Executive Summary / Key Takeaways

• Itaú Unibanco ($ITUB) is solidifying its position as a leading universal bank in Brazil and Latin America, driven by a strategic pivot towards digital transformation and a client-centric approach. The "One Itaú" initiative, consolidating multiple apps into a single Super App, has seen over 10 million clients migrated by Q2 2025, achieving an impressive 80 NPS and a 99.3% conversion rate, significantly boosting client engagement and cross-selling.
• The bank delivered strong financial performance in Q2 2025, with net income reaching BRL 11.5 billion, a 14.3% year-over-year increase, and a consolidated Return on Equity (ROE) of 23.3%. Net Interest Income (NII) with clients grew 15.4% year-over-year, and Net Interest Margin (NIM) in Brazil hit double digits for the first time since 2019, reflecting substantial margin recovery and effective risk management.
• $ITUB's technological differentiation, including over 1,300 AI models in use and 500 internal AI use cases, has led to tangible benefits such as a 99% reduction in high-impact incidents and 15x faster solution implementation since 2018. This digital prowess is a key competitive moat against both traditional and fintech rivals.
• The 2025 outlook remains positive, with an upward revision for NII with clients' growth to 11%-14% and reaffirmed guidance for other key metrics, underscoring management's confidence in sustained, high-quality growth. The bank's disciplined capital allocation strategy aims to reinvest for profitable growth while consistently distributing excess capital to shareholders.
• Despite a challenging competitive landscape and macroeconomic uncertainties, Itaú's resilient portfolio management, focus on higher-income segments (Uniclass and Personnalite), and strategic investments in digital and AI position it for continued value creation and leadership in the evolving financial services industry.

A Century of Evolution: Itaú Unibanco's Strategic Reinvention

Itaú Unibanco Holding S.A., incorporated in 1924, stands as a cornerstone of the Brazilian financial landscape, operating as a universal bank with a significant presence across Latin America. Its core business encompasses a comprehensive suite of financial products and services for personal and corporate customers, spanning retail banking, wholesale banking, and market activities. The bank's strategic journey has been marked by a relentless pursuit of efficiency, disciplined capital allocation, and a profound commitment to client-centricity. A pivotal shift occurred between 2015 and 2016, when Itaú completely overhauled its portfolio management approach, adopting a robust, risk-based strategy that has since underpinned its resilient performance. This foundational strength, coupled with a proactive stance on digital transformation, has enabled Itaú to not only adapt but thrive amidst evolving market dynamics.

The bank's overarching strategy is to leverage its scale and deep market understanding to deliver superior value, emphasizing long-term sustainable growth over short-term market share gains. This is evident in its consistent focus on high-quality assets and client segments that demonstrate resilience across economic cycles. Furthermore, Itaú has embraced its role as a "transition bank," committing to sustainable finance initiatives. By June 2024, it achieved its initial goal of BRL 400 billion in operations with positive economic and social impact, 1.5 years ahead of schedule, and has since set an ambitious new target of BRL 1 trillion by the end of 2030. This strategic alignment with ESG principles not only addresses societal needs but also opens new avenues for profitable growth.

Technological Edge: The Digital Core of Itaú's Moat

At the heart of Itaú's competitive advantage lies its profound investment in technological differentiation and innovation. The bank has undergone a significant digital transformation from 2018 to 2024, which has dramatically enhanced its operational efficiency and client experience. This period saw a remarkable 99% reduction in high-impact incidents, a testament to improved system stability and reliability. The speed of implementing new solutions increased by an impressive 15 times, allowing the bank to respond to market demands and client needs with unprecedented agility. Crucially, transaction costs were reduced by 55%, directly contributing to improved profitability.

Itaú's commitment to advanced technology is further evidenced by its extensive use of artificial intelligence. By Q3 2024, the bank employed over 430 data scientists and utilized more than 1,000 AI models, with over 360 initiatives specifically leveraging generative AI. By Q2 2025, this had expanded to over 500 internal AI use cases focused on efficiency and productivity. A prime example is the launch of PIX via WhatsApp, powered by AI and transactional capabilities, enabling seamless self-service for clients. The bank is also piloting a 24/7 AI-powered investment specialist, currently serving 10,000 clients, which represents a "fully scalable advisory model."

The "One Itaú" initiative is the culmination of this digital acceleration. Launched in early 2024, it aims to consolidate seven disparate client applications into a single, unified Super App. By Q2 2025, over 10 million clients had successfully migrated to this platform, achieving an 80 Net Promoter Score (NPS) and a 99.3% conversion rate. This migration has led to a 32% increase in engagement among these clients, with 54% now holding three or more products with the bank. The Super App has seen 19 key products launched and a 25% increase in usage per client over the past 18 months. Notable new digital features, such as "Cofrinhos" (Piggy Bank), accumulated BRL 13 billion in balances in less than 90 days with an NPS of 93 points, while an expense tracking tool garnered 1.8 million active users with an NPS of 85 points. This technological prowess not only streamlines operations but also fosters deeper client relationships, driving long-term client lifetime value and strengthening Itaú's competitive moat. As management emphasizes, "What truly matters is combining technological know-how with deep expertise in investment products and solutions... Technology alone without domain expertise does not deliver outstanding results."

Competitive Landscape: A Differentiated Approach

Itaú Unibanco operates within a highly competitive financial services sector, facing both traditional banking giants and agile fintech disruptors. Its primary direct competitors include Banco Bradesco S.A. (BBD), Banco do Brasil S.A. (BBAS3), and Banco Santander Brasil S.A. (BSBR), all vying for market share across retail and wholesale segments.

Itaú differentiates itself through a more agile and integrated digital banking approach, which often translates to greater efficiency in transaction processing and superior customer service compared to some traditional rivals. While Bradesco boasts an extensive branch network and a focus on mass-market retail, Itaú's strategy emphasizes a comprehensive ecosystem of financial products and integrated services, particularly appealing to high-income clients and corporations. Itaú's digital innovation, exemplified by its Super App and AI-driven solutions, provides a significant edge, potentially leading to lower customer acquisition costs and enhanced profitability through operational efficiencies.

Against state-owned Banco do Brasil, Itaú's private-sector orientation allows for potentially faster innovation cycles and product development. While Banco do Brasil benefits from government affiliations and strong presence in sectors like agribusiness, Itaú's international expansion strategy offers a unique value proposition for multinational clients. In terms of financial health, Itaú generally demonstrates robust cash flow generation and operational efficiency, enabling greater investment in technology and global markets.

Compared to Santander Brasil, Itaú's localized and integrated strategy often provides greater efficiency in serving Brazilian customers through tailored products. While Santander benefits from global diversification, it can face higher operational costs in Brazil. Itaú's deep understanding of the Brazilian market fosters stronger customer loyalty and recurring revenue from long-term relationships. The bank's credit card and auto loan portfolios, for instance, are outperforming market benchmarks due to effective risk management. In the private payroll loan market, Itaú holds a 30% share of the BRL 40 billion market and offers "the most competitive prices," reflecting the quality of its client penetration. Furthermore, in mortgage lending, Itaú is the leading private bank by volume, leveraging its substantial savings accounts to offer competitive pricing and serve resilient, affluent clients.

Itaú's management explicitly states that "market share for us is not an objective... it's a consequence of everything that we do." This philosophy underscores a focus on profitable growth and holistic client relationships rather than aggressive, potentially value-destructive market share battles. The Rede network, Itaú's acquiring business, is fully integrated into the bank's strategy, viewed as part of a broader payment ecosystem rather than a standalone product. This integrated approach allows Itaú to compete effectively by offering comprehensive solutions that enhance client engagement and lifetime value.

Financial Strength and Operational Excellence

Itaú Unibanco's strategic and technological advancements are clearly reflected in its strong financial performance. In the second quarter of 2025, the bank reported a recurring managerial net income of BRL 11.5 billion, marking a 3.4% increase quarter-over-quarter and a robust 14.3% increase year-over-year. This solid performance translated into a consolidated Return on Equity (ROE) of 23.3%, expanding both sequentially and annually. In Brazil, the ROE reached an impressive 24.4%. Notably, if the bank were operating at its Board's approved risk appetite capital ratio of 11.5%, the consolidated ROE would be 24.7%, and Brazil's ROE would be 26.1%.

Net Interest Income (NII) with clients was a significant driver of these results, growing 3.1% quarter-over-quarter and 15.4% year-over-year. The Net Interest Margin (NIM) also expanded considerably, reaching 9.2% on a consolidated basis and 10% in Brazil. This marks the first time Brazil's NIM has reached double digits since before the COVID-19 pandemic in 2019, signaling a substantial margin recovery. Risk-adjusted NIM, a key metric for the bank, reached 6.3% consolidated and 6.9% in Brazil, demonstrating margin expansion while maintaining strong credit quality.

The loan portfolio exhibited healthy growth, reaching BRL 1.3 trillion. The individual loan book grew 8.0% year-over-year and 0.7% quarter-over-quarter, with credit card loans increasing 1.6% quarterly. Mortgage loans showed particularly strong growth, expanding 2.1% quarter-over-quarter and 17.2% year-over-year. The SME loan portfolio grew 0.8% in the quarter, while the large companies portfolio increased 1.4% quarter-over-quarter and 6.4% year-over-year. Excluding the impact of Brazilian Real appreciation against other currencies, the total credit portfolio would have grown 1.3% in the quarter. Growth in the finance credit card portfolio (5.4% QoQ, 6.1% YoY) and unsecured credit (1.1% QoQ, 12.1% YoY) was predominantly driven by the Uniclass and Personnalite segments, reflecting a focus on mid- and high-income clients with strong credit quality.

Credit quality remained well-behaved, with consolidated NPL over 90 days at 1.9% and 2.0% in Brazil, stable quarter-over-quarter and down year-over-year. Short-term delinquency (NPL 15-90 days) also saw a slight decrease. The renegotiated portfolio decreased by BRL 1.1 billion in the quarter, indicating effective portfolio management. The annualized cost of credit over the loan portfolio remained flat at 2.7%, described as "far below historical average." This robust credit performance across all segments is a direct result of Itaú's strategy to grow with high-quality assets and disciplined risk management.

Operational efficiency continues to improve, with the efficiency ratio declining to 36.4% in Brazil for H1 2025 (from 37.0% in H1 2024) and 38.4% consolidated (from 38.5% in H1 2024). This demonstrates that technology investments are translating into tangible efficiency gains. Non-interest expenses in Brazil increased 8.7% in H1 2025 compared to H1 2024, primarily due to investments in business technology, products, and solutions, all delivered within budget.

Capital Strength and Shareholder Returns

Itaú Unibanco maintains a very strong capital base, with its Common Equity Tier 1 (CET1) ratio expanding by 50 basis points quarter-over-quarter to 13.1% in Q2 2025. This demonstrates significant organic capital generation. The bank's objective is to reinvest capital for adequate profitability and distribute any excess. In Q4 2024, Itaú distributed an additional BRL 18 billion in dividends and share buybacks, representing a payout of approximately 70% of its profit, alongside a 10% bonus share issuance. Management views these distributions as "additional" and "recurrent," signaling a consistent approach to returning capital to shareholders.

Recently, Itaú announced a call option on two perpetual foreign currency debt instruments totaling approximately USD 1.5 billion. This move, enabled by issuing BRL 5 billion in perpetual debt in the local market, is expected to converge the AT1 ratio to approximately 1.3%, which is fully aligned with the bank's capital appetite. Management clarifies that while the Central Bank allows a maximum of 1.5% of the capital index for AT1, the bank does not need to operate at this maximum, given its strong core equity. The decision to call AT1s is an economic one, based on the cost of debt, and does not impact the dividend policy, which is anchored to the CET1 ratio.

Outlook and Risks

Itaú Unibanco's outlook for 2025 reflects continued confidence in its strategic direction and operational capabilities. The bank reaffirmed its expectations for credit portfolio growth, NII with the market, cost of credit, fee income growth, and non-interest expense growth. Notably, the guidance for NII with clients' growth was updated upward to a range of 11%-14% from the previous 7.5%-11.5%, driven by stronger-than-expected performance. This positive revision underscores the effectiveness of its client-centric strategies and digital penetration. The effective tax rate, however, was slightly revised upward to a range of 28.5%-30.5% due to higher earnings diluting the benefit from interest on capital and a greater share of earnings from banking operations.

Management's guidance is based on macroeconomic assumptions including 2.2% GDP growth, a year-end SELIC of 15.75%, 5.8% inflation, and an exchange rate of BRL 5.90. While acknowledging the inherent volatility in forecasting market NII, the bank reaffirmed its guidance for this line at BRL 1 billion to BRL 3 billion, citing positive trading results so far. The cost for hedging the capital index is expected to continue expanding in the coming quarters due to the interest rate gap.

Despite this positive outlook, several risks warrant attention. The SME portfolio, which has seen significant growth from government-sponsored programs, is currently benefiting from grace periods. A "slight uptick" in NPLs is expected for this segment as grace periods expire, though management expresses no concern due to the segment's strong credit quality. The agribusiness sector has also faced recent challenges due to commodity prices, tighter margins, and climate issues, but Itaú's diversified portfolio management in this segment has demonstrated resilience. Broader macroeconomic uncertainties, including interest rate fluctuations and potential shifts in demand, could also impact portfolio growth and profitability. However, Itaú's disciplined approach to risk management and its focus on resilient client segments are designed to mitigate these challenges.

Conclusion

Itaú Unibanco stands as a compelling investment opportunity, demonstrating a powerful blend of strategic foresight, technological leadership, and disciplined financial management. The bank's ongoing digital transformation, epitomized by the "One Itaú" Super App and extensive AI integration, is not merely an operational upgrade but a fundamental re-engineering of its client relationships and efficiency drivers. This technological edge, coupled with a robust risk management framework, allows Itaú to consistently deliver strong financial results, as evidenced by its expanding NII, healthy NIM, and impressive ROE.

The bank's commitment to long-term value creation is further underscored by its proactive capital allocation strategy, ensuring sufficient capital for growth while consistently rewarding shareholders through recurrent distributions. While the competitive landscape remains dynamic and macroeconomic headwinds persist, Itaú's strategic focus on high-quality client segments, diversified portfolio, and continuous innovation positions it favorably. The upward revision of its NII with clients' guidance for 2025 signals management's confidence in its ability to sustain profitable growth. For discerning investors, Itaú Unibanco represents a resilient and forward-thinking financial institution, poised to leverage its technological leadership and strategic clarity to continue its trajectory of value creation in the years to come.