Banco Bradesco Sa American Depositary Shares

Good morning, ladies and gentlemen, and thank you for waiting. We'd like to welcome everyone to Bradesco's third quarter 2019 earnings conference call. This call is being broadcasted simultaneously through the Internet in the Investor Relations website, banco.bradesco.com. In that address, you can also find the presentation available for download. We inform that all participants will only be able to listen to the conference call during the company's presentation. After the presentation, there will be a question and answer session when further instructions will be given. Should any participant need assistance during this call, please press star zero to reach the operator. Before proceeding, let me mention that forward-looking statements are based on beliefs and assumptions of Banco Bradesco's management and on information currently available to the company. They involve risks, uncertainties, and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand the general economic conditions. interest conditions, and other operating factors could also affect the future results of Banco Bradesco and could cause results to differ materially from those expressed in such foreign-looking statements. Now, I will turn the conference over to Mr. Carlos Figueiredo, Marketing Relations Director.

Good afternoon, everybody. Welcome to our third quarter 2019 earnings conference call. We have today with us here Mr. Otavio de Landari, Bradesco's Chief Executive Officer, André Cano, Executive Vice President and CFO, Vinicius Albarnas, Bradesco Seguro's Chief Executive Officer, and Leandro Miranda, Executive Director and Investor Relations for the Bank of Venezuela. Now, I turn the floor to Leandro.

Thank you very much, Fidaci. Good afternoon, everyone, and thank you for your participation in our third quarter 2019 earnings focus call. We'd like to start sharing our view on the business macro moments. Pretty much, we have a collective view about the moments of success. of inflection that Brazil is currently experiencing, which finally seems to indicate a good path of gradual, more consistent, and healthy growth, with inflation under control. That's the best part of it. We noticed that the presence of a co-operative spirit ensuring Brazil's needs has allowed the approval of the patient reform, which is fundamental to the long-term sustainability of the country. public finances. And finally, a favorable environment for approval of a positive agenda for the dividend economy. The combination of a moderate and clear income monetary policy has made it possible to effectively control inflation and has enabled the continuous regression of interest rates. This should definitely contribute to growth, and as a consequence, markets then shall benefit the most. In this context, we can pursue the lower risk scenario that is beginning to motivate investments, job creation, and consumption by private economic agents, leading to a more gradual economic access to recovery. And this is very important for our organization as a whole, which got prepared and is uniquely positioned to capture the benefits of a positive economic cycle. In the slide two, We bring a few highlights of the third quarter that I'd like to share with you. First of all, the expanded loan post-homely keeps growing in a very healthy and well-versed-by-the-manor in the higher growth and return segments. At the end of the year, there's an estimate. While it became fine, it's requiring lower vision for loan losses. The new loan ventures are still improving. Our loan book increased by 3.2% in the quarter and by 10.5% in the annual comparison. This especially highlights the performance of the individual segment, which grew 19 in 12 months. Our few revenues, which have been under pressure, have been adjusted in the previous quarters, and the red show signs of improvement with growth in major lines. We believe it should keep the recovery. All expenses which presented a relatively strong increase due to a plentiful strategy of ours have a right to return to their regular pace, and we believe it's going to continue this way after a smooth and comprehensive program of expansion, reductions, and controls that will be carried ahead for ourselves. We are determined to keep them under control, now that we have made all the necessary adjustments. We have been able, once again, to present a very strong order with a new record in our net income that reached 6.5 billion reais, going 19.6% among the comparison. In the nine-month period of our 19... Our net income of 19.2 billion U.S. dollars grew 22.3 percent, and the original income, 11.6 percent. As a result, our return on equity in the nine months remains above 20 percent, and that's the way we want to keep it. Our level one BIS ratio reached 3.7 percent, 206 bits there in the last 12 months. Finally, it's worth highlighting the extraordinary dividend of 8 billion Riyals that we have recently announced on the page in order to keep an active dimension of our capital, considering the opportunity and our perception of a maximum capital structure given the economic momentum. Now I'm going to jump to slide 5 in order to present you some details on our features. Our net interest income grew 5.7% in the ninth most-paid year in the year and 5.5% year-on-year in the quarter. The performance of this line indicates that we can stay at the center of the guidance. That's our belief. The risk profile of new loan ventures continues to be very good. Our extended loan loss provision expenses decreased by 4.3% in the quarter, a cumulative reduction of 4.9%, conceivably the nine-month comparison. As a result, our net income recorded a 19.6% year-on-year growth in the third quarter and 22.3% in the nine-month comparison. We did more details on the figures in the following slides. Moving to slide six, our ROE reached 20.2% considering the report. However, for analysis purposes, adjusting our equity by 8 billion reais, extraordinary results, as I have mentioned before, the ROE report has been in the range of 21.5%. The ROE was 1.9%. And as we have a firm at $2 billion, we believe we can keep the ROE above the 20% level. Despite the impact from lower interest rates and spreads, with wide decrease in usage ahead, our future returns benefit from a stronger loan volume growth, a more favorable performance, and definitely its scale. As the economy grows and develops itself, we shall reach a very good level of scale. Looking at the longer term, considering the maintenance of low interest rates and falling spread scenario, we could see a reduction in returns. but we also believe they need to remain at high levels, especially because of the lower levels that demand less provisions that we have seen in the last four weeks. Going to slide seven, our low inputs for the growth re-accelerated. As we had a four-week shift happen, closing, we paid for it at 10.5%. The highlight was the segment of individuals. We recorded a 5.5% growth in the quarter and a 19% year-on-year with all lines showing a good performance. It's worth to highlight the personal roles, which includes the product journey, meaning the digital channel, 62% growth, competitive rates, longer tenure, and inclusive use of analytics right to the portfolio record of a 9.7% growth in the quarter and 36.2% in the annual comparison. In payroll loan, we do 24.1% year-on-year, and we have a unique position in this digital distribution network. I will see you mentioned a little bit earlier that we are doing around 74% of all the payroll loans from public entities that have come to the market so far. Public sector payroll agreements and credit agencies and processes, we are all the leading banks. 78% of our origination is carried out at our branches without commissions. In mortgage, we grew 16% and 21% in vehicle financing. It's also worth noting that the growth in cards, credit cards, has accelerated to 12.5% year-on-year. And in the company's portfolio, there was an acceleration in athletes, which grew 8.2% year-on-year. 12.9% are just before the migration of customers with new segments. And I go down in profits. The increase is for very small companies and new type companies. So basically, we're still focusing on individuals. And I think that's going to be our main position going on. Journey 2, slide 8, can show that the evolution in our craft automation remains strong, both in individuals and companies. It is easily growing to the quality of 35.5% year-to-year in companies, 4.8%. Now, if you allow me to take it to slide nine, we discussed how we're mapping this income. Our total NII grew 5.9% year-to-year, with acceleration of the credit margin growth to 5.2%, while the margin of the market removed practically flat to the quarter. And that shall be in the following month. The positive effect of the mix and volume growth during quarter has outweighed the negative effect of the following spreads. Our next spread is going very well. We believe that the effect of the positive mix and volume growth should continue to offset the front book, spread reduction, and the renewal of the back book. Moving to slide 10. when you have the delinquency, you can see that it remains flat in individuals, have an increase in the master needs, and a higher increase in large companies as a result of a few specific cases. So we are not concerned at all in the alignment business. However, this has not affected the layoffs provision of staff as the cases were mostly clinical regiments. Overall, we feel delinquency under control and alignment with our product needs strategy. Now, on page 11, you can see that we have maintained a good performance in terms of provision expenses in the reduction of the corporate nominal terms as the things that led to the increase in NPL creation were like provisions. The cost of this creation dropped at 30 bps to 2.2%. In part 12, we showed NPL creation per segment. The increase in the profit is concentrated pretty much in perspective profit carriers. Moving to July 13th, you can see that now it heaves our performance included in the third quarter, as we expected, 2,000 patients and props to the market. It was a 3.7% growth near entry, 2.5% in a nine-month comparison. We took note of the good performance in the annual comparison of the peer-to-peer and brokerage halls, consortium management, checking accounts, and also loan operation lines. As for the management fees, it's hard to show good results. We are in 4.8% of the fall. We started reduction in the private pension management fees. We have additional initiatives being implemented in the wealth management segment. which should certainly produce increasing results in the coming months. Now, as far as operating expenses are concerned, and you can see that on page 14, the increase of costs above the guidance was mainly due to important decisions that we have somehow shared with you throughout the year, such as the implementation of the new branch network compensation program, an increased amount of labor search settlements, reinforcement in terms of data science, and the hiring of data scientists. We understand we have to improve our performance in an extent. We believe that we have made all the good work in terms of readiness, and now we are really committed to reduce costs from now on as we have reached our best levels in terms of execution as a whole. We highlight the measures which should allow us to have a much better performance in 2020. We expect to close a total of 150 branches in 2019. Therefore, as we have closed 50 branches, we still have 100 more to come until the end of the year. And we do intend to close at least 300 branches in 2020. In future periods, we should have a lower number of employees as a result of the new voluntary business program that is happening today. We shall remove some figures ahead, but so far we have 2,000 employees that have joined the voluntary business program. It's a number higher than we initially thought. What is good for our expenses control. And finally, we believe that the labor suits expenses in 2030 will be lower than this year. Going to slide 16, we can see that the third quarter was very good for the insurance arm. The net income reached 1.89 billion reais, 2.8% growth in the per capita and 28.9% year-on-year. The ROE reached 24.1% in the per capita And it's also what led to the acceleration in premium growth, which reached over 12.2 percent year-on-year, highlighted its strong performance in life and pension, which grew by at least 8.2 percent in the quarter and 18.2 percent year-on-year. It's doing a very good job there. The following slide, that is slide 17, we highlight the 20.1 percent evolution In my month, my income from insurance in 2019, we had a 33.6% hourly. The health and P&T segments developed in terms of earnings performance. In the nine-month comparison, which eliminated seasonality, we recorded improvements in the goods consolidated combined with the recurring situation. That's the best way to consider the insurance goods. In 12-year periods, we shall see all the seasonality denatalyzed. Going to slide 18, we closed the quarter with a price-compacted BIS ratio of 14.10%. The impact on the BIS ratio of 8 billion reais at 49 degrees is traditionally partially mitigated by the relocation of insurance groups with activities that came through dividends. The extraordinary dividends should lead to a reduction in DILs of 110 bps, and the greatest possibility of dividends should have a positive impact of 6 bps. So, on that map, you have here 60 bps to come, as you can see here. Such drop should be fully mitigated by the fourth quarter accumulated profits. Going to tax amendments, we'd like to stress that, as you have mentioned, the federal side of the amount in the red page of the 23rd, the DMDIs, that's for ordinary dividends, but dividends represented by yields of 3%. And we find that these dips in the direct tax cap generated in all of the population, we do consider the following aspects. Business opportunities, environmental risk level, and a view of an optimal practice structure for the models. That's the best way to add value to our shareholders. In relation to our guidance for 2019, we can say that we should remain in the middle of the guidance in the extended portfolio, in the middle of the guidance or slightly higher in the net interest margin, in the lower part of the guidance in pre-revenues, above the guidance in operating expenses, above the guidance in earnings from insurance operations, and finally, in the upper part of the guidance in extended loan loss provisions. Thank you very much for your time, and I'm going to be more than happy to address any questions you may have.