Banco Bradesco Sa American Depositary Shares

Good morning, ladies and gentlemen, and thank you for waiting. We would like to welcome everyone to Bradesco's second quarter 2021 earnings conference call. This call is being broadcasted simultaneously through the internet in the investor relations website, bradescori.com.br.en. 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 1, star 0 to reach the operator. Before proceeding, let me mention that forward-looking statements are based on the 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 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 Figueiredo business controller, and market relations director.

Hi, everyone. Welcome to our conference call for discussions on our second quarter 2021 results. We have today with us here in our headquarters, our CEO, Otavio Villalba, Jr., our executive vice president, Jack Granum, our Executive Director and CIO, Leandro Miranda, our CFO, Oswaldo Fernandez, the Bradesco Seguros CEO, Ivano Lutizo, and Banco Next Chief Executive Officer, Renato Anderson. Now, I turn the floor to Leandro. Thank you, Fidelcio. Good morning, everyone. Thank you for your interest and for joining us on our second two earnings calls. Earlier, we saw a new surge in the pandemic, which unfortunately affected a significant number of Brazilians. However, there was also a great acceleration in vaccinations, which is the only real solution for COVID-19. The current phase is good, and we shall accelerate even further. Over the coming month, we should help Brazil achieve the benefits seen in the countries with more advanced vaccination plans. It sequentially covered all the economic fields, even with the spike in COVID cases in the beginning of the year, and especially now with vaccinations ramping up. We foresee a growth of 5.2% of the Brazilian economy in 2021. Foreign employment is rapidly rising, supporting loan growth and keeping the latest ratios at historically low levels. fiscal risks have eased with GDP growth, leading to a positive surprise in debt-to-GDP ratio, and thereby, enabling an appreciation of the real. On page three, we begin a discussion on our numbers. Our income in the quarter was 6.3 billion reais, with the accumulated return reaching a 2.2% over six months. The loan portfolio extended 2% in comparison to the previous quarter and about 10% year-on-year. The peer-to-peer ratio reached for 2.1% and increased up 0.5 bps QoQ and 1.6 bps year-on-year, which indicates a very comfortable capital level. So far, this year we have already subdued at 6 billion reais in the form of the individual shareholders' equity. This brought our payouts to 52%. We feel that our second quarter results have been at a good level, living by a robust performance in banking activity. The insurance income was adversely impacted by the increase in health and life insurance claims, due to the impact from new spikes in the pandemic, and a lower financial income due to variations in marketing indexes. The fact that you are able to deliver a strong, consolidated income despite the heat taken from insurance activities demonstrates the strength of our balance sheets and our organization of deeds that works by our revenue streams. Moving now to slide four, we present our income statement. As we mentioned before, the lower quarterly income primarily reflects the impact on the insurance business. which was heavily affected by the claims related to COVID-19, despite the relation of 30% to revenue internally. Looking just at income from the banking structure, the growth in the quarter was 16% compared to the first year. In this comparison, the income rose 1.5%, as the second year was the most affected by the pandemic. It's worth noting that the banking structure's income in the second Q was 32% higher than in the second Q92. The total NII was just 1% in the quarter, allowing the annual comparison, because the market NII was rather high in the second Q20, thanks to the robust market recovery by the U.S. All our expenses came at a very low level, posting a reduction of 10.8% QoQ. This comes from the POPC performance in between and our earlier models. We would like to point out the shock-improving POPCs with slightly recovering fees. Finally, when we compare our operation this half-year with the first six months we had in 2019, it's possible to notice that we have had significant evolution and that we are expanding. Total revenues are up 6% and reflect the growth in the patronage and customer base, more than absorbing the drops in sales. Expensive sales, 7.3%, even with the high inflation of simulated experience. And, as a consequence, the efficiency ratio reached 45.7%, an improvement of 3.7% each month. We will now take a look at slide five. Our 30 and 50s are going to continue to perform well. Funds from clients with 4.5% in the annual comparison. Particularly, we demand a lot of good savings, the latter being an important source of funds for our more than a million operations. On slide six, we'll talk about the extended portfolio. which grew 9.9% in 2001. We posted a sharp rate of 21% high in individuals and 28.7% in attendees. For large companies, the end of comparison was somewhat hampered by the sudden growth of working capital lines as we started a dynamic and greater access to the capital market at this time. Some lines were practically out of the way of revenue. over 12 months. In the state of Florida, it's been by 4%. This performance reflects a 2.2-hour contracting process and the strength of our imagination channels. We would like to highlight our digital journey that was indicated around 1.7 thousand transactions in the first semester of 2021, four times higher than last year. Therefore, a channel that has increasingly gained a share in our most large nation. Payroll deductible loans grew 19.8% with the origination of a century in our own families. Agricultural loans rose in 200% and increased up 3.9 billion reais for companies and workers who didn't rely on individuals. With fact, in the close generations, we've had requirements through our regional agriculture platforms, which we have worked for through the agricultural engineers along with the distribution of our branch network, which is currently a major agriculture unit of practice. It estimates the growth of 28.3% year-to-year, and in fact, the repositioning in our business retail structures. in which we tripled the number of coordinators and also added typically relationship managers. We also reviewed the small entrepreneur validation journey. We will have more news in the second half. Finally, I would like to highlight that the visualization of global individuals, which have been already enjoying static growth, progressed even further, and now is 40% higher compared to the same quarter of the previous year. In this quarter, with the recovery of the economy, the resolution of companies grew by around 25%. Heading now to slide seven. Our extended ALL, Extended Cost Attendance, 3.5 billion reais in the quarter, representing 1.9% of the portfolio. The level is consistent with our guidance. The reduction in cost of goods, is a consequence of the positive performance of the different ratios and the growth in normal-width transactions over the last few quarters, such as real-estate financing, payroll, deductible loans, and vaccine fraud. The monetary coverage ratio will be at rather high levels, and is expected to continue above pre-pandemic levels up to the end of this year. The coverage ratio, including the Green University portfolio, remained virtually stable. Turning now to slide eight, we see that the business remained in partner control, and not with our expectations. The 90-day ratio remained stable, and the 10-weeks improvements in the previous segments. The 50- and 90-day ratio showed signs of improvement in all segments. We believe that the business ratios are expected to converge to near pre-pandemic levels by early 2022. This positive performance can be explained by a multi-portfolio management, the progress of our loan models, endurance of our education, as well as renegotiations at our centers and clients. I would like to highlight that the NPL creation disorder is at the same level of 2019. Moving to slide 9, the extended threshold continues to improve, falling 36% year-on-year. From a balance of $41.3 billion, only $3.5 billion are in our linear store over 30 days. The possibility of optimization remains available to clients in the second quarter. but the demand does not end. Coming to slide 10, you can see that our renewable sheet was fully declined by 900 million reais in the second quarter this year, after holding a stable condition in the first year. These shows trend towards more global land conditions. We maintained a high level of provisions, maybe the highest compared to our previous, equivalent to 62% of the portfolio. The new considerations in the venture-assured portfolio continue to be stable over the quarter, but are expected to climb by the end of the year, returning to 2.9% levels. Coming now to the slide level, the PIPO-MRI did 1% over the quarter. Year-on-year, there was a drop of 5.7%. thanks to the strong market NII in the second quarter of the previous year. The quarterly growth in the client NII is mainly driven by the expansion of the individual's portfolio, mainly in personal loans, credit cards, and 30-day deductible loans, which more than offset the slowdown spreads motivated by market dynamics. We expect spreads to stabilize. Indeed, they might even improve during the second half due to the economy improvements. We now turn to slide five. We posted a strong policy piece. We are seeing an intense growth in the volumes transacted in both debt and credit cards. We checked and recovered our economy. For checking accounts, we were able to recover the level of revenues from our network of banking correspondents due to our dysfunctional commercial activities. Revenues were also possibly impacted by the annual growth of more than 1.7 million clients of second, third, and fourth revenues. In asset management, the growth over the course of three months of the strategy to give us signs of new products that have a higher added value. In addition, we experienced growth in our net revenue. both in our own products as well as on third parties. This comes as a result of the work performed by our team of investment specialists, contributing to a net funding of $17 billion in the first half of 2021, and also by higher revenues originated from third-party funds. We also highlight the strong performance in the income from consortium and investment banks, benefits from the favorable market window. Operating circumstances. Now on to July 13. As you can see, our total costs fell by 4.4% over six months. The comparison between the four from the previous year is impaired by the four days of comparisons. as our mobile expenses were not carried out due to the pandemic. Personal expenses were primarily impacted by higher provisions, for-profit share, and student expense, compared to the previous year, given the 60% higher net income this year. The decline in the administrative expenses for the high-profit year was tied forward as three huge cost-control measures and actions to optimize our cost of service. which more than absorbed the high inflation accumulated over the last month, a decrease of 8.3% and a GPM of 35.8%. Turning now to slide 14, insurance operations folks are both growing at 20% in revenues, in resilience in terms of income, which was 2.3 billion yards, despite the elevated level of claims due to the events related to the pandemic. In this slide, we highlight the COVID-19 impact in our insurance operations, with costs reaching $1.8 billion in the second quarter of 2021 and $3 billion in the first half, totaling around $4.8 billion since the beginning of the pandemic. The financial income in the second quarter also was affected by the behavior of the ratios, which had an impact on the performance of financial investments as a whole. This scenario is temporary. The correct choice improvement is a consequence of the vaccination. But we decided to revise our insurance guidance as well as we are going to detail it further on. Slide 15 gives an overview of new events related to the pandemic in our healthcare business. Here we show the curves with the volumes of PCR tests that have been administered. as well as hospitalizations for householders during the safe periods. Since the onset of the pandemic, we have discussed how we ensure clients get more than 1.2 million PTR exams and approximately 78,000 end-of-life hospitalizations. As you can see, this graph is a good indicator for hospitalization levels. And this chart allows us to expect a reduction in the short future due to the recent weak strength, although still the higher level. We now move on to slide 16. As you can see, our capital and liquidity ratios. Our fuel and capital ratio finished the quarter at 14.1%. And the current equity stood at 13.1%. It was an increase of 50 bps compared to the previous year, and 160 bps compared to June 2010. The ratio is reliable, the regulatory minimums, and it's a fairly comfortable level. Moving on to slide 17, we provide data that demonstrate the growth in reviews of our research channels. This year, 98% of projections are already done by clients. using our various channels to create and improve journeys. And a ongoing evolution towards transitioning to digital without the payments of the branch. The most significant transactional volumes are now seen in the mobile channel. The number of financial transactions in the first six months of this year reached 600 million, which is 1% higher than the previous year. We also saw a record number of accounts opening for both individuals and companies, already at values that are twice as high as last year. The volume of loans coming from digital channels over the period amounted to 31 billion reais, 21% higher than last year. Growth in video segments came to 54%. The number of prep card requests to digital channels doing 270%. And this year, we issued 3.9 million new cards. For the insurance company, we wanted to sell 1 million products through big-sale channels in the first half of 2021, which represents revenues of 700 billion reais, then an increase of 80% compared to the same period last year. We now move on to 2018. where you can see the evolution of our payments. The push we have been giving to PICS from a climate-increased journey is driving financial inclusion and contributing to increasing volume of transactions. PICS is responsible for over 50% of the increasing transactions. We witnessed a ditch situation of minor transactions, giving the fact that around 4% of the volume in PICS transactions are beyond 50 lines. But to our regrets, only the process of checks and PPM withdrawals have decreased in quantity, which contributes to a reduction in our expenses. Turning now to slide 19, in addition to continually improving our channels, we have also made investments in DO. Our artificial intelligence that simplifies Our clients rise by providing an increasingly pleasant experience. I would like to point out that we are five years in the use of artificial intelligence in Brazil. In the first half of the year, digital interaction grew 43%, totaling 275 million interactions with clients, in which 83 million of these interactions were through WhatsApp. I'm pleased to share with you that we have just received for the second consecutive year, the award of Most Innovative Banking in America, an award organized by the Banker Magazine reflecting all the investment and focus we have placed on innovation. Turning now to the science planning, we can see other next in this. Our digital business as you can see throughout the presentation focuses on performance. Agra saw nearly 50% growth over 12 months in both the number of clients and in terms of volume and capacity. Agra is getting more and more important in funding for it as well. As you can see, there is an increase of 81% in that funding. Next, it's expected to continue to have growth in the second half thanks to the member-deaf member program and partnerships. The sign-up process has been through this, and 70% of our accounts are opened within 24 hours. Next has also incorporated ShopFast, which now includes a new source of revenue for non-financial business. And finally, Deets. The digital wallet that Deets produced last September has already surpassed 1 million accounts. Turning now to slide 21, We would like to point out that we are the first financial institution in Brazil to announce our goal to achieve a balanced greenhouse gas emission by our clients and investment companies, reaching what is known as net zero. This is an extension of our climate strategy. Fifteen years ago, Provisco was one of the first to measure the amount of carbon generated through solar emissions. That was in 2019. and we have neutralized 100% of these issues. In 2020, we were also the first financial institution in Brazil to join PCAF, the Partnership for Carbon Accounts and Finances. We have arrived at a new level of climate management, and we would like to play a leading role in this transition in the country. Indeed, we support our clients to adapt their business while promoting a more efficient, clean, and climate resilience economy. Moving now to page 22, concerning our guidance, we consider this partnership a well-balanced guidance when we really began. And we maintained expectations for all lines with the extraction of insurance due to the change in the pandemic of COVID-19. We believe that each defensive level above the center of the range for the main portfolio, as well as for fees. And in the center, for client MII. At the bottom, fortunately, costs primarily due to the expected impacts from the collective order in a limited period of time, as inflation accelerated sharply in the first half. In the center of the guidance, for ALL expenses. The insurance guidance, was reviewed downwards, and we now anticipate a drop from 15% to 20% as a consequence of the collapse of this criteria today. Finally, we would like to thank you so much for making the time to be with us, and now we are going to proceed to the questions and answer sections.

We will now initiate the question and answer section. If you'd like to ask a question, please dial star 1. If at any point your question has been answered, you may remove your question from the queue by pressing star two key. Marshall's question is coming from Mario Pelle of Bank of America. Mario, your line is open. You may proceed.

Hi, everybody. I have two questions. First, related to your insurance operations and especially your guidance that you've given for the year, You know, giving the quick math here, you're basically guiding for results from insurance of about $10 billion in 2021, which means an average rate of only $2.6 billion in the 34th quarter. But when we look back over the last four quarters, the results from insurance were averaging almost $3.1 billion last year. even if there's, you know, already had some big expenses related to COVID in the first quarter. So I was wondering, you know, why do you expect your rent rate to remain below the last four quarters, especially considering, like, that a higher rate should be positive for your financial results? So that's my first question. Second question is related to your operating expenses. You are... very close to the top of the value here, expenses of 4%. However, we see some deep headwinds in the second half of the year, especially with data to salary negotiations. Talk a little bit about where banks are in regards to annual salary negotiations and how can you offset the headwind in the second half of the year. Actually, we already closed about 1,000 branches over the last year, which is almost 25% of the branch network. Is there more room to use branches, or are there efficiency needs that we can turn to BIOS? Thank you. Okay, I'm going to ask my team here to help me with the two questions if I'm not able to answer all of them. As far as I understand, the first question is related to the guidance for insurance, right? So, basically, the way we see the deep aspects, and therefore, we shall have better forecasts from now on, especially on the fourth quarter. As we continue to grow in terms of cleaners that are our revenues, and especially in life, the number of deaths has also affected source parts. We expect that this will come along more in line than the previous years. But, of course, it's going to come gradually. It also depends, if we see a new patient here, how it's going to evolve in terms of vaccination. Regarding to the delayed expanses, These are what contemplates all the nuclear needs of personnel adjustment that we shall have in the second semester. We believe that we are going to continue to reduce expenses overall despite this increase in salaries because basically, as I thought it was pointed out earlier, We continue to close branches and we continue to transform those branches into points of service for these units. We continue to reduce our administrative expenses as well. So we understand that we are going to be able to keep a little path in the balance. Okay, you know, starting with all of this, it's a little bit hard for us to hear as well. So, just to go back on insurance, right, if you look at your first quarter results, in insurance, you have like 3.1 million. And you already have very elevated costs related to COVID. So, but, you know, if you think about it, your financial results should improve. And even if you're COVID, you know, it should remain elevated in line with the first quarter numbers. I was just wondering why you shouldn't be able to average $3 billion per quarter in the second half of the year. Yeah. Mario, basically, we are assuming in the guidance that we continue in the path to normalization in the first half. For sure. We have to do this claim that, as you know, there's a lot of assertions on how it's going to progress. But our view is, in this past normalization, the third quarter is going to be better than the third quarter that probably got a lot of the cost of claims that came from the peak, but it's still not a normal quarter because there are a few costs that should be impacting it. We expect a gradual convergence of the inflation index that impacted the results, so reducing the negative impact in our financial results, but that's also something that we are cautious on forecast. So I think you should take our guidance as one that takes a view of that we are going to a normalization, but not a total normalization from the beginning of the report. It's something that will happen with some greater evidence. Okay, you know, thank you. Just follow-up on insurance also. I know our ability to increase prices going forward for premiums and for your plans. How do you think about that, you know, going into next year? Well, I think we are going to have a couple benefits there. The first one is that with the improving of the economy, pretty much companies have their basic security as a premium plan for their employees. So we have seen that we have a very high correlation in sales of our plants as the economy is getting better. That's the first one. The second one is that we are the plant that really protects the customers. So the claims that you have seen here hardly ever would be accepted in other insurance companies. That's the reason why more and more people are buying the plan from us. So it's a matter of the centers and the clients. And therefore, we shall be keeping on increasing revenues. But of course, the market is going to determine the price. There is no way that we can circle the debt, but the quality is being well appreciated by the markets. In addition, we are presenting a very important growth to digital channels in the first half We have a little bit more than a million insurance items that were acquired digitally. We see that trend competing. Also, as Leandro pointed, we see the perception of value of insurance for customers increasing, given the uncertainty we have seen today. and the risks perceived during the COVID crisis. So we see a solid demand for life insurance and health insurance. We have a premium plan. So I think even if the economy has not really fully recovered, the kind of premium growth we are experiencing already shows an encouraging trend. Yeah, it's very interesting to see how the digital channels are improving the sales. And we are using digital channels not only in the bank, but in all of our platforms. Agra is going to start to sell also to offer insurance products to our clients. So, more and more, we are testing the different tools of client that we have, whether we have a base of more than 7 million clients through deeps of channels, but from different platforms. So, we can see the best from them. Okay. Thank you very much. Thank you, Marty. Okay. Thank you very much. Yes? Thank you very much, everyone, for making the time to be with us.

That does conclude Bradesco's conference call for today. Thank you very much for your participation. Have a good day.