Good afternoon, ladies and gentlemen, and thank you for waiting. We would like to welcome everyone to Banco Bradesco's Third Quarter 2018 Earnings Results Conference Call. This call is being broadcasted simultaneously through the Internet in the website, banco.bradesco/ir-en. In that address, you can also find the presentation available for download. [Operator Instructions] After the presentation there’ll be a question-and-answer session, when further instructions will be given [Operator Instructions]. Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of Banco Bradesco's management and on the 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 would turn the conference over to Mr. Carlos Firetti, Market Relations Director.

Hi, everyone. Welcome to our conference call for discussion of our third quarter results. We have today with us our Chief Executive Officer, Octavio de Lazari, Jr.; our Executive Vice Director and Investor Relations Officer, Denise de Pavarina; and Vinicius Albernaz, the CEO of Bradesco Seguros. Now to begin our presentation, I turn to Denise.

Good afternoon, everyone. Thank you for participating on our call. I'll present the main highlights for the quarter, and then I'll turn to Firetti to complement the numbers. And Denise Pavarina for the insurance results comments. Going to Slide 3, the third quarter was a good one even with the volatile environment that we face. We reached BRL 5.5 billion of net income, 13.7% year-on-year growth. Our operating earnings was up 24.5% growth year-on-year, shows improvement we had in our operations. Our return on assets reached 19%, an extension of 100 bps in the last 12 months. If we look at the other side of this slide, our loan book continues to grow with improving quality, the delinquency ratio is one of the lowest levels we ever had, and our Tier 1 capital ratio improved 80 bps in this quarter. Going to Slide 4. I'd also call your attention to some of the third quarter events and themes that have a major impact in our activities. Among the least, there are -- it appears on business line. Our recovery efficiencies and mortgage leading that we have had in the first 9 months both in commercial and individual loans. This is a very important activity for us that provides long-term relationship with our clients with the ability to sell a set of products. And we were the leader, even when compared to …… And we were the leader, even when compared to cash equivalent that we cashed out that traditionally was the leader. Secondly, the termination of JV that we did with Fidelity, reunified card processing and with the same synergies that we ramped up, reaching up to BRL200 million per year come 2020 onwards. We also have acquired 65% of RCB shares with the recovery company, with objective not only…

Okay. Thank you, Denise. So, going now to the highlights of our income statement. We had, as Denise have pointed, a good results. Our earnings grew 6% in the quarter and it's growing 13.7% year-on-year, first nine months accumulated at 11.1%. In the quarter, we reached an 19% ROE. We think a big highlight is the evolution of our operating income that in the quarter is growing year-on-year, 24.8%. The improvement in the operational income gives a very good assessment of how we have improved our operations over the last quarters. Going to Page 13, our return on assets, as I pointed, we reached 19%. We have a very good evolution considering the horizon since the last fourth quarter '16. We believe we have reached a new level of ROEs and we still focus for expanding. We believe that the improvement in the economy and the opportunities that will arise from it is more long growth and also the maturity of many of our initiatives will allow us to actually look for higher profitability plan. Page 14, we have our loan origination. We have been delivering for a while very good levels of loan origination growth. Individuals in the third quarter year-on-year, we have an expansion of 29.5%. For companies, loan origination is growing at a rate of 40.6%. The reduction in the quarter in companies is more related in strong base in the second quarter due to some specific operations, but we continue seeing a very good pace of evolution in loan origination. In Slide 15, we have our expanded loan book. Our total loans are growing at 7.5% year-on-year. In the quarter, we grew 1.5%, excluding the FX impact from the loan growth, loans increased 1.1 -- 1.2% in the quarter and 5.6% year-on-year. The majority of the…

Ladies and gentlemen we’ll now initiate the question-and-answer session [Operator Instructions]. Our first question comes from Mr. Carlos Macedo with Goldman Sachs.

A couple of questions. I think the first question is about the acquisitions. You mentioned the highest car loan coverage that we had in a long time, that's going to be 40%. When you look at the breakdown of provisions, most of that is coming from growth of in generic provisions. So you don't have any growth in the [indiscernible] and the qualification is basically declined. So the question is, is there room for you to -- that's, in large part, driven by the prospectives and credits, particularly on the corporate side, that's where the generic provisions have been largely situated. Is there any perspective in improving or changing some of the credit perspective there? In other words, is there a room for you to be more positive about the ability of these large corporate borrowers to repay their debts, and therefore, lower the requirements for the operations which is something you can do. Second question, could you talk a little bit about margins. The credit margin decline is quarterly -- is there something specific here from the [indiscernible] regulatory change? Or is it just a more pressure from competition?

On generic provisions, Carlos, this quarter, specifically, as we mentioned, and we put in a note in the release, we recovered about 3 credits that amounted BRL 920 million. And this credit came from a court recovery process. And when we recovered them, actually we made generic revisions because after recovering, they are performing loans and making this provision, they are generic. So this quarter, we have about BRL 900 million increase because of this credit recover. It is not really something that relates to the dynamic of the portfolio, it is a specific thing on which is actually we don't have control. We have to follow these rules. Overall, the trends on provisioning remain quite strong and we believe they -- we should continue having improvements going ahead. Regarding margins, basically, we see spreads in some lines going down gradually, and that's fair, that we have a big reduction, the cost of risk and banks as a whole are looking for growing more. What we believe is basically, we have, in some portfolios, a very good capacity of origination like mortgage, our position, the way we operate in payroll loans. And also overall margins, we believe the mix, especially when we have much bigger growth in individuals than SMEs as opposed to lower growth to corporate, this mix effect should help our margins. We believe from the current levels, we believe margins are probably likely to be flattish or even improve a little moving forward considering mix.

Just going back to the first question. Even if you exclude that number, they're still up year-over-year in the generic and I understand that it's the year-over-year look. But going out, what conditions would you need to see to start taking a more favorable view? And that will take [Indiscernible] few question. Do you believe that you're going to see growth accelerate? Do you believe that you're going to see [Indiscernible] what should we think about that would lead to maybe some reductions in the provision that you required to some of your corporate client?

Basically, we need to see this client's pain. Part of the debt actually we have to see their actual credit capacity or credit quality clearly improving. We have to remember we had a big crisis and that the corporate segment was especially affected. There were some renegotiations and most of the cases we got, we were able to strengthen our position in terms of collaterals. But we think in some sectors, even though we see good signs that the companies are improving, we need to see much clearer signs that actually the companies are totally turning around before actually reviewing some of the provisions.

Our next question comes from Mr. Marcelo Telles from Crédit Suisse.

I have a couple of questions. The first one, you don't have elections behind us, how do we -- how are you assessing your credit risk models? I mean, do you think there is a chance that you might increase your risk appetite, election's now behind? And is it possible to see loan growth for Bradesco, let's say, going in to next year, growing at double-digit rates in a scenario, in a more benign economy consider that this year you guys already at 5.6% FX-adjusted, that's my first question. And the second question, regarding the threat of FinTechs, how does Bradesco see playing out for you? I mean, we know there has been some threshold fees. It's very clear, I think all of the banks that reported so far as showing a bit of pressure. Do you think that's what we're going to continue to see down the road? Or do you anticipate potential threat on the credit side as well?

This is Denise. Starting by the risk appetite, we increment marginally the credit according to our model because they are able to capture the various performance of our clients. So we increased the appetite according to those model show, so we will not do anything that [indiscernible] but we will follow the market. And as you know, we like to lend money, we like to offer service to our clients. So we do all the arrangements we have to increase the level of credit we have in a safe way. In terms of loan growth for next year, of course, you need to understand how this -- the growth of the country will happen. But normally, we see an elasticity being twice, the agility, so we can say something around 8%. We're not giving guidance because this is something that we do in the beginning of the year but it's possible, likely possible to have a number like that. In terms of fee pressure, you're asking about the that competition [indiscernible].

Yes, I think I have.

So what we see, of course, we see a lot of movements going around, but we haven't seen in credit any special movements that could call our attention. And in the other side, we are preparing all the platforms to be able to provide credits to our client in a more cheaper way for us in the sense that we cannot provide the best price, best condition to our client. So we don't see it, but we are preparing ourselves to any challenge that we have to face in the market.

Marcelo, let me complement your questions. Regarding growth at 2 digits, for the full portfolio, it's hard to say. We -- it's -- the corporate book could be growing less even that's part of what's going to be and the written is going to go through the capital markets investment banking. But in some portfolios, and maybe individuals, maybe small companies. We think actually there's are conditions of actually accelerating growth, and we have risk appetite. Apart from that, as we mentioned, there's a big improvement in the credit models. We have been able to, given this improvement, given the better assessment of credit quality, we can approve more. This is part of what's going on. There is very important projects being finalized soon that could help us even more on that better assessment of credit quality, and even though we are not lowering the bar, we are actually accruing more. On fees, complementing as Denise has said, this quarter, when you look to the performance, it was not really the best quarter in terms of fees, but there are some specifics like investment bank. It was a particular weak quarter. There was not much activity, even the scenario, we think, going ahead, this line can be a very strong one even what we expect in our position actually in the market. These are also being impacted by the cars line where there's a lot of competition, especially in the acquired business. But we believe that with the acceleration of the economy, we're going to see the positive impact of volumes. In terms of asset management, actually, given what Denise mentioned, our efforts in terms of wealth management, we are doing a lot of things that, in our view, can actually allow us to grow more than the market even that we can actually grow more, so I believe, it's our fair share in this market. So I think, I would have say, necessarily, the fee line are going to be, we still believe, we can have some decent growth there. Yes, also the letters of credit and guarantees line to us, mostly due to some redemptions of some letters of credit maybe in a stronger economic activity, potentially, we can have that line actually expanding. It's sometimes related to the exact bank activity.

Our next question comes from Jason Mollin with Scotiabank. You may proceed.

Question is on the balance sheet. Specifically, this quarter, we saw another negative impact from the mark-to-market with the sale of securities of about BRL600 million according to my calculations. This follows last quarter's 3.5 billion hit, but doesn’t go through the income statement. So I'm just trying to understand -- I understand what the mark-to-market of available-for sale is, I'm looking in your balance sheet and I do see a large increase in the bond and securities long-term of about 40 billion, and I see short-term reduction in 12, just trying to understand the movements. And in the third quarter, we didn't see -- I'm just looking at long-term rates, the big decrease that we've seen now. Should we expect the book value to rebound if the market stayed where they are? And the way I'm really looking at this is to try and understand the trends in return on equity because it is enough to change our calculation of that

Basically, as we mentioned, the mark-to-market is related to the fact that the interest rates still moved up in the quarter. As we said, the improvements we saw in the scenario, given we're not fully captured in the end of the third quarter. With the reduction in rates and varying market conditions, yes, the values of the securities increased, but during the quarter and also last quarter, as a measure to protect our balance sheet in a scenario of volatility, we transferred securities to held-to-maturity. Basically, with that, some of the market to market will not flow back immediately with the improvement in the market. But we don't feel this is a problem because the nature of those securities are relatively -- the maturity is relatively short. We accrued the interest on that and we captured the higher value of those securities as we converge to maturity. But the part of the book that is still being available-for-sale, yes, we can see improvement in market to market.

Just looking at the short-term securities declining BRL 12 billion in the long-term, BRL 40 billion, is that, I mean, that wouldn't be the switch from available-for-sale to held-to-maturity, in this case. And could that be the impacts that's, I guess, adjusting -- is going to impact the future valuation adjustment. But what's going on? Is this a strategic shift in the balance sheet to put more bonds and securities there? Is this coming more from insurance and from the banking corporation?

There wasn't any specifics switch this quarter, Jason. Maybe I have to look further on the details of what you are saying, but basically, structurally, do anything new this quarter apart from actually this change on part of the portfolio to held to maturity. Sometimes, when we acquire a position that's still in trading, then it goes to other lines, I think it's better if we just talk and you show me specifically what we are referring to and I try to get an explanation.

[Operator Instructions] Ladies and gentlemen, there are no further questions. I would like to invite the speakers for the closing remarks.

First of all, I'd like to thank all of you for your time taking the call. And to say that our balance sheet this quarter, if you look at the 9 months, have showed therefore steadily doing good work in several areas now as they're probably like to say, we don't have the bullets -- to chew the bullets, good we do work in several lines in several fronts in order to increase the results which will continue to be our efforts. And Bradesco is being a bank that has a branch network spread throughout Brazil is well prepared to take advantage of the growth of the economy that comes for the next year. So thank you very much. And have a nice weekend.

That does conclude the Banco Bradesco's conference call for today. Thank you very much for your participation, and have a good day.