Banco Bradesco Sa American Depositary Shares

Greetings, ladies and gentlemen, and thank you for waiting. We would like to welcome everyone to Bradesco's fourth quarter 2020 earnings conference call. This call is being broadcasted simultaneously through the Internet and the Investor Relations website, bradescori.com.br.em. In the 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. If any participant needs assistance during this call, please press star zero to reach the operator. Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of Franco 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 that general economic conditions, industry 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 forward-looking statements. Now, I'll turn the conference over to Mr. Carlos Firetchi, Market Relations Director and Head of IR.

Hi, everyone. Welcome to our conference call for the discussion of the fourth quarter results. We have today with us our CEO, Otavio de Lazari, our Executive Vice President and CFO, André Rodrigues Cano, Bradesco Seguros Chief Executive Officer, Ivan Gontijo, and our Executive Director and Ambassador Relations Officer, Leandro Miranda. For starting the call, I turn the floor to Leandro.

Thank you, Fidete. Greetings, everyone. Welcome to our conference call. Needless to describe 2020, it's widely known how challenging that year was and the impact the pandemic had on our lives. families, communities, and the global economy as a whole. Prodisco's performance was naturally below what we expected a year ago by the time that we presented our guidance during the fourth quarter 2019 earnings conference. But it certainly was, by far, much, much better than we imagined that it would be soon after the beginning of the pandemic. We are proud to deliver our best results ever. We'd like to thank all of Bradesco's team for its commitment, resilience, and creativity. Our board, and especially Mr. Trabuco, for his wisdom, guidance, and trust. 2020 was a year of much learning, of breaking paradigms, and of lessons that have changed the way in which we do business. Home office has come to stay. The digitization of our operations has deepened it. The habits of clients have changed, and once again, we were able to adapt to the new scenario and thrive, as we have always done. Unfortunately, the pandemic is not over. It still has a terrible cost in terms of lives and suffering. But we believe that over the coming month, with the development of vaccination and logistics, we will see a significant reduction in the number of cases and victims. In relation to the economy, we can see during 2021 a consolidation of the economic conditions. The increase in the number of COVID cases has brought greater restrictions to the economic activity, but we expect minor impacts on the economy than we had at the beginning of the pandemic due to the learning curve experienced in the first wave. We believe that the next tax incentives will be smaller, preventing further deterioration of public expenditures and asset prices. With the acceleration of inflation, the Central Bank of Brazil should start raising interest rates in the coming month. Considering these factors, the strong upturn in employment, income, trade, and industry has lost traction at the moment, but with little impact on our expectation for GDP growth in 2021. An even better performance for Bradesco. We now turn to slide three. We presented a rather strong result in the fourth quarter with an ad income of 6.8 billion reais and an ROE of 20% for the quarter. The expanded loan portfolio grew by 3.4% in the quarter and 10.3% when compared to the last 12 months. We closed 2020 with the Basel 1 ratio at a very comfortable 13.8% level, representing a 9 bps hike in the quarter and 50 bps compared to December 2019. We continue to have a very good cost control with a total cost reduction in the fourth quarter, with a reduction of 9.3% in this quarter in comparison to the previous year. leading the ER to close to 44.6% in the quarter and an accumulating drop of 7% percentage points, 3.7 percentage points. On page 4, we present our income statement. We had a well-balanced income in the quarter, with a number of lines showing solid performances. Nanette's interest income grew by 9% in the quarter and 8% in the annual comparison, supported by a strong performance of the market portion, including a quarterly growth of the client portion. Our ALL expenses dropped once again in the quarter and headed towards normal levels. Fee and commission income grew by 7.3% in the quarter, with the annual decline slowing to 1.3%. As mentioned, we saw an excellent performance in terms of costs resulting from the adjustments we made throughout 2020. The next slide will explore the lines into more detail. Turning now to slide five, the funding continued on an upward trend. The deposits from clients' net of compulsory deposits grew 3.3% in the fourth quarter and 38% in the annual comparison. We had net funding of approximately 158 billion reais in 2020. With this evolution, our loans to deposit ratio closed the year at 82%, which indicates our high liquidity. In slide six, we present our expanded credit portfolio, which grew by 10.3% over 12 months. Annual growth was 5.6% in large companies, and 18.7% in SMEs. Individuals grew 11.7%. One of the growth highlights in 2020 was the real estate financing line with an increase of 33.6%. The S&E line grew by 18.7% and the payroll deductible loans line grew by 10.6%. Credit resignation continued to grow in the quarter. In an annual comparison, the individual segments presented growth. We entered 2021 with an increased appetite for credit with adjustments in our models that should allow for greater origination without significant increase in risk. So, we expect a good growth of the portfolio in 2021. We'll be talking more about this into the discussion about the guidance that we shall have by the end of the presentation. Turning now to slide 7, our expenses with the expanded ALL came down to 25.8 billion reais in 2020, which is 11.4 billion reais higher than 2019. In the quarter, we saw a further reduction, reaching 4.6 billion reais, or 2.7% of our loan portfolio, compared to 5.6 billion reais, or 3.4% of the portfolio in the third quarter. This reduction took place despite an increase in impairments to 1.44 billion reais, 87.1 million more than in the third quarter, due to the specific case of a large company that you shall well know. we consider our provisions to be very comfortable considering the expected losses. Moving now to slide 8. The delinquency ratio over 90 days remained well controlled, showing a reduction of 10 dips in the quarter due to the drop in individuals, while SMEs and large companies remained pretty much stable. This positive performance is a result of the high quality of pre-pandemic vintages, the solid trend of our customer financial health with credit extensions and renegotiations during 2020. The 15 to 90 ratio already shows signs of rising defaults. As we expected, the total ratio rose 50 bps. We believe that the increase in the 15 to 90 day ratio will begin to have an impact on the over 90 days ratio in the upcoming quarters. However, we are optimistic about the scale of this increase, and we think that our provisions are more than sufficient for expected losses. We understand that it will probably peak between the second and third quarter of the year, but in levels that are not much higher than the pre-pandemic ones, and we are prepared for that. Turning now to slide nine, we saw an increase in the level of NPL creation over the quarter. settling at 3.7 billion reais. Our gross ALL for the quarter represented 111% of the NPL creation, which shows that we are not consuming provisions. On slide 10, we can see the 90-day NPL coverage ratio, which further increased it to a very comfortable 403%. With respect to the segments, we have coverage of 268% for individuals, 1,167% for large companies, and 566% for SMEs. The coverage ratio, which includes the renegotiated portfolio, is linked slightly to 118%. We'd like to remind you that the loan provisions in the renegotiated portfolio include represents 62% of its total, which is higher than the historical losses that we verified in this portfolio. Now, we turn to slide 11. As of this quarter, we began to publish the extended portfolio with a new concept, showing the accounting balances of red method of amortizations. We believe that this methodology allows a better visualization of the evolution of the extensions. The extended portfolio totaled a bulk balance of R$ 48 billion at the end of the fourth quarter, a reduction of 13% compared to the third quarter of 2020. This value was pretty much composed of R$ 41.4 billion on time, which means that they are no longer in the grace period with the payment of at least one instrument. R$ 3.8 billion is still in the grace period at the end of December, And we must highlight that of this amount, 1.9 billion reais are no longer in the grace period in January. And finally, 2.9 billion reais of transactions that were extended at any time. This extension ended and these transactions are in arrears for more than 30 days. This represents only 0.6% of the total of the bank's loan portfolio. We believe that the behavior of the extended portfolio was very good, exceeding our initial expectations. This is fruit of our good credit policy, which led to a high-quality vintage in the period prior to the crisis. Moving now to slide 12, our renegotiated portfolio in the fourth quarter grew 1.9 billion reais, 1.7 billion reais when accounting for active credits. This is a significant acceleration in comparison to previous quarter. The renegotiation growth in the quarter is primarily made up of loans that are less than 90 days in our years, meaning that they have a better quality and a greater chance of collection success. Loan provisions in the renegotiated portfolio represent 61.5% of the total portfolio. The delinquency ratio for the renegotiated portfolio was 7.4% in December. In slide 13, we see that the net interest income grew 9% in the quarterly variation and 8% in the annual comparison. The client portion grew 3.3% in the quarter, mainly due to the increase in volume with the stable NIM. The market portion showed a very strong performance in this quarter. The total NIM grew to 6.4% in the fourth quarter compared to 5.9% in the previous quarter. NIEM with clients remained stable at 9.2% after three quarters of drop. We do expect a recovery of the NIEM with clients in the quarterly comparison throughout 2021. Now turning to slide 14, we can see that fee and commission income presented a 7.3% quarterly growth and a 1.3% drop in annual comparison, reduced in default in relation to the previous quarter. For the quarter, some highlights included the solid performance of credit cards, checking accounts, loan operations, and consortium. Looking at the asset management line, we are still being negatively affected by the migration of funds from fixed income funds to deposits. as well as reduction in the management fees for these funds. We have seen an improvement in our product mix, part of an adjustment process that should lead to an improved performance, particularly in the second half of 2021. There was also a positive trend in the number of account holders in 2020. We now turn to slide 15. Our performance in terms of costs and expenses was one of the highlights of 2020 and the fourth quarter of 2020. Our personnel and administrative expenses dipped by 6.9% in the fourth quarter, an annual comparison and 5.9% for 2020 as a whole. The growth compared to the previous quarter is due to the resumption of activity and the seasonality of the fourth quarter itself. Given the total cost, including other expenses, a decrease of 9.3% was seen in the quarterly variation, with 5.3% in 2020. This performance is due to the solid cost management measures that we adopted throughout the year by adjusting our structure, our cost to serve, and especially our branch network. taking advantage of the opportunities created by the change in our clients' behavior. We will continue to explore cost management opportunities in 2021 and beyond. Now, moving to slide 16. In 2020, we witnessed an acceleration of digital trends. There was a dramatic increase in the number of users and transactions on the mobile channel. This dynamic comprised new clients in an interesting movement of traditional clients who had once resisted mobile and now have become users. Some of them even have users. We saw a 23% growth in our mobile clients and 15% in digital clients in 2020, which also includes internet banking. Coupled with the boost in users, there was also a marked increase in the volume of transactions. Same time, we have seen a significant reduction in the number of teletransactions, which dropped almost 62% in 2020, a trend that shall remain. This recent movement in particular allowed us to intensify streaming line efforts for our network, consolidating branches and using more intensively alternative formats such as business units. On slide 17, we present our performance in insurance, which showed a recovery in the financial income in the fourth quarter related to the increase in the IPCA in the period and the result obtained in the variable income strategies. In the accumulated view, the 31% reduction in profits is related to the fall in the financial results that reflects the economic indexes, especially the IGPM, and by the prudential provisions for an adverse scenario. Insurance groups' revenue fell only 5.1% in 2020, despite the pandemic and partial functioning of some distribution channels. The operational results decreased in the quarter due to the higher loss ratio. This effect, as we expected, is related to the increase in the frequency of claims caused by the resumption of elective events in health and occurrences due to the relaxation of social isolation measures. Also in health, in the fourth quarter, we reclassified 632 million reais from the non-technical provision for adverse economic scenario to the technical long-term provision, which positively affects the other expense line, the bank, and negatively affects the operational result in the insurance company. We present these adjustments in the chart as you can see here above. Our combined index in the annual view despite the effects of the pandemic, achieved a very consistent performance in the periods, reaching 85%. We now change to slide 18. Our capital did very well in the fourth quarter, with the common equity ratio in Tier 1 increasing by 90 bps. Our capital position has settled to rather comfortable levels, with the common equity at 12.7%, and Tier 1 at 13.8%. Our capital will continue to grow in 2021 based on the recovery for ROE and our expectations for credit growth. This provides us with flexibility in our capital management policy for 2021. Turning to slide 19, We bring on this and on the next slide, one of the main strategic movements we have in the bank at the moment. Our strategic focus is centered on the pursuit to dazzle clients with proposals for customer service aligned to their needs and expectations in order to consequently obtain their loyalty in a confident and sustainable manner. Thus, in 2020, We have reviewed the corporate strategies of customer relationships, creating initiatives aimed at meeting their expectations in line with their life cycle, and providing an increase in their level of satisfaction for the excellence achieved during their entire relationship with our organization as a whole. In this sense, we highlight two important initiatives. The first one is the structuring of the corporate program called 100% Client. or which aims to organize our business model to ensure that the client is always at the center of our attention and is monitored through NPS. Second, the creation of the position of a chief customer officer in order to ensure that the policy of customer satisfaction is effective inside the whole organization. Going on, we switch to page planning. A fundamental part of the customer strategy at the center is our digital transformation. We created the various areas of the bank, a culture of intensive data use, which supports us in the various business decisions and processes. The better understanding of customers by the use of data allowed us to create contextualized offers based on personalized customer journeys. An example of this is the case of the credit offered through PICS, which we have been offering since the launch. We also continue to evolve in the construction of digital journeys with an omni-channel vision supported by modern real-time decision and communication platforms with our Brain and CRM 2.0 projects. VIA continues to evolve, playing an important role in clients' transition to the digital world and in serving our branch network with agility and efficiency. Most of our team is already working in an agile model, in multidisciplinary teams oriented to clients' journey. We have evolved rapidly in partnerships, adding services and products from third parties in our value proposition. This is the case of partnerships such as Disney and OLX for the sale of real estate loans, which will be accelerated this year with open banking. Now we change to slide 21. We continue to show progress in our three digital initiatives, Águara, Next, and Bits. At Águara, we closed the year with 547,000 customers, an increase of 49% in 2020, while the AUC of customers grew 33% in the year. We evolved in the offer of products throughout 2020. placing Agora as one of the most complete offers in the market. Next, Evolted and its project to be segregated from Bradesco, gaining operational independence, has moved on. We closed the year with 3.7 million customers, an addition of 1.9 million in 2020. Next, we'll continue to evolve, expanding its offer to customers, including acting as a marketplace. Finally, Bits, our digital wallet, was launched in September 2020 and already has 218,000 customers. We expect to grow quickly in 2021. We have an ambitious plan for Bits, which offers customers a product complementary to that of Maxx and Bradesco. Moving to slide 22, ESG is something we take very seriously in Bradesco. placing initiatives as a priority. And this has positively reflected in our performance in the various ESG indexes, as you may see. Bradesco performed above average in the main national and international ESG indexes and ratings. We had the best performance among Brazilian banks and the fifth-best position among more than 250 banks worldwide in the Dow Jones Sustainability Index. We have also made progress at MSCI and CDP, being among the leaders in these assessments. We are aligned in reporting practice and results following international frameworks. Going on, on slide 23, you can see that in 2020 we had several important initiatives in the field of ESG. We made the largest issues on ESG bonds. by a Brazilian private bank in 2020. 100% of our operations are already supplied with renewable energy, making us one of the first major financial institutions in the whole world to complete their energy transition. We are the first major Brazilian bank to announce the neutralization of carbon emission scopes 1, 2 and 3, which includes indirect emissions. We participate in PCAF, a global collaboration program of financial institutions to develop methodologies for measuring and reporting greenhouse emissions in loans and investments. In addition, we participate with other large private banks in the Amazon Plan, a very important program that we have talked about previously. Moving now to slide 24, final one, we are returning with a formal guidance for 2021. Despite the worsening of the pandemic at the moment, an increase of restrictions, our scenario envisages a more moderate impact on the economy, which even so is growing 3.6%, so we feel comfortable in providing the guidance. In general, the guidance maintains consistency with the guidelines for 2021 that we presented in the disclosure of the third quarter. We expect the growth of the loan portfolio between 9% and 13%. The client portion shall grow between 2% and 6%. The C-income shall grow between 1% and 5%. Our costs shall be between minus 5% and minus 1%. The insurance line, which includes the operating and financial income, shall have a growth between 2% and 6%. We expect expenses with extended ALL to be between 14 and 17 billion reais. As a complement, we can say that we expect a slightly lower market portion for the NII in 2021 than in 2020. For the income tax rate, we suggest something in the range between 32% and 34%. And that's it. Thank you very much for your attention, and we move now to the Q&A session.