Bradesco 

The main figures obtained by Bradesco in the first half of 2012 are presented below:

1.   Adjusted Net Income⁽¹⁾ in the first half of 2012 stood at R$5.712 billion (a 2.7% increase compared to the R$5.563 billion recorded in the same period last year), corresponding to earnings per share of R$2.97 in the last 12 months and Return on Average Shareholders’ Equity⁽²⁾ of 20.6%.

2.   Adjusted Net Income is composed of R$3.926 billion from financial activities, representing 68.7% of the total, and R$1.786 billion from insurance, pension plan and capitalization bond operations, which accounted for 31.3%.

3.   On June 30, 2012, Bradesco’s market capitalization stood at R$104.869 billion ⁽³⁾.

4.   Total Assets stood at R$830.520 billion in June 2012, a 20.5% increase over the same period in 2011. Return on Total Average Assets was 1.4%.

5.   The Expanded Loan Portfolio⁽⁴⁾ stood at R$364.963 billion in June 2012, up 14.1% on the same period in 2011. Operations with individuals totaled R$112.235 billion (up 9.1%), while operations with companies totaled R$252.728 billion (up 16.5%).

6.   Assets under Management stood at R$1.131 trillion, up 21.0% on June 2011.

7.   Shareholders’ Equity stood at R$63.920 billion in June 2012, up 21.0% on June 2011. Capital Adequacy Ratio stood at 17.0% in June 2012, 11.8% of which fell under Tier I Capital.

8. Interest on Shareholders’ Equity and Dividends were paid and recorded in provision to shareholders for income in the first half of 2012

 in the amount of R$1,916 million, of which R$1,122 million was paid as monthly and interim dividends and R$794 million was recorded in provision.

9.   Financial Margin stood at R$21.729 billion, up 15.4% in comparison with the first half of 2011.

10.   The Delinquency Ratio over 90 days stood at 4.2% on June 30, 2012 (3.7% on June 30, 2011).

11.   The Efficiency Ratio⁽⁵⁾ improved by 0.3 p.p. (from 42.7% in June 2011 to 42.4% in June 2012) and the “adjusted-to-risk” ratio stood at 53.1% (52.2% in June 2011).

12.   Insurance Written Premiums, Pension Plan Contributions and Capitalization Bond Income totaled R$20.988 billion the first half of 2012, up 20.1% over the same period in 2011. Technical Reserves stood at R$111.789 billion, up 19.0% on June 2011.

13.   Investments in infrastructure, information technology and telecommunications amounted to R$1.986 billion in the first half of 2012, a 14.1% increase on the previous year.

14.   Taxes and contributions, including social security, paid or recorded in provision, amounted to R$11.483 billion, of which R$4.945 billion referred to taxes withheld and collected from third parties and R$6.538 billion from Bradesco Organization activities, equivalent  to 114.5% of Adjusted Net Income ⁽¹⁾.

15. Bradesco has an extensive customer service network in Brazil, comprising 7,893 service points (4,650 branches and 3,243 Service Branches - PAs). Customers can also use 1,476 PAEs – ATMs (Automatic Teller Machines) in companies, 40,476 Bradesco Expresso service points, 35,226 Bradesco
Dia & Noite ATMs and 12,258 Banco24Horas  ATMs.

16.   Payroll, plus charges and benefits, totaled R$5.002 billion. Social benefits provided to the 104,531 employees of the Bradesco Organization and their dependents amounted to R$1.202 billion, while investments in training and development programs totaled R$62.599 million.

17.   Major Awards and Recognitions in the period:

·       Bradesco was recognized as the “Best Brazilian Bank” and “Latin America’s Best Bank” in the 2012 edition of the Euromoney Awards for Excellence, which is annually granted by British magazine Euromoney, renowned as one of the world’s most important in the financial institution segment;

·       Bradesco is one of the world’s most solid banks. It ranked 13^th among 20 global institutions, and is the only truly Brazilian bank in the ranking (Bloomberg News);

·       Bradesco is the private company with the most valuable brand in Brazil. In general ranking (including government companies), it placed second among 480 brands in 32 categories, and placed first among Latin American companies (BrandAnalytics/ Millward Brown– IstoÉ magazine);

·         Bradesco Organization stood out in the Best and Largest 2012 edition: it ranked first among the “200 Largest Groups” and “50 Largest Banks that Operate in Brazil,” and it is also the private financial institution with highest number of demand deposits and rural loans, checking account holders and active credit cards. In the insurance segment, Grupo Bradesco Seguros e Previdência occupied three the top six positions in the insurance segment ranking in Brazil through Bradesco Saúde (first), Bradesco Vida e Previdência and Bradesco Auto/RE (Exame magazine);

·       The Organization was granted the “Best Company to Launch a Career Award,” in the “Young Talent Retention” category (Você S/A magazine in partnership with FIA – Fundação Instituto de Administração);

·       Bradesco won the “2012 Consumidor Moderno” Award for Excellence in Customer Service, in the “Premium Bank” and “Credit Card” categories (Consumidor Moderno magazine – Grupo Padrão); and

·       The Investor Relations area was awarded the “Best Investor Relations of the Financial Sector,” according to IR Magazine Awards Brazil 2012.

18. With regards to sustainability, Bradesco divides its actions into three pillars:
(i) Sustainable Finances, focused on banking inclusion, social and environmental variables for loan approvals and offering social and environmental products; (ii) Responsible Management, focused on valuing professionals, improving the workplace and adopting eco-efficient practices; and (iii) Social and Environmental Investments, focused on education, the environment, culture and sports. In this area, we point out Fundação Bradesco, which has a 55-year history of extensive social and educational work, with 40 schools in Brazil. In 2012, a projected budget of R$385.473 million will benefit 111,170 students in its schools, in Basic Education (from Kindergarten to High School and Vocational Training - High School Level), Education for Youth and Adults; and Preliminary and Continuing Qualification focused on the creation of jobs and generation of income. The nearly 50 thousand students in Basic Education are guaranteed free, quality education, uniforms, school supplies, meals and medical and dental assistance. Fundação Bradesco also aided another 300,150 students through its distance learning programs, found at its e-learning portal “Virtual School.” These students completed at least one of the many courses offered by the Virtual School. Furthermore, another 83,323 people will benefit from projects and actions in partnerships with Digital Inclusion Centers (CIDs), the Educa+Ação Program and Technology courses (Educar e Aprender– Teach and Learn).

Book Net Income vs. Adjusted Net Income

- Interest 

- Non-interest 

Income from Insurance, Pension Plan and Capitalization Bond Operations = Insurance Retained Premiums, Pension Plans and Capitalization Bonds - Variation in Technical Reserves of Insurance, Pension Plans and Capitalization Bonds – Retained Claims – Drawings and Redemption of Capitalization Bonds – Selling Expenses with Insurance Plans, Pension Plans and Capitalization Bonds.

In the second quarter of 2012, Bradesco posted adjusted net income of R$2,867 million, up 0.8%, or R$22 million, on the previous quarter, mainly driven by: (i) growth in financial margin, as a result of higher income, both from the interest portion, arising from the increased volume of transactions, and non-interest portion; (ii) greater fee and commission income; (iii) higher insurance operating income; offset by: (iv) an increase in the allowance for loan losses; (v) higher personnel and administrative expenses; and (vi) an increase in other operating expenses (net of other operating income).

In comparison with the same half a year earlier, adjusted net income increased by R$149 million, or 2.7% in the first half of 2012, for Return on Average Shareholders’ Equity (ROAE) of 20.6%. Main items included in the Statement of Adjusted Income are addressed below. 

Shareholders’ Equity stood at R$63,920 million in June 2012, up 21.0% on the balance of June 2011. It is worth pointing out the R$4,105 million increase in the surplus amount of some former “Held to Maturity” securities classified to “Available for Sale” category due to the adoption of CPCs 38 and 40 by the Insurance Group. The Capital Adequacy Ratio stood at 17.0%, 11.8% of which fell under Tier I Reference Shareholders’ Equity.

Total Assets came to R$830,520 million in June 2012, up 20.5% over June 2011, driven by the increase in operations and the expansion of business volume. Return on Average Assets (ROAA) reached 1.4%.

Allowance for Loan Losses (ALL)

In the second quarter of 2012, ALL expenses stood at R$3,407 million, up 10.1% from the previous quarter, mainly as a result of: (i) the 3.5% increase in the volume of loan operations – concept defined by Bacen; and (ii) adequate provisioning levels regarding the estimated losses from certain corporate customers under the process of debt restructuring.    

In comparison with the first half of 2011, ALL expenses in the same period in 2012 increased by 35.5%, mainly due to: (i) an 11.3% growth in loan operations - concept defined by Bacen, in the period; and (ii) greater delinquency ratio in the period.

The delinquency ratio of over 90 days posted a slight increase of 0.1 p.p. in the quarter. It is worth highlighting the stabilization of Individuals and SMEs, which accounted for 6.2% and 4.2%, respectively, in the period.

The following graph presents the evolution of the coverage ratio of the ALL for loans overdue for more than 60 and 90 days. In June 2012, these ratios stood at 144.0% and 177.4%, respectively, pointing to a comfortable level of provisioning.

The ALL, totaling R$20.7 billion in June 2012, was made up of: (i) R$16.7 billion required by the  Brazilian Central Bank; and (ii) R$4.0 billion in additional provisions.

In a year-on-year comparison, revenue in the second quarter of 2012 was up 22.8%, leveraged by the performance of Life and Pension Plan and Capitalization products that grew by 34.5% and 17.9%, respectively.

In the first half of 2012, total revenue increased by 20.1% over the same period in 2011, which was driven by the performance of all segments that posted an over double-digit growth in the period.

Net income remained stable when compared to the previous quarter, and the main performance indicators improved, as a result of the company’s focus on more profitable products, pointing out the 0.6 p.p. drop in claims ratio.

Net income in the first half of 2012 was up 14.4% over the same period in 2011, due to: (i) a 20.1%

increase in revenue; (ii) the focus on more profitable products; (iii) the 0.5 p.p. drop in claim ratios; (iv) improved equity income; and (v) a reduction in general and administrative expenses, even when accounting for the collective bargaining agreement in the sector in January 2012; partially offset: (vi) by a decreased financial income.

With regards to solvency, Grupo Bradesco de Seguros e Previdência complies with all Susep rules, effective as of January 1, 2008, and has adjusted to meet global standards (Solvency II). The Group posted leverage of 2.4 times its Shareholders’ Equity in the period.

In the second quarter of 2012, the R$169 million increase from the previous quarter was due to the following:

·         structural expenses –  up R$85 million, basically due to the lower concentration of holidays in the second quarter of 2012; and

·         non-structural expenses – R$84 million increase, mainly due to higher expenses with: (i) provision for labor claims;
(ii) employee and management profit sharing; and (iii) training.

In comparison with the same period a year earlier, the R$884 million increase in the first half of 2012 was mainly the result of:

·         R$689 million in structural expenses, resulting from: (i) increased expenses with salaries,  social charges and benefits, due to higher salary levels (2011 collective bargaining agreement); and
(ii) the net increase in the number of employees by 6,214 professionals, due to organic growth and the expansion of service points in the period; and

·         R$195 million in non-structural expenses, mainly driven by greater expenses with: (i) employee and management profit sharing; and (ii) provision for labor claims.

In the second quarter of 2012, concerns over the global scenario mounted due to the synchronized slowdown of the leading economies, accompanied by increased financial volatility and risk aversion. The eurozone remained the center of attention, given the increasingly consolidated perception that a definitive solution for the bloc’s fiscal imbalances is no easy task. At the bloc’s most recent summit, leaders took the first step towards banking union and the European rescue fund was authorized to capitalize ailing banks directly, heading off the immediate risk of a meltdown. Nevertheless, there are still doubts regarding the sufficiency of funds for the bailout and the pace of the monetary union’s recovery in the coming years. 

Faced with these risks, global growth remained low, adversely impacting the confidence of the economic agents. In a direct response to this scenario, long-term U.S. and German treasury bond interest rates fell to their lowest ever level following a flight to quality. Commodity prices have also been declining throughout the year, despite short-term upward pressure from agricultural produce (adverse weather conditions) and oil (geopolitical tensions).

In Brazil, the deteriorating international scenario has been fueling the slowdown in activity since 2011, which was in turn triggered by the adoption of economic policies focused on reducing inflationary pressure at the beginning of last year. Following the sequence of shocks that has hit Brazil’s economy since then, growth has slowed more than expected, especially in the manufacturing sector.

Although Brazil is still not immune to global events, it is certainly much better prepared to face the materialization of existing risks than it was in 2008. In response to the hefty domestic slowdown, the economic authorities have adopted a number of stimulus measures, including: (i) a series of interest rate cuts, which was facilitated by the changes in the rules governing savings account returns, has already reduced the Selic

base rate to its lowest ever level; (ii) fiscal and tax incentives for consumer goods and industrial segments; (iii) the implementation of a government purchase program focused on capital goods; and (iv) a reduction in the capital cost of BNDES operations.

The depreciation of the real in recent months may bring some relief to national industry, albeit partially offset by the deceleration of global demand. Moreover, the country’s ample foreign reserves (US$374 billion, versus US$208 billion in September 2008) and the volume of reserve requirements (R$390 billion, versus R$272 billion four years ago) constitute lines of defense that can be called upon rapidly if necessary. Given all these stimuli, Brazil’s economy should respond favorably, accelerating the pace of growth throughout the second half.

Bradesco is maintaining its positive long-term outlook for Brazil. Despite the country’s undeniable export vocation, domestic demand has been and will continue to be the main engine of economic performance. Household consumption has been driven by the expanding job market, while investments are likely to benefit from the reduction in the cost of capital and the opportunities generated by pre-salt oil exploration and the sporting events in the coming years. Given this expected recovery in domestic activity, together with continuing upward social mobility, the outlook for the Brazilian banking system also remains favorable.

The Organization continues to believe that Brazil will achieve a higher potential growth pace more rapidly if fueled by bigger investments in education and infrastructure and by economic reforms that increase the efficiency of the productive sector. Action on these fronts would play a crucial role in giving the private sector a more solid foundation in regard to facing global competition and continuing to grow and create jobs.

Individuals ⁽³⁾ 

Companies ⁽⁴⁾ 

  SMEs ⁽⁵⁾ 

Corporations

Vehicles ⁽⁶⁾ 

Cards ⁽⁷⁾⁽⁸⁾ 

Real Estate Financing (origination) ⁽⁹⁾ 

Payroll Deductible Loans