Executive Summary / Key Takeaways

• Robust Profitability Driven by Strategic Transformation: Banco Bradesco ($BBD) is demonstrating consistent profitability growth, with Q2 2025 recurring net income reaching BRL 6.1 billion, a 28.6% year-over-year increase, and an ROAE of 14.6%. This performance is underpinned by a comprehensive "change the bank and run the bank" strategy, emphasizing risk-adjusted returns and digital innovation.
• Technological Leadership as a Core Differentiator: Bradesco is aggressively leveraging Generative AI (GenAI) and multi-agent systems, achieving significant productivity gains. This includes a 94% productivity improvement in virtual squads and a threefold increase in delivery capacity since December 2023, positioning technology as a key competitive advantage.
• Quality-Driven Loan Book Expansion: The bank's expanded loan book grew 11.3% year-on-year to BRL 1.018 trillion in Q2 2025, with a deliberate focus on safer, collateralized portfolios and government-backed programs. This strategy, prioritizing Risk-Adjusted Return (RAR), is contributing to stable asset quality and controlled loan loss provisions.
• Strong Performance Across Key Revenue Streams: Net Interest Income (NII) net of provisions grew 20.7% year-on-year to BRL 9.6 billion in Q2 2025, complemented by robust fee and commission income (up over 10% YoY) and a thriving Insurance Group (up 21.7% YoY), both exceeding initial guidance.
• Optimistic Outlook with Controlled Costs: Management projects continued growth, with adjusted guidance for fee income and insurance reflecting strong traction. Operating expenses remain controlled despite significant investments in transformation, with a long-term ambition to reach a 40% efficiency ratio by 2028.

Bradesco's Strategic Evolution: A Digital-First Approach to Brazilian Banking

Banco Bradesco S.A. ($BBD), a cornerstone of the Brazilian financial landscape since its founding in 1943, is undergoing a profound transformation. The company, one of the largest financial groups globally, is strategically repositioning itself to capitalize on evolving market dynamics and technological advancements. Its core business encompasses a wide array of banking products and services for individuals, corporates, and businesses, complemented by a robust insurance arm. This integrated model, coupled with a renewed focus on digital innovation and risk-adjusted returns, forms the bedrock of its current investment thesis.

The Brazilian banking industry, characterized by its scale and complexity, presents both immense opportunities and significant competitive pressures. Major players like Itaú Unibanco , Banco do Brasil , and Santander Brasil , alongside agile fintechs, vie for market share. Bradesco's overarching strategy, encapsulated in its "change the bank and run the bank" initiative, is designed to enhance profitability, drive efficiency, and elevate the client experience. This strategic pivot, initiated in early 2024, has seen the company prioritize growth in secured lending, optimize its physical footprint, and aggressively integrate cutting-edge technology across its operations.

Technological Edge: GenAI as a Competitive Moat

At the heart of Bradesco's transformation is its profound commitment to technological differentiation and innovation. The bank is not merely adopting digital tools; it is fundamentally embedding Generative AI (GenAI) and multi-agent systems into its operational DNA. This strategic investment is yielding tangible and quantifiable benefits, establishing a significant competitive moat.

Bradesco's core technology initiatives include the widespread deployment of GenAI to enhance productivity and efficiency. In Q2 2025, the bank reported a remarkable 58% efficiency improvement in its GenAI-powered customer chat compared to 2024, now serving over 5 million customers. Internally, tools like Copilot are supporting developers, contributing to a 94% productivity improvement in virtual squads utilizing multi-agent AI. This technological leap has translated into a threefold increase in the bank's overall delivery capacity since December 2023, enabling faster time-to-market for new products and services.

Further solidifying its technological leadership, Bradesco is pioneering the use of multi-agent GenAI to modernize large legacy systems, including those written in COBOL on mainframes, with a target to migrate these to the cloud by year-end 2025. This initiative combines virtual squads with human teams, demonstrating a hybrid approach to innovation. The acquisition of 100% of Kunumi, a company with approximately 100 PhDs specializing in machine learning and AI, further bolsters Bradesco's capabilities in credit and portfolio management models, contributing to a 90% productivity gain in specific areas. The bank's internal GenAI tool, BIA Tech, provides 58% more efficiency for developers, while the new BIA (GenAI) boasts 50% more accuracy than its predecessor. These advancements are not just about cost reduction; they are about optimizing resources, delivering a superior customer experience, and fostering a culture of innovation, with a stated goal to increase tech deliveries and technical output by 50% in 2025.

Strategic Pillars and Operational Excellence

Bradesco's operational strategy is meticulously aligned with its digital transformation, focusing on quality-driven growth across its diverse segments. The bank's expanded loan book reached BRL 1.018 trillion in Q2 2025, marking an 11.3% year-on-year increase. This growth is not indiscriminate; it is heavily concentrated in "safer collateralized portfolios with good ratings," particularly within the Individuals and Micro, Small, and Medium-sized Enterprises (SMEs) segments.

In the Individuals segment, loan growth was almost 16% year-over-year in Q2 2025. This was driven by a focus on payroll deductible loans, where Bradesco holds a 14.3% market share among private banks, and real estate financing, which boasts a loan-to-value (LTV) of origination around 61%. The bank's "Principal" segment, launched in Q3 2024 for high net worth individuals, aims to capture 45,000-50,000 clients by early 2025, offering exclusive credit cards and international full banking services. This targeted approach ensures higher risk-adjusted returns (RAR), even if it means lower Net Interest Income (NII) but significantly reduced provisions.

The SME segment has been a significant growth engine, expanding 25.2% year-on-year in Q2 2025. Bradesco is a leading bank in this segment, particularly for companies with annual revenues up to BRL 300 million. The bank's success here is largely attributed to its participation in government-backed programs like FGI, FGO, and Pronampe, which provide collateralized lending with RAR as high as 60%, despite NII margins of 5-5.5% and near-zero losses. A new digital platform for companies, launched in March 2025, has already seen 90% of MEI (micro-enterprise) customers migrate to a new app, used 7-10 times a week, demonstrating strong digital adoption and efficiency gains.

Within the Corporate/Wholesale Bank, Bradesco is strategically leveraging its "origination for distribution (OPD)" model, carrying capital market ventures to the secondary market to optimize adjusted returns. The integration of John Deere Bank in Q1 2025 was a strategic move to bolster its agribusiness corporate offerings, a sector identified as vibrant and resilient. The investment banking and capital markets division achieved the #1 position in M&A rankings in Q2 2025, reflecting strong activity and a well-balanced pipeline. Furthermore, a new energy trading desk in the treasury department is generating new income streams, contributing to Market NII.

The Insurance Group continues to be a powerhouse, with revenue from insurance, pension plans, and saving bonds growing 21.7% year-on-year in Q2 2025. Its ROAE was almost 22% in Q2 2025, driven by robust technical provisions of BRL 425 billion and a strong combined ratio. Management attributes this success to effective management, a strong combined ratio, and robust commercial capabilities through both internal and external channels.

Bradesco's commitment to efficiency is also evident in its footprint adjustment. Over 1,500 service points have been reduced since June 2024, yet the client base grew by over 1 million, with 99% of transactions occurring digitally in 2024. This optimization, alongside controlled personnel and administrative expenses (growing 4.9% in Q2 2025, with administrative expenses showing negative growth), underscores the bank's focus on cost discipline amidst its transformation.

Financial Performance and Momentum

Bradesco's recent financial performance reflects a clear upward trajectory, validating its strategic shifts. In Q2 2025, the bank reported a recurring net income of BRL 6.1 billion, a significant 28.6% increase year-over-year, with an ROAE of 14.6%, up 3.2 percentage points from the prior year. Total revenue reached BRL 34 billion, growing 15.1% year-on-year and 5.2% quarter-on-quarter.

Net Interest Income (NII) net of provisions, a key profitability metric for Bradesco, stood at BRL 9.9 billion in Q2 2025, remaining flat quarter-on-quarter. This was influenced by the integration of John Deere Bank and a temporary increase in rural loan expected losses in May, which subsequently normalized. Client NII, a core driver, reached almost BRL 18 billion with an 8.8% spread, and client NII net of provisions grew 20.7% year-on-year to BRL 9.6 billion. Market NII, at BRL 300 million, exceeded expectations, driven by active customer desks and the new energy trading desk.

Fee and commission income demonstrated strong momentum, increasing over 10% year-on-year and more than 5% quarter-on-quarter to BRL 10.3 billion in Q2 2025. This was propelled by nearly 20% year-on-year growth in card income (especially in high-income segments), almost 21% growth in consortium management, and a remarkable 76% quarter-on-quarter surge in investment banking capital markets, securing the #1 position in M&A rankings. The Insurance Group's revenue from premiums, pension plans, and saving bonds grew 21.7% year-on-year and 6.5% quarter-on-quarter.

Operating expenses, at BRL 15.9 billion in Q2 2025, remained under control. Excluding investments in payment companies like EloPar, Livelo, and Cielo (CIOXY), operating expenses grew 5.8% year-over-year, aligning with management's commitment to efficiency. The Individuals group contributed BRL 2.3 billion in net income, with an ROAE of almost 22%, highlighting the success of targeted retail strategies.

Bradesco's capital position remains stable, with a Tier 1 capital ratio of 13% and common equity at 11.1% in Q2 2025. Management views this as "a very adequate level," providing a sufficient buffer for growth without capital restrictions. The company also announced interim interest on shareholders' equity, totaling R$3.0, with R$0.270146729 per common share and R$0.297161402 per preferred share, payable up to April 30, 2026. This represents approximately 15.70 times the value of monthly interest paid, net of withholding tax, and will be computed in mandatory dividends for the year.

Competitive Positioning and Market Dynamics

Bradesco operates in a fiercely competitive Brazilian banking sector, where its strategic focus on risk-adjusted returns and digital transformation positions it uniquely against its rivals. Compared to major private banks like Itaú Unibanco (ITUB), Bradesco leverages its extensive branch network and integrated banking-insurance model to offer a comprehensive, customer-centric approach. While Itaú Unibanco is often perceived as more advanced in digital banking, Bradesco's aggressive GenAI integration and cloud migration initiatives are rapidly closing any technological gaps, as evidenced by its 94% productivity gains in virtual squads.

Against state-owned Banco do Brasil (BDORY), Bradesco's private-sector agility allows for quicker strategic shifts, particularly in response to market demands. Bradesco's strong traction in government-backed lending programs like FGI and FGO, where it is a leading player, demonstrates its ability to compete effectively even in areas traditionally dominated by public banks. Its focus on collateralized loans ensures a more secure portfolio compared to some market segments.

When contrasted with international players like Santander Brasil (BSBR), Bradesco's deep roots in Brazilian communities foster strong customer loyalty. While Santander Brasil benefits from global synergies, Bradesco's localized approach and diversified service model, including its robust insurance arm, provide a resilient revenue base. Against investment banks like BTG Pactual (BPAC), Bradesco differentiates itself with its broad retail and insurance offerings, complementing its growing investment banking capabilities, which recently achieved the #1 position in M&A rankings.

Bradesco's competitive advantages are rooted in its strong brand recognition, integrated banking-insurance model, and expanding digital capabilities. The extensive physical footprint, while being optimized, provides a tangible benefit in customer loyalty and cross-selling opportunities, particularly in regions with limited digital access. This helps Bradesco maintain revenue stability and capital efficiency. The bank's proactive investment in GenAI and multi-agent systems is a critical differentiator, enabling it to enhance operational efficiency, personalize customer interactions, and accelerate product development, thereby strengthening its competitive moat against both traditional and digital-native challengers.

Outlook and Guidance

Bradesco's management maintains a cautious yet optimistic outlook for 2025, acknowledging a projected "slower" economic environment in the second half of the year due to peak interest rates. Despite this, all key indicators are converging towards the company's guidance, with some showing stronger traction than initially anticipated.

The guidance for fee and commission income has been adjusted upwards from 5-9% to 9-13%, and for Insurance from 6-10% to 9-13%, reflecting robust performance in these segments. Market NII is projected to be between BRL 700 million and BRL 1 billion for the year, exceeding earlier expectations of zero or negative results. Net Interest Income (NII) net of provisions is expected to reach BRL 39 billion, aligning with the midpoint of the BRL 37-41 billion guidance. Management anticipates NIM to grow safely, gradually approaching 9% by year-end, driven by opportunities in lines with adequate risk-adjusted returns. Bradesco's Chief Economist forecasts the Selic rate to be 11.75% by the end of next year.

The bank expects to close 2025 with over 50 "Principal" offices and approximately 400,000 customers in this new high-net-worth segment, with further growth anticipated. The private health insurance segment is also projected to see an increase in beneficiaries over the next six months, building on its current 13 million. Management is comfortable expanding its agribusiness portfolio in specific crops with controlled expected losses and acceptable ratings, leveraging the John Deere Bank acquisition.

On the cost front, the efficiency ratio is expected to improve more significantly starting in 2026, with an ambitious target of 40% by 2028. This will be driven by ongoing footprint adjustments, continued investments in technology, and the productivity gains from GenAI. Management has explicitly stated their commitment to these transformation initiatives, even in a cautious macro scenario, recognizing their importance for long-term competitiveness.

Risks and Challenges

While Bradesco's transformation is yielding positive results, several risks and challenges warrant investor attention. The macroeconomic environment in Brazil, characterized by high interest rates and an anticipated economic slowdown in the latter half of 2025, could impact credit demand and potentially increase loan loss provisions. Although management expresses confidence in its loan book quality and risk management models, a significant deterioration in economic conditions could still pose headwinds.

Competition remains intense across all segments, particularly in secured lending and government-backed programs where Bradesco has a strong presence. While the bank's focus on risk-adjusted returns helps mitigate risk, it also means operating in segments that attract more competition, potentially pressing margins. The ongoing digital transformation, while a strategic imperative, requires substantial investment in both CapEx and OpEx, which could impact short-term profitability if efficiency gains do not materialize as quickly as expected. Furthermore, the rapid evolution of fintechs and digital banks continues to challenge traditional banking models, necessitating continuous innovation from Bradesco to maintain and grow its market share.

Conclusion

Banco Bradesco is executing a compelling transformation, strategically leveraging its foundational strengths and embracing technological innovation to drive sustainable profitability. The company's commitment to a quality-driven loan book, robust growth in fee income and insurance, and disciplined cost management are clearly reflected in its improving financial performance, notably the 28.6% year-over-year increase in Q2 2025 recurring net income. Bradesco's aggressive adoption of GenAI and multi-agent systems is not merely an operational upgrade; it is a fundamental shift that enhances productivity, refines customer experience, and fortifies its competitive position against both traditional and digital rivals.

The outlook for Bradesco, while acknowledging macroeconomic caution, is underpinned by management's confidence in its strategic initiatives and the inherent resilience of its diversified business model. The upward adjustments in guidance for key revenue streams and the long-term ambition for efficiency ratio improvement signal a clear path towards enhanced shareholder value. Investors should recognize Bradesco's ongoing transformation as a powerful narrative of a legacy institution reinventing itself, with technological leadership and a disciplined approach to risk as central tenets for sustained growth and profitability in the dynamic Brazilian financial landscape.