Itaú reported a healthy credit portfolio, focusing on high-income, low-risk customers. The company reported controlled NPLs, with the lowest historical default rate for individuals. Net interest income guidance was revised upwards. Technology-driven expense efficiency stands out. ITUB trades at 7.9x 2025 earnings, below the historical average of 10x, implying 26% upside. Momentum is another catalyst for the thesis. Joa_Souza Investment Thesis I reiterate my buy recommendation for Itaú (NYSE:) shares. This report is a continuation of my initial coverage published on April 18, 2024. My last about the company was published on May 12, 2025. The company's second quarter 2025 results, and my intention with this article is to perform a profound analysis of the results. Finally, we will analyze the business outlook and check the company's valuation. Corporate Profile Itaú Unibanco is the largest bank in the Brazilian banking sector. Its credit portfolio exceeds Banco do Brasil (), and its market cap of $69 billion exceeds the Nu Holdings (). Many experts suggest that this success is the result of Itaú's strategy. The competition in the Brazilian banking sector is aggressive; however, Itaú has specialized in serving high-income clients, which gives resilience to results even in a challenging macroeconomic environment. Review of Results Itaú released the results of the second quarter on August 5, and as we can see below in the Seeking Alpha tools, the company exceeded market expectations for revenue and earnings per share. Credit Portfolio Credit portfolio varied +1.3% QoQ and +7.7% YoY to BRL 1.39 trillion ($253 million). The increase was driven by profitable credit lines and low-risk customers, and the main highlights were credit card loans, mortgage loans, and SMEs. In my opinion, Itaú should prioritize high-yield credit lines given the Brazilian complex macroeconomic scenario. The company's guidance suggests credit portfolio growth of between 4.5% and 8.5%, which is quite viable. Non-Performing Loans Non-Performing Loans over 90 days remained stable at 2.3%, while Non-Performing Loans 15-90 days fell 10 bps q/q to 2.1%. I must highlight the drop in NPLs for individuals in Brazil to the lowest level in history. It's worth remembering that a large portion of the company's customers are high-income earners, so credit quality will continue to be healthy, in my opinion. I believe the bank will be conservative in portfolio renegotiations, and NPLs will continue controlled in the next quarters. Net Interest Income Net interest income varied +2.8% QoQ and 12.7% YoY to BRL 31.2 billion ($5.69 billion). A highlight of the result was the 15.4% YoY increase in the margin with customers, which was due to a wider credit spread and a better mix of the credit portfolio. The outlook is positive, as the company raised its financial margin with clients guidance from a range of 7.5% to 11.5% to 11.0% to 14.0%. If the company maintains its success in its credit portfolio, it should deliver financial margin with clients in the upper range of its guidance. Allowance for Loan Losses and Cost of Risk Cost of credit varied +1.3% QoQ and 3.2% YoY to BRL 9.1 billion ($1.66 billion). The wholesale segment had an increase in expected losses, partially offset by the lower loss in the retail segment. Despite the slight increase, levels remain historically low, and perspectives are positive in my view. Guidance indicates that the cost of credit will be between BRL 34.5 billion and BRL 38.5 billion, so the company should also achieve these projections. Expenses Expenses varied +4.4% QoQ and +9.4% YoY to BRL 16.5 billion ($3 billion). The highlights were the increase in personnel expenses (+7.4% YoY) and technology (+22.8% YoY). The company has reduced 63 physical units in the period and now has 2,114 physical agencies. Expense reduction trends are becoming clearer each quarter, as is investment in technology to increase efficiency. This will play a key role not only at Itaú but also at several other banks to increase efficiency. Net Income Recurring managerial net income varied +3.4% QoQ and 14.3% YoY to BRL 11.5 billion ($2.1 billion), as we can see below. ROE reached 23.3%, an excellent result compared to 22.4% in the previous year. My assessment is that Itaú delivered the best results among Brazilian banks in Q2. The combination of loan portfolio expansion, delinquency control, and efficiency gains is extremely desirable by the investor. Valuation For valuation, I'll use a comparative analysis of the Price/Earnings multiple. Below, we have the P/E historical data for the last 5 years, and we can see that Itaú trades at 7.9x projected earnings for 2025. Over the past five years, the bank has traded at its highest point at 14x earnings and at its lowest point at 6x earnings, averaging 10x earnings. If the bank returns to these levels, we have a 26% upside, which supports my buy recommendation. I believe Itaú's potential to return to 10x earnings given the strong results and momentum of the stock this year, as we've seen. Performance (Seeking Alpha) Potential Threats to the Thesis From an operational perspective, the negative point of the result was service revenue, which varied only 1% QoQ and 0.1% YoY. This variation is very small when considering the size of its credit portfolio. The Brazilian macroeconomic also suggests that the company will face challenges if interest rates rise further. It is worth remembering that Brazil has interest rates of 15%, and credit is less attractive in this scenario. Valuation analysis also poses risks. While valuation based on historical P/E is attractive, when we analyze P/B and ROE, we see that the company is expensive compared to its Brazilian peers. Banco do Brasil's ROE and P/B are particularly noteworthy. Comparison (Seeking Alpha) Last but not least, Seeking Alpha's recommendations recommend that investors hold their shares due to supposed low growth and profitability. This differs from my buy recommendation. Quant Rating and Factor Grades (Seeking Alpha) The Bottom Line Itaú reported excellent results. Despite a complex macroeconomic scenario in Brazil, the bank managed to expand its loan portfolio with controlled delinquency. This is due to the resilience of the bank's high-income clientele. Itaú's ROE is one of the best in the Brazilian banking sector. Additionally, the bank has very positive prospects as artificial intelligence transforms its business. Efficiency gains could further boost ROE in future results. Based on this analysis, I reiterate my buy recommendation for Itaú shares. The bank has reported the best results among Brazilian private banks, and the 26% upside makes me comfortable with this recommendation.

Itaú Unibanco reported strong second-quarter 2025 results, exceeding market expectations in revenue and earnings per share. The bank's credit portfolio grew 7.7% year-over-year to BRL 1.39 trillion ($253 million), driven by profitable credit lines and low-risk, high-income customers. Non-performing loans remained stable at 2.3% (over 90 days), with a 10 bps decline in 15-90 day NPLs to 2.1%, marking the lowest individual default rate in history. Net interest income rose 12.7% year-over-year to BRL 31.2 billion ($5.69 billion), supported by a 15.4% increase in credit margins. Expenses increased 9.4% year-over-year, with technology costs rising 22.8%, and the bank reduced 63 physical units to 2,114 agencies. Recurring net income grew 14.3% year-over-year to BRL 11.5 billion ($2.1 billion), with ROE reaching 23.3%, the best among Brazilian banks. The bank trades at 7.9x 2025 earnings, below its historical average of 10x, implying 26% upside. Despite challenges from high interest rates and service revenue stagnation, the company's resilience, technological investments, and strong credit quality support a buy recommendation.