Banco Bradesco Sa American Depositary Shares

Good morning, ladies and gentlemen. I am Marcelo Noronha. I am here speaking from Cidade de Deus, the headquarter of Bradesco Bank, for the presentation of the results on the second quarter of 2024. Now, the time is 10.31 a.m. And it's a pleasure for me to be with you again this morning, this beautiful sunny morning in the town of Osasco in Sao Paulo. And we are here to talk about our results for the second quarter, which had 4.7 billion BRLs of net income, growing 12% quarter on quarter. meaning that the second visa be the first quarter of the year with this ROI that you see here in the screen. And here we have six topics that summarize our net income or summarize what happened in the second quarter of 2024. It could also be the summary and the conclusions that will lead us straight into our Q&A. First of all, we had a solid and safe profitability growth. And here I'm referring to our loan portfolio and the mix THAT I AM ABOUT TO SHOW YOU IN A MOMENT. WE ALSO POSTED AN EVOLUTION OF NET NII DRIVEN BY CLIENT NII, QUARTER ON QUARTER, AND ALSO THE REDUCTION IN CONTROL OF LOAN LOSS PROVISION EXPENSES. WE INCREASED THE EXPANDED PORTFOLIO IN ALL SEGMENTS, INCLUDING IN THE WHOLESALE BANK, WITH EMPHASIS ON SME AND MSME AND INDIVIDUALS. But please note that we are not growing above market rates. We are growing in line with the market. We had improvement in NPL in all segments, and also we posted growth in the coverage ratio. Operating expenses are growing in line with our expectations. And naturally, with a lot of discipline, we were able to accelerate our footprint, as we've been saying to you before. And finally, we were able to maintain the solid performance in the insurance segment. And further on, I will give you more details about every one of these topics. Our loan portfolio went beyond $912 billion with a quarter-on-quarter growth. But I would like to draw your attention to an increase of about 5% of the wholesale bank and, moreover, MSMEs with a growth of 10.12% and individuals also growing 5.7%. In the case of the MSME, I would like to remind you that here we have middle market segments and also SMEs market. And moving on, look at the loan portfolio and the mix. With similar growth in individuals, 2.5% and 2.5% in companies. I'm speaking about quarter on quarter. But this snapshot gives you an idea of our mix. First, the first conclusion is that we grew in all lines. Secondly, we grew with a very balanced in the mix with ensures good NPL levels through time. Constant speed, but not, you know, spikes with client NII, because here we have payroll deductible loan, real estate loans. These are all very important portfolios for us, and rural loans on the individual side, which allows us to have a good balance of our mix with low credit risk. Now, maybe the card segment that didn't grow as much is something that I will talk about later on. In terms of companies, look at SMEs or MSMEs with growing 7.2% quarter-on-quarter. And again, here we had good growth in foreign trade, real estate, and working capital. But there was also a very satisfactory growth on the company segment I'm talking about. SMEs and large corporate with a very good level of guarantees, which is higher than what we experienced in previous quarters. This also ensures good balance for us in the next coming quarters. And this also demonstrates, and if you allow me to give a step back, this demonstrates our capacity of attraction or commercial attraction. Every day we deploy new models, we are improving our portfolio management with all of that business unit segment that we put together for the loan portfolio. I mean, traction is also important. I could have all the limits available, but look at the penetration level that we have in all segments. And soon I will talk about fee income recurring revenue. Here I have two charts that we also presented last quarter. And here I'm talking about vintages, over 30%. But I'm referring to vintages that presented the best correlation of losses in every vintage, four months after credit was granted, what is overdue, more than 90 days. This dotted line, which is the 100 base, is the average of approvals of 2019. That means prior to the pandemic. And here is the line that we use as our own reference. So in the mass individuals, we have controlled vintages between 60% and 65% of everything that we approved back in 2019. But we've been gaining traction. Look at the first quarter and then second quarter in the gray bar, how much we evolved, even with that same level of vintages over 30 days, four months. And the idea here is that this could be slightly higher, so that we will strike the optimum return level in terms of loans. I can take a little bit more risk here, and then this will give me a very good return in terms of, you know, NII. And delinquency is well behaved going forward. And then I can give you more information about our origination. We are growing in line with the market. you know, we are growing with, you know, good level of solidity and security, you know, accounts opening, you know, the reference is again back in 2019. In terms of growth in the first quarter, SME, and I'm talking about MES companies. It was more traction in this quarter, but the level is between 60% and 65% of what we used to present in the vintages of 2019. This inflection of the curve is the baseline because it was very low here. It means that the approval rate was very low we were capturing lower vintages with lower origination, but here we are at the same level of individuals with a drop in delinquency in the next chart, as you can see. Now, moving on, here I bring this slide to show you probably three things. First of all, How come we were able to deliver a total of release loans in the second quarter of 2024 of 84 billion, 34 being through digital channels? And why is it that we believe that we will continue to perform as such in the third and fourth quarters as well? with all of these new modeling system and the intensive use of machine learning, increase in personnel, process improvement, and everything else we did, even considering credit card management, not only in terms of middle marketing, but also SMEs of 3 to 50 million, I think. There was a change in pre-approval when compared to the second quarter of 2023. starting with a base of 100, that was an increase of 20%. But if we look at the volume, there was a growth of 27% in this sense. What does that mean? It means that with the commercial traction that we have in every segment, including in digital channels, naturally we are delivering a client NII that is growing, stable, based on that mix that I showed before, but not only based on credit, because that's the main leverage, but also based on liabilities, because in 2024, we notice growth of our receivables from clients, but the cost was slightly lower when compared to the same period of 2023. But the third piece of information I have here for you is the evolution of the approval rate. This reinstates what I said before, you know, be careful with credit risk, mix adequate pricing, MODELS THAT ARE MUCH MORE ADEQUATE USING TRANSACTIONAL DATA, USE OF MACHINE LEARNING, BETTER RATINGS, PARTICULARLY IN THE INDIVIDUAL SEGMENT. WHEN WE TALKED ABOUT THE 2019 VINTAGES RATINGS RANGING BETWEEN A AND B, WE WERE BRINGING 61% OF APPROVALS, BUT TODAY The same vintages are bringing between 74% and 75% of approval ratings between A and B. But note that if you look back to June 2023, where you see this red curve, It was in the low range of our approvals. Our approvals increased on average in June of this year when compared to June of last year. They grew 25.7%, meaning that was 16% lower than all of the approvals back in 2019, even with that traction and the growth that I showed you before. But also notice that in order to achieve 25.7% in individuals, we grew almost 27%. small companies, the approval level is lower, is more conservative, and we are very much, you know, with our foot in the ground. Therefore, we are very comfortable and very reassured in terms of what we've been doing with our credit selection and our growth, growing step by step, but moving forward in terms of our credit risk. And so, naturally, we go to our NII, which grew 2.8% quarter-on-quarter, reaching 15.6 billion. Natural market NII, given the volatility notice in the past periods, was slightly lower, but we believe that it will grow. But now client NII stood at 15.3 billion, growing 5% quarter-on-quarter. And the net interest income in the first quarter of 2024 went to 15.3 in the second quarter. But notice that in the meantime, if we look at our net NII, we grew substantially, and this growth mainly came from our loan growth, but everything was balanced, the last margin, payroll loans, and there were other lines that also helped to make up that mix, and also in the corporate segment with that net spread. But look at the NII growth. Quarter on quarter, we grew 18.7%. And this is what, you know, moves the needle in our bottom line. And this is what we have in terms of client NII. Our delinquency curve is coming down. NPL creation well under control in line with the previous quarter, very close to 100%. But the coverage ratio over 90 reached 170. Now, moving on, in terms of our expenses with loan loss provision, we reached $7.3 billion, mainly attributed to these two reasons. We had improvements of the vintages quality and higher efficiency in terms of collection and credit recovery. explains and justifies our loan loss provisions. And then we come to another area, and this has to do with having the business areas well-tractioned. And I'm referring to fee and commissions revenue that helps our top line. If you look at it, they grow almost in all the lines with a highlight to credit operations, 3.5%, quarter and quarter. And again, this is due to our commercial traction, to the level of relationship that we have with our client base at different levels. So we also grow in current accounts, you know, 3.1%. And I draw your attention to asset management. you know, quarter on quarter, 6.4%, and AUM grew to 33 billion when you compare the second quarter of 24 versus the first quarter of 24. And then I draw your attention again to the card income. You know, you saw that our loan portfolio was not growing that much, but we are more conservative in terms of the low-income client, and obviously with those that are non-account holder. In terms of capital market, we grew 12% almost year on year. So with our pricing, risk is lower, and capital markets also grew substantially. It's not absolutely regular, but the growth was quite high.

Talking about operating expenses, I'd like to draw your attention to our revisiting of the footprint. We've been doing this very carefully with very discipline. And you can see our client base, again, has commercial traction, growing 1.8 million clients, most of them coming from payroll loans, INSS, public payroll loans, private payroll loans. And a part of this comes from checking account holders. that also grew in the last quarter. And we point to our indicator in the guidance. First half 24 compared to first half 23, up 7.6%. And here I bring you a reconciliation. with some points, personnel and administrative expenses growing 4.3% or 4.5% first half 24 over first half 23. And this was because of the care and discipline that we've been having in terms of growing our personnel and administrative expenses. But if we look at the complete income statement, you will see other expenses that do have an impact on the syndicator. This is 4.5% in representing 7.6%, but I bring you an interesting reconciliation just for your assessment. We are shareholders of all of the companies under Elopar, Livelo, Alelo, Eloveloi and Cielo. And what we have seen in these companies, for example, Cielo has been doing a lot of transformational work, but they are also investing to grow, to develop their business. And the same goes for Elo, Alelo. And in these three cases, when we consolidate, we see a two-digit growth in operating expenses. If we were to normalize this level of growth, because it will normalize eventually, our indicator would not be 7.6%, but rather 6.2%. as a result of this consolidation, which is positive for the growth of these companies. So this is just a reconciliation to show that our expenses are well under control in the quarter. And then we move to the insurance group, another very strong quarter net income of 2.2 billion BRLs, 12.7% growth quarter on quarter, 22% ROAE, And this level of revenue of premiums contributes and savings bonds with this level of growth. And why is this happening? Why is this growth happening? Because of commercial traction, competitive products and services, both in the bank and in the insurance group. This is what explains this growth. There is a phenomenon we'll see in relation to the guidance is that in the second quarter of 2023, The result of the insurance operations net income in our guidance was 4.8 billion. In this quarter, 4.6 billion. But we are taking strides towards Q3 and Q4 to be well within the guidance regarding the results. and operations of the insurance group this is our expectation as well as the expectations of the insurance group technical provisions 382 billion growing 2.6 percent quarter on quarter Our capital remained practically stable, 10 BPS. If we didn't have mark-to-market, given the volatility we've seen in recent quarters, we would have 0.24% up. Capital would have grown even with we growing our loan book. And I'll end the figures part with the guidance. So I'll look at the implicit net income that we decided to deliver, which is a combination of all of these lines. And if you do the math, our colleagues in the cell side, you will see that we are delivering an implicit potential net income, which is superior to the middle of the guidance. So we have here some supplementary information, which is net interest income minus expended loan loss provision that will give us an implicit in annual indicator with that band. with that range to facilitate your evaluation. In other words, we continue to pursue each one of the indicators. That's our objective. It's not a gift that we wrap in January 1st and open the gift in December 31. No, we continue to pursue these indicators. We believe that they will grow in the NII, you could see that we are growing client NII quarter after quarter. And I draw your attention to the month of June, when we grew a little more than the market, but in line with the market. And you could see the trial balance sheets disclosed by the central bank. You did your evaluations. Then we have July. So it's easier for you to see and to realize that this level of growth and everything we've done in May and June will have benefits in the third quarter, which is what we're living now. You don't capture all the value in Q2. And the growth that we show in Q3 will be actually seen in Q4. And speaking about our transformation project, We have been working with a lot of discipline. Cassiano is a CDO, and he has the transformation office. They have been working, and he has been the team positively checking the timeline and the deliveries. And we detailed all of the execution here. And everything is underway. The HR people have been working strongly and reviewing a lot of things. But we delivered a variable compensation plan for the second half, which is more meritocratic. And it fits the expectations of our shareholders. And we had accelerated progress in the credit business unit, as I mentioned, with the right pricing, better processes, better collection performance, better portfolio management. With this portfolio management, BU bringing people from the market and implementation of models with a much more intense use of machine learning, transactional data, and all of that leads, as I mentioned before, to better ratings in our loans for individuals and for companies and for SMEs. Our expectation for the second half is that we will start our new affluent segment, continued expansion of SMEs, and in the case of Bradesco Expresso, I'd like to stress what I already mentioned in the prior call. We have two important platforms in Bradesco Expresso, one through which we relate with our banking correspondents at the checkout. And they offer a much better experience when we started that delivery in December and January, and we started rolling it out to the whole base. This rollout will be completed now in October. And it is very, very important for our strategy in the mass market clients. On the other side, we have the other platform to capture transactions. That is done by a network now. We are concluding the rollout. There were four capturing networks. And when this is completely done, what we'll have is, number one, a reduction of operating cost of Prodisco Express for their transactions. And that's the first consequence. The second consequence is we'll be in a position to have new investments for the capturing network as well as for this new platform that relates with the checkout of the banking correspondence. All of this will be done much more easily in a much more friendly environment for those frontline people. I went out in the field. I did visit some small merchants in the countryside of São Paulo to see their experience and had excellent feedback from the correspondents, from some correspondents that have been our correspondents since 2005. And the third gain, third consequence is the experience of the commercial banking correspondent and of the individual clients who are served through that channel. And also for SMEs, the SMEs platform also is part of this and it involves CLO. And I move to my final slide with the conclusions and the summary of everything I've said so far. Number one, step by step, solid and safe profitability growth. I spoke about the mix, I spoke about pricing and about the model. We have revenues growing with a positive inflection of the client NII. as well as fee and income fee and commission income the insurance group everything influencing positively our result focus on that and ii with a focus on risk adjusted return i showed a slide with the levers the proof everything we delivered in loan 84 billion approved and the increase in the NII, client NII, as a result of everything we are doing. And we expect to have better deliveries in Q3 and Q4. firm plan execution at an accelerated pace of our transformation. And lastly, enhanced client centricity with a new way to serve, new product formats that will fit different client segments, different than what we did in the past, with other structures, other configurations, and will deliver a new app to our clients with a new experience for them as well. We also deliver much greater use of Gen AI to help our BIA to interact not only with our employees in the several segments, but also with our clients. So I spoke about insurance group as well, with a great combined ratio below when we had achieved 90 in recent periods, which is an excellent indicator for the sector. And lastly, I'd like to bring you one more piece of information, some news, which is the hiring of a new officer for our organization, somebody who will be working with our technology team. This man has a vast experience abroad, vast experience in transformation projects. His experience will be added to Roger's team with Edilson, Cynthia, and our other colleagues who make up the technology department, but linking more and more technology to the business, to the products department, to clients. He will be joining us most likely by the end of August. That's the expectation. Everything is arranged. And this officer will be bringing great experience in other transformation projects to add to our efforts. So I'll end my presentation here. I'd like to thank you for your attention, and I have my colleague André Carvalho, our IRO, and Cassiano Scrippelli, who heads the financial department. He's our CFO, and he's also our CTO. And we are available to answer your questions. Thank you very much. André, over to you. Thank you, Cassiano. Thank you, Marcelo. It's a pleasure to be here with you. The CEO of our insurance group is participating remotely, and let us begin the Q&A session. Your questions can be sent in Portuguese or English using three channels, either email to investidores at bradesco.com.br, using the WhatsApp number 11974438238, or if you want to point your mobile phone to the QR code, you can send your questions. First question from Renato Meloni with Autonomous Renato. Good morning, everyone. It's always good to see you. Thank you for taking my questions. My question is about the guidance. In this quarter, you added an additional information to the guidance with a much lower expectation of market NII. But the guidance was reinforced. So I understand that client NII will be lower and provisions will probably be lower. So I'd like to understand. Perhaps you can explain whether this comes from a greater growth of client NII or lower provisions. And I'd like to understand actually what changed compared to the beginning of the year when you prepared the guidance and when you had a higher market NII expectation. Renato, thank you for the question. I'll start and then my colleagues can add. My first answer to you is we improved our expectations and the outlook considering what we had in mind when we prepared the guidance. So we're able to deliver more now. You just have to check the expectation of implicit net interest income in the guidance and you'll see that we have a higher number. And the market NII is expected to be better for Q2, stronger than Q2. And quarter after quarter, we'll continue to increase our growth NII and our client NII. But we cannot separate the provision cost from the growth of NII. They move together. When you have a better mix with the right pricing, adequate modeling and models, we are bringing growing results with safety, Renato. This is how I see this. This is my expectation. And Andre and Cassiano, you can add anything. Well, good morning, Renato. I just would like to add to what Marcelo said. I'd like to remind you that in the guidance, as Marcelo mentioned during the presentation, we have the implicit net income. That's our reference. And we started adding something more to show how we are looking at our NIM. There's a specific guidance, how we set out the ranges which we believe are fundamental to get to this implicit And the traditional guidance, by the way, is annual. So the lines will fluctuate. But it is just the north for us, an incentive for us. We want everyone to focus on the initial guidance. because it is very tangible, it is very strong, so that our people can work with a lot of dedication. And more than that, we cannot forget that the lines have values that will complement the market NII. It can come from the client NII, it can come from very controlled expenses or in fee and commission income. to be confident in the implicit profit. It's a base, and we'll try to deliver more. And just to add, this time we added a slide to the presentation, which is the slide of the levers. In other words, we present to you measures that have been adopted to accelerate our revenues. Our revenues don't grow in a linear fashion. They will expand more in the second half compared to the first half. And Marcelo spoke about number of clients who are pre-approved, offering of loans to these clients, increased approval ratio, better management of the client funds. In other words, a number of measures that should help us accelerate revenues and margins in the second half. It's a game we're playing. It is a challenging one for sure, but we continue to pursue the goal. That's my point.

Moving on to the next question from Eduardo Rosman from BTG. Good morning. Congratulations on the results. I have two questions. The first is about your risk appetite. I think the financial conditions of the country and even abroad got worse. I just want to understand how this could eventually change the bank's risk appetite for the next quarters. And my second question, It's about the recently announced change in variable remuneration. Does that contemplate anything like short-term or mid-term? I know that you are in the midst of an important transition. I just want to understand whether you're contemplating anything for next year. Thank you, Rosemond, and thank you for your questions. I would say that our risk appetite is moderate because we have our feet on the ground. You might recall that I showed a chart of the approval rate in 2016, It was 16, now it's 16% lower than what we used to approve in the past in terms of individuals when we compare today to June of last year, vis-a-vis June of this year. But in SMEs, that's still lower, 17 against 27%. And if you look back, remember what I said about mix and pricing. So we have models, mix, pricing, and obviously this composition of risk appetite with a much more severe portfolio management based on SME, meaning that we are much more comfortable in terms of what we're doing. But we still, in keeping with the market, we are not, you know, exceeding the level of growth, but we have a lower appetite in terms of SMEs. But as we are monitoring that very closely every single day, maybe tomorrow with a change in the macro landscape, we may adjust our appetite for risk. So we are growing with quality and a good level of security and solidity. And the new variable remuneration that I could not summarize that in only two minutes, but I'll try to give you an overall picture. If I take, for instance, the wholesale bank, the managers, they were already measured on what they generate in their portfolios based on some indicators. But the leadership group was less linked in terms of the weighted average to the unit itself, but they were more linked to the bank's general business. And the bank's general business remains an important trigger because we have to meet shareholders' expectations. But it's important to look at the leadership group and one of our colleagues that The remuneration is a bit higher because they have to take care of a lot of people. So this applies to operating efficiency and areas related to this transformation. So things were done in such a way that is based on merit. So if Andrea delivers more, I have to compensate him better when compared to another colleague that has a good profile, a good track record with the company, but he didn't deliver as well. So his compensation is not the same as Andrea's compensation. But we look at the different business units and we look at individual performance, but mostly based on what is under that individual's wing of responsibility. And the new variable compensation is already being applied in the second half of the year. Now the next question comes from Diago Batista from UBS. Diago, welcome. Congratulations on your results. I have two questions. Noronha, when he presented the strategic plan a few quarters ago, he said that the bank expected to have returns very close to the cost of capital at some point in 2025. When we look at Bradesco's results this quarter, is it possible to say that the rebound of the bank is occurring faster than you anticipated, or maybe not, or maybe it's in line with the capital or the estimate for 2025? And the second question is about the insurance company. What was the impact of the events in Rio Grande do Sul? How does that affect the bank's results? Or there is still something to be recognized going forward? Well, Thiago, sorry, I said Rosman. Rosman was the previous question. Thiago, this ROE close to capital in 2025, as you mentioned, I think But the dates may change. I mean, we are not promising to deliver are we close to capital with a very specific, you know, view. But we I think we are talking about 2026. But now what I can tell you, goes in line with what you said. Well, we are moving faster. Yes, we are faster than what we previously anticipated. That's why when I talk about the guidance and the net income, we were above the guidance. So I think that we can deliver something in addition to what was implicit in our net income and the combination of all KPIs. But in terms of your second question, all of the potential impacts for the insurance business that is much more related to the auto segment has been already absorbed in this half year. And in terms of the solidarity with our clients and people in Rio Grande do Sul, not only at the bank. There were several actions, but the insurance company paid for all the claims and everything has already been contemplated in the results of the bank, which was good. So we don't anticipate any impacts going forward. The impact was fully provisioned in our results line. Thank you for your questions. Any more comments? Ivan is here. Ivan, do you have any additional comment, please? Hi, Marcelo, and thank you, Andrea. It's just important to give a little bit more visibility to Thiago that the amount was 165 million gross, 100 million net. That was the impact to the insurance business. And we do not believe that this will be carried over in the next quarter. So there will be no further effect in our P&L. And also, you talked about the insurance assistance when we aided our insurance holders and those that were not insurance holders. So the impacts have been already contemplated in the P&L of the second half, and now we just have to look at the second half in a more objective and clear way with all our objectives in line. Thank you, Ivan, very much. Tiago, thank you.