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/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. [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 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 discussion of our first Q 2022 results. We have today with us our CEO, Octavio de Lazari, Jr.; our Executive Vice President and CFO, André Cano; Leandro Miranda, Executive Director and Investor Relations Officer; Oswaldo Fernandes, Executive Director; Ivan Gontijo, Bradesco Seguros Chief Executive Officer; Renato Ejnisman, Banco next Chief Executive Officer; Curt Zimmermann, Bitz Chief Executive Officer; and Carlos Giovane Neves, Banco Digio’s Chief Executive Officer. I turn the floor now to Leandro.

Thank you, Firetti. Good morning, everyone. Thank you for joining us in our first Q ‘22 earnings conference call. The economic landscape in the first quarter made a slight advance with GDP forecast picking up a bit and the creation of additional jobs. Inflation remains a worry 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 restrain in price trends over the near term. The Central Bank of Brazil has moved forward with its monetary policies, 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 the scenario, Bradesco performed well this quarter, with a net income of BRL6.8 billion and this represents an 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. Declines in NII 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 loan portfolio also posted a good performance, expanding by 2.7% compared to our 4Q ‘21 and 18.3% compared to our first Q ‘21. 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-sell…

Thank you. [Operator Instructions] Our first question comes from Mario Pierry, Bank of America.

Hi, everybody. Congratulations on the results and thank you for taking my question. Leandro, I wanted to focus on the guidance. And here, I was looking at your macro assumptions for the year and how they have changed, right, from 3 months ago. Basically, you are expecting a higher, higher inflation and higher GDP growth than before. So what caught my attention is that you really expect inflation to be much higher than before. You’re expecting the IGPM to go up to 12% versus 7% before. And I wanted to understand how does this tie in of a lower operating expense guidance? Because right when we look at your personnel expenses, they are about 40% of your expenses, so you just increased salaries by about 11% last year. I would imagine the negotiations this year are going to be tough again, and we should be thinking about double-digit growth again. So again, help me understand a little bit better why you’re expecting higher inflation but lower expenses? And same thing with the provision charges, as you mentioned, right, you’re seeing a shift in your loan mix towards this year loans, and that’s helping your net interest margin. However, you continue to say that NPLs are only expected to go up another 10 to 20 basis points and then remain stable throughout the year. So it seems to me like your expectations for NPLs have not changed, but you are expecting much higher provisions than before. So just trying to understand here like the thinking behind the new assumptions?

Mario, thank you very much for the questions. You are right. We do see a much higher inflation and much higher interest rates, especially in the pace of initial expected. And besides that, we also see the IGPM and IPCA curve, and we can see that from now on, IPCA seems to perform better than IGPM, what benefits our insurance business directly, right? So basically, what happened regarding to our previous expectations is that everything happens much, much faster. Inflation in Brazil occurred much faster than initially expected. The Central Bank decided to be very hawkish. And according to the signals that we have, this might still go on. And this helps in all the lines that we have revised in the guidance. Regarding to expenses, we are extremely conservative on our costs and expenses. We have been reducing it on a monthly basis despite of inflation. And although we shall have a sort of labor agreements by September, October, we understand that closing branches, transforming branches, into units of services or PAs and that will help us to grow on cost. Besides that, we have a natural reduction in our staff. Although we are increasing personnel in IT and all kinds of digitalization efforts, we can see that we have been reducing our labor force on a continuous base. And besides that, when you compare the expenses that we had last year with this one, you shall see that there is a line that we name others. And in this line of others, there are several provisions in significant amounts that we shall not have this year. That’s a key element to understand how we shall decrease the expenses. Just to give you a flavor, we believe that we shall be from the bottom to the center in the…

Okay. But what I was trying to get here is the incremental that we had since 3 months ago, right? So on operating expenses, it seems to me the incremental news that we had is higher inflation. The other line I think you already expected that to be coming down because your original guidance was already for expenses to grow below inflation. So that’s the only thing that I still don’t get it. Like the incremental news is higher inflation, but at the same time, you’re reducing your expense. Like is there something else like structurally that you think – that you weren’t seeing 3 months ago that you’re seeing now to make you more comfortable with your new range?

Yes. A couple of other things, Mario. First of all, we have speed up the closures and transformations of our branches. So we see now more room than initially by the beginning of the year regarding to savings towards these measures and our branch network. And the second thing is that we have been able to sign much better agreements with our suppliers, extending tenors, and it’s bringing a significant reduction in our expenses.

Okay. And then on the same question with regards to the provisions, like you said, [indiscernible] provision based on expected losses, and now you expect losses to be higher, which is expected, makes sense to me. But if you’re thinking that expected losses are going higher, why not forecast higher NPLs? And here, I’m trying to say, aren’t you being too optimistic by seeing saying NPLs are only going to go up another 20 basis points and then they stay flat because like you said, your models are telling you that expected losses should be [indiscernible]?

Mario, excellent question. Basically, our portfolio is not only comprised by individuals. It’s also comprised by SMEs and especially large corporates. We have seen a reduction in the NPL of large corporates. If you take a look at our whole portfolio and its breakdown, you’re going to see that a significant part, the vast majority is of large corporate names. Therefore, we are able to make gains regarding to the lower delinquency ratios in the large corporate and compensate the mix in individuals and SMEs. We do expect this level to grow in the second quarter as we have discussed it, but we see it stable in our models for the second half of the year.

Okay. And sorry, last question is also related to guidance, is on the NII with clients, right? You’ve pretty much now doubled the growth expectations for NII client. I understood from your comments that you are improving the loan mix is better than what you thought and your ability to reprice is also better. So it means, I think, less competition in the system. But at the same time, also, you’re forecasting the Selic rate to be – to be higher by 150 basis points than what you expected at the beginning of the year. Can you help me understand the impact of the higher sales on your new guidance for client NII? So what I’m trying to get is how much of this higher growth is related to the higher Selic and how much of the higher growth is related to better spreads and better mix.

Well, very good question, Mario. First of all, when you consider the deposits that we get from clients, a higher Selic bring us a higher income from that. The second thing is that in order to compensate the reduction that we naturally shall see in line of business, that we have lower spreads such as mortgage financing. So this shall be – shall represent a reduction in terms of growth as we could see in the previous years. So we are focused on more credit cards and similar lines of credit, what give us higher spreads. We have a very good selection backed by our models, our experience, our artificial intelligence and analytics. So, so far, we have perceived a lower problem that the average industry is getting from that. And remember that we are the leaders in payroll financing and we use the price significant payrolls from companies. So this brings us more individual clients but with a better collateral than the rest of the industry. That’s the reason why we are able to keep the NPL levels low. We, as the rest of the market, we expect the Selic to remain – to grow a little bit and then remain stable by the second – by the end of the second semester, the second half. So according to our models, we are comforted with the clients’ margin. Just to give you a flavor, nowadays, we are running at 19.6%. So it’s very likely that we shall be, by ‘21 or ‘22, in our guidance. If this is something that carries on to the next year, so this is really positive because by the end of the day, we are renewing our portfolio. So you shall see a much healthier and with higher margin portfolios for next year.

It just surprises me, right, that 3 months ago, you thought that your client NII was going to grow on average, 10%. Now you are talking closer to 20%. It just surprises me that so much has changed in 3 months.

Yes. Mario, as is implicit in our comments, we were also conservative in our guidance when we provided it.

Okay, guys. Thank you.

Thanks so much. Thanks for your questions.

Our next question comes from Thiago Batista, UBS.

Hi, guys. I have only two very small questions. The first one about the guidance of fees, you guys raised the growth ratio between 4% and 8%. Can you comment which type of products should lead this higher growth is [indiscernible] or can you elaborate a little bit more what are the main products helping this growth? And the second one is a question about accounting. You booked during this quarter some – or a little way. In the intangible assets, it’s possible to see that Bradesco catalyzed a higher amount of software expenses. If not wrong, BRL1.4 billion this quarter and last year, the full year was BRL1.7 billion. So is there any explanation for this hike in this these expenses that was catalyzed. This is related to or there is any other explanation to this spike in this line?

Starting with the second one, the capitalization this intangible, basically, it’s related to 2 years service contracts for which we paid in advance. So basically, this accounting procedure is pretty standard. We pay now, we’re going to take the service over the next 2 years and we recognize the expenses over these 2 years. It’s mostly software-related service contracts.

Yes. Let me get the first question here regarding to our guidance on fees, right? Basically, we see the benefit of credit cards that you have already mentioned here. It’s spiking. And we understand that we have even a deeper room to go. Basically, we have been growing the base of credit cards among our clients, existing clients. So therefore, it’s a profile that you know very well. We also see growth in checking accounts. We have added more than 2.5 million new checking accounts. And when you take into consideration the high interest rates that we are leaving, we also see room in our Asset Management to grow since has an excellent grade of fixed income funds. The investment bank shall suffer on the IPO and M&A side, but it has a very good fixed income practice. So those, I would be, I would say, that are the lines to benefit the most.

Very clear. Thanks Leandro and Firetti.

Our next question comes from Tito Labarta, Goldman Sachs.

Hi, good afternoon. Thanks for taking my questions. A couple of questions also. First, on your asset quality, just can you give some color on the increase in individual NPLs and how much of that was driven by just underlying deterioration? And how much of it was just simply the mix because you grew so much faster in unsecured credit, like credit cards and personal loans? And then my second question is kind of on the back of that, right? I mean, you’re growing unsecured credit at a very strong pace, right, credit cards, in particular, 8% quarter-over-quarter, 45% year-over-year? How sustainable is this growth or maybe – or how quickly should this decelerate, particularly as you kind of expect losses are increasing? So, just help us think about that growth in the context of the current macro environment and what – how we should think about it going forward?

Thank you, Tito. Regarding asset quality, I’d say the increase in NPLs comes mostly from mix, especially the very strong growth in credit card revolving loans. That is actually not growing more than it is as a percentage of the transactions in the past. But since we had this big increase in the – actually the revolving goes together. I would say credit cards for the bulk of the the growth in the quarter, followed by other risk credit lines where we had also higher growth that changed the mix. Regarding credit cards, the growth is a result of our strong performance, adding new clients, and we are growing mostly with clients coming from Bradesco’s client base. It’s not that we are going to the open market to get new clients. Our clients, we know we are – we have been able to offer new products at good conditions, and we have been able to bring new clients and also activate new cards. This answers for a part of it. The other part responsible for this strong growth is the normalization of the economy. The travel and leisure expenses are growing quite strongly with the reopening, people starting to travel again. On top of that, you have inflation on these lines. Air tickets, as you know, have went up a lot and other travel in leisure-related expenses. And I would say inflation as a whole is responsible for some of this growth on top of our own growth due to the addition of new clients, and as I said, the reopening of the economy. I would say this is kind of – the main point that explained this is strong growth. But just highlighting that we believe we are doing also a really good job adding new clients to our base.

That’s helpful. If I can ask a couple of follow-ups on that actually, so that you expect NPLs to increase only like 20 bps next quarter and then kind of flat. Is that an indication also that the shift in mix is going to slow down so the growth will be more even ? Is that how we should read into that? And then second, just on these clients, the new clients, how much of that coming from like digital channels like NEXT? Is that providing a big benefit yet or just to understand these new clients that you’re giving credit card loans to?

In the credit card business, I would say, virtually all the revenues or volume come from Banco Bradesco at this point. Really, NEXT is doing a good job in terms of growth and the base of clients. But in credit cards, specifically, they are growing but the bulk of the volume comes from Banco Bradesco itself. Renato, would you like to...

I mean we’re growing in both in number of clients and a number of clients that have credit card. We’re growing our portfolio of credit. We grew, in terms of total clients, 153% year-on-year, and we grew, in the loan portfolio, 250%. But remember that in our case, I mean, because we actually changed a number of things in the collection process and also even on the communication process for clients that have credit cards before they receive their statements. I mean, we didn’t use to send notices. So I mean, we changed the entire communication methodology with the clients. We actually had a decrease in delinquencies. Obviously, we’re monitoring and seeing how much of this new scenario impacts our clients. But in our case, I mean, considering that I would expect that, that’s what you’re trying to get at. I mean, we’re definitely a smaller loan portfolio compared to Bradesco. It’s increasing at a pretty good rate faster than the rate of increase of clients. But again, I mean, this behavior that we’re seeing kind of on a macro level, I mean, it’s been somehow mixed with an improvement in our own processes.

Alright. And just on the growth, like how that should evolve from here, do you expect a slowdown or – and is the NPL guidance a reflection of that, that you will be growing less in these unsecured segments?

Yes. I think considering that a lot of the normalization in the economy, the reopening and the big jobs and volumes from, let’s say, lower activities affected by the pandemic to a more normal scenario, has already played out in the second half of 2021. As we go through ‘22, probably we will see a slowdown in this growth rate despite the fact it will still remain at a very strong level.

Alright. Thank you.

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

Well, once again, just to thank you all for making the time to be discussing with us. If for any reason, we don’t have the time to discuss any additional topic or you want to get more information on any specific data, our Investor Relations team is going to be more than happy to address any issues you may have. Thank you very much and have a great weekend.

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