The main figures obtained by Bradesco in the First Quarter of 2014 are presented below:

1.   Adjusted Net Income⁽¹⁾ for the First Quarter of 2014 stood at R$ 3.473 billion (an 18.0% increase compared to the R$ 2.943 billion recorded in the same period of 2013), corresponding to earnings per share of R$ 3.03 and Return on Average Adjusted Equity⁽²⁾ of 20.5%.

2.   Adjusted Net Income is composed of  R$ 2.433 billion from financial activities, representing 70.0% of the total, and R$ 1.040 billion from insurance, pension plan and capitalization bond operations, which accounted for 30.0% of the total.

3.     On March 31, 2014, Bradesco's market capitalization stood at R$ 135.938 billion⁽³⁾.

4.   Total Assets stood at R$ 922.229 billion in March 2014, up 3.1% over March 2013. Return on Average Assets came to 1.5%.

5.   In March 2014, the Expanded Loan Portfolio ⁽⁴⁾ came to R$ 432.297 billion, up 10.4% over the same period of 2013. Operations with individuals totaled R$ 132.652 billion (up 11.5% over March 2013), while operations with companies totaled R$ 299.645 billion (up 9.9% over March 2013).

6.   Assets under Management stood at R$ 1.278 trillion, a 2.8% increase from March 2013.

7.    Shareholders’ Equity stood at R$ 73.326 billion in March 2014, up 5.6% on March 2013. The Capital Adequacy Ratio stood at 15.7% in March 2014, 11.9% of which fell under Tier I Capital.

8.     Interest on Shareholders’ Equity were paid and recorded in provision to shareholders in the amount of R$ 1.212 billion for the first quarter of 2014, R$ 248.712 million of which was paid as monthly and interim interest and R$ 963.489 million was recorded in provision.

9.     Interest Earning Portion stood at R$ 10.951 billion, up 4.2% compared to the first quarter of 2013. 

10. The Delinquency Ratio over 90 days dropped 0.6 p.p. in the last 12 months and stood at 3.4% on March 31, 2014 (4.0% on March 31, 2013).

11. Efficiency Ratio (ER)⁽⁵⁾ in March 2014 was 41.9% (41.5% in March 2013), whereas the “adjusted-to-risk” ratio stood at 51.4% (52.6% in March 2013). It is worth mentioning that, in the first quarter of 2014, we recorded the best quarterly ER (40.1%) in the past 5 years.

12.  Insurance Written Premiums, Pension Plan Contributions and Capitalization Bond Income totaled R$ 11.450 billion in the first quarter of 2014, up 4.5% over the same period in 2013. Technical Reserves stood at R$ 137.751 billion, up 8.2% on March 2013.

13.  Investments in infrastructure, information technology and telecommunications amounted to R$ 1.136 billion in the first quarter of 2014, up 5.4% over the same period last year.

14. Taxes and contributions, including social security, paid or recorded in provision, amounted to R$ 6.240 billion, of which R$ 2.258 billion referred to taxes withheld and collected from third parties, and R$ 3.982 billion from Bradesco Organization activities, equivalent to 114.7% of the Adjusted Net Income⁽¹⁾.

15.   Bradesco has an extensive customer service network in Brazil, with 4,678 Branches and 3,484 Service Branches - PAs. Customers can also use 1,186 PAEs – ATMs (Automatic Teller Machines) in companies, 47,430 Bradesco Expresso service points, 32,909 Bradesco Dia & Noite ATMs, and 15,386 Banco24Horas ATMs.

16.   Payroll, plus charges and benefits, totaled R$ 2.786 billion. Social benefits provided to the 99,545 employees of the Bradesco Organization and their dependents amounted to R$ 697.236 million, while investments in training and development programs totaled R$ 17.450 million.

17.   In April 2014, Bradesco and Banco do Brasil, via its subsidiary Companhia Brasileira de Soluções e Serviços (“CBSS”), in a partnership with Cielo, created the company STELO S.A. (“Stelo”), an electronic payment company responsible for managing, operating and exploring the payment facilitator industry geared towards e-commerce, as well towards digital portfolio businesses.

18.   Major Awards and Acknowledgments in the period:

·       Bradesco was considered the most valuable brand in Latin America in the banking segment and the 20th  in the general ranking of top 500 most valuable global brands in the segment (The Banker magazine / Brand Finance); and

·       Bradesco Private Bank was recognized as the best of Brazil under the “Specialized Services” category (Euromoney Magazine - Special edition Private Banking Global Survey 2014).

Since its origin, the Bradesco Organization is fully committed to Brazil’s social and economic development. We constantly seek to attain sustainability in management, businesses, and daily activities. Under such purpose, we strive to ensure continuous and sustainable growth, committed to the audiences to which we relate, as well as the communities and environments in which we operate. We fully comply with best global sustainability and corporate governance practices, particularly: Global Compact, PRI (Principles for Responsible Investment), Equator Principles, Carbon Disclosure Project and Green Protocol. Our sustainability actions, strategies, and guidelines are supported by best corporate governance practices. The Organization’s main activities focus on banking inclusion, social and environmental variables for loan approvals and product offerings, based on social and environmental aspects. Regarding responsible management and engagement with stakeholders, we highlight activities surrounding valuing professionals, improving the workplace, client relations, managing suppliers, and adopting environmental management practices. We also highlight the Organization’s role in society as one of the top social investors in Brazil, supporting education, environment, culture, and sports projects.

In this area, we point out Fundação Bradesco, which has a 57-year history of extensive social and educational work, with 40 schools in Brazil. In 2014, an estimated budget of R$ 523.434 million will benefit approximately 105,672 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.

Return on Adjusted Average Equity (ROAE) reached 20.5% in March 2014, the best rate over the past 7 quarters. Such performance stems from the growth of adjusted net income, which increased by 8.6% in the quarterly comparison and 18.0% compared with the same period of the previous year. The main events that impacted adjusted net income are detailed below.

Adjusted net income came to R$ 3,473 million in the first quarter of 2014, up R$ 274 million compared to the previous quarter, mainly due to: (i) lower administrative and personnel expenses, basically reflecting continuous control over such expenses and seasonality of the fourth quarter, in which specific expenses are typically higher; (ii) lower tax expenses over operating revenues; (iii) lower provision for loan loss expenses, resulting from reduced delinquency levels; (iv) greater income from insurance, pension plans and capitalization bonds; and partially impacted by: (v) lower net interest income, due to the lower “non-interest” earning portion; and (vi) greater operating expenses, net of other operating income.

In the comparison between the first quarter of 2014 and the same period of the previous year, the adjusted net income increased by R$ 530 million, basically reflecting: (i) greater fee and commission income; (ii) lower provision for loan loss expenses, resulting from reduced delinquency levels; (iii) greater net interest income, reflecting the higher interest earning portion; and offset by: (iv) greater operating expenses, net of other operating income; and (v) greater administrative and personnel expenses, but still below inflation index variations within the period, as a result of the continued efforts in cost reduction areas, led by our Efficiency Committee.

Shareholders’ Equity stood at R$ 73,326 million in March 2014, up 5.6% over the same period of 2013. The Capital Adequacy Ratio stood at 15.7%, 11.9% of which fell under Tier I Capital.

Total Assets came to R$ 922,229 million in March 2014, up 3.1% over March 2013, driven by the increase in operations and greater business volume. Return on Average Assets (ROAA) came to 1.5%.

The accrued ER over the last 12 months⁽¹⁾ came to 41.9% in the first quarter of 2014, up 0.2 p.p. compared to the previous quarter, mainly driven by: (i) increase in fee and commission income and interest earning portion; and (ii) rigorous control over our operating expenses, which grew below inflation rates as a result of the continued efforts to reduce costs, led by our Efficiency Committee.

The “adjusted-to-risk” ER, which reflects the risk’s impact associated to loan operations⁽²⁾, totaled 51.4%, up 0.7 p.p. and 1.2 p.p. compared to the previous quarter and the same period in 2013, respectively. This improvement was mainly influenced by the lower provision for loan loss expenses in the last 12 months, resulting from reduced delinquency levels, in addition to the aforementioned reasons.

The quarterly ER dropped from 42.5% in the fourth quarter of 2013 to 40.1% in the first quarter of 2014 (the best quarterly ER in the past 5 years), mainly due to: (i) lower administrative expenses, basically related to: (a) constant control of such expenses; and (b) the seasonal effect of the previous quarter, which mainly impacted advertising expenses; and (ii) lower personnel expenses, resulting from the higher concentration of vacation leaves in the quarter; and (iii) higher fee and commission income. In the year-over-year comparison, this index increased by 0.8 p.p., further evidencing: (i) the rigorous control over our operating expenses, despite the organic growth in the period, and salary adjustments via collective bargaining agreements, as a result of the continuous efforts to reduce costs, led by our Efficiency Committee; and (ii) higher fee and commission income and interest earning portion.

In the comparison between the first quarter of 2014 and the fourth quarter of 2013, the R$ 302 million reduction was mainly due to lower non-interest earning portion, totaling R$ 267 million, basically related to the Insurance business.

In the year-over-year comparison, net interest income rose by R$ 256 million, due to: (i) higher interest earning portion, totaling R$ 442 million, arising from greater business volume, particularly in the Loan and Funding business lines; and offset by: (ii) lower non-interest earning portion, totaling R$ 186 million, due to lower gains from the market arbitrage.

Allowance for loan losses (ALL) stood at R$ 2,861 million in the first quarter of 2014, a 3.4% decrease compared to the previous quarter, despite the 1.6% loan portfolio increase – as defined by Bacen, resulting from the reduced delinquency level in the quarter. It is important to note that such quarterly reduction becomes relevant by considering the seasonality of tax and contribution payment and related expense concentration in the beginning of the year, which tend to negatively impact our clients’ payment capabilities.

In the year-over-year comparison, this expense reduced by 8.0%, despite the 10.2% increase in loan operations – as defined by Bacen, resulting from the reduced delinquency level in the last 12 months.

It is important to note that such results, both in the quarter and the period, were due to the consistency of the loan granting policy and processes, quality of guarantees obtained, as well as the loan recovery process improvement.

Total delinquency ratio, which is based on transactions due over 90 days, had a decrease in the quarter and in the last twelve months. This reduction was impacted mainly by: (i) a change in the portfolio mix, led by growth in “payroll-deductible loan” and “real estate financing” products; (ii) continuous improvement of loan granting models and systems; and (iii) the development of internal loan risk monitoring models. We should also emphasize the continuous reduction in the Individual indicator for this period.

Bradesco monitors the development of its loan portfolio, as well as respective risks, by internally applying the expanded portfolio concept.

In addition to the allowance for loan losses required by Bacen, Bradesco has excess ALL to support eventual stress scenarios, as well as other operations/commitments bearing credit risks.

The following graph presents the changes in coverage ratio of the Allowance for Loan Losses for loans overdue for more than 60 and 90 days. In March 2014, these ratios stood at comfortable levels, reaching 153.7% and 193.8%, respectively.

The reduction in the Coverage Ratio over 60 days seen in the quarter is related to seasonal effects.

Net income for the first quarter of 2014 stood at R$ 1.040 billion (R$ 1.001 billion in the fourth quarter of 2013), up 3.9% compared to the previous quarter, for annualized Return on Adjusted Shareholders’ Equity of 26.0%.

In the comparison between the first quarter of 2014 and the same period of the previous year, Net Income increased by 11.8%.

Depending on the concentration of pension plan contributions, which historically apply in the last quarter of the fiscal year, income did not reach the same performance when compared to the fourth quarter of 2013.

Net income in the first quarter of 2014 was 3.9% higher compared to the previous quarter, basically due to: (i) 1.0 p.p. reduction in claims ratio; (ii) higher equity result; and (iii) lower administrative expenses, despite the collective bargaining agreement signed in January 2014.

Production increased 4.5% when compared to the same period in the previous year, led by Health, Capitalization Bond and Auto/RE/Other products, which grew 23.3%, 22.6% and 22.0%, respectively.

Net income in the first quarter of 2014 was 11.8% higher compared to the same period in the previous year, due to: (i) 4.5% increase in revenue; (ii) improved financial and equity income; and (iii) stability of the claims ratio.

Grupo Bradesco Seguros’ capital levels are in compliance with the regulatory requirements and the global standards (Solvency II), with a leverage of 2.6 times its Shareholders’ Equity in the period.

In the first quarter of 2014, fee and commission income came to R$ 5,283 million, up R$ 56 million over the previous quarter, mainly due to the excellent performance of underwriting/ financial advisory revenues in the quarter.

In the comparison between the first quarter of 2014 and the same period of the previous year, the increase of R$ 684 million, or 14.9%, is due mainly to the increased customer base combined with higher volume of operations, resulting from ongoing investments in customer service channels and technology. It is important to note that the revenues that contributed the most towards this result during this period were: (i) a good performance by the credit card segment, driven by the growth in: (a) quantity of cards, (b) revenue and (c) transactions; and (ii) improved checking account revenues, resulting from a higher business volume and an increase in the checking account holder base, which posted net growth of 760 thousand current checking account holders; (iii) higher gains from operations in the capital market (underwriting / financial advisory services); (iv) greater loan operation revenue, resulting from the greater volume of operations and sureties and guarantees in the period; and revenue gains in: (v) collection; and (vi) consortium management.

In the first quarter of 2014, the R$ 186 million decrease from the previous quarter is a result of variations in:

·         structural expenses – reduction of R$ 86 million, particularly due to the higher concentration of vacation leaves that typically occur in the first quarter of each year; and

·         non-structural expenses – reduction of R$ 100 million, mostly related to lower expenses associated: (i) to the provision for labor claims; (ii) training expenses; and (iii) employee and management profit sharing expenses.

In the comparison between the first quarter of 2014 and the same period of the previous year, the R$ 220 million increase was mainly due to:

·         the amount of R$ 156 million of structural expenses, resulting from greater expenses with salaries, social charges and benefits, due to raise in salary levels, as per respective collective bargaining agreements; and

·         non-structural expenses totaling R$ 64 million, which result mainly from greater expenses with: (i) employee and management profit sharing expenses; and (ii) provision for labor claims.

Despite the higher expenses with (i) the opening of 3,792 service points in the period, mainly Bradesco Expresso points, for a total of 73,320 service points on March 31, 2014, and (ii) the increase in business and service volume in the period, the administrative expenses increased only 0.9% compared to the same period of the previous year, as a result of the continued efforts to reduce costs, led by our Efficiency Committee. It is worth noting that IPCA and IGP-M inflation indexes reached 6.2% and 7.3% respectively, in the last 12 months.

In the first quarter of 2014, the 9.4% reduction in administrative expenses, compared to the previous quarter, were mainly due to lower expenses with: (i) outsourced services; (ii) data processing; and (iii) maintenance and preservation of assets, mainly impacted by the seasonality effect of increased transactions and services contracted inthe fourth quarter; and (iv) advertising, due to the reinforced investments in institutional positioning and support initiatives, as well as loan product offers carried out by late 2013.

In the first quarter of 2014, other operating expenses, net of other operating income, came to R$ 1,391 million, up R$ 159 million compared to the previous quarter, and up R$ 221 million compared to the first quarter of 2013, mainly due to greater expenses with operating provisions, mainly: (i) liability contingencies; and (ii) provision for the Credit Card loyalty program.

Income tax and social contribution increased 10.3% in comparison with the previous quarter and 21.7% year-over-year, mainly due to the increase in taxable result.

The income tax and social contribution (IR/CS) rate stood at 34.8% in the first quarter of 2014, stabilized compared to the previous quarter.

Unrealized gains totaled R$ 14,978 million in the first quarter of 2014, a R$ 1,110 million increase from the previous quarter. Such variation was mainly due to the appreciation of investments, particularly Cielo shares, which increased by 12.2% in the quarter.

The first quarter of 2014 was marked by two key milestones in the global scenario. By February, there was still uncertainty regarding the development of top economies and increase of financial volatility within emerging markets. Such scenario improved as of March, upon the recovery of financial flows into emerging countries.

In the U.S., the surprising downturn of several economic indexes was related to the unusually adverse scenario witnessed in the past few months. More recently, after this winter, most indexes began trending towards a more favorable scenario, effectively dispersing all concerns that arose earlier in the year. In January, the Federal Reserve began reducing the rate of monetary stimuli, while also indicating a gradual recovery of its reference interest rate. In China, signs of economic downturn and news of corporate issues were under the spotlight, ultimately raising general concerns regarding a steep downturn, within a troubling scenario regarding the local financial system. However, the local government presented an expansion goal of 7.5% for this year and announced the adoption of stimuli in April, indicating that the growth rate tends towards a slight decline, free from any hard-landing scenario.

In the commodities market, temporary factors, particularly climate and geopolitical aspects, have been applying bullish pressure over prices, with relevant exceptions for Brazil, such as iron ore. Looking forward, the gradual long interest rate increase scenario in the U.S., lowered Chinese demand, and full-fledged offer expansion in some segments tend towards a bearish bias for primary goods quotes. At the same time, this scenario raises macroeconomic policy management challenges faced by emerging countries, which must now adapt to a new global capital flow funding standard.

Meanwhile, the same challenging global scenario also generates valuable opportunities, especially for countries that adopt effective economic and institutional differentiation measures. In this sense, the reinforced tax commitment and stability of anti-inflation measures in Brazil must be positively valuated, since they contribute towards ensuring a higher and more sustainable economic growth in the future. Indeed, measures that stabilize macroeconomic volatility in lower levels must be perceived as valuable by society in general.

Production investments tend to play an increasingly relevant role in growth composition in upcoming years, benefited by the recent concession program in the infrastructure area, pre-salt exploration opportunities, and major sports events. At the same time, the continuous search for excellence in education constitutes another front through which the country can leverage competitiveness. It is important to note that the main long-term driver of economic development is productivity.

Bradesco maintains a positive outlook regarding Brazil, with favorable perspectives in its operating segments. Credit volume is growing at sustainable and risk-compatible rates, while individual delinquency continues to drop and corporate delinquency has already been leashed. Thanks to the intense and ongoing upward social mobility of recent years, the scenario for the banking and insurance sectors remains highly favorable.