Banco Bradesco SA (BBDO) 2022 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and thank you for waiting. We would like to welcome everyone to Bradesco's Third Quarter 2022 Earnings Conference Call. This call is being broadcast simultaneously through the Internet in the investor relations website bradescori.com.br/en. In that address, you can also find a 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. (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 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 Firetti, Business Controller and Market Relations Director. Please go ahead, sir.

Thank you. Good afternoon, everyone. Welcome to our conference call for the discussion of our Third Quarter 2022 Results. We have today with us in the conference call our CEO, Octavio de Lazari Junior; Andre Rodrigues Cano, Executive Vice President and CFO; Cassiano Scarpelli, Executive Vice President; Eurico Fabri, Executive Vice President; and Moacir Nachbar, Executive Vice President of Bradesco.

Also we have with us Oswaldo Fernandes, Executive Director; Ivan Gontijo, Bradesco Seguros' Chief Executive Officer; Curt Zimmermann, Banco Next and Bitz's Chief Executive Officer; and Carlos Giovane Neves, Banco Digio's Chief Executive Officer.

I turn now the floor to Leandro Miranda, Executive Director and IRO of Bradesco.

Thank you, Firetti. Thank you all once again for taking part in our earnings conference call. The third Q earnings reflect the current economic environment in a market that goes through cycles. We have to reverse at various points in the credit cycle. When the pandemic began bringing along unknown traction and expectation of a worsening economy, we've made significant credit provisions. As the economy improved in 2021 and the beginning of 2022, we were able to release part of the excess provisions, especially in the medium, large companies industry.

Right now, we're moving into a cycle of increasing provisions that is expected to continue throughout 2023 due to the loans that have been granted in the mass markets. We are now at full speed in transforming the bank. As of today, we're undoubtedly 1 of the largest digital bank in Brazil, while maintaining the greatest physical presence among the peers. We transform our way of serving clients according to their preferences and needs. Customer centricity is behind our moto. Between us, you always come first.

We hold a unique positioning with the largest and best insurance company in Brazil and in Latin America, a capillarity that unites the physical to digital. Certainly, the finest financial products offered in Brazil from individuals to corporates. As you know, Bradesco has extensive operations serving all segments of clients, either individuals or companies and active all over Brazil. As a result of this strategy with a broad position in the market, our activities in loans and banking are correlated with the performance of the Brazilian economy and disposable income.

The economic scenario, high inflation and interest rates, led to a deterioration in the client's payment capacity and the consequent increase in nonperforming loans making necessary credit provision expenses above our initial expectations. The delinquency ratio grew in the low income mass market segment for individuals and micro and small companies.

Observing the delinquency of recent harvest, which already indicate improvements and all the adjustments we made in 2022, we projected delinquents should stabilize and improve in the course of 2023. In the last 2 quarters, we've made provisions of both the NPL formation, which should continue into the fourth Q'22.

The brisk hike in the SELIC versus the natural speed of renew in our prefixed loan portfolio has also affected the results of the market NII. As we pointed out in the previous quarter, this effect will probably continue in the first Q and throughout the first 6 months of 2023. Our profit is expected to remain under pressure for a few quarters, but this should change more consistently in the second half of 2023. We believe that the bank will continue to be able to operate with an improved level of return. We'll pursue this and continue making the needed adjustments to return to the level of profitability.

The drivers of our recovery in the performance includes improved delinquency ratio, which should be between first quarter '23 and second quarter '23 and improve thereafter, which will allow us for gradual reductions in credit provisions, a significant improvement in market NII mainly from the second half of 2023, the evolution of the income from insurance group, maintaining stricter cost control and the continuity of the good results in the wholesale bank with the high return level and that even recorded the lowest historical delinquency rates over 90 days.

With respect to this quarter earnings, we saw a drop in the recurring net income of 25.8% compared to the previous quarter primarily due to credit provision expenses, market NII and income from insurance. The loan portfolio rose by 13.6% in an annual comparison with -- associated with original mix benefit in the client NII which grew 24.7% over the same period. Finally, we closed out the quarter with a 13.6% Tier 1 capital, a level that points to the strength of our balance sheets.

Now we move to slide 3; we compare the net income accumulated over the first 9 months of the year with the same period from last year. The main items that made a positive contribution to the product -- to the profit were client NII which presents an increase of BRL9.5 billion reflecting the growth in the loan portfolio and spreads in addition to the origination mix that has been more concentrated in the short term lines that have higher margins, income from insurance, which grew BRL2.5 billion benefited by higher premiums and increased financial income despite the increase in the claims ratio.

We also have 2 items that reduced profits by nearly the same magnitude; market NII, which posted a reduction of BRL6.8 billion as a result of the impact of the accelerated increase and high level maintenance of the SELIC rate on our ALM and BRL6.6 billion higher credit provisions reflecting the portfolio growth, origination mix and increase in delinquency. This amount includes BRL1 billion that we made as a supplementary provision this quarter.

Now we turn to slide 4 let's talk about loan portfolio, which grew 2.7% compared to the previous quarter and 13.6% compared to last year. Origination for individuals is 10% lower than last year, but with superior credit quality. The adjustment was made mainly to the low income mass markets which presents more credit risk as we restricted the criteria for approval given the scenario for high delinquency. An example of this is that today, we've approved 48% of credit proposals, compared to 58% a year ago and 68% in the pre-pandemic periods in 2019.

The 38.8% growth in credit card reflects the increased penetration of cards among our high-income clients in addition to the increase in average expenses after the pandemic and inflation over the periods. Here, we're also very restricted with the low income segments. In Agri credit, the 3.5% surge is due to our focus on Agribusiness through our 14 Agro platforms. The crop year began over this third quarter and this portfolio should expand even further. The renegotiated portfolio remains stable as a proportion of the loan portfolio.

Turning now to slide 5; as we said, the delinquency over 90 days was affected by the economic cycle. The ratio grew 0.4 percentage points with an increase concentrated in the mass market lines, individuals and micro and small companies, segments that were most affected by inflation. The early delinquency has remained stable for 2 quarters reflecting the adjustments we made in origination. This quarter, the gross credit provision was once again higher than the NPL formation and as a result, the cost of risk reached 3.3%. The COVID ratio for the NPL 90 days remained at a very strong level of 201%.

Now we go to slide 6 to talk about NII. Overall, NII has risen by 5.7% in the accumulated 9 month. Client NII continues to expand, benefiting from portfolio growth and favorable spreads given the product mix in addition to the positive impact of the deposit margins due to the increase in the SELIC rates. The increase over the year is 23.4%. The chart at the bottom of the slide, we highlight the client NII net of credit provision, which is 10% higher compared to 2021 and 25% higher than what we had in 2019 pre-COVID.

Clients NIM also continues to evolve up 10 bps in the quarter, while the net NIM impacted by the higher provisioning posted a reduction. In market NII, the ALM portion continues under pressure. We can say that the performance in the fourth quarter should be better than the third quarter, although it's still negative. The recovery of this line should be gradual during 2023 with the second half better than the first one, considering the current expectations of interest rates and portfolio with pricing.

Now let's move to slide 7; let's talk about the Insurance Group results. Accumulated net income expanded by more than 28% with a major contribution from the operating results, which offset the financial results, influenced by the dynamics of the financial indexes. We highlight the growth in revenues across all business lines, 18.9% in the third Q and 17% higher in the year overall. Therefore, the income from insurance of our guidance continues with a very positive performance, growing 32% in the year.

With an emphasis on operational performance, the volume of claims directly related to COVID in the third Q reached BRL289 million, the lowest in the series and BRL1.1 billion in the year, around 73% less than the same period last year. Our loss ratio is already showing a reduction from the previous quarter and from the third Q '21. The Insurance Group continues to grow and improve its operating performance with an expansion of the number of insurance clients and items, thus reinforcing our strategy and confidence in the segments.

Turning now to slide 8; fees grew 4.8% for the year. Card income increased by 3.8% in a quarterly comparison and 22.2% for the year. The transacted volume has demonstrated a progressive growth and it's worth mentioning. We have increased our base, especially in the high income segments which reached 39% share, a group with lower risk and higher return. We reached 76.8 million clients, annual growth of 4.3 million clients, which contributed in maintaining the level in the checking account line offseting substantial part of the drop in revenue from service packages and from the use of PIX.

Continuing the service items, slide 9; outlines our performance and growth in the private banking segments. We are currently, the second largest private bank in Brazil with around 22% share in the local market and a notable growth in recent years. Since 2019, we have grown the volume of managed resources by 52% arriving at BRL389 billion.

We have also continued to advance our specialization and increase our bankers and consultancy with a solid value proposition, which was reinforced with the acquisition of Bradesco Bank, formerly Bradesco BAC Florida. We will continue on with our strategy of observing acquisition opportunities and signing agreements and partnerships, such as those with J.P. Morgan, BNP Paribas and independent wealth management with Banco BV with a view towards increasing our share in the industry by providing the best offer to our clients.

We will now take a look at slide 10. Operating expenses posted a 4.6% growth in the year, a mark below inflation for the periods, IPCA at 7.2% and IGPM at 8.3%. The personnel line grew by 11.6% impacted by the collective bargaining agreements of '21 and '22.

We also continue to invest in reinforcing and improving our investment advisory, tech knowledge, data science teams in efforts to enhance our processes and provide a better experience to our clients. We continue our focus on optimizing the physical presence and investments in digitalization of client services. This action and trends have helped us to contain the increase in the administrative expenses at 6.2% for the year. Bradesco Expresso, our banking correspondent network complements our fiscal presence with great capillarity and convenience for our customers in a structured base on variable costs.

We announced capital and liquidity on slide 11. Profit generation and deposit positive mark to market on [securities] over the quarter more than offset the distribution in the form of interest on shareholder's equity and the consumption by weighted assets, increasing our Tier 1 capital by 30 bps which continues in a very strong level. Our estimate for the fourth quarter suggests that we'll finish the year with a level closer to the current one, even with the impact of nearly 40 basis points in December with the completion of the application of the rule for handling tax credits originating from the hedge of investments abroad. We closed out the quarter with a high level of LCR.

Turning now to Slide 12, making sure our clients digital experience is always improving. We are committed to keeping them at the heart of our decisions. This is a strategy that provides increased autonomy and a better experience for them and results in a lot more business. Currently, 71% of our account holders are now digital, and 98% of all transactions take place via digital channels.

In an annual comparison, the opening of accounts directly through the app grew by 62% for individuals and by 66% for micro entrepreneurs. The frequent upgrades that we perform in the app which introduce new features and experiences based on data and aligned with the needs of our clients have been an enormous success with clients, evidenced by the 90% level of overall satisfaction with our app with official stores NPS.

Turning now to slide 13, with respect to the sustainable business agenda. We remain committed to carrying out our activities with a positive social environment impact and have already achieved 63% of the goal. We have over 20 products that boast social environmental benefits in our portfolio and [digital solutions] should be highlighted for the growth within the last few years.

First of all, financing for the purchase of solar panels, which reached BRL1.2 billion and financing for hybrid and electric vehicles, which rose 4.5 times. For environmental issues, we'd like to point out the importance of our historical partnership with the SOS Mata Atlantica Foundation, an initiative that we are proud of. We've supported SOS since 1989 and over 34 million native trees have been planted in 9 Brazilian states over these periods.

And finally, at this time, the 27th UN conference on climate change is taking place in Egypt, which we're participating in. We include the climate agenda and sustainability strategy and follow all major trends to ensure that Bradesco is maintaining its pioneering spirits in [very] significant and relevant issue.

We now move on to slide 14, our last slide today. Considering our performance up to the third Q, we believe that we'll be able to lower part of the range for loan growth and fees, at the top of the range for costs, insurance and client NII. With regards to credit provisions, we decided to revise the guidance. According to our projections, the credit provisions for 2022 will be in the range from BRL25.5 billion to BRL27.5 billion. This performance reflects the points we covered on the credit cycle in the mass market despite a further strong performance in loan quality in the wholesale markets. On market NII, as we mentioned earlier, we should return to positive levels in 2023.

In the fourth quarter, this lines shall remain negative, but better than the level of the third quarter. Thank you very much for your attention, and now we will begin the Q&A session.

(Operator Instructions) Our first question comes from Jason Mollin with Scotiabank.

I just wanted to clarify some comments you were making previously on the conference call in Portuguese you talked about a material change in your outlook for provisions and loan loss allowances now versus the second quarter. I just wonder if you can clarify -- you talked about the outlook has changed and when we looked at the macro forecasts from Bradesco at the end of the second quarter versus today, it doesn't -- you're seeing something that we don't see in the top down numbers, just the inflation looks better than you were expecting in the second quarter. The general price index looks better, so I'm just trying to understand, I mean, clearly you're telling us and we saw it in delinquency that there was a worsening and I'm just trying to understand how the provisioning outlook changed so much in 1 quarter to the next?

And then my second question is related to loan sales that you've been doing. But if we calculate that you sold more loans BRL2.8 billion in the third quarter, up from BRL2 billion in the second, and we wanted to understand how that impacts your asset quality metrics. Were those loans 90 days past due or what could you tell us about how would we consider those loan sales, how that would impact asset quality?

Hi, Jason. Thank you for the question. This is Firetti. Regarding your first question on the outlook, basically, I'd say more than the change in the outlook, what changed was kind of the impact we saw on our loan book and also in the evolution in terms of credit card. In the second quarter results, basically, we advised that we were seeing provision expenses probably coming a little bit above our guidance already and this trend actually materialized in our view, it is more fair to provide revised guidance that brings our best view for the moment on that line.

So basically, in a nutshell, I would say that was what drove us to do this revision, the evolution in terms of credit quality we're seeing more than a big change in the outlook and -- but actually the outlook, the high inflation and -- is 1 of the things that hit the clients and that is really the driver for this deterioration considering our position in the market even though there wasn't a big change in the outlook numbers itself.

I don't know, would you like, something -- okay. Yeah. Considering the sale of loans or NPLs, basically, these loans were basically in our book than more were mostly loans that were renegotiated portfolio, it's retail loans, basically in the kind of segment we were pointing out the ones that have been more affected by the increase in delinquency, as I said, credit cards, personal loans and the impact of the sale is something around 30 basis points in terms of 90 days NPL?

Hi, Jason. This is Eurico. How are you?. Just to clarify about the credit performance. I think it's important to highlight that [the events]that are performing much better than the vintage before, especially the vintage before 2019, 2018, 2017, especially due to the fact that Leandro highlighted about the approval rates and all the adjustment that we proceeded in the portfolio. After December 2021, so we start tightening the policies since then and we continue with this tightening process. So our approval rate before the crisis in 2019 reached the level of 68%. During the pandemic, it went up to 58% and then after December 2021, it has decreased gradually to 48%. So it's been 20 percentage points below what we experienced before the crisis.

And according to that, our through the door profile has improved a lot. So just to mention you, 1 big size portfolio is the cards portfolio. We used to have as low and very low risk in the through the door in average 60% of the new acquisitions and today, we are above 80% and we are going to end up the year with more than 90% between very low risk and low risk through the door acquisition. These kind of indicators also highlight a better performance in the first book of collections that we see that we are performing below what we have in the first bucket in 2019, I'm highlighting 2019 because it's before the crisis.

So -- and we also experienced a decrease on this indicator in the last few months. Of course, when you talk about portfolio over 30 days, they are -- the real rates are higher than it used to be before, and that's the reason why we still believe that delinquency is going to go up a little bit in the first quarter of 2023 and will stabilize in the second quarter and then gradually will decrease in the second half of 2023. Regarding to your question about asset sales strategy, it is important to say that our asset sale strategy is focused on the client with low probability of recovery.

So, what do we do? We analyze every quarter the client with low probability of recovery and we trying to focus our collection chain all the new delinquents because there we can recover the clients and with this portfolio, this segment that we identify a low probability of recovery, then we use that for the sales -- the asset sales strategy, it's important to say that most of this portfolio is already written off and the portion of this portfolio that is non-performing, in other words, before written off, 90% of this portfolio is fully backed by provisions and the average delinquency of this portfolio is over 230 days.

So we're talking about really a specific portion of the portfolio and it's part of our strategy, we're going to continue to do that in order to release our collection team to focus on what makes sense for [recovering] relationship with customers and protecting our assets on the new delinquents that is the most important for us and those delinquents that we don't see any high probability or very low probability of recovery, we're going to continue with our sales strategy.

That's very helpful and I do appreciate that when you see the risk rising that you are acting appropriately and making the provisions. Thank you. I appreciate the answers and color.

Thank you. Our next question comes from Thiago Batista with UBS.

Yes, hi guys. We already discussed in the Portuguese call that most of the deterioration of the quality was complete traded in the low-income segment. I have a couple of questions on this point. The first one, if Bradesco saw already any impact of the higher checks that have been paid in the last month. There are still [weak] pointers. The second one, if you are seeing any kind of -- if you believe in any kind of a diverse selection of the low-income clients. So maybe the low -- the good loans and clients are going to the Fin-Techs and Bradesco is staying with the bad loans and clients.

And the third one, the final one, you see any difference in the profile on asset quality of Bradesco's traditional clients or traditional low-income clients and next low-income clients. If the way the client went to Bradesco, so -- or Bradesco or to Next, explain any difference in this actual performance for the loan to [date]

Thiago, Leandro speaking. Well, first of all, Next has its own clients and there is an overlap of 25% of clients. Therefore, the strategies are pretty much different and we just have our lion's share as we'd have in any digital banks or other incumbent banks. Regarding to diverse selection, we don't think so basically, we at times like that, we try to work, the more we can with existing clients, with clients that we know the most, with clients that we do understand their profile, their track record of payments and we've increased that by more than 60% our penetration into high income segments.

So we do not think that there was an adverse selection in terms of choosing those clients and by the end of the day, as Octavio said in our first conference call, it's natural that delinquents came from the low-income segments pretty much rating C, D, and E, because basically we have the highest beat in Brazil.

We are the only bank in every single municipality. That's pretty much different from those banks that have clients basically in main cities and capital. So I think that's much more like a profile of the bank that has its bad times and good times than anything else. And of course we're talking to is small and micro companies as well, because basically they share the profile of the low income individual clients.

Thiago, this is Eurico. I agree with Leandro. I don't see any kind of adverse selection. A good way to see that is through the door application profile that hasn't changed during -- before the pandemic, during the pandemic and after the pandemic. So we see clearly that it is the same profile we used to have. But of course, base profile and it's our profile is linked to the class CDNE that has been affected by inflation and high interest rate. So that's why we see this increase in delinquency rates we're seeing right now. So, but in terms of adverse selection, I don't see any indication of that.

Yeah, maybe, Eurico, you could share with him. The rate is in the origination, how much they have improved through all time?

Okay. You mean in terms of acquisitions, right? As I mentioned before, for cards portfolio, we used to have around 60% of low rates -- comparing low rates new cards, and now close to above actually 80% from low rates and very low rates and we believe that we're going to close the year over 90% of new cards customers on these profile.

So by the end of the day, basically when you see the proportion, we are working with better clients than before, but their deterioration, their financial situation has deteriorated heavily. That's pretty much the point.

It was deteriorating exiting portfolio. So you have a portfolio that has a credit already and had a performance before, but with the severity of the crisis, the performance has deteriorated. So with this existing portfolio, you can do something, but you know it's an existing portfolio anyway.

Okay, okay and any impact from the checks, the fee review?

Actually Thiago, we haven't seen any impact. We did performance and analysis on that to see if there was any impact in terms of collections and recoveries and even credit performance. But to be honest, we haven't seen anything that would be significant.

Thank you. Our next question comes from Jorge Kuri with Morgan Stanley.

Hi, good morning, everyone. I wanted to clarify something that was said. Did I understand correctly that the portfolio sales were on loans that are already been written off? Is that a 100% of the loans sold were written off or just a portion? Because then I believe Firetti said that the impact on NPLs was 30 basis points from the sales. But if they were written off, I don't understand why there was -- there will be an impact? Just clarify...

Well, basically, there were BRL2.9 billion in loans that had already been written off and BRL2.7 billion in loans that were still on our books. The impact in NPLs come from the BRL2.7 billion.

Got it and the impact is 30 basis points? Is that the exact number?

Yeah, yeah. Roughly...

Jorge, just a minute, sorry. It is important to highlight that both portfolio, they have the same profile. So there is very low probability of recovery and that's the reason why they had been sold. So our strategy is really to understand the population that has the low probability of recovery and then we sell this portfolio, regardless of the stage of delinquence of the people even though we know that even the pre-written off portfolio is at very high interest rate as I pointed out as 2 minutes ago.

Thank you and can you comment on what percentage of that portfolio was individuals versus SMEs versus I'm guessing not corporate. But what is the composition of what you've sold?

Yeah, the vast majority is individuals.

And is there a particular product that you're seeing more defaults? Is it -- I mean, you've been talking about credit cards, is that sort of like the Achilles' heel? The credit card book?

They are concentrated on the product. They are concentrated on the low-income segment. So basically instalment loans and cards

Personal loans and...

Personal loans and cards.

Thank you. Our next question comes from Tito Labarta with Goldman Sachs.

So, I guess 1 follow-up on Thiago's earlier question about the deterioration here in some of the digital banks we saw digital banks someone holding up a bit better in terms of NPLs. Any color you can give within those lower income clients we seeing the deterioration in terms of clients that came from digital channels versus clients coming from the branches? And do you think your growth there was maybe too aggressive to some extent that now it's hurting you on the NPL side? Or why do you think your NPLs are looking worse than what we've seen from some other period and from the industry?

Leandro speaking. Then Eurico is going to present here. Well, basically, we do not see any sort of difference between the group of clients that came through digital channels, as well as from -- when compared to the group of clients that came from the traditional channels. There was no difference among the groups as far as the statistics are concerned. When you make reference to the digital business and then we are referring to Next [Digital], not Bradesco itself is a different strategy. We grew as a strategy with base of clients and now as Firetti pointed out, the morning, we are focused on monetizing those clients and trying to select the best ones of them and focus on getting better results from them. So we are talking about 2 different worlds. But regarding to Bradesco, there was no difference between digital and physical channels.

Just to complement the point that Leandro just made, it's important to say that even though the performance to retain the profile is not much different between the channels, the mix of the profile within the channels are different. So what happened? When we have a digital channel, we normally attract more and Class C, D and E. We rarely, rarely attractive class A and B in general.

So it's very different from other ranks for instance to compare 2 different channels. So the mix within channel change a lot even though the profile itself, it doesn't change much between 2 different channels, just to be clear. So, when you can follow the delinquents off the channel itself, it seems to be worth digital channels that are additional brand channel mainly because of the mix inside the channel and is different within the profile.

Okay, great, now, that's helpful. Thank you and maybe I guess, a follow-up question more in terms of, we've seen sort of loan growth in these unsecured segments, pretty strong, not just at Bradesco, but for the system in general, I guess, a 2 point question, I mean, given that growth, do you think -- how systemic this issue has actually become and do you expect to slow down the growth significantly in those segments from here? I mean, we've already seen some deceleration. But should that grow significantly or are you still seeing opportunities to grow there?

Okay. Well, first of all, against when you compare our sales among the other banks, we are the ones with the most adherence as far as the geography is concerned. So we are, we have the largest rated CGNE, greatest clients profile by far. Other banks some more concentrated in main cities and capital when you compare as a percentage. The second thing is that we do want to slow down and we're reducing on ongoing basis our origination and has been more and more conservative regarding to the approval process to those clients.

Okay, perfect. Thank you very much.

One variable try to compensate, even though it's going to be what Leandro said, we've reduced the appetite for those portfolios -- unique portfolio concentrated in the C, D and E classes. We are working to improve the margins and continues to improvement and try to reach out better discrimination. We constantly work on that. If there is any new information or something that could upgrade the separation between good and bad in the model, could have a little leverage on the approval rates, but the general thinking is that we're going to reduce the appetite in general terms.

(Operator Instructions). Our next question comes from Geoffrey Elliott, Autonomous.

I really wanted to follow up on 1 of the questions on the Portuguese call earlier, where you were asked about why now in terms of this big change in the outlook for provisions and on that call, you mentioned inflation as being an issue, but inflation over the last few months has actually been a bit lower. So just struggling to understand in the context of inflation coming down a bit, fuel tax cuts, as more support to low-income people through the Auxilio Brasil program, unemployment falling, what happened over the last 3 months to make the outlook now so different from the outlook back in August?

Geoff, this is Firetti. As I said in a question in the English call, we saw a continued trend in terms of increasing NPLs, especially in the segments we have already mentioned. I would say in the second quarter call, we had hoped that the provisions in the year may be wouldn't be much higher than the top range of the call, but when it became clear to us that actually the difference was material, we thought it would be more transparent really to change the guidance instead of just guiding for a range above the top of the range of the former call -- former guidance.

Okay. So it sounds like maybe that was a bit of upside to the old range as of 2Q. But you kind of left those numbers, hoped it improved and then it went the other way. So that's why we've got the adjustment now?

Yeah, that's correct.

Thank you. Our next question comes from Jason Mollin with Scotiabank.

Hi, thanks for allowing me to ask another question. I also wanted to follow up on a question from the prior call about the other income, and there seems to be a provision that was, if you can explain what the movements were in the other income line, that would be helpful. They were large?

Okay. It is related to the tax discussion we had in the administrative body of the Brazilian IRS. We want that discussion recently and due to that we had to revert the provisions we had made.

So there was a reversal of provisions to pay a tax dispute, what was the size of that reversal?

BRL800 million.

Thank you very much. Appreciate that.

Yeah, it was a definitive decision, so we really had to revert that. We treated that as a recurrent expense when it happened and kept it as recurrent when we reverted.

Thank you. Excuse me, ladies and gentlemen, since there are no further questions, I would like to invite Leandro Miranda for his closing remarks. Please go ahead, sir.

Well, thank you all for making the time to be with us. Our IR team is ready to clarify any additional questions you may have and you can send it by email or call us, we're ready to answer at any time. Thank you so much. Have a great week.

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