the relationship with the bank? AI, without having a full bank in the past is not simple. You're not a one-stop shop, and you cannot make decisions. Making the whole, you get partial recommendations and not the best ones.

Translator

Two, you don't have the records of data that we have in segments that were always relevant, investment, credit, and so on. That facilitates the understanding of the client in the cycle that they are. If they have assessment with what we have, when can we offer, what should we offer until we get to the transactional. You can have a transaction without involving the human. That will clarify not only the doubts, it's AI for our employees, because it releases time.

Translator

Sometimes the commercial teams have to answer a simpler question. The model is going to do that. It facilitates so that the people have three more times contact than before. It has efficiency in the amount of clients in the account load of the teams, how many clients they have to service. It improves the experience because you have a first-call resolution that is much better as the doubts are clarified. We're very excited. First bank to launch this with this level of completeness and this amount of data. The models will grow with the clients. We're very excited about the evolution and the command of the artificial intelligence AI. It's a good position, and we are well-positioned in saying that AI was always present in the bank and the brand itself.

Translator

Now we're going to grow with the clients. It's going to be a game changer in the experience. It takes the organization for a strategy that is AI first, which is very relevant for the future.

Gustavo Lopes Rodrigues
Investor Relations Officer and Group Head of Investor Relations and Market Intelligence at Itaú

[Non-English content]

Translator

Thank you, Nishio. Now the last question, Henrique Navarro, Santander. Floor is yours.

Henrique Navarro
Henrique Navarro
Head of Latam Banks and Financial Non-Banks Equity Research at Santander

[Non-English content]

Translator

Thank you. Congratulations on the result. The market has changed a lot. It's not normal to see Itaú, the revision of guidance. The question is, the new guidance, even the breadth of the guidance somehow reflects this estimation for 2026. In the quick way that the world is changing, what are the lines that are weaker in the guidance? If there is a mistake and an expectation of review, what are the lines that should be more at risk? Looking at 2027, maybe you would agree that the changes that are necessary.

Translator

In January of this year, the sell side and the banks, we had an expectation of a good recovery of the cycle of credit in 2027. As things are happening, it's not going to work out. I wanted to hear if we should look at 2027 with the growth of credit that is softer, we just have to push these banking fees that is weaker for 2027. Giving us some color at the end of 2026, 2027.

Milton Maluhy Filho
CEO at Itaú

[Non-English content]

Translator

Thank you, Henrique, and thank you for the comments. Last question, but a lot of energy. When we look at the range, it tends to capture well what we imagine for the year. We have a guidance, we imagine that we are not going to need to review it, but we are pragmatic to review it whenever we have a better performance at the market. This is a good practice for transparency so we can get to the number that we want. We don't give geographies or a point because it wouldn't be a point, it's a range.

Translator

When you say credit portfolio, it will grow reasonably, we have zero six in the portfolio. It's in the basis of the last year, we have a selling of the portfolio that was done at the end of the day. BRL 10 billion that are automatic, but again, the portfolio works very well. Margin with the client, if we annualize what we have in the first semester, is a challenge that we have for the next two quarters, certainly. Today, we are running close to the floor than the midterm, the midpoint, because of the effects that I commented with the liabilities that are very solid. It grows with a structured operations that has volatility, it might be a difference in the next quarter, the working capital that is very stable and growing, but it shouldn't grow at a very relevant way.

Translator

The margin of assets is growing. I'm not concerned. The margin delivers this. The cost of credit you discussed, I wanted to tell you that a bit to the left, a bit to the right, our best expectation is to be closer than to the midpoint of the guidance. Even though if we have these questions, "Oh, it's worsening at the margin, maybe there is something implicit." What we've seen in the wholesale that is more challenging in terms of credit, but we've done the provisions. The message that I wanted to make it very clear to you is that first we do the provisions, then we discuss the profit. It's not from the profit to the provision.

Translator

If we have to come to a quarter that has a worse result because the provisions were worse, I will explain the reasons, we will explain this. Our discipline of having the provision balance, we don't forego. The balance has to be well provisioned, we're not going to be under provisioned, either in the individuals or the retail or the wholesale. We're always going to have the discipline of doing the provisions. Having said that, our best expectation is to close at the midpoint, close to the midpoint of the cost of credit. The revenue of insurance, we did the adjustments. You see the results. We have a solid agenda.

Translator

As we've seen, the level of mobilization high, and the cost is very close to the bottom. When we see the geographies, we have the full-year forecast. All of that is giving me a level of bottom line. Bottom line is aligned with the previous guidance. I believe that the bottom line implicit one, if it had a variation, it's very small. This is what we are seeing. For 2027, very early to say because once again, the scenario is very dynamic. We're going to start now with the discussion. We do the discussions. We are going to have a good budget for 2027. We have the discipline of execution, and we're going to execute the best that we can so we can share with you.

Gustavo Lopes Rodrigues
Investor Relations Officer and Group Head of Investor Relations and Market Intelligence at Itaú

[Non-English content]

Translator

Thank you, Milton. Thank you, Gabriel. Thank you everyone that took part on our earnings call. We close the Q&A session and our second quarter earnings call. I'll give the floor to Milton.

Milton Maluhy Filho
CEO at Itaú

[Non-English content]

Translator

Thank you, Gustavo. Thank you, Gabriel. Thank you very much for your participation. We really like this relationship with the investors and with all the stakeholders. We try to open as much as we can the information at a higher level of transparency, predictability for any direction. If we have to adjust below, we have to adjust below. If it's up. We try to avoid surprises. Solid quarter in a very challenging scenario, delivering the results that we've delivered with the level of profitability and efficiency level and transformation of the bank. With credit indicators and the quality level that we delivered, it's not simple.

Translator

Really, this is a work of everyone, mobilization level, and a lot of capacity, not only the competency of the teams, but the capacity of navigating the scenario. What brings us the scenario is the discipline of capital allocation creation. Creation of value and long-term view. Discipline is key. Thank you very much. We'll see you briefly in other opportunities. For the YouTubers that are watching us, the result is made by everyone. Thank you, and we'll see you soon.

Analysts
    • Gustavo Lopes Rodrigues
      Investor Relations Officer and Group Head of Investor Relations and Market Intelligence at Itaú
    • Milton Maluhy Filho
      CEO at Itaú
    • Translator
    • Bernardo Guttmann
      Head of TMT and Financial Sector at XP Investimentos
    • Gustavo Schroden
      Equity Research Director at Citibank
    • Beatriz Shinye
      Equity Research Associate and Director at UBS
    • Gabriel Amado de Moura
      CFO at Itaú
    • Marcelo Mizrahi
      Equity Research Analyst at BBI
    • Yuri Fernandes
      Managing Director at J.P. Morgan
    • Renato Meloni
      Director and Senior Analyst at Autonomous
    • Daniel Vaz
      Lead Equity Research Analyst at Safra
    • Tito Labarta
      VP at Goldman Sachs
    • Eduardo Rosman
      Analyst at BTG Pactual
    • Mario Pierry
      Managing Director at Bank of America
    • Carlos Gomez-Lopez
      Head of LatAm Financial Institutions at HSBC
    • Eduardo Nishio
      Equity Research, Banking, and Financial Services Analyst at Genial
    • Henrique Navarro
      Head of Latam Banks and Financial Non-Banks Equity Research at Santander
Powered by Quartr