Banco Bradesco S.A. (BBD) Earnings

Management highlights

- Strategic Portfolio Shifting * Management is prioritizing growth in collateralized, guaranteed credit lines with strong risk-adjusted returns, and reducing appetite for uncollateralized

Guidance

- Full-year 2026 net interest margin (NIM) is expected to remain stable around 9.1%, in line with prior guidance * Market net interest income (NII) is expected to come in above prior soft guidance, with a full-year range of 1.5 billion to 2.0 billion reais considered reasonable * Insurance full-year guidance of 6-8% growth remains on track, with results expected to land between the midpoint and top of the range given a strong first half * All five full-year guidance lines remain on track, with operating expenses expected to land at the floor of the range, service revenue near the top, and net profit expected to come in at the midpoint to upper end of the guidance range * Management expects ROI to continue growing incrementally from the current ~16% level, supported by transformation and productivity gains

Segment performance

Bradesco reported net profit of 7.5 billion reais for Q2 2026, with 16.2% year-on-year growth, 3.5% quarter-on-quarter growth, and a return on investment (ROI) of 16.2%, beating market expectations. Total revenue reached 37.6 billion reais, up 10.3% year-on-year, with total financial margin growing 15.7% year-on-year to almost 21 billion reais, service revenue growing 10.5% year-on-year to 1.7 billion reais, and holding group revenue reaching 8.3 billion reais. The 2-year CAGR (Q2 2024 to Q2 2026) for total revenue is 12.5%. Margin from market activities grew 22% year-on-year to 700 million reais, while client margin grew almost 14% year-on-year. Credit cost grew only 3.5% year-on-year. By segment: 1. SMI (Small and Medium Enterprises): Total portfolio grew 37 billion reais year-on-year, 16.1% year-on-year overall, with 31 billion reais of that growth coming from FGI/FGO guaranteed lines, and 6 billion reais from CDC leasing and Plano Empresario. Market share for SMI clients with annual revenue up to 300 million reais exceeds 17%, and FGI/FGO portfolio grew 64.5% year-on-year. 2. Large Corporate: Portfolio grew 12.7% year-on-year. Bradesco holds 64% market share in airline financing via leasing, leads fixed income origination in Brazil, and the origination-for-distribution (OPD) model optimizes capital and margins. Two large M&A-related agribusiness deals added 6 billion reais to the wholesale portfolio. 3. Retail (Individuals): Total credit portfolio grew 8.4% year-on-year. Key subsegments: Credit card portfolio grew 11.6% year-on-year, to a total of 1.137 trillion reais (11.7% 2-year CAGR); vehicle financing grew 26.8% year-on-year, focused on 5-6 year old used light/heavy vehicles (higher risk-adjusted returns than new light vehicles); consigned credit grew 9.3% year-on-year, with 88% year-on-year growth in private sector consigned credit, 14% total market share (largest private provider), 4.7% over-90 day delinquency (vs 8.9% market average); 4. Rural Credit: Grew almost 25% year-on-year, focused on high-rated (AAA/AA) clients with strong guarantees, but was down 0.6% from December 2025. Delinquency (over-90) fell from 5% to 4.6% (vs 7.6% market average), with a 12% market share overall. 5. Insurance: Net profit grew 28.3% year-on-year, total result grew 8.3% year-on-year, technical provisions grew almost 10% to 470 billion reais (Bradesco Seguros is the largest insurance group in Latin America). Vehicle-related insurance grew almost 100% year-to-date 2026 compared to full-year 2025, with quarterly ROI of almost 23%.

Risks & headwinds

- Current macroeconomic conditions with still-elevated interest rates and slowing economic activity create pressure on consumer and corporate credit quality industry-wide * FGI/FGO guaranteed credit lines temporarily pressure over-90 day delinquency and provisioning, due to the 120-185 day waiting period for government honor payments; this is a temporary timing effect, not a permanent increase in expected losses * Elevated private sector consigned credit delinquency is an industry-wide issue; Bradesco maintains tight underwriting and has half the market average delinquency, but the segment still carries inherent risk from its low-income target borrower base * The delayed regulatory approval process for recognizing the full capital benefit from the Bradesaúde transaction creates a temporary delay in strengthening Common Equity Tier 1 ratios * Current account fee revenue continues to face downward pressure from industry competition and regulatory changes, though diversification has softened this impact * Rural credit faces ongoing sector-wide stress, though Bradesco's selective underwriting on high-rated clients has kept delinquency below market averages * Wholesale/corporate credit has single-name exposure risk; one large restructured client impacted Stage 3 delinquency in the quarter, though the exposure is fully provisioned and the impact is immaterial

Analyst Q&A

• Q: With Common Equity Tier 1 already at 11.3% (rising to 12.7% after Bradesaúde capital recognition) and a planned R$ 10 billion capital increase that will push it to 13.6%, why does the bank need such a high capital level at this point, and what is causing the delay in Bradesaúde capital recognition? /

  A: Strong capital is always positive for a bank, following the example of peers like J.P. Morgan which runs a ~15% CET1 ratio. The capital increase is an initiative of controlling shareholders, demonstrating their confidence in Bradesco's transformation plan and franchise, with controlling shareholders anchoring at least R$ 8 billion of the offering. The delay in Bradesaúde capital recognition is due to ongoing regulatory review of the transaction's final balance sheet, which is a standard process. Higher tangible capital strengthens the bank for future growth leverage and balances out deferred tax assets, providing resilience in varying macro cycles. The bank also proactively distributed interest on capital ahead of the offering to give existing shareholders liquidity to participate. (617 chars)

• Q: Many analysts argue the current challenging credit environment is structural rather than cyclical, lasting through 2026 into 2027. Should we expect structurally higher credit costs and lower portfolio growth for Bradesco given its exposure to SMEs and lower-income individuals? /

  A: This narrative of Bradesco having high exposure to uncollateralized risky SME/lower-income credit is outdated. 31 billion of 37 billion in SMI portfolio growth year-over-year came from fully guaranteed FGI/FGO lines with very low expected loss, and all incremental growth is in collateralized lines. Lower-income uncollateralized personal credit has fallen from 15% of the personal portfolio in 2023 to ~12% today, and the bank has very tight underwriting for all new growth. Bradesco will continue growing its portfolio, with strong traction in targeted segments, and any moderate credit cost increase from temporary timing effects (FGI/FGO honor delays, João Dias Bank consolidation) is already expected and manageable. (621 chars)

• Q: What are the key levers for additional ROE growth from the current ~16% level, and what will the dividend/interest on capital distribution policy look like after the capital increase? /

  A: The bank's cost of capital is currently ~14.5% after the latest Selic rate cut, so ROE already exceeds cost of capital, and management expects it to continue growing incrementally. Growth will come from ongoing transformation, productivity gains, disciplined portfolio management focused on risk-adjusted returns, and an engaged employee base. Post-capitalization, the bank will continue paying out the maximum possible amount as interest on capital, and there are no current plans for additional recurrent capital increases beyond this offering. (412 chars)

• Q: Market NII surprised to the upside this quarter. What should we expect for market NII going forward in the current shifting interest rate environment? /

  A: The upside surprise came from strong performance by Bradesco's treasury team, supported by solid commercial traction from corporate and mid-market client activity, plus opportunities from the slower-than-expected pace of interest rate cuts that allowed for better asset liability management (ALM) gains. Full-year market NII will likely come in above prior soft guidance, in a range of 1.5 billion to 2.0 billion reais, with most of the opportunity already captured this half. Trading activity is a smaller and shrinking portion of treasury results, with most revenue coming from sustainable client-driven and ALM activity. (419 chars)