Banco Bradesco Sa American Depositary Shares

Good afternoon, ladies and gentlemen, and thank you for waiting. We would like to welcome everyone to Bradesco First Quarter 2022 Earnings Conference Call. This call is being broadcasted simultaneously through the Internet in the Investor Relations website, bradescori.com.br. 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 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 the results to differ materially from those expressed in such forward-looking statements. Now, I will turn the conference over to Mr. Carlos Firetti, Business Controller and Market Relations Director. Please proceed.

Hello, everybody. Welcome to our conference call for the discussions of our first Q2022 results. We have today with us our CEO, Otavio de Ladari, Jr., Our Executive Vice President and CFO, André Cano. Leandro Miranda, Executive Director and Investor Relations Officer. Osvaldo Fernandes, Executive Director. Ivan Gontívio, Bradesco Seguros, Chief Executive Officer. Renato Weinesmann, Banco Next Chief Executive Officer. Kurt Zimmerman, BIT's Chief Executive Officer, and Carlos Giovanni Neves, Banco Digio's Chief Executive Officer. I turn the floor now to Leandro.

Thank you, Ferenc. Good morning, everyone. Thank you for joining us in our first Q22 earnings conference call. The economic landscape in the first quarter made a slight advance, with GDP forecasts picking up a bit and the creation of additional jobs. Inflation remains a worried global phenomenon. It's a significant challenge for all economies, including Brazil. The war in Ukraine created pressure on the oil and other commodities prices, and there are low expectations of any restraining price trends over the near term. The Central Bank of Brazil has moved forward with its monetary policy, and we expect to see a slowdown in inflation during the year. However, interest rates are likely to remain high for a long period, which should impact GDP growth. Given this scenario, Bradesco performed well this quarter, with a net income of 6.8 billion reais, and this represents a ROE of 18% and an increase of 3.1% in relation to our previous quarter. The highlight of the period was the net interest income, which grew 9.5% compared to the same period of 2021. The client MII rose 19.6% within the same comparison period, resulting from an increase in spreads, a repricing of the portfolio, and an increase of SELIC on our marginal deposits. The lower portfolio also posted a good performance, expanding by 2.7% compared to our fourth Q21, and 18.3% compared to our first Q21. The most significant movement took place in the portfolio for individuals, which grew 3.3% in the quarter and 22.6% year-on-year, particularly in the lines with the highest margin. There was an expected slowdown of growth in mortgage financing due to the rise in interest rates. However, this is a line that will continue to smoothly evolve and add value to our business due to the cross-selling it generates. Fees and commissions income performed well, up 6.7% year-on-year. Total customer controls, especially considering inflation pressures. There was a growth of 4.4% compared to the previous year and a 9.1% drop compared to the previous quarter. In line with our expectations, delinquencies rose in this quarter. We already expected this indicator to return to pre-pandemic levels. It should be pointed out that the growth in higher margin business also carries a controlled growth of this indicator. And we are always ready to make the right adjustments of cost and return. Insurance operating income reached 3.3 billion reais in the quarter. a growth of 4.7% over 12 months. The results indicate that there is a continued recovery in the insurance area, and it should be even greater over future quarters, with movement in premiums, the control of the pandemic, and improvements to the financial results. Due to all these factors, we revised our guidance, and we'll talk about it on the last slide. Moving on to slide three, we note that there was an event this quarter classified as a non-recurring due to its nature. And it was a net income of 231 million reais that we had from the demutualization process of SIP. That's our interbanking payment chamber. Now we turn to slide four, to our extended loan portfolio. That grew 18.3%, compared to the same period last year, with double-digit growth in all lines. Demand for credit remains, although in a lower level, but with recovery in our names. This performance is a consequence of our commercial positioning based on the intensive use of data and analytics in risk analysis, which allow us to be more assertive in defining price, limits, and credit approvals. One highlight was credit cards. with a growth of 45.6% compared to the first Q of 21. This was the result of structured efforts aimed at increasing the presence and use of cards by more slices of our 74 million client base. One of the core points for the success of this work was the creation of new products targeting a digital-friendly audience. Real estate financing Line posted a growth of 23.3% in one year. As expected, this performance is not likely to be repeated in 2022. The growth will continue, but at a pace that is more compatible with the new context of higher interest rates. Credit for companies increased at 15.7% in 12 months. The main categories were working capital, machinery, vehicles financing, and agribusiness loans. Digital channels contributed R$24 billion of our origination in the quarter, an increase of 44%. The role of digital channels in the production of the portfolio is growing, and our expectation is for increasing client engagement and consumption of credit through these channels. It's a natural trend, and we are committed to offer more user-friendly journeys to boost our digital origination. However, you can see that originations are right lower than the fourth quarter of 21 as a result of higher interest rates and increased level in risk analysis. Turning now to slide five, you can see that we are at a stage where credit conditions are returning to normal as the liquid rates were at historical low levels. These risk-adjusted returns on credit are at appropriate levels, given the credit repricing movements. Provision expenses grew this quarter, reaching 2.3% of the portfolio. Total provisions represent 7.6% of the portfolio, an expansion from the previous quarter. Nevertheless, we continue to maintain a comfortable level of reserve on our balance sheets, with a coverage ratio of 235% and 100%, 5% including the full renegotiated portfolio duration. Now we turn to slide 6. The renegotiated portfolio amounted to 4.9% of the loan portfolio. Compared to March 2021, it posted a growth of 3.1%, below the 17.1% growth of the loan portfolio in the spirits. Given the growth we see in the loan portfolio, We believe that this increase in the renegotiated portfolio is normal and controlled. Our provisions for the renegotiated portfolio represent 62.3% of the total. The delinquency rate for this portfolio was 18.7%, which is still below the historical level. Now we move to slide 7. The total delinquency ratio came to 3.2%. an increase of 40 bps compared to the previous periods. This is primarily due to the normalization process of delinquencies, which we had predicted would occur and the effect of growth, credit growth mix. In the second quarter, we are expecting a smaller growth, I would say 10 to 20 bps, and a relative stability throughout the second half of the year. For individuals, the acceleration this quarter came with the expansion of portfolio with higher spreads, especially credit cards. We understand that the growth of the delinquency indicator from 15 to 90 days is seasonal, without any exceptionality. Gross provision expenses accounted for 96% of the NPL creation. Lastly, we'd like to reinforce that we continue with our own management process and sale of non-performing and active portfolios but just whenever such a transaction is economically accreted. However, in this quarter, we did not sell active portfolios in a material way. The total amount was only 120 million reais.